CHICAGO | Lincoln Yards

[Goose Island Guru]

Originally Posted by VivaLFuego

I'm not that old, but I'm old enough to remember when nearly this whole area was in fact filled with active businesses and buildings contributing property tax on both land and improvement value, even if not via the most profitable and lucrative uses for the new and previous owners. Reading your justifications, one might almost think that every parcel here was vacant and useless until a powerful interest started landbanking it.

For all the talk about spreading investment and development throughout the city, this is also an offensive location for major office development given how inaccessible it is from the South and West Sides, whose future redevelopment hinges on job accessibility. Job growth downtown is good for every neighborhood with good transit access to downtown. Job growth in Lincoln Yards is good for.... Bucktown, Lincoln Park, and the north and northwest suburbs?

You're not wrong. This was once a thriving area for industrial uses. Those businesses left. That's the problem. They're gone and they're not coming back (at least that's what Obama told us).

So sure, this was a once-thriving area for industrial use. The surrounding neighborhoods do not support an industrial use today - the area commands what is proposed. The infrastructure in place supports an industrial use, not what is proposed. This is why we are looking at a TIF. The TIF gives you better access from all directions; that's the purpose.

[sammyg]

Originally Posted by Goose Island Guru

You're kidding right? You're actually serious?

Think of Lincoln Yards as a collection of properties. These properties are not coming individually without those vastly important items being in place.

That's my issue - if this was a collection of smaller properties, it would develop organically just fine. But instead the city sold its property to Sterling Bay and ended up with a giant single development that apparently won't be profitable without a billion dollars of investment. If Sterling Bay can't afford to build there, break up the property into smaller lots, sell for what they can, and let the smaller developers make a profit.

[Goose Island Guru]

Originally Posted by sammyg

That's my issue - if this was a collection of smaller properties, it would develop organically just fine. But instead the city sold its property to Sterling Bay and ended up with a giant single development that apparently won't be profitable without a billion dollars of investment. If Sterling Bay can't afford to build there, break up the property into smaller lots, sell for what they can, and let the smaller developers make a profit.

Please read the rest of my post for information as to why it would NOT develop organically just fine.

Maybe it would eventually get there but it will take much longer at a much higher expense to the City and result in lower tax revenues that start at much later dates.

Also, to be clear, there is one City lot that was sold to SB for LY. If I had to guess, at least 85% of the area of LY was NOT City land.

The billion dollar investment you refer to MUST BE MADE whether or not LY is built. For the individual properties to become feasible, the City is going to have to invest this money (likely more; we know how efficient the City is...) anyway.

Final point, the fact that LY exists as a PD with larger buildings means the total GSF to be built is probably much, much higher than if the parcels were individually developed. While, yes, this will require a higher infrastructure investment, it will directly yield much higher tax revenues eternally.

[Hourstrooper]

https://therealdeal.com/chicago/2019...e-law-lawsuit/

Aaand it is official. Grassroot hippies lol THESE GOOFBALL GROUPS JUST WAISTING TIME.

The lawsuit, filed Wednesday, challenges the city’s “racially and ethnically discriminatory administration of the TIF system,” according to a statement from the Grassroots Collaborative that filed the suit, whose 11 members include SEIU Healthcare and the Chicago Teachers Union. The city’s TIF system “has disproportionately benefited areas in majority-White census tracts,” the group said. The education advocacy group Raise Your Hand is also a plaintiff on the lawsuit

Alderman Brian Hopkins (2nd), a vocal proponent of the new district whose ward includes the 55-acre Lincoln Yards site, said on Tuesday that he’s confident the area meets the legal standard for blight. The total cost of the Lincoln Yards megadevelopment has been pegged at $6 billion.

[the urban politician]

Originally Posted by Hourstrooper

according to a statement from the Grassroots Collaborative that filed the suit, whose 11 members include SEIU Healthcare and the Chicago Teachers Union.

^ That's all I needed to read

Their candidate lost by 75% of the vote. Now they're just bitching and moaning.

It's over CTU. Nobody cares what you think

[PKDickman]

Originally Posted by Goose Island Guru

Please read the rest of my post for information as to why it would NOT develop organically just fine.

