CAPRE’s Carolinas Student Housing Forum Preview with Ryan’s Kevin McCune: Don’t Let Property Taxes Sink Projects in the Southeast

RALEIGH, NC — With global headquarters in Dallas, Texas, Ryan provides an integrated suite of federal, state, local, and international tax services on a multi-jurisdictional basis. Ryan’s multi-disciplinary team of more than 2,500 professionals and associates serves over 14,000 clients in more than 50 countries, including many of the world’s most prominent Global 5000 companies. In anticipation of CAPRE’s Carolinas Student Housing Forum, CAPRE connected with Kevin McCune, Director at Ryan, to learn about how property taxes impact the regional student housing arena.

CAPRE: Thanks for chatting with us today, Kevin. How have the first four months of 2019 shaped up in your neck of the woods?

McCune: Every market in the region is a bit different. There’s are markets within the Carolinas, Georgia, Tennessee and Kentucky. In Georgia, we know that Fulton County is going to get much more aggressive about how they’re taxing student housing than in the past, and they reassess every year. In Tennessee, they only reassess every four to five years. In Lexington, you have to watch yourself because you can get dinged.

CAPRE: How about the Carolinas specifically?

McCune: Clemson and Columbia both have reassessments coming up, so you have to project forward for 2024. In North Carolina, everything is a bit different because very county is on their own schedule with even up to 8 year reassessment schedules. They can’t ding you after a sale, like they can in South Carolina. In Charlotte, the average increase in student housing assessment was 112% — that’s kind of a case study in how bad things can get in the Carolinas.

CAPRE: What will you be talking about at CAPRE’s upcoming Carolinas Student Housing Forum?

McCune: We will definitely allow time for Q&A and avoid generalities since this is such a deep topic. But people will want to know how to look at underwriting. People will want to know about their specific deals. There are so many student housing markets here – Tier I, Tier II, Tier III – so it’s important to hit high points and not get too into the nitty gritty, because people are going to have their own nitty gritty questions.

Kevin McCune, Director, Ryan

CAPRE: Why is underwriting such a hot topic?

McCune: So many people get burned by their main processes of underwriting, in which they just look at competition taxes. But the reason why you get burned is different from market to market. If you wanted to buy a property in Charlotte in 2018, that 112% increase could really kill you.

CAPRE: What do developers need to keep in mind to avoid such pitfalls in the region?

McCune: The biggest thing for a developer is to really be involved with someone who knows what they’re doing with property taxes – as the deal is conceptualized. That’s a big part of what we do – making sure their underwriting is spot on. That can be a huge miss on their part. If they don’t underwrite from the perspective of what their buyer needs, then they’re missing it. So make sure you find someone who knows how to underwrite with more than just looking at comps.

CAPRE: So what’s the bottom line when it comes to making it work in this region?

McCune: Well, in terms of which market you want to be in, even supply and demand changes from year to year. Smaller markets can completely kill it. Look at Murray, Kentucky, which is where Murray State is located. In the early 2000s, there were two products on the market for this Tier III basketball-school. They operated just fine. Then you had one small deal come in that was maybe 250 beds. That one property just blew the supply and demand out of the window and it made all of the deals unstable. Each one is in the 70s when it comes to occupancy. You have to break it down market by market.

CAPRE: What markets might be easiest to break into?

McCune:  From a property tax standpoint, if you time your exit and entrance correctly, I’d say North Carolina or Tennessee can be good because they only reassess so often and they can’t chase a sale immediately. You’re protected until the next assessment, which is four years away. That’s likely the bulk of the hold period for a lot of these buyers right now.

CAPRE: Got it. Thanks a lot Kevin. We’ll see you in Raleigh!

Hear more from Kevin at CAPRE’s Carolinas Student Housing Forum next week, where he will provide the opening remarks at 8:30 am: “The Ins-and-Out of Property Taxes Relative to Student Housing Investment in North Carolina, South Carolina, Tennessee and Georgia: A Compare-and-Contrast by State and County.”