April 10,2025 (White Paper) Cook County Taxpayers Deserve an Objective, Transparent, and Predictable Real Estate Tax System ‘A fundamental precept for any system of taxation to be accepted as fair and equitable by the taxpaying populace, is that the system must be objective, transparent, and predictable, ‘Our current real estate tax assessment process for commercial properties in Cook County is broken and needs repair. The eurent assessment process isnot transparent or understandable, isnot objective, and certainly isnot predictable. The assessment process has become so ‘unpredictable that more than half the institutional and individual investors around the globe will no longer invest in Cook County teal estate. And no ane can blame them. ‘The real estate woes that have besieged our city and county since the pandemic are well known. We need employees to tur tothe workplace, table interest rates, and eriminals to be prosecuted. But downtown Chicago will never fully recover without correcting how we value and assess commercial realestate. We need a new system that is objective, transparent, and predictable. And that new valuation process shouldbe based on the most meaningful measure of real estate value ~ the income realized each year from the property. And the income information «essential to accurately caleulate property value can only be provided by the property owner Without having access to detailed property information, the concept that the Cook County Assessor's office can fairly and objectively determine the fair cash value of over 130,000 ‘commercial properties is an unreasonable request and a fallacy. Asa result, investors, lenders, tenants, and property ovners have no faith inthe current assessment process So we propose to change how commercial realestate is valued and assessed in Cook County to system where the assessor determines property value on January 1 of every year pursuant to newly-adopted predictable and objective formulas similar to the formulas proposed inthis memorandum. IF the formula is reasonable, predictable, and objective, property owners shouldbe willing to report all information necessary to accurately and fairly value their property ‘There can be litte or no discretion or subjectivity inthe formula; once the information is input into the formula, the result must be predictable, Before we describe the new valuation system, afew words of comfort forall Cook ‘County homeowners. The new valuation system is intended to more accurately and objectively determine the “fair eash value” of a commercial property. The Illinois Property Tax Code defines “fair cash value” as“... the amount for which a property can be sold in due course of ‘business or trade, not under duress, between a willing buyer and a willing seller." The new valuation system is not intended to lower the burden of taxes paid by commercial properties relative to residential properties. That relationship is protected by the current property classification system in Cook County which assesses residential property at 10% of fair cash value", versus commercial property which is assessed at 25%‘The Current Constitutional and Legislative Framework ‘The current constitutional and legislative framework for the levy of realestate taxes in linois is relatively straightforward, Section (a) of Article IX of the llinois Constitution provides that real property taxes mst be “levied uniformly by valuation ascertained as the ‘General Assembly shall provide by law." The constitution requires the General Assembly to prescribe the valuation methodology to be applied by the county assessor. In tum, the Ilinois Property Tax Code (35 ICLS 200) requires the assessor to base assessments on the “fir cash value” of the property, defined in the code as “the amount for which a property can be sold in due course of business and trade, not under duress between a willing buyer anda willing seller” Inevery county other than Cook County, the “assessed value” of a property is equal to ‘one-third (33.3%) of “fair cash value". In Cook County, “far cash value” i adjusted based on property type: commercial properties are assessed at 25% of “fair cash value” and residential and ‘multi-family properties are assessed at 10% of “fir eash value”. Cook County adopted this classification system to shift a greater tax burden from residential to commercial properties. No ‘other county in the state has this built-in benefit for