From the start, it was a Chicago version of David versus Goliath: a middle-class taxpayer, represented by one rather disheveled public-interest attorney, up against a giant corporation, with its money, clout, and legions of lawyers.
Of course, Sears disputes that the property is underassessed. To plead their case before the board they hired Kevin O’Keefe, a feisty and well-connected Loop lawyer. By the time O’Keefe had finished ridiculing Quinn and his argument, the board had dismissed Duffy’s case.
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The Sears Tower illustrates how convoluted economic theories with little practical relevance dictate different values for downtown properties. As always, the issue is muddied by the county’s confusing system of setting and collecting property taxes. Hynes determines fair market value by approximating the price a piece of property would fetch if it were for sale. The assessed value is that portion of fair market value on which property is taxed. The Sears Tower, like other commercial buildings, is taxed on 38.5 percent of its value; in contrast, single-family homes are taxed on 16 percent of their fair market value.
It’s not unusual for assessors to underassess fair market value. They’re politicians; they have to run for reelection every four years. The higher assessments are, the more property taxes voters will have to pay. Most voters already feel they pay too much in taxes.
Conversely, sometimes the sales price is driven down because of the seller’s needs. There is, for instance, an urgency to Sears’s efforts to sell its tower. According to press reports, Sears wants to raise capital to stave off a threatened buy-out. Thus, their estimated $1.1 billion asking price might be higher if they had more time to shop for buyers.
“They want it two ways,” says Quinn. “They want to sell the tower for $1 billion, while telling the assessor it’s really only worth $329 million. Would Sears ever think of insuring that building for the pittance they say it is worth, $329 million? Obviously not. If they were ever borrowing money using the building as collateral they would use the $1 billion figure. Whoever buys the Sears Tower won’t tell the IRS the building’s value is $329 million. But they’ll make that claim to the assessor. This Alice-in-Wonderland world, where a $1 billion building is worth $329 million, is at the board of appeals.”
Armed with Waldstein’s article, Quinn asked the board of appeals–whose members are Democratic Party stalwarts Wilson Frost and Joseph Berrios–to reassess the building at a higher fair market value.
