ASSESSMENT APPEAL CASE HISTORY OFFICE BUILDING

Facts

An office building in downtown Chicago experienced a high level of vacancies due to a weak office rental market and eventually was acquired by the lender. In 1994, a group of investors purchased this 150,000-square-foot, Class C office building from the lender. Prior to closing the seller/lender had appealed the property's assessed valuation to the Cook County Board of Appeals, which granted a small reduction. At the sale closing, the buyers received a credit from the seller for the payment of 1993 taxes, which were due in 1994.

After closing, the new owners retained Allen A Lefkovitz & Associates, P.C., to explore further action to reduce the building's real estate assessment and tax.

After reviewing the facts, we recommended initiating litigation in the Circuit Court of Cook County based on the theory that (1) the occupancy level of the building did not justify the assessment, and (2) the Board of Review's market value was not supported by the purchase price. Because the buyers were now responsible for payment of the 1994 tax, we believed they were entitled to a refund, even though they did not own the building during the tax year. The taxes were paid from the credit given to them by the sellers.

Issues

1. Whether our client, the buyers, could initiate this type of litigation when the did not file an appeal with the Cook County Board of Appeals.
2. Whether the purchase price paid to the lender was the best evidence of the market value of the property.
3. Whether the Board of Appeals properly took into consideration the high vacancy rate and poor financial condition of this property.
4. Who was entitled to the refund.

Proceedings

The former owner initiated an appeal before the Cook County Board of Appeals. After the 1994 real estate taxes were paid, our client filed a Specific Valuation Objection in the Circuit Court of Cook County. We negotiated a settlement with the Cook County State's Attorney. Our settlement was based on three factors: 1) the appraisal that was submitted to the Board of Appeals in the 1994 appeal; 2) the price subsequently paid for the building by our client, and 3) the assessor's valuation of similar Class C office buildings in the Loop

Resolution

The initial $557,800 real estate tax was reduced to $322,000 for a refund of approximately $235,800. Due to the large amount of the refund, the supervisor of the real estate tax division of the Cook County State's Attorney's office approved the settlement. Although the monies used to pay the 1994 real estate tax were provided by seller in the form of a credit to the buyer, the refund was paid to our client, the buyer. To file an appeal in the circuit court, the assessment first must be appealed to the Board of Review.

Usually the purchase price is the best evidence of market value. However, when a lender who obtained title to the property by default, is also the seller, the purchase price may not accurately reflect the real estate value as the seller may be more interested in disposing of the property or merely recovering the amount of the loan.

While vacancy is a factor that reflects value, it is not a determinant of the assessment. It should be considered, however, in the valuation process.