Double-digit tax-assessment hikes on rental apartments during one of the worst real estate recessions since the Great Depression are sparking a rebellion among North Side apartment owners and managers who are seeking tax relief from Cook County.

“Cook County Assessor James Houlihan is attempting to extract higher assessment values for apartment buildings when the comparables clearly show declining values in the softest real estate market since 1929,” said Stuart Handler, chief executive officer of Chicago-based TLC Management Co.

“How can apartment assessment values rise sharply during a period when resale values dropped 20 percent or more,” asked a shocked Handler, whose TLC Management manages more than 2,200 rental units in 21 apartment buildings along Chicago’s lakefront.

According to Judy Roettig, executive director of the Chicagoland Apartment Association (CAA), several North Side rental property owners recently surveyed were hammered with assessed value increases ranging from 18.6 percent to an incredible 182 percent.

Dramatically higher apartment assessments could lead to skyrocketing rents in 2009 and 2010, according to the 300-member CAA, which represents more than 2,500 apartment professionals owning/managing more than 600 properties and more than 136,000 apartments in greater six-county Chicago area.

The CAA now is spearheading the drive to assist owners who are feeling the assessment squeeze.

Roettig said apartment building owners were promised a fairer system when real estate tax assessment levels on rental properties with seven or more apartments in Cook County were scheduled to decrease to 16 percent of market value in 2009 from 20 percent in 2008.

An ordinance passed by the Cook County Board will lower the assessment levels of apartment buildings with seven units or more to 13 percent of market value in 2010 and 10 percent of market value in 2011.

Rental property investment experts gave the following theoretical example of how these dramatic assessment changes will affect landlords who own rental buildings with seven or more apartments:

A 2007 assessed value of $100,000 represented a market value of $500,000 since assessments for apartment buildings were based on 20 percent of market value.

In increase in the 2009 assessed value of 40 percent, or $140,000, represents a market value of $875,000 because this year rental property is assessed at 16 percent of market value.

“This represents an increase in market value of 75 percent at a time when real estate values have dropped about 20 percent,” said Bruce Wechsler, CAA Board President. “I think that that is the issue the assessor must justify.”

So, what percentage of rent increase must be passed through to the tenant to cover the exorbitant assessment hikes?

“My apartment rents will have to go up $150 a month on each unit to try to cover these assessment increases,” said Sanford Kahn, a lawyer and an investor/owner of several small North Side apartment buildings.

Kahn estimated that rents on 1-bedroom apartments in Lakeview, now renting for $900 a month would have to be increased to $1,050. Two-bedroom layouts now renting for $1,100 to $1,200 would have to be boosted to $1,250 to $1,350.

Newcastle Limited, owner of 1,600 apartment units on Chicago’s North Side, noted that assessments have skyrocketed 62 percent at a group of seven walk-up buildings encompassing 162 units in the Sheridan Park section of Uptown.

One 23-unit building was slapped with an incredible 182 percent assessment hike when the assessed value rose to $370,000 from $131,000.

The assessor’s office reassesses the value of each of the 1.5 million parcels of property in Cook County every three years through a “mass appraisal system,” which compares each property to similar properties in a given area.

The reassessment is done on a rotating basis among three regions of Cook County—north suburbs, south suburbs, and the city of Chicago. This year, it’s the city’s turn.

Reassessment notices have been send to property owners in Rogers Park, Lakeview and Jefferson Townships. West Chicago notices are scheduled to be mailed in October.

Tax multiplier increases ranging from 2.8 to 2.9 will appear on the second installment of the property tax bills scheduled to be mailed in October or November. The multiplier is designed to equalize assessments between the Chicago area and downstate Illinois.

Any 2009 reassessment hike issued by the assessor this autumn will not be reflected on the property owners tax bill until the 2010 second installment, which will be payable in August or September of 2010.

When the apartment owners feel the tax squeeze, it typically is passed onto apartment renters in the form of higher rents. However, high vacancy rates, a soft rental market and rising unemployment rates are making this impossible during the recession, Handler said.

“Real estate values are falling, and people are being foreclosed, but the assessor is ignoring the market making up the difference,” said Kahn, a landlord/tenant lawyer. “The only thing going up is real estate taxes.”

The new assessments are “so unreasonable they are a joke,” said Kahn. “A property owner’s only chance is to hire a real estate tax lawyer to go to the Board of Review and file an appeal this winter.”

In addition to higher real estate taxes, many owners of aging apartment buildings have been hit with major porch rebuilding and maintenance repairs in recent years. Over the past three years the owner of a 16-flat in Roscoe Village spent $25,000 to rebuild porch stairs and railings, $17,000 for a new boiler, and $70,000 for brick work and tuck pointing to repair deteriorating parapet walls.

A new survey by the Chicago-based Metropolitan Tenants Organization reported that 53 percent of apartment renters in Chicago currently are paying more than one-third of their gross monthly income for rent. That’s higher than the 28-percent Fannie Mae guidelines for ownership. The federal guideline for percentage of income paid toward rent is 30 percent.

“Financially squeezed apartment owners and managers have no recourse except paring back on building services and maintenance, and this could lead to safety and living standard problems,” Handler warned. “This not only impacts the living standards of renters. It also could spark the decline of neighborhoods in the city.”

Handler noted the current assessment hikes are coming on top of big increases three years ago during the last reassessment in the city of Chicago.

“It’s a very complex issue that requires a lot of reform. The system as it works now is broken. There needs to be a fair formula devised for commercial property owners and residential owners,” he said.

For more information on the Chicagoland Apartment Association, please call 847-678-5717. Or visit the Web site at http://www.caapts.org/.