Mayor Brandon Johnson’s City Council allies are closing in on a compromise that will deliver on his promise to raise the real estate transfer tax on high-end home sales to create a dedicated funding source to help the unhoused, but the owners of large office buildings that have plummeted in value are not on the train.
Zoning Committee Chair Carlos Ramirez-Rosa (35th) said the compromise that Chicago voters will be asked to approve in a binding referendum in March is the one that now former Housing Commissioner Marisa Novara floated during a three-hour subject matter hearing last month.
Instead of more than tripling the transfer tax on Chicago homes sold for more than $1 million — from 0.75% to 2.65% — the dramatically higher tax would apply only to that portion of the sale above $1 million. Affordable properties would be exempted from the higher tax.
The changes are expected to reduce the annual revenue by $20 million — from $160 million to $140 million.
Farzin Parang, executive director of the Building Owners and Managers Association, said the $1 million trigger for the new tax rate is “not really relevant” to his members, who include owners of large office buildings, because those buildings have dramatically higher price tags.
“You’re talking about assets that used to be $300 million and that are, right now, attempting to get some offers at $100 million if anything. There have been no sales of real office buildings downtown this year. Period. You’re looking at valuation drops anything from 40-to-80%,” he said.
Parang acknowledged that helping the unhoused is a “critical and important issue” for Chicago as it is for most major cities. But, the “construct of having a funding source” entirely generated by the real estate transfer tax and “disproportionately” falling on office buildings is unfair.
“Our buildings on their busiest days are 60% empty. Almost a quarter of office space in the city is unleased, the highest it’s been in 75 years. If you look at our sub-lease listings, they’re telling you they’re not gonna renew when the lease expires. Listings are the highest they’ve ever been in recorded history in Chicago,” Parang said.
“That’s resulting in huge drops in valuation. And that affects all of the people our industry supports, which is predominantly union labor. But also, we subsidize disproportionately residential property taxes. And so, the extent that our industry is suffering, which it will be for quite some time, you’re inadvertently increasing property taxes for residents throughout the city. A 50% drop in the value of office buildings downtown is a 20% increase in residential property tax bills.”
Mary Tarullo, associate director of policy and strategic campaigns for the Chicago Coalition for the Homeless, could not be reached for comment. Neither could the organization’s executive director Doug Schenkelberg.
Ramirez-Rosa, who doubles as Johnson’s City Council floor leader, said members of the so-called “Bring Chicago Home Coalition” are “coming around to the reality” that changes need to be made.
“We want to pass this, and we want to pass it in such a way that brings people together because that’s good governance. We want the Council to come together. We want the coalition to come together. We want the real estate industry to come together. That’s good for the city,” Ramirez-Rosa said.
“That’s why we’ve had countless meetings with the coalition, with the real estate industry. Countless conversations with alderpeople. Those conversations have been happening behind the scenes over many weeks now. And now, we’re hitting a critical juncture where we’ve got to finally bring everyone together to get this past the finish line.”
Ramirez-Rosa openly acknowledged that “not everyone” in the real estate industry is on board with the compromise.
But, he said there are varying degrees of opposition.
“Some people have said, `If you make some changes, I may not support it, but I won’t necessarily oppose it,’ “ Ramirez-Rosa said.
If the City Council approves the binding referendum, Ramirez-Rosa said he has no doubt it will pass.
“Chicagoans are willing to vote to increase revenue, particularly if it’s shifting the burden toward the wealthiest entities in the city of Chicago. And they’re willing to do that if they know exactly where the money is going,” he said.
The need for more revenue to take care of the unhoused is indisputable, Ramirez-Rosa said.
Chicago already has “over 100” encampments of unhoused people, he said. The one located in Humboldt Park that had 54 tents a few weeks ago now has 75 tents.
“Everyone understands you’re not going to solve this overnight. But, having a dedicated source of revenue every single year, you can come up with a plan for the long-term to say, `This is how we’re gonna chip away,” he said.
