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Author: Mark Ainely | Partner GC Realty & Development & Co-Host Straight Up Chicago Investor Podcast
Property taxes can make or break a Chicago real estate investment. A building that looks profitable on paper can quickly become a financial headache when its assessment increases, its tax bill arrives higher than expected, or a renovation changes how the property is valued.
For investors buying, renovating, or developing multifamily properties in Cook County, the challenge isn't simply paying high property taxes. It's understanding how those taxes are calculated and planning for what happens after a property is stabilized.
In this episode of the Straight Up Chicago Investor Podcast, hosts Tom Shallcross and Mark Ainley welcome Molly Phelan, a third-generation property tax attorney and managing attorney of the Chicago office of Siegel Jennings. Molly combines decades of family experience in property tax law with her own background in commercial real estate brokerage, development, and investing.
The conversation covers Cook County property tax appeals, loaded capitalization rates, vacancy relief during renovations, assessment differences between six-unit and seven-unit buildings, and strategies for forecasting taxes on new developments. Molly also explains how investors can use affordable housing tax incentives to potentially improve their property's financial performance.
Beyond multifamily investing, Molly shares stories of substantial commercial property tax reductions, explains why unique property circumstances matter in appeals, and discusses how changing office markets and artificial intelligence are complicating real estate valuations.
For Chicago landlords, property managers, and investors, this episode offers a practical framework for treating property taxes as an investment expense that deserves attention before buying a property—not just after receiving a bill.
Questions We Answer in This Episode
Q: How did Molly Phelan become a Chicago property tax attorney?
A: Molly is a third-generation property tax attorney whose grandfather established the family's law practice. Before entering property tax law, she worked in commercial real estate brokerage and development, gaining experience with property acquisitions, financing, and investment analysis. She later joined the family business and eventually helped establish the Chicago office of Siegel Jennings in 2018. Her experience as both an attorney and real estate investor allows her to evaluate assessments from an owner's perspective.
Q: What is a loaded cap rate, and why does it matter for Cook County property taxes?
A: A loaded capitalization rate incorporates the property tax burden into the capitalization rate used to estimate a property's market value. Molly explains that investors typically calculate net operating income after property taxes, while assessment calculations may exclude those taxes from NOI and account for them through a loaded cap rate. In her example, an 8% capitalization rate combined with an estimated 2.1% property tax load produces a 10.1% loaded cap rate. Dividing NOI before property taxes by that rate produces an estimated market value.
Q: How could Cook County property tax assessments change under Pat Hynes?
A: Molly expects a greater emphasis on consistent valuation methods, communication with the Board of Review, and predictability for property owners. She discusses the use of loaded cap rates as an important change in assessment methodology and believes a more collaborative process could reduce disputes and delays. She also emphasizes that no assessor can perfectly value every property. Investors should still review their assessments and be prepared to present evidence when a property's assigned value does not reflect its actual circumstances.
Q: How are Chicago apartment buildings with six or fewer units assessed differently from buildings with seven or more units?
A: Molly explains that Cook County generally places residential properties with six or fewer units in Class 2, where sales comparisons and uniformity among similar properties are important valuation considerations. Buildings with seven or more units are generally evaluated as income-producing multifamily properties, making rental income, operating expenses, and capitalization rates particularly relevant. This distinction can affect acquisition strategies, renovation decisions, and property tax appeals.
Q: How can Chicago investors estimate property taxes after a major renovation or new development?
A: Molly recommends forecasting stabilized income and operating expenses rather than simply using the property's current tax bill or assuming taxes will equal a fixed percentage of gross revenue. For an income-producing building, her approach begins with projected gross income minus operating expenses, excluding property taxes. The investor then applies a capitalization rate that reflects the property's location and characteristics, adds an estimated property tax load, and uses the resulting valuation to estimate future assessments. She discusses base capitalization rates around 7% to 8% for certain examples, while suggesting that a lower rate may be appropriate when testing a more conservative, higher-value scenario.
Q: Can landlords receive property tax relief while a Chicago building is vacant during construction?
A: Molly explains that owners may be able to pursue vacancy-related assessment relief when a building is empty or partially unusable during a substantial renovation. She discusses how land value and improvement value may be treated differently and why relief can vary based on the facts and the reviewing authority. Investors should preserve building permits, construction photographs, renovation schedules, leasing records, and other evidence showing why the property is vacant. She also warns that prolonged vacancy can become harder to justify.
Q: What is the Affordable Housing Special Assessment Program in Cook County?
A: The Affordable Housing Special Assessment Program, or AHSAP, provides qualifying multifamily property owners with reductions in assessed value in exchange for creating or preserving affordable rental housing. Molly discusses two principal tiers. The first requires at least 15% of units to meet applicable affordability and tenant-income requirements and provides a 25% reduction in assessed value. The second requires at least 35% qualifying affordable units and provides a 35% reduction in assessed value. Eligible projects generally require at least seven units, qualifying construction or rehabilitation, and compliance with program rules.
