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'Vacancy Fraud' Allowing Tax Breaks for Empty Storefronts Under Fire

By  Alisa Hauser and Heather Cherone | October 6, 2016 8:22am | Updated on October 7, 2016 10:29am

 Some vacant or partially vacant buildings in Chicago.
Vacant or Partially Vacant Chicago Buildings
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JEFFERSON PARK — In some parts of the city, vacant storefronts are a mystery, with some staying empty for years.

The cause in some cases might be a soft market for renters. But other times, landlords may be using a state law that allows tax breaks for vacant buildings.

That latter practice is in the crosshairs of state lawmakers who say financial incentives to leave storefronts vacant hobble neighborhoods and contribute to blight.

A new measure authored by state Rep. Robert Martwick (D-Jefferson Park) is designed to crack down on those who take advantage of that law and commit "vacancy fraud." The proposal is aimed at spurring government agencies to investigate building owners who are happy to let their property sit empty — and collect a tax deduction — rather than find tenants.

"My concern is that there are people lying and getting a tax break that stymies economic development across the state," Martwick said.

Perpetually vacant storefronts can create blight and make it nearly impossible for new life to take root in commercial districts like those in Jefferson Park and Wicker Park, where main streets like Milwaukee Avenue are pockmarked with empty storefronts, critics of the tax deduction contend.

Current state law allows the owners of properties that become vacant unexpectedly to ask tax officials for a break on their bill — as long as they are doing everything possible to find a new tenant for the store or office.

But there are troubled properties that have received the break for decades — when, in some cases, the owners should be paying the property's tax bill in full, Martwick said.

If the measure authored by Martwick is passed by the General Assembly and signed into law by Gov. Bruce Rauner, government agencies that collect property taxes — like the City of Chicago and the Chicago Board of Education — would have an incentive to investigate the claims of property owners asking for the vacancy deduction, Martwick said.

If officials determine that claim was false or fraudulent, they could force those owners to pay back three times what they owe as punishment, according to the measure.

"This is not a money grab," Martwick said. "It is designed to discourage landlords from just letting these properties sit vacant. We want to make it not worth it to be an absentee landlord."

Representatives of several Far Northwest Side community groups — including the Portage Park Neighborhood Association and the Dunning Neighborhood Organization — testified at a hearing Sept. 28 of the House Revenue and Finance Committee, and urged the lawmakers to adopt the measure.

The Jefferson Park Chamber of Commerce told the committee that vacant properties near Lawrence and Milwaukee avenues have received as many as seven tax deductions since 2007, thwarting efforts to bring new life to the area.

Martwick said he was working "carefully and deliberately" to change the state law to avoid unintended consequences.

Some real estate brokers, however, said the law would put too heavy a burden on landlords.

"I've been a broker since 1981, and I've never done business with a landlord who does not want their building rented," said Rich Kahan, a principal at commercial real estate brokerage KB Real Estate. "The law provides some relief. You don't always get it; sometimes you do. At end of day, you make zero income on any empty space."

Michael VanDam, an East Village resident, said he would like to see building owners be penalized for having empty buildings, or at the least have the loophole closed.

"Chicago needs to start imposing penalty taxes on property that sits vacant for more than a year in hot areas — the number of commercial spaces that just sit empty due to landlord greed or indifference could be reduced significantly," VanDam commented on Neighborhood Square.

VanDam was lamenting the presence of an empty storefront near Wabansia and Damen avenues, a prime Bucktown corner where Silver Cloud, a neighborhood bar and grill, operated 19 years before closing in 2014.

The Bucktown building's owner, AW Green Management's Steven Dukett, paid close to $10,000 in property taxes on the three-story building in 2013 and 2014 when Silver Cloud was open. But Dukett paid less than $4,000 in 2015, when the commercial storefront was empty, county records show.

Dukett declined to comment on the reduction in taxes.

Greg Dietz, managing director of investment sales at Baum Realty Group, said a stretch of vacant storefronts can hurt otherwise prosperous commercial areas.

"While there is enough interest in the commercial thoroughfares in Wicker Park, Bucktown and West Town that rental income far exceeds any potential tax savings via a vacancy credit, that isn't always the case in areas like Jefferson Park that struggle to attract shops and stores," Dietz said.

More hearings on the proposed law are expected, Martwick said.

"I was really pleased that everyone at the hearing agreed that this was a problem," Martwick said. "Now we are going to focus on how best to fix it."


#wickerpark upper floors boarded up

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