Also, to be clear, there is one City lot that was sold to SB for LY. If I had to guess, at least 85% of the area of LY was NOT City land.

The city parcels constituted 18 acres. Around 33% of the total LY land. For the purposes of the TIF base assessment, which was back dated to 2017, before the last triennial, this is still assessed at $0. It still is for 2018 as well.

Originally Posted by Goose Island Guru

Final point, the fact that LY exists as a PD with larger buildings means the total GSF to be built is probably much, much higher than if the parcels were individually developed. While, yes, this will require a higher infrastructure investment, it will directly yield much higher tax revenues eternally.

Do not underestimate the tax value of McMansions.
In order to get the $1billion projected to come from the TIF, they will need the land to ultimately have an equalized assessed value of about $6,000,000 per net acre. That is not extreme. The main portion of the Roosevelt Collection works out to $5 million/acre.

The McMansion on Burling near Armitage, on a half acre lot, works out to $10mil/acre EAV.

[Goose Island Guru]

Originally Posted by PKDickman

The city parcels constituted 18 acres. Around 33% of the total LY land. For the purposes of the TIF base assessment, which was back dated to 2017, before the last triennial, this is still assessed at $0. It still is for 2018 as well.



Do not underestimate the tax value of McMansions.
In order to get the $1billion projected to come from the TIF, they will need the land to ultimately have an equalized assessed value of about $6,000,000 per net acre. That is not extreme. The main portion of the Roosevelt Collection works out to $5 million/acre.

The McMansion on Burling near Armitage, on a half acre lot, works out to $10mil/acre EAV.

Thanks for the fact check - I was only basing my statement off my memory of maps I've seen, nothing more. I believe that parcel is assessed at $0 because it was City-owned and therefore not taxable. That is certainly no longer the case.

On your next point, I'm not sure there's demand for 55 acres of new McMansions.

It's also hard to cherry pick the insane property tax rate on an individual property and call that universal.

The issue you do raise, however, is that homeowners are burdened with a much higher share of property taxes. This is something the new assessor is trying to curtail and bring commercial property assessments in line with SFH assessments. There was a Crain's article published about this recently with a focus on some apartment buildings in Evanston set to have their taxes tripled because of the new, "fair" assessment process.

In any event, if you put office space there, you're getting higher net tax revenues if not only from the building in that space itself. Notwithstanding that, you also have new jobs, new income, new residents paying taxes who weren't before. The net benefit from most other uses than McMansions will be higher.

[Handro]

I have a very elementary understanding of TIFs, so bear with me.

Do 100% of generated property taxes get diverted? Why couldn’t the city come up with a deal where a percentage of property taxes get sent to the developer to repay for things like infrastructure, while the city still gets some benefit of an increased tax base over that repayment period? It would extend the time it would take for a developer to recoup costs, but it could alleviate some community concerns, at least enough for things to get through without so much controversy.

Or is that already the case?

[PKDickman]

Originally Posted by Handro

I have a very elementary understanding of TIFs, so bear with me.

Do 100% of generated property taxes get diverted? Why couldn’t the city come up with a deal where a percentage of property taxes get sent to the developer to repay for things like infrastructure, while the city still gets some benefit of an increased tax base over that repayment period? It would extend the time it would take for a developer to recoup costs, but it could alleviate some community concerns, at least enough for things to get through without so much controversy.

Or is that already the case?

TIFs have a base assessment that existed prior to the creation of the TIF.
The City, county, school, park levies continue to get tax income for this amount of assessment at the prevailing tax rate.
This base assessment is frozen both in terms of inflation as well as from increases caused by either improvements or market value.

Any increase above the base assessment, is taxed at the prevailing rate, but the proceeds don't go to the general funds, but into the TIF coffers.

Ordinarily, there is sufficient improved property that the base amount going to the levy can make a dent in the increased costs of serving any new uses. But in this case, 70% of the TIF is vacant land, assessed at a very low value and unable to provide for the services that the new uses will require.