residential owners and tenants. The significant assessment benefit provided to residential property in Cook County (10% versus commercial at 25%), isthe maximum differentiation allowed under the Mlinois Constitution. Section 4(b) ofthe Illinois Constitution provides that counties with a population ‘more than 200,000 may clasify properties for purposes of taxation provided“... such classification shall be reasonable and assessments shall be uniform within each clas. The level ‘of assessment or rate of tax of the highest class in a county shall not exceed two and one-hall| times the level of assessment or rate of tax ofthe lowest class in that county." commonly referred to as the “2.5 to 1.0 Rule”, ‘Aer Assessed Value is determined, a “state equalization feet” is applied to determine the Bqalizeé Assessed Value (“EAV"). In lino, the Department of Revenue ("DOR") is Iepally required to calculate an “equalization factor” each year to ensure tht property assessments are uniform among couatesaross the state. DOR determines the equalization factor foreach county by comparing the actual selling price of properties over the lst thee yeas Jneach county to the assessed value placed on those properties by the assessor forthe yea prior to sale. In 2025, the State Equalization Factor for Cook County was 3.0163" ‘The Cook County Treasure then calculates the tax rate necessary to collect the tax required to fund the annual levy received from all taxing bodies based on the total EAV ofall ‘Cook County property and then mails outa tax bill to each property owner based on their proportionate shate ofthe EAV pool "The Sn gain Facior dost ffl he mut of te ey lab to ay en poe Rate the tried ye sn to ake ste report vl rors Inca cunt) fecal or rps of allating se nds ong te cours or Scho, este, Oe Sas as 2Pre (Our proposal does not require any change to the curent legislative and constitutional framework. The llinois Property Tax Code specifically allows the assessor to adopt reasonable formulas and methodologies to determine the “far eash value” of properties on January 1" of| ‘each year, provided the formulas and methodologies are uniformly applied in each property classification. The new valuation and assessment system ean be implemented in two simple steps (6) frst, the Cook County Assessor must issue new objective guidelines for the valuation of different commercial property types similar to the formulas and methodologies proposed herein, and (#) second, property owners must timely provide the assessor with the revenue and income information required to complete an accurate property valuation pursuant to the assessor's new guidelines? We prepare for the assessor to adopt the following valuation guidelines to objectively determine “fair cash value" A, Hotel (All Classes i» Formula sh value is equal to the sum of: (a) Total Room and Ancillary Guest Revenue received during the preceding clendar year and multiplied by 1.5x, plus (b) Total Food and Beverage and Other Revenue received during the preceding calendar year and ‘multiplied by 0.5x, plus () Net Rents from Leased Facilities mulplied by 8.0x. Taser apo dato Example ‘300m hotel operates at 75.08 occupancy with 2 S080 00 average daly rate, elves SEOM in Food and Beverage and Other Revenue and eases 10000 RSF 10 «a resran eant at 340.007 ne ren “The fir cash vale” ofthe tel would be enn Room Reve (5508515) soso FB ser Reve (SOR 05) ‘00 Leeda (ODOT $1000 mt s80) __ 330 sedan 2023 ta tes, the eal estate a il would be $2,166,800, oF 7156 key (S40 7M x 28% 3.0163 x 6595H4 tae te‘The revenue information required for hotel valuations is readily available from, the current monthly reports filed by all hotel owners based on guest room and sales taxes collected and paid every month. To ensure accuracy, hotel owners will ile an annual report that simply confirms the total guest room and sales tax collected and paid each year ‘The simplicity and predictability ofthis new system for hotel valuations would be ‘a huge improvement over past practices and is long overdue. The Assessor's current practice of subjectively placing all hotels in one of five valuation categories, with no reference or basis tothe actual performance of each hotel within each ofthe categories, is ‘nota reasonable methodology and does not produce @ uniform and equitable result, Our proposed formula, on the other hand, is objective and will result in uniformity, Dredictability, and