CRE N Illinois

Assessing the Assessor: Fritz Kaegi speaks at 17th annual Real Estate Forecast

Assessing the Assessor: Fritz Kaegi speaks at 17th annual Real Estate Forec,ph01
The newly elected Cook County Assessor, Fritz Kaegi (left) speaks with Riverside Investment & Development executive vice president, Kent Swanson (right), before more than 900 industry professionals at the 2019 Chicago Real Estate Forecast.

Hearing a newly elected county assessor speak about his work should, in an ordinary time and place, be an exercise in boredom. But 2019 Cook County is extraordinary, which is why the more than 900 CRE professionals at Tuesday’s Chicago Real Estate Forecast listened raptly as Fritz Kaegi discussed his vision for the office.

Kaegi spoke to the crowd a little over a month after being sworn in as Cook County Assessor, replacing the embattled Joe Berrios. Kaegi has announced a number of reforms to counteract the corruption and nepotism of his predecessor, including refusal of campaign contributions from any property tax attorneys who work with the Assessor’s Office, ousting unqualified personnel and an increased level of transparency about how the office comes to its property tax decisions.

Speaking with Kaegi during the one-on-one discussion was Kent Swanson, executive vice president, Riverside Investment & Development. The first question that Swanson posed to Kaegi was on that last point: transparency.

“Taxes are the unpredictable animal that create challenges for people,” Swanson said. “When I talk to my counselors in the tax field, they throw up their hands. What should we expect from new assessment methodology?”

“One thing we hear is that our system today is totally unpredictable,” Kaegi said. “When I talk about transparency, I want to emulate what other agencies do, provide predictability to people for what to expect when developing.”

Under the current system, there are built-in premiums, Kaegi said, because there is no clear and established procedure for how the Assessor’s office sets its levels. Banks, for example, over-escrow because they don’t know where assessments are going. Removing the opacity and risk from the system will hopefully facilitate the flow of capital and help people make more informed decisions.

Swanson then turned to the economic cycle, which many predict we are in the twilight of. Will market conditions, interest rates or other factors impact the assessments that his office will make over time?

“Under the law, we are supposed to use market valuations to assess property,” said Kaegi. “We have to think the way you do, in terms of cap rates and spreads and tenant allowances. We have to take all that into account.”

According to a report last year by real estate research firm Attom Data Solutions, Illinois residents pay the second-highest property taxes in the country after New Jersey. Another study last year, this one by Center for Municipal Finance at the University of Chicago’s Harris School of Public Policy, found that the Berrios administration’s tinkering of the tax assessment algorithms shifted an approximate $2.2 billion onus from undervalued homes onto overvalued ones between 2011 and 2015, benefitting affluent homeowners at the expense of more impoverished ones.

This was the biggest talking point during last year’s Assessor race—a campaign that Kaegi noted received unusually high press, even appearing in national publications like Forbes—and is clearly a situation that needs to be remedied. Swanson pointed out that improperly addressing this problem, along with Cook County’s overall tax base system, could have undue results. “If we shift the burden further to the commercial side, are we going to choke off development?” he asked.

“The levy has to be raised by taxes, and we use market prices to see what a property’s percentage of the levy is,” said Kaegi. “Years ago, most wealth was generated through physical assets. More and more wealth is in non-physical. If we continue to lean on property taxes, it is a problem.”

Kaegi went on to explain how most offices similar to his around the country try to benchmark their assessments, and how far off-base Cook County has been historically.

“The standard within the U.S. is to be within 15 percent of transactions. Last year in Cook County we got it within 50 percent for commercial properties. And that was a good year,” Kaegi said. “What we do in this office in Cook County is idiosyncratic. There’s no other system like it.”

So what steps will his office implement to turn the tide on the past sins of his office?

“First, being clear about the inputs you are using. Putting your assumptions out there is first key. Second is having those assumptions being based on good data,” said Kaegi.