The base valuation for the 140 acre Cortland River TIF is about $80 million.
This will only bring in about $6 million dollars to serve the new residents and workers as well as those already present.

[r18tdi]

Originally Posted by PKDickman

TIFs have a base assessment that existed prior to the creation of the TIF. The City, county, school, park levies continue to get tax income for this amount of assessment at the prevailing tax rate. This base assessment is frozen both in terms of inflation as well as from increases caused by either improvements or market value.

Which is why SB scraped the site completely bare of any and all existing improvements first.

But it's cool, we're getting a "foundry playground" that links the site to its a u t h e n t i c industrial past with tube-shaped slides.

[Hourstrooper]

Originally Posted by PKDickman

TIFs have a base assessment that existed prior to the creation of the TIF.
The City, county, school, park levies continue to get tax income for this amount of assessment at the prevailing tax rate.
This base assessment is frozen both in terms of inflation as well as from increases caused by either improvements or market value.

Any increase above the base assessment, is taxed at the prevailing rate, but the proceeds don't go to the general funds, but into the TIF coffers.

Ordinarily, there is sufficient improved property that the base amount going to the levy can make a dent in the increased costs of serving any new uses. But in this case, 70% of the TIF is vacant land, assessed at a very low value and unable to provide for the services that the new uses will require.

The base valuation for the 140 acre Cortland River TIF is about $80 million.
This will only bring in about $6 million dollars to serve the new residents and workers as well as those already present.

Right and since the building have been demoed the area does classify as blighted. especially with the riverwalls crumbling down..

[LouisVanDerWright]

Originally Posted by r18tdi

Which is why SB scraped the site completely bare of any and all existing improvements first.

But it's cool, we're getting a "foundry playground" that links the site to its a u t h e n t i c industrial past with tube-shaped slides.

They should have just left a few slag heaps for Chad and Trixie's kids to play on. Would have been a lot cheaper and more authentic.

[Suiram]

People always misunderstand TIFs. Its just a financing source. Everyone should remember the alternative would just be for the city to issue general obligation bonds and pay for new bridges or new roads that the city sees fit. Maybe to address future traffic concerns / improve access / or prepare for increased density development.

The city would issue bonds, spend that money on infrastructure and then hope that as property tax revenues grow in the area invested, the growth in tax revenues would hopefully cover the debt service payments on the bond.

All the TIF does is extract this whole process from the general city budget and put into a special purpose box so the property tax revenues (only the net increase) goes into that box and that box issues the debt and gets recovery.

Its not a profit mechanism for a developer. The infrastructure gets built with debt and the debt gets repaid. If the development goes gangbusters and gets massive density built quickly, property taxes will grow rapidly beyond debt service. That potential excess does not go to the developer it goes to the TIF.

If things go great, the city could retire the TIF early by paying back all the debt faster than 23 years. And then all the tax revenues start flowing to the normal property tax allocation locations. Now more likely excess TIF earnings can sit in the TIF and then be used for other things. In theory this makes sense as its a pool of money that can be used to do new improvements, but its also quite prone to corruption or at least "light corruption" as in pet projects.

Almost all of the shrill screamer-type complaints about TIFs are either completely non existant or at least addressed by the procedures and regulations of TIFs. The issue most people have really lies with the city staff administering the TIF. The City is responsible for ensuring fair competitively priced contracts are used for the infrastructure and that the infrastructure is broadly beneficial and needed. And that the city investment has a benefit. This is all not really on the developer but on the city and the people appointed / elected.

My bigger issue with TIFs is fairness around land appreciation. Infrastructure improvements and upzoning will automatically cause land values to appreciate in a market value sense (as the residual of development value - development costs). Development should be rewarded but landbanking should not. It is not a productive activity to acquire a bunch of land and hold it while the city funds public infrastructure improvements.

So my view is that property taxes should not be the only revenue stream to the TIF. The TIF should capture some significant share of land appreciation occurring after the infrastructure is put in place. As long as land owners are developing or investing, this should be relatively minor compared to the value of improvements and sold value. But if someone just sits on land and then disposes of it after its improved, it would recoup a significant portion of that value.