faimess. ‘This proposal isnot intended to reduce or lower the fotal amount of realestate taxes pad by hotels in Cook County. Rather, the proposal i intended to derive a total valuations for ll Cook County hotels that is consistent with the past valuations of hotels, but with much better differentiation and faimess among different hotels, coupled with added certainty and future predictability. ‘The following schedule illustrates the estimated annual real estate tax for different performing hotels on a per key basi tists ak ‘fewwr warty “tek es OS Se aor Ter iss (Fae ail te ofa Ans ag Reve mail Un Aaa le Rone andy 8 ewe Exutston Foner ot 0163 nd Ch ofchcpotn arotSmnER. Offer & Rot Valuation Formula Example “Pais cash value” is equal to total A 100,000 RSF office tulding has to 40,000 RSF pet rent recefved on etash basis eels nd 20000 RSF of vacancy. "The “frcah u received on a.cash basis ive ofthe bling would be fro all tenants inte preceding calendar year, multiplied by cight tema GomooRsr @ss.moxtx80) —$ "tame (8.02) wth vacant spice valued Tea nana gaisaomrsto) Som a S40.00RSP- Vemcomo nar @ soeonsn oo Based on 2023 x rates, the rea esate a bil would be S164839,o S7OURSE (S14 5M 425% x 3.0163 699594 ma a, ‘The Lalo would allocate the ts il a flows Tenant A would pay $1088 RSF, Tenant B would pay SSRAQ'RSF, andthe Landloe’ woul pay $2.1 RSF on the vacant space. Gross leases with base year operating expense and realestate tax caps will be treated asa net lease by deducting the amount of the operating expense and realestate tax ‘cps. [Factual operating expenses or real estate taxes are less than the eap in any year, ‘the shortfall shall be treated as additional net rent For gross leases without base year operating expense and tax caps, net rent shall ‘be (a) gross rent received, less (b) the operating expenses paid by the owner and allocable tothe gros lease. The “fur eash value” of any gross leased space in the property’ shall be tenet rent calculated inthe preceding sentence, multiplied by six (6.0) ‘The following schedule illustrates the “fair cash value” of office and retail property t different net rent levels and the consequent real estate taxes that would be payable (on a per RSF basis): Eaabed Assessed Assesind ‘Rel stte eRe Sach (we _ (Nae + oor Tome me Fn Fa S yom § 2mo $m Simm S$ tae $ mm $ Wm § mm § Imes § RO S tom $ ‘mm $ mm $ ms $ 4m Vea $00 -§ M$ HO (2 Eqns ual Vitae ENV Ane Valo ipl ye Sie alton a sem 5018 eGo Co (Reese EAV gaye somps a of 659% fe Cy 5‘Valuation Formula Example ‘Same as “Oftice/Retail” above A 10,000 RSF industri! biding as one 80,000 RSF nt with a valuation multiple 8% and20.000 RSF of vacancy. The“ ash but witha valuation multiple Taig ofthe biking woul be oF nine (9.0), with vacant = space valued at $30,00/RSF. Yea oomonsr @ s80020) he ‘Srucomonsr@ suns) = ase on 2023 tx rts, te rea ext tax ill would Be $355,00, oF $3 3S RSF S6.36M 4 25% 30163 699544 1a4 ra). ‘The following schedule illustrate the “fair eash value” of the industrial property at diferent net rent levels and the consequent realestate taxes that would be payable (on aper RSF bass) Sm § ‘oo san $ om Ss § Sim Shs § wR D, Office, Industrial, & Retail (Owner-Oceupied), ‘Valuation Formula Example “The“fec cash value” of space Anni ling contact at 12000 Sree ea pRSE Aconpebi donating dare pied by he propery Fern af 400K ring mare eof ‘owner or its affiliates will be $739 er RSE ($8.00 net ren x9.00), The realestate ‘ecual to the “market net rent” taxes forthe building would be $3.80 per RSF ($72.00 x fartie space determined by sxe Sa Equlonton Fas 69% fetal compares inthe balding or inthe market, lpi by the ppb ‘elution mpi E, General Rules Applicable to All Property Classes, Recent Sales: In the event a property (or any controlling interest) was acquired in an arm's length cash sae in any of the prior two ealendar years, the “air ash value” of the property shall be the average ofthe recorded sales price and the annual value determined under the proposed 6valuation formula for each ofthe two calendar years after the sale. ‘This general provision will give weight to an arm's length cash sale ‘bt also bring any “aberrationa” high and low sales back in line with the valuation formula over a two-year period. Rent Abatement “The “fair cash value” of any leased space subject to rent abatement shall be equal to 150% of the vacaney value af the space. Parking/Storage: “Pair cash value” shall