Commercial real estate owners always try to maximize the value of their investment. That’s the name of the game whether the property is owner occupied or leased for a profit. Part of that effort of maximizing value includes not only maximizing income but also minimizing operating expenses as well as non-operating expenses. This concept should be fundamental to any prudent investor. Owners are constantly reviewing their operating expenses to minimize the same where possible. Reducing your real estate taxes should not be overlooked as an area of possible savings because a reduction in the real estate tax expense will in turn add value to the real estate. The current economic challenges make it even timelier to take a closer look for opportunities to reduce expenses.  


Owners of real estate in Illinois know that keeping the real estate tax on their investment grade property in check, i.e., at the lowest equitable level allowed under law, is one of the most important things an owner can do to maximize the value of real estate. For example, at a 10% rate of return, which is historically a reasonable expectation for middle risk property over a customary holding period, the market value of the property should increase by $100,000, based on an income capitalization analysis, for every $10,000 the real estate tax decreases. Everything else being equal, a reduction in any expense, including real estate taxes, will add directly to the bottom line and should directly result in a higher market value to the property by ten fold for each dollar by which it is reduced. Because real estate taxes tend to be one of the more significant expenses, owners may find more opportunity to reduce real estate taxes and may find a larger impact on the value of the real estate resulting from a reduction.  


Illinois owners know that property is reassessed at least once every three years in Cook County and at least once every four years in other counties around the State. It is important for owners to begin review of their respective properties before the next round of reassessments to determine whether the particular circumstances surrounding their property may provide an opportunity to reduce real estate taxes.  


Owners may not know that despite the respective reassessment cycles, all property is subject to reassessment each and every year under Illinois law. Although the most obvious time to review and contest a real estate tax assessment is during the reassessment year, owners should take the opportunity each year to review their respective real estate tax positions to determine the potential for reduction. Such review should include considering any change in circumstances from the previous year, such as a drastic change in the income stream due to vacancy or renegotiation of leases, severe property damage or other drastic change in market conditions that may offer the opportunity to reduce the real estate taxes. Since taxes are paid one year in arrears, owners need to review their portfolios early on in the calendar year since once the tax bill comes out the following year it is generally too late to do anything about it.  


It is of the utmost importance for ownership to thoroughly review the real estate taxes on their commercial, industrial and multi-unit investment grade property with real estate tax counsel to be sure they are maximizing their investment. A timely and thorough analysis of your investment grade property and the proportionate real estate tax burden is key to this process, especially in light of the current market challenges.