[PKDickman]

Originally Posted by Suiram

People always misunderstand TIFs. Its just a financing source.

I know exactly how TIFs work.
Let's look at how much the Cortland river TIF will cost the other taxpayers.

First, because the TIF base assessment is backdated to a previous triennial there is a loss of tax base that will have to be made up by the rest of the properties in Chicago. The bulk of LYS it the city fleet yard parcel assessed for the TIF at $0. It is still assessed at that for 2018 so there is little difference caused by the backdating. On LYN this is a difference of $3.526 Million which works out to a taxed amount of $825,000/yr. This isn't a lot, but since that difference becomes "New Property" subject to an addition of the levy at the expiration of the TIF, it lasts forever.
We will concern ourselves with the 23 Yr life of the TIF,

$825,000 X 23Yrs $18,975,000
Round to $19 mil

Under the Prop Tax Extension limitation Ordinance, the city , schools etc can raise their levies each year by the rate of inflation. Since, theoretically, the EAV of the city also rises by the rate of inflation, they net out and the rate remains the same.
Since the Base TIF assessment does not increase by inflation, it does not absorb it's share of the levy's increase.

Assuming 3% inflation, that is another $53 million over the life of the TIF that must be paid by the other property holders

For the next calculations, we will assume that the projection of ten years to total build out is true.
This puts the productive life of the TIF, effectively at 18yrs, figuring that the build out and use goes from 0 to 100% over the first 10yrs.

The city expends about $3000 per year per occupant. Factoring 24,000 permanent employees, 12,000 residents and 12,000 daily commercial customers projected for LY, I figured an average occupancy of 18,000.

That is $54 million a year.
The base EAV only pays about $6 million a year, so where will the money come from?

Assuming a best case scenario, That all residents are new to Chicago and all jobs would not otherwise exist in Chicago and all employees are Chicago residents.

Employees and income tax
24,000 averaging $80,000/yr, minus the standard deduction, taxed at 4.95%, the city receives 6.06% of that or $5.6 million.
Illinois' corporate income tax collections are about 10% of it's personal tax collections, so let's say another $560k for that.

Sales Tax
From the new residents
6000 new households with 80th percentile incomes of $110k spending 25% of their gross pay locally.
Chicago's share including 1% transit total 2.25%. that is $3.4 million.

Hotel Tax, 400 rooms, maybe $3.8 million.

Amusement tax, just a guess. If LY increases the city's amusement tax revenue by 1% it'll be $1.9 million

Let's say another $2 million if fees and licenses

$6mil existing prop taxes
$5.6 mil income tax
$.56 mil Corp tax
$3.4 mil sales tax
$3.8 mil Hotel tax
$1.9 mil Amusement
$2 mil fees
$23.26 Mil total

That still leaves a $30.74 mil shortfall.
Across the 18yr productive life of the TIF including inflation, a $719.76 Million shortfall.

Plus the $19 mil from backdating and the $53 mil from inflation, $791.76 million

Divided over the $76,765,000,000 total city EAV, that is a little over 1cent per dollar of EAV or $0.03094222627499 per dollar of county assessment.

My meager real estate holdings have about $200,000 total county assessment. This will cost me about $6188.50

Each $285k house will pay about $882 over the life of the TIF.

I didn't include the cost of bond servicing which will, presumably, be borne out of the TIF revenues, or the $684 million that the other taxing bodies would be getting. Funds that will take another 15 years just to break even.

I haven't run the numbers for the "78" but it is probably about the same.

There are more than 140 TIFs in the city, I hate to think how much I have already paid for them.

TIFs are an accounting fiction that not only lets the city pocket the funds going to schools and parks, but lets them double dip on inflation as well.

They have legitimate uses, but slapping a TIF on vacant land, with a limited base assessment, is something that demands the highest scrutiny.

[Vlajos]

I honestly have no problem if we eliminate TIF. But we should redirect all the proceeds to our underfunded pensions. The problem is that of course that would never happen. Our city council will just spend the money (like the new governor and the "Fair" Income Tax) on programs, schools, affordable housing, CTA improvements, park district upgrades,etc. (where TIF goes now) anyway.

