Your Assessor Is Underwriting Last Year's Market

Property tax is typically the largest single operating cost for commercial real estate owners, and unlike rents or financing it is not set by the market alone. It is shaped by jurisdiction-specific rules governing when a property is valued, what data assessors use and how often the cycle resets.

Rate is only half the story. In 2024, Chicago's effective commercial rate stood at 5.275 percent, New York's at 4.824 percent and Dallas's at 2.240 percent. But a property assessed at 70 percent of market value in a high-rate city can carry a lower bill than one assessed at 95 percent in a lower-rate jurisdiction. Assessors apply mass appraisal, broad statistical models across property categories rather than individual valuations, so errors propagate across entire sectors without correction.

New York revalues annually but looks backward. The city's 2026 commercial assessments were based on 2024 financials reported in 2025, leaving the cycle a full operating year behind market. Increases are phased in at 20 percent per year over five years, with each cycle stacking on the last.

Chicago's triennial model produces catch-up in bursts. For 2024 taxes, properties were assessed on January 1, 2021 valuations. The reset to a January 1, 2024 effective date produced office swings from more than a 20 percent decline to a 50 percent increase, retail from a 7 percent increase to a 30 percent decrease, and certain multifamily down more than 60 percent. Benchmark Class A office taxes in Chicago reach $13.15 per square foot.

Dallas assesses annually but operates in a nondisclosure state where sale prices are not required to be publicly reported, leaving assessors with incomplete data and creating year-to-year volatility. Industrial assessments rose 30 to 80 percent in the 2025 update. Texas law does require assessments to be equal and uniform, giving owners a comparison-based challenge.

Across the markets studied, office showed higher assessment-to-sale ratios than other sectors, signaling assessors have been slow to absorb the structural shift in that asset class. Industrial showed the inverse, pointing to future increases as updated sales data enters the next cycle.

Implications

The sector-level asymmetry is the actionable part. Office is broadly overassessed and industrial broadly underassessed, which means office owners have a recoverable cost sitting on the notice while industrial buyers underwriting to in-place taxes are underwriting to a number that is about to move. Anyone modeling a five-year hold on a recently traded industrial asset in a nondisclosure state should run the tax line at a reassessed basis, not the seller's. And in New York, the 20 percent annual phase-in means a bad assessment is not a one-year problem but a five-year annuity in the wrong direction.