include parking and storage revenue valued at ross revenue multiplied by six (6.0s)* ‘Exemptions and Incentives The proposed system will incorporate all curent tax exemption and incentive provisions contained inthe Ilinois Property Tax Code or in Cook County (¢., Class L exemption for histori landmarks and B-6 exemptions for certain industrial properties) Benefits of Our Proposal. ‘An Objective and Predictable Valuation System Will Stimulate Investment and Growth In Property Values: Providing owners, tenants, lenders and investors with @ ‘new valuation system that is objective, transparent, and predictable will stimulate investment and property values, resulting in enhanced growth in the overall value of the assessed pool of properties in Cook County for the benefit ofall property owners, tenants, and taxpayers. Better Allocation of RealEstate Taxes in Multi-Tenant Properties: The new system provides a methodology to allow landlords to better and more equitably allocate the propery tax bill among tenants based on the rent each tenant pays, eater than on the tenant's proportionate share of property square footage. Tenants in premium space paying premium rents should pay a higher realestate tax on a square foot basis. The current practice of allocating a property tax bill ased on a tenant's proportionate share of square footage is fundamentally lawed and inequitable. ‘More Certainty and Lower Administration Costs: The new system relies ona taxpayer selF-reporting process and will reduce the burden and nearly impossible task of individual property valuations on over 130,000 commercial properties. The assessor can spend more time and focus onthe valuation of single-family homes, an important and politicallysensitive real estae class representing, in 2023, 75% of the “Iai eash value” of all property in Cook County and 58% of the total tax billed. Residential properties will continue to be valued and assessed on comparable sales \cansactions, the most accurate valuation methodology for residetial properties. (Owner Confidence in the Assessment Process: In the past, property owners have been reluctant to provide the property information required by the assessor to make @ fair and accurate property valuation, That reluctancy will disappear ifthe assessor 7‘uses the information ta determine afar valuation pursuant to an objective and predictable formula. ‘Howe: Time-Consuming and Expensive Appeals: The proposed system will greatly reduce the numberof property’ tax appeals at all levels and the time and cost oF such appeals. In 2023, the Board of Review heard 182,000 individual appeals on ‘commercial and multi-family assessments, resulting in 78,260 assessment reductions Ina system that relies on information provided by the property owner, there will be no need for tax appeals unless the assessor makes a mistake inthe application ofthe ‘objective formula to the information received from the property’ owner Call to Action, ‘We compliment our Cook County Board President, Toni Preckwinkle, who recognizes ‘the serious problems with the current real estate tax assessment system. Last year, President Preckowinkle engaged an outside exper to analyze the problems and to propose solutions. ‘The study concluded thatthe inaccuracies and lack of uniformity of the current assessment system ‘was caused by the absence of an objective valuation formula andthe lack of detailed property ‘operating information, two problems addressed head-on by our proposal We also compliment the Assessor Kaegi and his stafTto consider any proposals that will simplify and improve the predictability of the valuation process. Unquestionably, the {implementation ofthese objective valuation guidelines will restore taxpayer confidence in the assessment process. To that end, we respectfully request Assessor Kaeg to adopt these new {guidelines for all oommercial property valuations commencing January 1, 2026. With new valuation guidelines in place, we expect property owners to report the revenue information roqured to apply the new formulas. We have no sympathy for any property owners ‘that expect a fairand predictable valuation of their properties, but refuse to repor the basic information necessary to derive such a valuation, Respectfully submitted, fll ipube— chael W, Reschke Founder, Cainman of the Board and Chi Executive Officer The Prime Grovp, Ins ION. Lasalle Sree Suite 3800 Chicago, 1.60602 [email protected]