[Goose Island Guru]

Originally Posted by PKDickman

I know exactly how TIFs work.
Let's look at how much the Cortland river TIF will cost the other taxpayers.

First, because the TIF base assessment is backdated to a previous triennial there is a loss of tax base that will have to be made up by the rest of the properties in Chicago. The bulk of LYS it the city fleet yard parcel assessed for the TIF at $0. It is still assessed at that for 2018 so there is little difference caused by the backdating. On LYN this is a difference of $3.526 Million which works out to a taxed amount of $825,000/yr. This isn't a lot, but since that difference becomes "New Property" subject to an addition of the levy at the expiration of the TIF, it lasts forever.
We will concern ourselves with the 23 Yr life of the TIF,

$825,000 X 23Yrs $18,975,000
Round to $19 mil

Under the Prop Tax Extension limitation Ordinance, the city , schools etc can raise their levies each year by the rate of inflation. Since, theoretically, the EAV of the city also rises by the rate of inflation, they net out and the rate remains the same.
Since the Base TIF assessment does not increase by inflation, it does not absorb it's share of the levy's increase.

Assuming 3% inflation, that is another $53 million over the life of the TIF that must be paid by the other property holders

For the next calculations, we will assume that the projection of ten years to total build out is true.
This puts the productive life of the TIF, effectively at 18yrs, figuring that the build out and use goes from 0 to 100% over the first 10yrs.

The city expends about $3000 per year per occupant. Factoring 24,000 permanent employees, 12,000 residents and 12,000 daily commercial customers projected for LY, I figured an average occupancy of 18,000.

That is $54 million a year.
The base EAV only pays about $6 million a year, so where will the money come from?

Assuming a best case scenario, That all residents are new to Chicago and all jobs would not otherwise exist in Chicago and all employees are Chicago residents.

Employees and income tax
24,000 averaging $80,000/yr, minus the standard deduction, taxed at 4.95%, the city receives 6.06% of that or $5.6 million.
Illinois' corporate income tax collections are about 10% of it's personal tax collections, so let's say another $560k for that.

Sales Tax
From the new residents
6000 new households with 80th percentile incomes of $110k spending 25% of their gross pay locally.
Chicago's share including 1% transit total 2.25%. that is $3.4 million.

Hotel Tax, 400 rooms, maybe $3.8 million.

Amusement tax, just a guess. If LY increases the city's amusement tax revenue by 1% it'll be $1.9 million

Let's say another $2 million if fees and licenses

$6mil existing prop taxes
$5.6 mil income tax
$.56 mil Corp tax
$3.4 mil sales tax
$3.8 mil Hotel tax
$1.9 mil Amusement
$2 mil fees
$23.26 Mil total

That still leaves a $30.74 mil shortfall.
Across the 18yr productive life of the TIF including inflation, a $719.76 Million shortfall.

Plus the $19 mil from backdating and the $53 mil from inflation, $791.76 million

Divided over the $76,765,000,000 total city EAV, that is a little over 1cent per dollar of EAV or $0.03094222627499 per dollar of county assessment.

My meager real estate holdings have about $200,000 total county assessment. This will cost me about $6188.50

Each $285k house will pay about $882 over the life of the TIF.

I didn't include the cost of bond servicing which will, presumably, be borne out of the TIF revenues, or the $684 million that the other taxing bodies would be getting. Funds that will take another 15 years just to break even.

I haven't run the numbers for the "78" but it is probably about the same.

There are more than 140 TIFs in the city, I hate to think how much I have already paid for them.

TIFs are an accounting fiction that not only lets the city pocket the funds going to schools and parks, but lets them double dip on inflation as well.

They have legitimate uses, but slapping a TIF on vacant land, with a limited base assessment, is something that demands the highest scrutiny.

2 questions:

1. Without a TIF, how would the City (and therefore the taxpayers) pay for the infrastructure costs required to allow the area to develop organically? What is the net cost compared to this? Any more or less expensive?

2. What happens after the 23-year timeframe of the TIF? Is it not prudent to also analyze the long-term tax revenue benefits of this?

