‘It’s An Investment’: Why Chicago CRE Players Might Embrace A Self-Imposed Tax

It’s not opposite day. A new tax on property owners in the Loop actually has some support from key stakeholders in the area. 

The Building Owners and Managers Association of Chicago announced earlier this month that it is exploring the creation of a business improvement district, a nearly 60-year-old concept that is brand new to the state.

Chicago’s BID would function like a self-imposed tax, bolstering the vitality of the central business district, where office vacancy has risen to almost 24% and retail vacancy sits at 30%. Industry actors interviewed by Bisnow said a BID in the Loop could inject life into the struggling area and implement improvement measures outside the traditional scope of the city government.

“We think of it as a useful tool,” said Farzin Parang, executive director of BOMA Chicago. “Evidence indicates it's been useful and valuable in other markets. But that's the first order question, right? Then you start digging in and saying, ‘Well, how might that be different here?’”

The BID proposal is still in an exploratory phase. It comes on the heels of the city’s unpopular attempts to raise taxes on the CRE community, most recently through a failed $300M property tax increase in Mayor Brandon Johnson’s 2025 budget and earlier in the year through an unsuccessful referendum to increase the tax on the sale of properties over $1M.

The city's CRE community has lobbied consistently against more taxation, arguing Chicago's property taxes are already too high. But experts say a BID gives the businesses that are taxed more agency over how the money is spent and provides a more direct, tangible benefit than blanket taxation. 

A BID, or business improvement district, is a designated geographical area in a city where local stakeholders manage and fund the maintenance, improvement and promotion of their commercial district. The funding mechanism for BIDs varies based on the specific district, but they can be based on property assessments or square footage, a flat fee or whatever terms stakeholders can collectively agree to, Parang said. 

The concept only recently became legal in Illinois after Gov. J.B. Pritzker signed an act into law this summer enabling their creation in the state. The Loop BID could fund improvements to landscaping along streets and pay for cleaning or private security, among a variety of uses. 

Parang said BOMA’s filing with the city to officially pursue a BID in the Loop is in the early stages, and initial action will center on discussions with business owners to gauge appetite for the concept. Additional details on how a BID would raise and deploy funds, as well as the method it would use to tax owners, would come later in the process, he said.

The conclusion of those discussions could be that a BID doesn’t make sense in the current economic climate, Parang said, though it is too soon to tell.

“It's really about the investment,” he said. “We have folks who think that this could be a useful tool. We also have a lot of folks who just say, ‘Look, this market is very different because of our tax structure.’”

While Illinois only legalized BIDs recently, they have been a popular tool in other U.S. cities and internationally for decades to increase the economic vitality of a commercial area. BIDs got their start in Canada in the mid-1960s. 

Stateside, New York City implemented its first BID, the Union Square Partnership, in 1984 and now has 75 BIDs throughout the Big Apple responsible for $194.5M in 2023 investment. BID spending in New York City depends on the specific district, but in 2023, BIDs spent about $51.5M on sanitation, $41.9M on marketing and public events, and $27.5M on public safety.

San Francisco established its Property and Business Improvement District program in 2004 and now has 14 improvement areas, according to a 2022 analysis of the program. The analysis found that between 2017 and 2021, property values of buildings in these areas increased by 73%, much higher than the citywide increase of 46% during the same period. 

“They've existed in other jurisdictions, continue to exist in other jurisdictions, and there's some evidence in the other cities that they have value,” Parang said. “They can potentially reduce crime, improve property values, sometimes be a little bit more resilient to changes that affect the rest of the market.”

Capri Investment Group founder and Executive Chairman Quintin Primo III, the developer for Google’s new headquarters in Chicago, has projects in other cities with BIDs, including Los Angeles and Washington, D.C. He said they are effective tools for improving districts and doing things outside the scope of government. 

Formation of a BID in the Central Loop is a “brilliant idea,” he said, adding that successful BIDs in other cities have adequate funding and effective leadership. While the formation of a BID would increase costs for property owners, Primo said this particular added cost is more palatable than a government-imposed tax because the money raised would be spent for “pure self-interest.” 

The money would be under the control of the organizations, businesses and property owners funding the BID. That greater sense of agency over how an extra tax is spent would make the concept better received than one imposed by the city, Primo said.

“With government, obviously, the feeling is you pay your taxes and it's unclear the services that you specifically get,” he said. “But these are very highly focused, directed, impactful and very beneficial programs to beautify streets, to add more trees, to get better lighting, better security.”

Business owners in the Loop may consider a potential tax implemented by a BID as an investment in making an extremely important trade area “vibrant and rock solid again,” said John Vance, a principal at Chicago-based retail brokerage Stone Real Estate. Objections to taxes in the city often stem from the belief that money is being spent inefficiently.

A BID would provide more tangible benefits from those dollars.

“This is a really important private enterprise tax on themselves so that they can control where their money goes,” Vance said. “Another word for that is: it's an investment. I think it's very positive.” 

But creating a BID won’t fix all the problems plaguing the Loop, some said.

While a meaningful investment in the Loop through a BID could encourage tenants to stay in the area or consider moving there, the area needs a significant energy shift to generate meaningful change, said Savills Vice Chairman Lisa Davidson. 

“At the end of the day, even if there was great security, if there wasn't vibrancy returning, then I'm not sure that it would matter much,” Davidson said. 

Primo agreed that a BID won’t solve persistent issues, but it is a start. 

“A BID is not the magic bullet that cures all ills,” Primo said. “But certainly it's one of a series of policies and practices and investments that can serve to sustain the change within areas.”