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That’s Interesting…

I had fun with this last summer, so I thought I’d try it again. I’m always reading stuff that I think is interesting, but that I don’t necessarily get to bounce off anyone else. Well, here’s my golden opportunity!

I’d like to start with a random quote that I read in The Economist magazine (Lexington, “Listen Up,” Dec. 24, 2022 – Jan. 6, 2023) that just hit me like a ton of bricks for its simplicity and its truth. In my opinion, The Economist is one of the best written and most thoughtful publications I know. Yeah, it’s kinda long and I never manage to read it cover to cover. But no matter. There’s enough I get out of it to make it worth the price. Like, for example, this:

“America has no problem with speech. It has a problem with listening.”

Hard to argue the point. Feel free to disagree. Now, for more fun stuff to ponder!

#1 – According to The Week magazine (Jan. 10, 2023), the global economy is at “high risk” of a recession in 2023. The magazine cites a World Bank press release that cuts estimates of global economic expansion from 3% to 1.7%, “the third-weakest annual expansion in three decades, behind only the deep recession that resulted from the 2008 global financial crisis and the coronavirus pandemic in 2020.”

The past does not necessarily predict the future. Looks like those storm clouds might be getting a little closer.

If there is any silver-lining to this prediction, it is that the recession will be felt less in the United States than in Europe or China with the US projected to grow at an annual rate of 0.5% – not exactly setting the world on fire, but at least still a positive number.

We’ve all been looking over our shoulders for about a year now, wondering whether or when a recession might hit. The incredibly strong job market has kept it at bay with continuous job growth every month throughout 2022. But the past does not necessarily predict the future. Looks like those storm clouds might be getting a little closer.

#2 – WTTW reports that the share of property taxes gobbled up by tax increment financing (TIF) districts grew by 15.5% in 2021 and now claim 40% of total property tax revenues in Chicago (Heather Cherone, “Share of Chicago Property Tax Revenues Claimed by TIF Funds Grew 15.5% in 2021: Report). Of the $3.02 billion in total property taxes collected in 2021, TIF districts claimed $1.22 billion of this money. The largest single TIF district was created in 2017 to raise money for the renovation of the CTA’s Red and Purple Lines on the North Side. This district alone took in $190.1 million tax dollars in 2021.

The story within the story here is the war going on currently between Fritz Kaegi in the Assessor’s Office, and the Cook County Board of Review which hears tax appeals and can override assessment valuations set by the Assessor. Many Chicago homeowners were outraged when they received large assessment increases, particularly in gentrifying areas. Many of these areas have significant Hispanic populations, a group that is particularly vulnerable to the impact of large tax increases on their family budgets.

According to Assessor Kaegi, the blame lies with the Board of Review which reduced assessments on commercial properties, pushing the tax burden back to homeowners. The subtext, of course, is that well-connected large property owners can still exert their influence with the Board of Review and get their assessments reduced, while small homeowners without clout or connections are relatively powerless in their efforts to do the same.

While this debate is likely to continue, it is also true that Kaegi just won reelection this past November and is secure in his office for another four-year term. Meanwhile, Cook County continues to shift to the political left and two of the three Board of Review officials were defeated. Right now, it looks like Kaegi has the advantage in this battle of influence.

#3 – Speaking of commercial property owners, they may have a friend in the Board of Review, but it’s not like they are all popping the champagne after the long-delayed second installment tax bill was finally mailed out near the end of 2022. According to another Crain’s article (Alby Gallun, “The Tax Winners and Losers Among Trophy Towers,” December 5, 2022), many of the biggest commercial properties in Chicago saw large increases in assessed value and property taxes.

Willis Tower was the biggest loser in this regard, according to the article. Assessor Kaegi initially set the new assessment at $1.24 billion, close to two-times the 2020 assessment, but notably less than the $1.3 billion Blackstone paid for the property in 2015 and way less than the property’s $1.78 billion appraised value in 2018. Blackstone tried to get it reduced to $800. In the end, the Board of Review reduced Kaegi’s value to $999 million, resulting in a total tax bill increase of almost 30%.

Commercial property owners say that these large tax increases are coming at the worst possible time for downtown Chicago which is still reeling from the pandemic and a soaring office vacancy rate in the downtown core. Homeowners say it’s about time commercial property owners paid their “fair share” of the city’s real estate taxes and stopped receiving special treatment.

Photo: Armando L. Sanchez/Chicago Tribune/Tribune News Service via Getty Images

If there’s one thing upon which everyone can agree – property taxes in Chicago are just too darn high and can’t continue rising as they have been doing without further damaging the city’s economy and livability. Amen to that.

#4 – In case you weren’t paying attention, Chicago will hold mayoral and aldermanic elections on February 28th. In the past, the outcomes of many of these elections were pretty much pre-ordained. Not this time.

While it is difficult to predict who will win these races, all signs point to an increase in influence from the far left of the Democratic Party with the Democratic Socialists in the ascendant. To date, there have been about a dozen sitting Aldermen who have announced they will not run in 2023. Not a small number of these Alderman likely decided to bow out rather than be primaried by candidates running to their political left.

In the past, the outcomes of many of these elections were pretty much pre-ordained. Not this time.

The run for mayor looks like a real free-for-all with incumbent Mayor Lori Lightfoot polling badly after a rough first term in office, and several far-left candidates looking to boot her from office. Two of her strongest challengers are Chuy Garcia and Brandon Johnson. Although Garcia is doing better in the polls, Johnson has the backing of the Chicago Teachers Union (CTU), Lightfoot’s arch-enemy, who desperately wants to push her out of her job.