[VivaLFuego]

Originally Posted by Goose Island Guru

2 questions:

1. Without a TIF, how would the City (and therefore the taxpayers) pay for the infrastructure costs required to allow the area to develop organically? What is the net cost compared to this? Any more or less expensive?

2. What happens after the 23-year timeframe of the TIF? Is it not prudent to also analyze the long-term tax revenue benefits of this?

PKD, thanks for that analysis.

GIG,

1. Considering that we are not a booming metro area or even a booming city, wouldn't we be better served trying to focus development using existing infrastructure that is operating far below capacity and only needs to be maintained rather than expanded/built from scratch?

At least the 78 will generally (a) be able to utilize existing transit corridor capacity after the red line station is added, and (b) actually lay fallow until investment in basic street/utility infrastructure, unlike this travesty.

2. Once you apply a discount rate to this hypothetical windfall that far into the future and also consider the opportunity costs of giving up money in the meantime, the windfall will have to be enormous to be a sound investment. See also, #1 - it's not like the city and its infrastructure is tapped out and growth is constrained citywide or regionally. It's just that this particular bit of land can only support a certain amount of density and use with it's existing infrastructure. So what? That should be a problem only for the property owners seeking to maximize the value of their holdings, not for every single city taxpayer.

[Vlajos]

Would the City not force affordable housing here without TIF? No park land? What about kind of density would be allowed? Again, I'm not a lover of TIF, but I don't want to see this prime real estate vacant.

And what about the folks like Rosa who want to sell a city owned parcel worth millions for a $1 to his cronies at Bickerdike (which has a bad reputation in the affordable housing industry) and fund $8Million in TIF plus other Federal Funds the City receives in order to build 100 units of affordable housing.

[the urban politician]

Originally Posted by VivaLFuego

PKD, thanks for that analysis.

GIG,

1. Considering that we are not a booming metro area or even a booming city, wouldn't we be better served trying to focus development using existing infrastructure that is operating far below capacity and only needs to be maintained rather than expanded/built from scratch?

This is a common argument I hear and I really challenge the validity of it.

Real estate is really about drawing circles and telling stories about what happens within that circle. Period.

So even if Chicagoland is overall losing population, you don’t need to see metro growth to see growth, tremendous growth even, if you are in the right place.

Right now the central area of Chicago is a story of growth—tremendous growth, some of the highest in the nation. Population, wealth, companies—and that growth needs infrastructure. You either keep the fire burning or you let it die.

If you only look at metro data you are a lazy real estate developer—you miss game changing opportunities—not too different from being a stock investor who merely puts his money in the S&P 500.

[VivaLFuego]

Originally Posted by the urban politician

This is a common argument I hear and I really challenge the validity of it.

Real estate is really about drawing circles and telling stories about what happens within that circle. Period.

So even if Chicagoland is overall losing population, you don’t need to see metro growth to see growth, tremendous growth even, if you are in the right place.

Right now the central area of Chicago is a story of growth—tremendous growth, some of the highest in the nation. Population, wealth, companies—and that growth needs infrastructure. You either keep the fire burning or you let it die.

If you only look at metro data you are a lazy real estate developer—you miss game changing opportunities—not too different from being a stock investor who merely puts his money in the S&P 500.

I get the idea of growing the pie, but there are numerous urban core locations that already have significant excess transportation capacity that also happen to be much more accessible from the parts of the city that everyone claims to want to help. Which will help property values on the south side more: development at Lincoln Yards, or at the 78, Michael Reese, Central Station, or whatever? The best way to juice demand, raise values, and thus increase investment in those areas is to increase the amount of desirable stuff they're easily accessible to. Lincoln Yards doesn't help with that since it's a PITA to get to from anywhere other than neighborhoods that are already very expensive and not hurting for investment. I likewise challenge the notion that a single person or company would decide not to exist in Chicago but for the presence of Lincoln Yards looking a certain way.

I'm as anti-commie-BS as anyone here, but the best asset the collapsing south and west neighborhoods and suburbs have is accessibility to the central area; why shift that center of gravity further north and punish them further? How is that in anyone's best interest?