UL Interview: Cook County Property Tax Assessor on Valuations

Since assuming office in 2018, Assessor Fritz Kaegi has overseen the assessment of all residential and commercial properties in Cook County, the region in northeastern Illinois that includes Chicago. With the first triennial reassessment of properties now underway within the county since the heart of the pandemic in 2021, Kaegi has his work cut out for him.

A struggling downtown Chicago office market complicates assessment calculations because there aren’t many transactions to compare. Last year, fewer than five large office buildings in Chicago were sold—and at losses ranging from 50 to 90 percent, according to the Building Owners and Managers Association of Chicago. Meanwhile, vacancy in Chicago’s central Loop submarket rose to 26.59 percent in 2023, up from 24.75 percent in 2022, according to Stone Real Estate Corp.

Kaegi said his office “takes the pulse of every single data source we can” to ensure assessments are “following the market” despite low transaction volumes.

Kaegi was born and raised in the Hyde Park neighborhood of Chicago. He now lives in Oak Park with his wife, Rebecca, who is a teacher, and their three children. Before his government career, he spent more than 20 years valuing assets as a mutual fund portfolio manager and analyst.

Urban Land: I know assessments are still underway right now, but what can you tell me about changing office values in Downtown Chicago?

Fritz Kaegi: We see the same weakness in office values that the market sees. It’s in the few transactions that have been out there. It’s in what we see in the data [from] commercial providers. We see it when talking to market participants. It all points in the same direction. So we see that weakness. The difference is the implications of that weakness for Chicago’s property tax base and rates, [which] complicates the story that the “doom loopers,” let’s call them, are telling.

UL: Why are the tax implications of a struggling office market different for Chicago?

Fritz Kaegi: Other states have a fixed tax rate so that if assessed values go up, revenues go up, and if assessed values go down, revenues go down. That’s not how it works in Illinois. Our taxing bodies—the schools, the cities, and the many other units of government—predetermine how much money needs to be collected in advance. Assessments basically determine each property owner’s share of that: the distribution of burden.

Other categories are doing well, like [apartments], industrial, and data centers. Chicagoans have been reinvesting, and they’re optimistic about single-family house values. All of that means that our base is going to grow in Chicago this year, and that will drive [property tax] rates down somewhat. I don’t think the market has fully appreciated that yet.

UL: How much will lower office valuations impact the distribution of property taxes?

Fritz Kaegi: Even when you include a broad definition of downtown that includes Fulton Market and Near North, downtown office is less than 20 percent of Chicago’s property tax base. The B and C offices where the greatest downward price pressure is—the lower grade, lower quality, older stock—are actually less than five percent of Chicago’s tax base.

[On top of that], a lot of office buildings are in tax increment financing (TIF) districts, [which] means there’s not nearly as much at stake for Chicago’s tax baseas you’d think when we’re considering assessments.

UL: How do TIFs work?

Fritz Kaegi: State lawmakers gave local governments TIFs in the 1980s to help them revitalize their most run-down or economically distressed areas. TIFs allow a city to re-invest all new property tax dollars in the neighborhood for a 23-year period.

Any increase in value inside a TIF does not accrue to Chicago’s tax base but to the base of these districts. So, if we see a value downshift in office, the downshift is concentrated inside the TIFs rather than Chicago’s tax base as a whole.

UL: I understand why the “urban doom loop” theory doesn’t account for the way taxes are collected in Chicago. But are there concerns about the downtown office vacancy from a quality-of-life standpoint?

Fritz Kaegi: [Office vacancy is], of course, a key problem. All decision-makers in the public and private sectors have to work together to find solutions and ways to add to the revitalization [of downtown], reposition some of the space for other purposes, and enhance amenities downtown so people want to live in apartments.

Downtown Chicago is the fastest-growing residential neighborhood in Chicago. It’s fertile ground for converting offices to residential because we have such an amazing built environment for public transportation and walkability. Young people don’t like to drive. I have ... teenagers in the house, and this cohort is much less inclined to get a driver’s license than previous generations. Really, New York and Chicago are the best places for people who want to live that kind of lifestyle.

UL: Conversions are often not as feasible as people think. Does Chicago have a plan for working around some of the zoning hurdles and other issues that cities face when trying to create more housing?

Fritz Kaegi: The city is backing conversions, and many in our civic-minded business community are focused on them. I think the mayor is warming up to them, too, so I see signs of optimism.

The public and private authorities will need to work together to be flexible, ensure more amenities, [and remove] barriers to the converted uses. [If it’s a restaurant], let them stay open late and give them liquor licenses, so we have vitality downtown. Those are the kinds of things that will attract people to live there.

In Chicago, we have a good tradition of the private sector and public sector working together to address the problems of the day. I think we’re going to find ways to address the weakness in the office market. In a little bit of time, I could say what some of those things are.