Fritz Kaegi hears the criticism. He knows his efforts to reassess the county’s 1.8 million parcels of property are going to result in winners and losers. He also knows that his office’s work is sometimes blamed for the sluggish slate of the investment-sales market.

The Cook County Assessor maintains a lot of the flak he receives isn’t done in good faith.

“I think a lot of people in the real estate community had been reading anecdotal stories or knee-jerk reporting, maybe from some self-interested participants, like property tax appeals lawyers, who were trying to distract from the need for change,” he told The Real Deal.

Kaegi, a reformer who ran on the slogan “No favoritism, just fairness,” has become one of the most-watched figures in real estate since his election win in 2018.

He’s vowed to redo the property assessments from scratch (his predecessor Joe Berrios was criticized for overseeing a system that under-assessed commercial properties; he’s currently under federal investigation) and has already completed valuations in the northern suburbs.

Kaegi skeptics sounded the alarm when valuations for commercial, industrial and large apartment complexes in the northern suburbs increased by more than 74 percent last year. But much to his delight, a recent report by Cushman & Wakefield concluded that ballooning assessments don’t necessarily equate to large tax hikes.

Kaegi will focus on the south and west suburbs this year, followed by the city of Chicago next year. His three-year reassessment is expected to wrap up at the end of 2021.

After his first full year in office, Kaegi caught up with The Real Deal for the first time since our last sit-down in April 2019.

His predecessor, Joe Berrios, routinely under-assessed commercial properties. He’s currently under federal investigation for allegedly setting property valuations in exchange for kickbacks.

This interview has been edited for length and clarity.

Did you accomplish everything you hoped to in your first full year in office?

We accomplished what we wanted to in the first year and more. We took an office that had been real laggard on transparency, and we’re now the leader in the United States in transparency on residential valuation. We think it’s generating an ecosystem of people who are using the data that we’re putting out there.

Have the reassessments that you’ve done so far revealed anything that’s surprising?

We had hunches that there were substandard practices when it came to commercial property evaluation. When we came in, we found systematic problems in a richer way than we ever expected. We published a sheet of highly suspect cap rates that the previous administration used. Any market participant could see those numbers were systematically wrong. Another thing that was surprising to me was the lack of documentation for how they came up with numbers before, so even though we found this list of cap rates, we don’t know how they translated those cap rates into the valuations that they obtained.

OK, so Berrios’ methodology hasn’t really revealed itself?

You’d think that it would be less of a black box, but it’s still black box. What we do know is that there are systematic under valuations of many classes of real estate by the previous administration, and our work last year was course correcting that.

We were really amazed at how few people actually understand our property tax assessment system. Not just the average person, but even people in real estate and government. We realized, on top of all the other to-dos, (we should be) educating people on how this complex system works. I mean, shame on us for having made it so opaque, as government policymakers in the past. Some of that might have been intentional. We’re working really hard to make the system more understandable, so it facilitates investment and so we build trust in the system.

Typically, how much of your day is dedicated to explaining the new methodology?

The majority of the work that I’m doing is managing this office. A large part of the remainder is split between communications, including that, and recruiting.

We hear about peoples’ concerns, we talk to them, and every time we meet with people, I think we all come out better, because there’s an imperfect understanding of how the system works and once people hear the facts, I think people come along to know the great truth about why the system needs to be reformed from where it was so that we can get the same benefits that people do in the rest of the country.

As you reassess the south suburbs, are you expecting to see any of the same trends as the north suburbs?

We don’t have a preconceived outcome in mind when we assess an area, so we’re not assessing to reach a particular answer or number. We let the data take us to our answer, and the answer is always trying to represent what’s the price in the market for every different piece of property.

The northern suburbs have very different conditions from each community in the south suburbs. Oak Park is very different from Stickney, is very different from Thornton. It is that fact base that leads us to our assessments, and they’re all very different. For example, a lot of south suburban communities have not recovered from the housing crisis, and that has caused an immense amount of damage and hardship that translate into house values and rates. Rates three or four times more in the south suburbs than they are in the rest of Cook County, and that affects housing values.

We have more manufacturing in the south suburbs, which is not assessed based on rental income, so we have more complicated methods for assessing them. Also, I think we see more variants in housing stock across the south suburbs in general than we do across the board.