All of these races are being watched with great trepidation by housing providers and the city’s business community. Housing providers fear renewed momentum for Rent Control, Just-Cause Eviction Protections and other legislation that will harm our businesses, while the larger business community worries about ever increasing taxes and even less attention paid to the state’s dire pension crisis.

These elections will be very consequential. The results could be just the latest body-blow to the city’s reputation as a viable business center. No doubt Dallas and Miami are licking their chops at the prospect of luring more Chicago-based companies down south once the dust settles.

#5 – Countering the doom and gloom of #2, #3 and #4, Crain’s ran an Op-Ed in their July 25, 2022 edition, entitled “A Deep Dive into Census Data Shows Grounds for Cautious Optimism.” The article was co-authored by Ed Zotti, Rob Paral, Mike Rothschild and Pete Saunders who, between them, have expertise in journalism, data analysis, demographics, city planning and urban affairs. This fascinating, two-page article goes into all sorts of statistical reasons why the bad news we constantly hear about Chicago is not the whole picture of what is happening in the city, at least from a demographic perspective.

Photo Credit: Crain's Chicago

These four experts did a deep dive into the 2020 census data for Chicago and discovered, among other things, that Chicago is not only one of the most educated metro areas in the country, but has seen its percentage of highly educated people grow mightily over the last decade. Also, the city may have barely held even in population, but it did see a significant increase in the number of households. In fact, while Chicago’s population is way down from its 1950 peak, its household count is getting close to the previous 1960 high and, per the article, “will soon surpass” it. I guess all those cranes on the horizon is not a mirage after all.

All of Chicago’s four major ethnic groups saw increases in the number of educated residents over the last decade.

True, this influx of highly educated people has mostly settled in the downtown core and on the near North and Northwest Sides. And yet, all of Chicago’s four major ethnic groups – Black, Asian, Hispanic and white – saw increases in the number of educated residents: 23,000, 29,000, 37,000 and 103,000, respectively, over the last decade.

The article has lots more interesting findings – too many to summarize here. If you missed it, it’s pretty interesting and definitely worth a read. It will also give you some hope that Chicago’s competitiveness and future prospects might be better than we think.

Rogers Park Manor Bungalow Historic District

#6 – Two more Crain’s articles present a mixed picture about Chicago’s housing market. On the positive side, Chicago remains one of the country’s most affordable housing markets, even after the run-up in prices coming out of the pandemic. Dennis Rodkin’s article, “Chicago Housing Affordability Stayed Strong During the Boom,” (Oct. 4, 2022) notes that Chicago benefits from high median incomes ($78,831) and relatively low median home prices ($311,700). Of the 25 largest metro areas, only Baltimore is more affordable than Chicago.

While the city may rank high in affordability, that does not mean it has not also seen its housing market weakened by rising interest rates and a slowing economy. A second article, “Chicago-Area Home Prices Flat for First Time Since Pandemic Boom Began,” (Nov. 14, 2022) also by Dennis Rodkin, confirms that the long, upward trend in Chicago area home prices finally came to an end in early November of last year.

Chicago remains one of the country’s most affordable housing markets, even after the run-up in prices coming out of the pandemic.

None of this news is surprising. We all experienced the incredible rebound of the housing market coming out of the pandemic. And we have all seen the growing impact of recession fears and surging interest rates since the early part of 2022. Chicago’s prices never grew as fast as many other cities. Now that they are coming down, Chicago has less ground to give back.

Chicago’s stability and slow pace of change, both up and down, is just more of what we have come to expect from our large and mature market. For better or for worse, no one will ever confuse Chicago for Phoenix or Austin.

#7 – Last but not least, there was a fascinating article by David Roeder (“For City’s Next Growth Spurt, Follow the Money to North-Northwest Corridor,” Jan. 2, 2023) that appeared in the Sun-Times (now owned by WBEZ). The basic premise of this article is that, after two centuries of all roads leading to the Loop, the center of gravity within the city of Chicago may be about to make a big move in a new direction.

There is evidence that this is already happening, with LaSalle Street in decline as Fulton Market booms, pushing new office development almost all the way west to Ashland Avenue.

But that’s not the big take-away from this article. The author basically speculates that future development may one day bypass the Loop entirely in favor of the emerging commercial centers that have been proposed or are currently being developed north and northwest of downtown Chicago on or near the North Branch of the Chicago River.

Big plans have been announced for the redevelopment of the Moody Bible Institute; the Chicago Tribune printing plant; Goose Island; and Lincoln Yards, the most ambitious of all these proposals and the most far-flung location.

There may come a day when the Loop is just not where the real action is anymore.

If all of this development comes to pass (still a big “if” in the post-pandemic, work-from-home world we now live in), it would radically transform the traditional development pattern of Chicago which has always been known for its tightly packed office district surrounded by sprawling residential and industrial areas with patches of commercial and retail mixed in.

The new Chicago described in this article would make the North Branch of the Chicago River look more like Hong Kong than the sleepy industrial corridor it has long been, with towering office and residential buildings stretching miles north of the traditional downtown core.

Other cities have seen their downtown districts fall out of favor and migrate to new locations. In New York, Midtown displaced Downtown in the early decades of the 20th Century. Canary Warf in London and La Defense in Paris are other good examples of this phenomenon.

Sterling Bay's plan for Lincoln Yards will essentially create a new Chicago neighborhood.
Rendering credit: Skidmore, Owings & Merrill

This has never really happened in Chicago. Sure, the Loop has widened out, expanding north along Michigan Avenue and westward toward the train stations. But the downtown core still feels like the city’s center of gravity and activity.

If this article is correct and these proposals start to actually get built (and there’s good reason to believe they will), that could radically change. There may come a day when the Loop is just not where the real action is anymore. In fact, with Fulton Market booming, that day may be closer than we think – or has it maybe even already arrived?




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