1997 City of Chicago Reassessment to Coincide with New Assessment Appeal Process
Recent legislation involving changes in the assessment appeal process statewide, which we have discussed in our previous Newsletters, will be implemented for tax year 1997, the year of reassessment for the entire City of Chicago.
For the first time, Cook County property owners will have the opportunity to appeal to the State of Illinois Property Tax Appeal Board (PTAB) following initial rights of appeal in the offices of the Cook County Assessor and Board of Appeals. The Board of Appeals will be abolished at the end of the following year, 1998, and supplanted with a three member Board of Review, similar to all other Illinois counties.
These changes, along with the reduced burden of proof for taxpayers in Tax Objection court cases, point to the need for increased creativity and advocacy in property assessment and tax reviews so that appropriate reductions can be obtained at whatever level of appeal is required.
Every commercial, industrial and multi-family residential property owner in the City of Chicago should be aware of the new appeal process and the corresponding need to be represented by experienced legal counsel who can evaluate the appropriate remedies and pursue these to a positive conclusion.
New Cook County Incentive Program for Brownfields Clean-Up
Cook County has enacted a new incentive program designed to encourage the redevelopment of contaminated industrial properties ("brownfields"), which have been abandoned for two or more years and have been acquired by an "arms length" purchaser for industrial use. The incentive requires that:
Upon approval, the incentive will reduce the property’s level of assessment from 36% to 16% of market value for up to three years during its remediation and redevelopment (with two possible one year extensions). Application must be made to the Cook County Assessor’s Office within two years of acquisition, but no later than 90 days following the IEPA’s approval of the Remediation Action Plan.
The appropriate time to consider the impact of a purchase price on property taxes is when that property is being considered for acquisition. Purchasers often make the serious mistake of waiting until after the closing or even until they have received their first tax bill or assessment notice to obtain appropriate advice from tax counsel.
Substantial sums of money can be made or lost simply based on the decision to have a final proration of taxes at the closing or to re-prorate when the tax bills are issued for the year(s) in question.
Also, in many situations, the acquisition of a property can be structured to take advantage of certain legal nuances that can provide major tax savings in future years. As an example, our firm worked with the general counsel of a major international corporation in structuring the acquisition of a regional headquarters facility to shelter approximately $8 million of the purchase price from assessment and taxation.
The contemplated purchase of any major property should include an analysis by experienced legal counsel of both the positive and negative tax ramifications of the acquisition.
REIT Sales and the Real Estate Tax Consequences of REIT Acquisitions
Recently, a Real Estate Investment Trust (REIT) purchased a suburban office building for approximately $170 per square foot of building area, including land. Similar sales are being reported as REITs compete for a limited supply of Class A properties. It is noteworthy that these same properties were selling for $50 to $60 per square foot only a few years ago.
The very nature of a REIT makes it evident that a purchase price has very little relationship to that property’s fair market value. A REIT Prospectus normally disclaims any relationship between the price paid and the valuation. The purchase price may best be seen as an indication of a property’s "investment value" as it will add to the REIT’s cash flow which includes properties in various markets throughout the country. When stock is acquired in a REIT, those shares are secured by real estate, but the real estate is not actually being purchased.
Shares in a REIT provide the buyer with the advantages of liquidity, diversification and securitization that do not exist through ownership of specific properties. REITs generally pay above-market prices because they are tax-favored entities. All of the earned operating income flows through to the shareholders and the total tax liability is, therefore, much lower than for other forms of ownership.
The REIT Prospectus always provides that the properties’ market values are of no concern to its organizers, sponsors or managers. As an example, the following is language taken directly from a REIT Prospectus:
"The company did not obtain appraisals of the fair market value of any of the original properties or related assets that the company will own…. The public offering price of the shares and the related underlying valuation of the company have been determined primarily by capitalizing estimated cash flow of the company available for distribution, the enterprise value of the company as a going concern (emphasis added) and other factors, rather than through a property by property valuation based upon historical cost or current market value…"
American Property Tax Counsel News
APTC recently held its annual Seminar in Scottsdale, Arizona. The theme of the Seminar was The Valuation of Hotel Properties, Reducing Property Taxes in the ’90s and Beyond. The Seminar was attended by APTC member law firms and numerous representatives of major companies in the hospitality industry and served as a "think tank" for dealing with issues such as the identification and quantification of intangible value in hotel properties arising from a change in the nature of the hotel business.
The Seminar included presentations by APTC members and Ken Wilson, the leader of Landauer Real Estate Counselor’s Hospitality Group, as well as numerous round table and panel discussions.
APTC also announced that next year’s Seminar will be on the subject of The Valuation of Office Buildings, with an emphasis on REITs and the impact of the acquisition prices paid by REITs on real estate value for assessment purposes.
Fisk Kart and Katz Announcements
Marty Katz was a speaker and moderator of a panel presentation at the recent REIA National Real Estate Investment Symposium held at Northwestern University’s Kellogg School of Business on the subject of "What is Real Estate Value and for What Purpose?" Marty also addressed the Chicago Chapter of the International Development Research Council (IDRC) on the property tax ramifications of sale and leaseback transactions and the forthcoming changes in the Illinois assessment appeal system.
Herb Kanter recently participated in the Turnaround Management Association Legislative Conference in Washington, D.C. and met with legal counsel for several senators. Herb also attended the National Association of Real Estate Investment Trusts annual convention and discussed the future of the real estate investment market and of investment capital.
Jim Regan was Program Chairman for the recent American Property Tax Counsel Seminar on Hotel Valuation in Scottsdale, Arizona.
Property Tax Update contains material of general interest. The information offered is not intended as legal advice or opinion applicable in specific circumstances. If you are seeking additional information on these or other property tax issues, you are urged to consult an attorney concerning your particular situation. Under professional rules, Property Tax Update may be regarded as advertising material.