By Justin Lerner
Chicago’s property tax dilemma is no secret. The situation is complicated, as there are hundreds of local government structures in northeastern Illinois and each of them differs in its tax base, service and infrastructure needs, as well as its ability to produce revenue. This, exacerbated by a host of other factors, has spawned disproportionate property taxes, especially for industrial and commercial sites. By no means is Chicago’s challenge unique, but it has become a popular narrative in boardrooms and business publications in recent years.
Cook County, which happens to be the second-most-populous county in the U.S., suffers the brunt of this criticism. Major changes in the Cook County Assessor’s Office could reshape the commercial real estate market and result in even higher commercial and industrial tax rates, further fueling an environment of uncertainty. This is a hot-button issue that is agitating everyone from investors to tenants, because if the Assessor’s Office continues to increase assessments on commercial properties, the effect on tax bills will be considerable.
When a user is looking at overall occupancy costs and all roads lead to increases and uncertainty in Cook County, that user is likely to set their sights elsewhere. In the Chicago market, DuPage County has become a popular destination for businesses looking for lower costs, secure taxes and increased opportunities for growth.
DuPage County has seen a considerable increase in industrial activity, and its industrial vacancy rate remains one of the lowest in the region. Named one of the top 12 manufacturing communities in the nation, DuPage County has a reputation as one of Illinois’ healthiest suburban economies. Time and again, clients that are either already located in Cook County or had previously considered Cook County are shifting their focus to DuPage County (or popular Lake County to the north) to mitigate unease over tax concerns and the overall expense of doing business.
But is it really that simple? Is DuPage a more valuable option for every business? Not necessarily.
Truth be told, DuPage County’s property taxes and business costs are increasing alongside other counties in the region, though in more manageable and quantifiable ways. Quarter to quarter, industrial sales prices have increased just over $15 per square foot across Chicagoland – and rental rates are predicted to stay elevated. Additionally, vacancy is tight at 5.5{ff66251fa959225ec0415bec498104472c710c05756e34120ff9c6ac4cef9161} and many are eagerly awaiting the delivery of 18.5 million square feet of industrial/flex space currently under construction.
Investments in Chicago’s industrial and flex assets remain highly sought after and there are incentives for those who know where to look. Cook County property owners can apply for a Class 6b, an economic development incentive offered by the Assessor’s Office, which provides property tax reduction for the construction of new industrial facilities and the rehabilitation of existing industrial structures and abandoned buildings. If an owner can obtain this tax reduction, they have a good case for staying in Cook County – at least for the next decade. Properties receiving Class 6b will be assessed at 10{ff66251fa959225ec0415bec498104472c710c05756e34120ff9c6ac4cef9161} of market value for the first 10 years, 15{ff66251fa959225ec0415bec498104472c710c05756e34120ff9c6ac4cef9161} in the 11th year and 20{ff66251fa959225ec0415bec498104472c710c05756e34120ff9c6ac4cef9161} in the 12th year. In the absence of this incentive, industrial real estate would normally be assessed at 25{ff66251fa959225ec0415bec498104472c710c05756e34120ff9c6ac4cef9161} of its market value.
Tenants, however, will typically experience higher overall rent costs in Cook County. And with the allure of more development and investment in DuPage County, the tug of war will continue. Unless an occupier must be in Cook County for sales purposes, sales taxes, proximity to O’Hare or to specifically service the city, the tax certitude tied to DuPage County is hard to beat.
In this vibrant and growing Midwest industrial hub, a full assessment of costs and benefits has never been more important in a location decision. The bottom line? The tax rate is only one piece of the puzzle.
Justin Lerner, a veteran in the industry with over 14 years of experience, represents both private and institutional owners in the industrial real estate sector.