Small “Ma and Pa” apartment owners—the backbone of Chicago’s affordable rental market—are hoping and praying for a level playing field from reformer Fritz Kaegi, Cook County’s newly elected assessor.
In a bold move, Kaegi recently went to bat for the little guys—the 2-flat, 3-flat and 4-flat owners across the city’s 77 neighborhoods.
Kaegi urged the Illinois Legislature to pass a bill that would require large commercial property owners—those fat cats who developed, own and manage tens of thousands of units in brand-new apartment towers and thousands of square feet of space in office skyscrapers downtown—to disclose income and expenses.
The assessor was hoping to use the information to calculate more accurate property tax assessments, which are largely based on the level of income an apartment or office building generates.
Although the measure passed the Illinois Senate in April, unfortunately the bill was torpedoed by lobbyists representing wealthy real estate interests, and some trade unions who benefit from the downtown construction and development business.
The bill was scheduled for a hearing at an Illinois House committee last week, but mysteriously was pulled from the agenda by Michael Madigan, the powerful Speaker of the House.
Ironically, Madigan also owns a property tax appeals law firm. Obviously, some of his wealthy clients likely would feel a financial pinch if the progressive Kaegi reform bill passed.
The Kaegi bill would require owners of big commercial properties each year to submit to the Cook County Assessor’s office certain data, including federal tax returns, rent rolls and expenses for the prior year.
“Imagine if you were the Internal Revenue Service and you calculated people’s taxes based on a guess of what they their income was,” Kaegi said.
Under the Kaegi plan, owners of small apartments worth less than $400,000, rental properties with six or fewer units and residential rental buildings with seven or more units worth less than $1-million would be exempt from the new law if it introduced for a vote and passes the Illinois House.
After taking office, apparently Kaegi learned that former Cook County Assessor Joseph Berrios’ crew used creative “multiple regression” computer models to assess many downtown commercial properties. Berrios bragged in press releases that he was “refining assessments” and completed his work on time for eight straight years.
Unfortunately, under this system big commercial properties were undervalued and some of the real estate tax burden was unfairly shifted to bungalow owners, small apartment and small commercial properties, according to a Chicago Tribune and ProPublica Illinois investigation.
The Kaegi reform pledges to publish formulas used to calculate residential assessments and use new calculations to assess big commercial properties.
Meanwhile, small apartment building owners in the city are still trying to digest the whopping 2018 property-tax assessments handed out as a parting shot by Berrios.
In 2018, the entire City of Chicago was reassessed and a spot survey by The Home Front column found assessment increases of 40% to 112% on a group of small North Side and Northwest Side Ma and Pa apartment buildings.
The rental-apartment market is tough on the little guys who own small buildings and don’t have a roof-top swimming pool, a fancy workout salon and a doorman, landlords say.
Often the rent is lower in the walk-up, and the privacy can be a bonus, especially if there is a nice deck with barbeque and a garden out back.
However, the small apartment owner still has to be competitive when it comes to amenities upscale renters expect, such as a fireplace, granite and stainless-steel kitchen, in-unit washer/dryer and good security.
Here are some examples of upgrades made and vacancy issues dealt with recently by four North Side landlords who are trying to keep up with the downtown high-rise apartment competition:
• Old Town. The owner of a vintage 3-flat invested more than $3,000 in improvements in one 2-bedroom-plus-den, 2-bath, 1,000-square-foot apartment and only raised the rent $55 a month.
Improvements included new under-cabinet kitchen lighting, two new ceiling fans, a dining room chandelier, new Levelor blinds, a deck barbeque and a complete repainting of the apartment. The owner currently is appealing an outrageous 93% assessment increase handed out by Berrios.
• Lincoln Park. The investment of $3,000 in improvements by a landlord in a 1-bedroom, 1-bath 700-square-foot apartment in a historic Lincoln Park 6-flat only generated a rent increase of $160 a month. Improvements include: wall-to-wall carpeting, a new appliance package, and Levelor blinds. The owner is appealing a 34% assessment increase she received from Berrios.
• Logan Square. The owner of this 4-flat near Logan Boulevard had a vacancy in a 1-bedroom-plus-den garden unit for 18 months and lost tens of thousands of dollars in rents. Part of the problem was competition from big commercial developers who built a batch of new apartment buildings on nearby Milwaukee Avenue in the super-hot Logan Square neighborhood.
Despite the financial hardship, Berrios jacked the owner’s assessment 72.8%. The owner is appealing the hefty assessment hike.
• North Lincoln Square. This year the 1920s era 4-flat building was battered with water infiltration issues caused by the record spring rains. The landlord fixed the water problem at a cost of about $1,000, replaced two roof-top furnace and air condition units for $8,600 and now is planning porch improvements and other investments.
The owner says he is holding the line on rents, but passing on modest rent increases to keep occupancy at 100%. The owner is appealing Berrios’ 40.6% assessment hike.
The Kaegi bill is opposed in the Illinois Legislature by the Building Managers Association of Chicago, the Illinois Retail Merchants Association, the Chicagoland Chamber of Commerce, and the Chicagoland Apartment Association.
Other opponents include some trade unions that have strong alliances with the office and apartment construction industry, and the Civic Federation, a budget watchdog group backed by corporate interests.
For more housing news, visit. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.