A real estate trade group wants to create a business improvement district to improve safety and cleanliness and overcome historically high office and retail vacancy in downtown Chicago, the latest major U.S. city to embark on such an initiative since the onset of COVID-19.

The Building Owners and Managers Association of Chicago said it is formally initiating the long-discussed process to formally consider implementing what amounts to a small, self-imposed tax on landlords toward revitalizing an area.

Proceeds are controlled by members of the business improvement district to pay for initiatives such as improved security, cleaning, streetscape beautification, district promotion and homeless and youth services.

The concept long has been used by major cities such as New York, San Francisco and Philadelphia, but until recently it wasn’t allowed under Illinois law.

“There is hard evidence that these do, on average, work to improve property values,” Jonathan Justice, a professor in the University of Delaware’s Biden School of Public Policy and Administration, said in an interview.

He has helped coordinate economic development projects, such as the creation of the districts, in places including Brooklyn and Long Island City in New York and Jersey City, New Jersey.

“They’re not a miracle cure, but it gives organizations focused on improving a defined geographic area a steady stream of revenue to cover things like cleaning, marketing and creating a cohesive, external-facing identity," Justice said. "The fear of central cities is less than it was in the 1980s and ’90s, but people are still comforted by seeing safety ambassadors with walkie-talkies and colorful uniforms walking around. There’s a real value in that.”

A study of these initiatives by New York University, published by Brookings Institution Press in 2007, found that they boosted property values on average within the districts in New York, though results varied widely depending on how they were structured. The study also found little evidence of spillover benefits just outside the districts.

Large business improvement districts and "those made up predominantly of office space have large and positive impacts on commercial property values,” the study concluded in one finding relevant to Chicago’s Loop.

BOMA/Chicago, a trade association with members including owners and managers of 240 buildings, is kicking off the process to gauge whether more than half the commercial property owners in the sprawling Loop business district are willing to take part.

Executive Director Farzin Parang acknowledges an added tax may be a difficult sell after Chicago aldermen recently knocked down Mayor Brandon Johnson’s proposed $300 million property-tax increase. That came after voters this year rejected a proposed increase to real estate transfer taxes on home and commercial property sales of more than $1 million.

“Based on informal conversations with owners, some folks like the idea of what a business improvement district could do for the recovery of downtown, while others see these as services that the government should be providing,” Parang told CoStar News. “We’ve heard that sentiment that, ‘If we’re already paying the highest property taxes in the country, should we be doing [the Department of] Streets and Sanitation’s work?'”

While similar in many ways to existing special services areas, the business improvement districts allow greater flexibility in how funds are collected and spent, Parang said.

“The advantage of BIDs is that they are controlled by the people paying into them,” he said.

Real estate groups and city officials have been talking about ways to help the Loop bounce back since early in the pandemic, with tools such as business improvement districts discussed in the city’s “Central City Recovery Roadmap” released in 2021.

Other efforts include the city providing taxpayer dollars toward the redevelopment of unwanted office space on and around LaSalle Street into affordable housing. City officials hope that replacing vacant offices with more residents can help attract more amenities such as grocery stores, restaurants and retail to improve the area’s vitality during business hours and beyond.

The direct office vacancy in the central business district is now almost 24%, with retail vacancy more than 30%, according to BOMA.

“It’s already a precarious time, particularly for office owners, so I don’t see there being an appetite for very large assessments,” Parang said.

But Parang said there does seem to be support for finding ways to fund initiatives including crime prevention.

“If there does prove to be a support for creating a BID, I would anticipate that supplemental security is highest on the list of needs,” he said.

The Magnificent Mile Association representing the city’s best-known retail corridor north of the Chicago River on North Michigan Avenue and the Loop Alliance representing State Street previously have expressed interest in implementing business improvement districts.

BOMA said it has filed paperwork with the city indicating that it wants to propose such a district for a sprawling area including much of the broader downtown area, though the official boundary would be determined later. Residential buildings would not pay fees.

State Rep. Kam Buckner and State Sen. Sara Feigenholtz earlier this year led legislation to allow the city of Chicago to petition for business improvement districts, which still would need approval from the City Council. Illinois Gov. J.B. Pritzker signed the bill into law in July.

Chicago’s planning department is leading the application process, with 2026 the earliest that newly formed bodies could impose assessments. Based on a variety of factors, it will be determined whether fees are collected directly by business improvement districts or by a city agency.

Forming a district would require approval of property owners that would pay more than 50% of the fees, meaning larger landlords will have greater say.

A district's board of directors, made up of property owners and tenants, would vote on how funds are spent, with no single owner allowed to control more than 20% of the vote.