At the same time the Village of Schaumburg is proposing its first municipal property tax of $24 million/year,  the Village is lining up a sweetheart deal to allow Career Education and the Keystone Property Group to get a $15,000,000  cut in property taxes over 12 years.   I worked at the building until late 2005 shortly before the last tenants left.

If the Village is arguing that only a huge property tax cut will promote economic development at 231 N Martingale site, then why are they pursuing a new municipal property tax increase that will undoubtedly harm everyone else during this already distressed economic environment.

The Village Board has called a special meeting to approve the application of the project for December 1st, 2009 at 6:30 PM. (Update: The Village Board approved this proposal 6-0)

This article will outline why Career Education and Keystone Property Group should be denied this huge 7B tax break.

Background on 7B tax break

7B is a Cook County commercial property tax class.  When a property gets a 7B tax break, the properties’ assessed valuation is reduced to 40% of normal.  This reduction is in effect for 10 years.   So, for example, if a property is assessed at $1,000,000—it would now be assessed at $400,000—for tax purposes.  So $600,000 would not be taxed for a period of 10 years. The normal assessment is then phased back in year 11 and 12.   It can only be granted to property inside a Commercial Blight Area.

Keystone Property Group is the developer of a vacant office building located at 231 N Martingale in Schaumburg.  The owner is 231 N Martingale Associates, LLC but Keystone is the owner listed on tax records.  Career Education—a potential tenant—wants to relocate its headquarters to this building from multiple buildings in nearby Hoffman Estates.   However, Career Education says it will not relocate without a huge 7B tax break.   Cook County officials are currently evaluating the 7B application. This 7B application and a blight study were prepared by True Partners Consulting on behalf of Career Education.

True Partners estimates a tax savings of about $15,000,000 over the life of the tax break for the owners of the building.  In return, the owner must (1)spend at least $2,000,000 to rehab a “blighted” property or construct a new building and (2) Increase Employment opportunities in  the Commercial Blight Area.

A 7B applicant must prove all five of the following requirements.

1. A Commercial Blight Area must be designated
2. A Real Estate Tax Analysis must show decline
3. A viable and timely redevelopment plan must exist
4. There must be proof that redevelopment could not be done without government assistance
5. There must be proof that redevelopment will  increase both tax revenue and employment

This 7B will likely only meet requirement 3.  Requirements 1, 2, 4, and 5 are not met. See below for more details.

Qualification 1 is not met:

1. The Village of Schaumburg did declare a Commercial Blight Area, as required by the County 7B ordinance.  However, this property does not meet the State requirements for a Commercial Blight Area.    For one, there must be multiple buildings, not just one.   According to State Statute 65 ILCS 5-11 74.2, a Commercial Blight Area is intended for an area “where a major portion of the commercial buildings and structures are detrimental to the health, safety and welfare of the occupants and the welfare of the urban community”. There are no such buildings anywhere near 231 N Martingale, including the building itself.
2. The “Commercial Blight Area Qualification Report” by True Partners Consulting is deficient. It fails to assess the building condition with qualified inspectors.  It misrepresents remodeling as blight removal.  It exaggerates minor flaws and downplays major enhancements.  It conflicts with building and fire permit records.  It conceals that the owner and/or developer is responsible for much of the damage and deterioration shown in this report.

See more detailed blight analysis

Qualification 2 is not met: Real estate taxes have declined in the last 6 years for this property.   This decline is due to a single, lengthy building vacancy, self-inflicted damage and deterioration caused by the building owner, and a very down market for commercial property nationwide.  It is not due to a depressed Commercial Blight Area, as required by the County 7B and as interpreted by the Assessor’s 7B Eligibility Bulletin.

Qualification 3 will likely be met: Career Education did include preliminary plans for the interior space that look reasonable and indicate substantial planning and a substantial investment of $44 million.  There was no information on a parking deck, however, or why that is necessary.  Until the full plans are submitted to the County, there is no reason to question their development plan.

Qualification 4 is not met: The claim that redevelopment could not be done without government assistance is weak for several reasons.

1. Unlike a depressed inner city slum, this building is in a prosperous area and has a good chance of being rented eventually without a tax break.
2. Career Education wants to relocate to 231 N Martingale because of its inherent relocation value and would still relocate there even without a 7B.
3. Keystone Property Group intended to develop the building without government assistance and has shown evidence it has financial resources to do so.
4. Keystone Property Group and 231 N Martingale Associates LLC have not disclosed financials necessary to prove it is unable to finance redevelopment without government assistance.   This 7B application only includes financials of Career Education, who is just a potential tenant.   Keystone Property Group gets the actual tax break so it has the primary burden of proof.

See more detailed government assistance analysis

Qualification 5 is not met: The 7B ordinance says the redevelopment must be “reasonably expected to ultimately result in an increase in real property tax revenue and employment opportunities within the area” . This is highly unlikely.

Increased Tax revenue

1. Career Education is only committing to a 12 year lease.  Coincidentally, that is when the tax break expires.  They could vacate the property right after their tax break expires.
2. For the first 12 years, True Partners estimates a tax savings of about $15,000,000.  Compared to what they would pay without a 7B, that is a decrease in tax revenue.
3. The 7B application used a comparison that assumes that without a 7B, the building would remain vacant for 12 years.  That is an unreasonable assumption for the highly desirable Woodfield area.  From a taxpayer standpoint, it is worth the wait for another occupancy to occur.  Without a 7B, it takes less than one year of full occupancy to make up for all 12 years of the paltry tax revenue increases this 7B would provide.
4. The potential decrease in real estate tax revenue for the buildings Career Education will vacate is completely ignored.
5. The owner made major improvements in 2007 that are not yet reflected on their tax bill. The owner should pay any back taxes before additional tax breaks are granted.
6. The building is already getting about a 60% lower assessment due to vacancy and market conditions.

Increased Employment

1. Oddly, for a tax break designed to increase employment, Career Education is not promising to add any permanent jobs.  Except for temporary construction jobs, all 1100 permanent jobs are transfers from Hoffman Estates.  I do not think it was the intent of the 7B to subsidize a mere shift of jobs from one nearby suburb to another, especially jobs within Cook County.
2. Even if there are mass layoffs, the owner doesn’t lose the tax break or have to pay anything back.

See more detailed tax revenue and employment analysis

In addition to the five main requirements, Career Education has applied using a type of 7B that requires the property to be abandoned without special circumstances.  The Cook County ordinance 74-63(10)a defines abandoned property as vacant and unused for two years prior to the purchase of the property.   Since the building was actually vacant for less than one year before the purchase on January 4, 2007, this building is not eligible for the 7B tax break. The application included utility records to prove vacancy, but they were for a time period after the purchase of the building and are not relevant.

Finally, the Village and True Partners can’t even get their story straight on what addresses in are in the phony Commercial Blight Area.   Some documents refer to two occupied office buildings across the street at 200 and 300 Martingale Road that have no documented evidence of blight.   If it is a mistake, it means the Village blindly copied a True Partners error and illustrates the rubber stamp process for approving this tax break for big business.  If not, both parties are arbitrarily added unblighted property to a blight area just to make it appear large enough to get a tax break.   Either way, this 7B and Commercial Blight Area are a sham and deserve to fail.

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