Major Downtown Hotel Saved from Mammoth Tax Increase
In 1997, FK&K represented a major downtown hotel for the triennial reassessment of Chicago. We worked with an appraiser who employs a methodology which separates intangible business assets and personal property from a hotel’s real estate assets. We obtained a very equitable market valuation of $31,000,000 for the hotel for 1997.
Because hotel rates and occupancies were experiencing significant growth, the County reassessed the downtown hotels again in 1998. The hotel was sold in 1998 for $90,000,000 to an international pension fund manager. Prior to the sale, FK&K and our appraiser were retained to work with the purchaser to properly allocate the purchase price to real estate and non-real estate. We showed that the purchase price included non-real estate assets as well as real estate. We reviewed the purchaser’s financing to demonstrate that a market buyer would pay much more for capital. Finally, we demonstrated that the projected income on which the price was based assumed that the purchaser was going to change the note flag to a luxury brand.
As a result of our submission to the County, it established an assessed value for 1998 of $33,000,000. The increase was due to a substantial amount of rehabilitation that occurred during 1997 and 1998.
A situation that had the potential of escalating annual taxes as much as $4,000,000 was avoided by careful preparation prior to the sale. We combined an analysis of the assets of the hotel with a review of the financing capabilities of the purchaser to accomplish a dramatic tax-saving.
Court Backlog Problem Addressed
The Circuit Court of Cook County has recently initiated case management procedures to expedite the process and reduce the backlog of tax objection cases, which date back to 1994. The new procedures permit the consolidation of cases filed on the same property for different tax years in the same triennial period. They also provide for quick decisions on small claims, cases involving less than $30,000 in disputed taxes. The court intends to call all 1994 cases by the fall of 1999.
Legislative Update
The General Assembly completed a busy session in 1999. Three bills awaiting the Governor’s signature are noted.
Certificates of Error. Both houses of the General Assembly passed bills making numerous changes to the Certificate of Error procedure. These are intended to alleviate some of the backlog, principally by streamlining the process for properties in the following categories: (1) errors which reduce assessed value by less than $100,000; (2) residential property of six units or less; and (3) exemptions. They also allow for the payment of interest on Certificates of Error.
Low Income Housing. The General Assembly passed a bill that overrules the 1998 PTAB opinion that federal income tax credits are "real property" and must be included in the valuation of real estate. The bill specifically provides that federal income tax credits are not to be included in the real property valuation for real estate taxes. FK&K worked with various governmental agencies for support to legislatively overrule this opinion.
Tax Increment Financing. The General Assembly has passed bills affecting clients developing properties in certain TIF areas. Among the provisions: adding definitions to "blighted criteria"; requiring reimbursement to school districts for costs associated with residential TIF’s; and prohibiting TIF’s for golf course development.
Fisk Kart and Katz News
American Property Tax Counsel News