Q: How could a 10-unit Chicago apartment building qualify for an affordable housing tax incentive?
A: Tom and Molly walk through an example involving a 10-unit property with 1,000-square-foot apartments. Under the first AHSAP tier, an owner would need at least 15% of the units to qualify as affordable. Because a property cannot designate one and a half apartments, at least two of the 10 units would need to meet the applicable rent and household-income requirements. The owner would also need to satisfy the rehabilitation investment requirements and complete the necessary applications and ongoing compliance documentation.
Q: Why can commercial property tax appeals succeed even when a building is mostly occupied?
A: Molly shares an example involving a roughly 500,000-square-foot suburban office building that was approximately 98% leased. Another provider had concluded there was little basis for an appeal because occupancy was high. Molly's team examined the changing office market and the property's underlying valuation. She says they ultimately saved the taxpayer approximately $300,000 in one year. Her broader point is that occupancy alone does not determine value. Lease concessions, tenant improvements, free-rent periods, market conditions, and remaining lease terms can all influence what a buyer would actually pay.
Q: What advice does Molly have for new Chicago real estate investors?
A: Molly's primary recommendation is to find a mentor before purchasing a property. She encourages new investors to join real estate associations, speak with experienced local owners, understand neighborhood-level market conditions, and have someone review their numbers. She also recommends learning how to distinguish an attractive purchase price from a genuinely profitable investment. Renovation costs, operating expenses, realistic rents, and future property taxes should all be considered before closing on a deal.
Show Notes and Timestamps
01:42 Housing Provider Tip of the Week: Handling a tenant who requests an early lease termination after losing their job.
03:56 Molly Phelan's family history in property tax law and her career in commercial real estate.
09:32 Cook County assessment practices, Pat Hynes, and the difference between investment value and real estate value.
11:56 Understanding loaded cap rates and how property taxes influence income-based valuations.
24:16 How major renovations, purchase prices, and property classifications affect Chicago property tax assessments.
29:14 Strategies for investors rehabbing multifamily buildings, including the six-unit versus seven-unit distinction.
31:41 Vacancy-related assessment relief, documentation requirements, and construction-period tax exposure.
44:00 Forecasting property taxes for new developments and stabilized apartment buildings.
46:35 Cook County's Affordable Housing Special Assessment Program and examples of qualifying multifamily properties.
57:17 Commercial property tax appeal success stories, including a $300,000 annual savings case, business valuation issues, and environmental contamination.
Takeaways for Chicago Property Managers and Landlords
Underwrite property taxes before purchasing a building. Today's tax bill may not reflect what an investor will pay after renovations, reassessment, or stabilization.
Understand how your property's classification affects valuation. Cook County's treatment of smaller residential buildings differs from the income-based analysis commonly used for larger multifamily properties.
Learn how loaded capitalization rates work. A tax-loaded cap rate can materially affect the market value calculated for assessment purposes.
Maintain accurate rent rolls and operating statements. Actual income and expense information can help demonstrate why a property's valuation should differ from neighborhood averages.
Don't assume every renovation dollar increases assessed value by the same amount. Repairs, modernization, and necessary building-system replacements require a more nuanced valuation analysis.
Document vacancies during major construction projects. Permits, photographs, contractor records, and construction timelines can support requests for appropriate assessment relief.
Keep evidence of active leasing efforts. Marketing records, broker agreements, and showing activity can help explain why a property remains vacant despite an owner's efforts to generate rental income.
Evaluate affordable housing incentives before finalizing renovation plans. AHSAP may offer meaningful assessed-value reductions for qualifying multifamily projects.
Understand the compliance requirements associated with tax incentives. Affordable rent limits, tenant-income qualifications, application deadlines, and annual documentation all affect eligibility.
Avoid relying exclusively on a percentage of gross rents to forecast taxes. Two buildings with similar gross revenue can have very different operating expenses and economic values.
Review assessments even when occupancy is strong. High occupancy does not necessarily mean an assessor's valuation accurately reflects market conditions or lease economics.
Consider the effect of declining commercial values on surrounding tax bases. Weakness in the office market can influence how the property tax burden is distributed across a community.
Treat unusual property conditions as important valuation evidence. Environmental contamination, deferred maintenance, functional obsolescence, and significant capital requirements may affect market value.
Work with experienced professionals before making major investment decisions. A knowledgeable property tax attorney, accountant, broker, and local investor mentor can help identify risks that are easy to overlook.
Guest info
Guest Name: Molly Phelan
Guest Company: Siegel Jennings Property Tax Law
Guest Link: https://siegeltax.com/
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