Mayor Brandon Johnson’s newly proposed transfer tax tiers are bringing Chicago’s commercial landlords to tears, and some claim tenants could be forced to absorb the extra cost.

“It’s not like these big, rich boogeyman landlords are taking the brunt of all of this,” Peter Billmeyer, president of the Chicago chapter of the Society of Industrial and Office Realtors, said Thursday. “I don’t have any faith that those landlords are going to say, ‘Oh, we’re going to absorb this cost and it’s not going to be distributed anywhere else.’”

While it’s debatable how much any new transfer tax costs might get passed onto commercial and residential tenants, a new version of Johnson’s proposed tweaks to the one-time charge paid to the city when properties change hands would sharply increase rates for practically all large buildings.

Even though the plan would lessen the burden on most homeowners, the increased costs for commercial deals make it far from a compromise with the real estate industry, which is already grappling with an existential threat to the office asset class as demand stays muted coming out of the pandemic and climbing interest rates squeeze big landlords.

“Homelessness is a challenge that should be shared by the entire city. Placing the burden on only one industry sector — and one that is at its weakest state in almost a century — is bad public policy,” Farzin Parang, head of office building industry group BOMA/Chicago, said in a statement.

Johnson has agreed to a proposal for a graduated tax increase that would alter the city’s current transfer tax rate of 0.75 percent of a property’s sale price applied to all deals regardless of price.

It would drop to 0.6 percent of the sale price for deals under $1 million, and rise to 2 percent for deals between $1 million and $1.5 million and 3 percent — four times the current rate — for sales of more than $1.5 million. The uppermost rate is more expensive for big building owners than a previously considered plan that would have taken the tax rate to 2.65 percent of the sale price for all deals of $1 million or more.

Under the revised tiered system, the 3 percent levy for the top bracket of deals would be among the highest local transfer tax rates of any major jurisdiction, according to Justin Marlowe, a professor at the University of Chicago’s Harris School of Public Policy.

Despite the Johnson-backed policy getting nicknamed the “mansion tax,” Chicago’s industry players are more wary of its impact on commercial property.

“They are calling it the mansion tax, but it effectively brings down the values of every single property in the city, especially mid-sized to large commercial properties, at a time when interest rates and real estate taxes have skyrocketed,” SVN Chicago’s Wayne Caplan said on social media.

While Philadelphia charges a 3.278 percent transfer tax on real estate sales, and Pennsylvania charges another 1 percent for a total rate of nearly 4.3 percent in that market, Chicago’s new transfer tax structure on big deals would be added onto charges already in place by Cook County, the state of Illinois and a 0.3 percent portion dedicated specifically to the Chicago Transit Authority.

In total, deals for $1.5 million or more that trigger the highest rate under the new proposal would be subject to a charge that’s 3.45 percent of the sale price.

Here’s how it would look in practice: billionaire Zara founder Amancio Ortega’s recent $231.5 million purchase of the 492-unit apartment building at 727 West Madison Street would have cost more than $7.9 million in overall transfer taxes, had Johnson’s proposal been in place at the time, instead of the nearly $2.8 million charged by the various government entities on the deal.

Commercial owners and brokers say the increased rate would add even more strain than the original proposal as the city faces a historically high office vacancy rate, and industry leaders say it risks potential consequences that trickle down such as pressure on rents for business owners and apartment dwellers and less investment in the city.

Marlowe said the specific question of whether a transfer tax increase would raise rents hadn’t been studied enough to provide definitive evidence, but his suspicion is that it’s less likely with a transfer tax than an annually charged property tax.

“If someone is buying a large commercial building they probably have a plan for where rental rates are going to be set and it’s unlikely that that’s going to reflect a one-time real estate transfer tax in a way that would make systematically higher rents for the tenants in that building in the way that a property tax would,” he said.

The tax increase would create a $100 million revenue stream dedicated to funding affordable housing and services for unhoused Chicagoans — things commercial real estate trade groups agree are important while disputing that funding them entirely through a tax is the best way to do so.

The building owners group also says the tax increase would actually bump up annual property taxes for many homes under $1 million, as commercial properties are taxed at a higher rate in Cook County and thus subsidize homeowners’ taxes. Further cuts to assessed office values, many of which are already declining as a result of market forces, could cause homeowners to shoulder more of the overall property tax burden, wiping out any potential savings homeowners might realize from the slight cut to the transfer tax they would pay on properties sold for less than $1 million.

“Some projections estimate that a $250,000 home could see an increase up to $900 in annual property tax bills due to the challenges facing the office industry. A transfer tax increase will only make such matters worse,” Parang said.

Reid Bennett, a multifamily broker with SVN, said the proposal “is negatively impacting the constituents [Johnson and its supporters] are trying to protect.”

Johnson’s office did not respond to a request for comment.

Marlowe also said that while the tax hike may slow transactions and keep properties on the market for a few more months, there isn’t evidence that it would quantifiably alter behavior or leave people “locked in” to properties.