So far, in the communities we’ve looked at in the south suburbs, we do see some of the same tendencies that we saw in the north suburbs. We’ve seen pretty systematic undervaluation or substandard cap rates for larger apartment buildings and office buildings, and that’s come across so far in the south suburbs in the two townships that we’ve done, River Forest and Riverside. We’re still working on other townships. As we get to each one, we’ll see what we find.

How do you respond to claims that the uncertainty surrounding your new method is causing investors and developers to redline Chicago?

I think there’s great diversity of opinion in the commercial community. Blue chip investors and financial institutions recognize the fundamental merit of what we’re doing and are supportive of what we’re doing.

I think a lot of people in the real estate community had been reading anecdotal stories or knee-jerk reporting, maybe from some self-interested participants, like property tax appeals lawyers, who were trying to distract from the need for change. People who are running the numbers are seeing a lot of opportunities. We’ve seen very robust leasing activity in the second half of 2019 and into 2020. The people who are signing leases are the ones who take the most risk on property taxes and people are realizing that whatever risk there might be is priced in for them.

I think a lot of people are recognizing that transparency and predictability are really good for market participants, maybe not so great for people who’ve been profiting off of an inefficient system.

Have property tax appeals lawyers been your biggest critics?

Yes. I mean, who profits from the way things were before? Being non-transparent, inaccurate, having many avenues for favoritism. I think that old status quo and changing that is why we were swept into office. When we do things transparently and more accurately, a lot of those folks are not so happy, but on the other hand, some folks who are analytical and work on the basis of data in that community and not on a basis of perception of access, they are just fine with this because they know they can do this work. With the tools that we’re giving them, the people who are analytical and are used to using data will do just fine. It’s the people who trade on perceptions of access who were not happy.

Do you think that emphasis on transparency is especially important given Chicago’s history of corruption?

Our assessment system has created generations of distrust in Chicago and in Cook County. Anyone who grew up around here has heard stories or has had loved ones tell them about how you can’t trust the system and how you have to work it.

The amount of appeals in Cook County has been a grotesque anomaly and people are very frustrated with that. Of course, we need to have appeals because we’re running a mass assessment system, where everyone knows more about their home than we do, but we can do a much better job and we can do a lot more to build trust so that people can know that our assessments are not giving an advantage to some, or the insiders, over others.

Do you expect a larger volume of appeals as a result of the reassessments?

Actually, in the first triad (the northern suburbs) the number of residential appeals went down slightly. We’ve heard that, anecdotally, they made fewer changes to our residential assessments than they have in the past with the office, which suggests that the models that we’re using are certainly more accurate for residential properties, so we feel pretty confident that we’re getting it right.

We know that we have to earn people’s trust and it takes time. It will take at least one cycle for people to see how this all shakes out, and to earn that trust.

What’s the potential fallout of the new methodology, especially if a recession were to hit soon?

One of the things we always have to be attentive to is changes in the market, especially step changes. We’ve tried to build really robust systems on the data side so that we can react as the market reacts. I think the hardest part about an assessment system, where you have a three-year cycle to reassess the county is that, to a certain extent, your assessments are always frozen in time a little bit. Now, we haven’t really seen major changes in the market from year to year over the last couple of years. We’ve seen interest rates continue to go down, valuations for some commercial properties going up in turn, but aside from that, we haven’t had some big disjunctive event.

Do you plan on running for higher office down the line?

People are counting on us to deliver for this office. I had a great career as a portfolio manager, which I loved, but I wanted to have an impact on the community. I’m not doing this just to have a great title, I’m doing this to bring change that people are counting on in our system. It’s generated a lot of economic and political harm.

Would you like to share any final thoughts?

The assessor is one part of our larger property tax system. There’s a fixed amount of dollars that we collect in each community to fund local government, and the assessor does not change that, that’s an amount that’s determined by the local taxing bodies. What the assessor can do is solve for unfairness and regressivity in our assessments, which distribute each person’s share of that property tax levy. We shouldn’t have a regressive assessment system in which the owners of more modest homes pay higher rates. That’s been the Achilles heel of the system.