Law Day 2015
Cook County Incentive Properties Are Consistently Over-Assessed
By Brian P. Liston
Cook County industrial and
commercial buildings that
sell for a fair market value
and have received a Class 6b
or 7b Tax Classification are
consistently over-assessed.
These properties have significant deferred maintenance,
suffer from economic and
functional obsolescence and
have usually been vacant
for many years. Despite evidence indicating the recent
sale of such properties as
arm’s length, market transactions, the Assessor’s Office
has been reluctant to reduce
assessments to reflect the appropriate overall market values. Our analysis within the
County shows that assessments for these assets do not
reflect fee simple “market value,” rendering them inaccurate for ad valorem real estate
tax valuation purposes.
As most land owners
are aware, the assessment
level for typical industrial
or commercial buildings in
Cook County is 25% of fair
market value. The Class 6b
or 7b classification drops
the assessment level to 10%
for years 1-10, 15% in year
11 and 20% in year 12. For
buildings receiving a Class 6b
or 7b incentive, the assessed
value, and therefore the
real estate taxes, would be
approximately 60% lower than
for properties not receiving
such classification. With a
Class 6b or 7b classification,
once the property is 51%
occupied, the real estate
taxes would drop in year one
by approximately 60%. The
gross real estate tax savings
over the 12-year period of the
Class 6b or 7b classification
would be approximately 60%,
and the discounted present
value would be around 34%
(assuming an 8% discount
rate and a 2.5% annual tax
growth). The value of the
Class 6b or 7b stimulus is
significant over the 12-year
incentive period and provides
a stimulus to purchase the
property.
The Uniform Standards
of Professional Appraisal
Practice’s definition under
Guide Notes 11 indicates that
market value is arrived at
“assuming the price is not
affected by undue stimulus.”
According to the Cook County
Class 6b and 7b Eligibility
Bulletin, the purpose of the
Class 6b and 7b is to benefit
and “stimulate” expansion
and retention of existing
industrial and commercial
development and increase
employment opportunities.
So the question becomes
whether the fee simple
“market value” of the subject
property at acquisition is the
full purchase price or, for
example, does it represent
half the full market value
of the property based on
its eventual receipt of the
Class 6b or 7b incentive?
Based on the condition and
obsolescence of the subject
property,
the
purchaser
would clearly not have paid
full market value for the
property unless they received
an incentive. The purchase
price paid would therefore
reflect the receipt of the Class
6b or 7b incentive, taking into
account the condition of the
property and increased risk
to the purchaser, and should
not later be inflated when
the property in fact receives
its change in classification
and is being assessed as a
Class 6b or 7b property. If
looked at in the context of
the definition of “market
value” it would be difficult
to conclude anything other
than a reduced market
value based upon the
purchase price under the
circumstance that a willing
buyer would purchase
property.
(See
USPAP
comments to Rule 11.)
For Incentive appeals in
Cook County, we must look
at all avenues of valuation for
fee simple “market values”
in order to arrive at a fair
ad valorem real estate tax
valuation. With industrial
or commercial buildings
receiving a Class 6b or 7b
classification, the values
placed on an asset by the
Assessor’s Office are clearly
not its market value in terms of
cash equivalency unaffected
by undue stimulus in the case
of a “reduced” arm’s length
purchase price that reflects
the property’s condition,
risks and the granting of a
Class 6b or 7b incentive. The
definition of market value
requires that the foregoing
be taken into account when
developing a fair market
value for ad valorem real
estate tax purposes. While a
further detailed discounted
present value analysis of
the financial impact of the
Class 6b or 7b would be
pertinent, among other forms
of valuation evidence, an
analysis of ad valorem value
must take into account a
seemingly “reduced” market
transaction that reflects a
property’s circumstances of
obsolescence, vacancy and
the granting of a Class 6b
or 7b classification for the
property owner.
Brian P. Liston, a partner
in The Law Offices of Liston
& Tsantilis, P.C., focuses his
practice on eminent domain
litigation, property tax appeals
and incentives for land use.
Leading Lawyers ranks Liston
as the top Land Use & Zoning
lawyer and the top Real
Estate Tax lawyer in Illinois.
He
currently
represents
Fortune 500 companies
and landowners in eminent
domain and property tax
litigation matters in suits
filed by local, municipal and
state agencies throughout
the United States. He can
be reached at bliston@
ltlawchicago.com.
This story originally appeared in the Leading Lawyers section in the annual Law Day Edition of the Chicago Daily Law Bulletin.