Illinois Supreme Court allows the new Transfer Tax Referendum to remain on the March 19 primary
On Wednesday, March 13th, the Illinois Supreme Court denied the appeal petition by the Building Owners and Managers Association of Chicago (BOMA) to overturn the Appellate Court’s ruling to allow the transfer tax referendum on the March 19 primary ballot. The Illinois Supreme Court did not overturn the Illinois Appellate Court who stated in their opinion that “Courts do not, and cannot, interfere with the legislative process. Courts are empowered to rule on the validity of legislative enactments only after they have been enacted.” Building Owners and Managers Assoc. v. Commission of the Board of Elections of the City of Chicago, 2024 IL App. (1st) 240417 at p. 6. (March 6, 2024)
The Bring Chicago Home Tax Referendum which is described by opponents of the referendum as the Mansion Tax Referendum will reduce the transfer tax in property sales or transactions valued at less than $1 million from 0.75% to 0.60%. Properties sold for between $1 million and $1.5 million would pay a 2% transfer tax which is nearly triple the current rate. Lastly, properties sold for $1.5 million would pay a 3% transfer tax which is four times the current rate.
Chicago Mayor Brandon Johnson and the city council voted to put this binding referendum on the March 19 primary ballot 32-17 last November. Advocates of the referendum claim that it will raise approximately $100 million a year in new tax revenue to be used to fight homelessness. It is estimated that there are approximately 68,000 homeless people in Chicago.
BOMA has stated that the Mansion Tax Referendum would further burden the city’s struggling commercial real estate market, diminish existing commercial property values and result in higher property taxes for homeowners as the city’s property tax burden shifts to residential properties as commercial property owners leave the city. Ken Griffin’s hedge fund Citadel moved his business from Chicago to Miami in 2022. Boeing is also leaving Chicago and relocating elsewhere. According to BOMA, less than five large office buildings were sold in 2023 and those deals sold at losses ranging from 50% to 90%. For example, Chicago real estate firm R2 paid about $60 million for a 41-story building at 150 N. Michigan Avenue in February, 2024 which was about half the price for which it sold in 2017. Assessor Fritz Kaegi is considering leaving out the most distressed office building sales in his calculations of valuation as he is preparing to reassess all city of Chicago properties in 2024. “If there’s some kind of duress or serious time pressure where they couldn’t be properly shopped, that’s one of those things that might make you take that value with a grain of salt, just as you would any other asset that trades under distress conditions” Assessor Kaegi adds that such transactions violate appraisal rules and are “not representative of where the market actually is”.
BOMA and the Civic Federation have expressed misgivings to the transfer tax hike which would give the City a blank check with no accountability for improving the housing and migrant shelter crisis. The Civic Federation is not recommending how Chicagoans should vote on the referendum, but is concerned that there isn’t enough public information about the tax plan for voters to make an informed decision.
The city’s vacancy rate continues to be near an all-time high at 23.5% at the end of 2023. The 2023 vacancy rate is much higher than the pre-COVID-19 levels of 13.1% at the end of 2019 according to Cushman & Wakefield.
In conclusion, this transfer tax referendum will have significant effects and ramifications on the struggling commercial real estate market and on real estate tax valuations as Cook County Assessor Fritz Kaegi works to re-value all property located in the City of Chicago as part of the 2024 reassessment for property taxes payable in 2025.
