Investing in Chicago, would you do it?
For being a core city, stabilized cap rates are usually attractive, likely due to the tax risk. The last assessment was a disaster for commercial real estate there, given this is a new reassessment year would you still invest there this year? Unless the city officials are wildly delusional you would assume there would be a decrease, or shift it to residential owners which may stabilize the commercial market.
DuPage and Lake County, yes......Cook County...... wouldn't touch it for awhile, especially with the current mayor. Total clown.
Wouldn't touch Cook county with 50 mile pole.
Assuming that Cook County wont act completely delusional is the first problem
Yes, but I would need a cap rate 150bp above market. Population loss + tax risk + winter being hell on your building + smaller institutional buyer pool are reasons to be extra selective, not to blanket pass on the third largest city in the country.
Curious why there is greater tax risk. Not withstanding the recent tax issues, I could see other states taking a similar stance. Are Chicago people just more tax crazy than say, California?
We won’t invest in Chicago for this reason. Just trying to figure out “why Chicago”.
For now, and what hasn't changed, in California your taxes are only reassessed (for simplicity) on a sale, and increase a small amount each year so it is very easy to underwrite. From my limited understanding Chicago re-determines how they reassess buildings every 3 years, and in 2021 there was a huge jump (like 30%+) in taxes due to the reassessment as they believed property values had gone up from the previous three years. Now I would have a hard time believing they could make the same assessment.
Correct, and the city's/county's/state's fiscal situation is so far underwater that there really is no upper limit to high how taxes could go. And, increasingly, the political winds are pushing more of the tax burden on to commercial properties and away from residential (ie, voters).
Chicago is a wonderful place and will continue to be the capital of the Midwest. Population loss isn't really relevant to commercial real estate, since the places that are actually losing people are places none of us would ever want to invest. Downtown is still growing quickly and will continue to grab a lot of talent coming out of Big10 universities.
But the tax/fiscal situation is very very FUBAR.
Cook County taxes are a motherfucker...
Everyone I know is getting out of Chicago, just read a retail report the top retail street there is down 26% YOY and on the hospitality side the politics make it not feasible. Values have dropped dramatically, would avoid.
They’re turning successful hotels into illegal immigrant shelters. Tells you all you need to know.
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