Business District Complex

Tax Issue – A 750+-unit multibuilding, 35+-year-old, well-located suburban apartment complex
was purchased for $67,000,000. Soon after the purchase, even though the buyer performed
extensive pre-closing due diligence, the buyer found there was severe concrete deterioration that
impacted the structural integrity of the balconies in the two 20-story buildings. Furthermore, the
deterioration of the structural steel supporting the balconies actually intruded into the living area
of the buildings.

Upon significant analysis and with the assistance of structural engineers, it was the opinion of
MaRous and Company that the only solution for the two high-rise buildings was either to raze
the buildings or to entirely vacate the buildings in order to correct the issues and to rehab the
buildings in the most efficient manner.

Although ownership disagreed with our analysis, we proceeded with our appraisal report and
took into consideration the cost of vacating and retenanting the space, the loss of rents,
the contingency cost, and the potential stigma on the project and its impact on the ability to sell
the complex until the work was completed. Further consideration was given to the ability to
obtain financing for the renovation and to cover the rent loss and operating expenses. Taking all
these items into consideration, our conclusion reflected an overall value of approximately half
that of the recent purchase price.

When our report was completed, testimony was given at a Board of Review Hearing and a
significant reduction in real estate taxes and in the assessed value was provided by the county
based on our report and testimony.

Approximately 1 year after the Board of Review hearing, ownership realized the negative effect
of the construction on life safety issues in an occupied building and vacated the tower. The cost
to ownership to resolve the structural issues and to re-lease the building with new tenants,
including the loss of rent, was more than $25,000,000, which was similar to our original
projection. Unfortunately, the township assessor added the cost to repair the building to the
purchase price, which resulted in a significant increase in the overall market value estimate and
assessed value.

When the first tower was repaired, the second tower exhibited the same issues as the first tower.
As a result of our analysis, we actually had costs that we could utilize to support our updated
appraisal. Again performing a thorough market analysis, our value opinion was more than
$30,000,000 less than the purchase price or less then half of the assessor’s new opinion of value.
Based on actual experience, on rent levels, and on an updated appraisal, a significantly lower tax
assessment was granted by the county.

Another issue was the ownership by our client of a 414-space parking garage that serviced the
subject complex. However, 314 spaces were reserved for commuter parking and the remaining
100 spaces are reserved for the apartment renters. However, due to the poor occupancy of the
subject complex, these 100 spaces were virtually unused and the revenue generated from the
commuter lot did not cover maintenance and reserve issues. An income analysis reflecting the
income and expenses and the limitations of the parking garage again reflected a significantly
lower market value than the assessor’s opinion of value.

Over a 3-year appeal period with our appraisal reports and testimony as key pieces of the
evidence provided, the actual tax savings to the taxpayer was approximately $1,900,000
compared to the assessor’s opinion of value.

The assessor recently reassessed the subject and again added the cost to cure the items of
deferred maintenance to the purchase price to create an overall value that, in our opinion, is
arguably double that which a qualified buyer would pay. A current appeal has been filed with the
Illinois Property Tax Appeal Board.

Contact Us

300 South Northwest Highway, Suite 204
Park Ridge, Illinois 60068

847-384-2030 (voice)
847-692-5498 (fax)
info@marous.com

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Since approximately 2005, MaRous & Company has appraised more than 20 properties that h

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