Cell Tower Lease Buyout Services
At Steel in the Air, one of our daily topics of discussion with our clients is whether they should consider a cell phone tower lease buyout.Our clients and leads ask frequent questions about cell tower lease buyouts. We compiled them in the following list for your benefit.
1.How do I determine the fair market value of my lease?
Multiple factors may be used to determine fair market value; however, a ballpark conservative estimate can be calculated like this:
In most cases, multiplying your annual rent by 13 approximates the low end value of your Lease. Some leases though can be worth even more though.
2. Why am I receiving several different offers? Is my lease worth more to some companies than to others?
Since 2004, we’ve had ample opportunity to become familiar with major and minor industry players, including cell tower companies, wireless carriers, and third party buyout companies. Because of this, we’re able to share the following insights:
A. American Tower and Crown Castle leases tend to be the most valuable because these companies pay the most for their own leases.
These two players are the nation’s #1 and#2 tower companies, respectively, and they’re bankrolled in liquidity.So it follows that they can pay more for cell tower leases than third party companies. Here are two reasons that tower companies prefer to purchase leases that they are already party to:
When tower companies purchase leases they are already party to, they enjoy a greater degree of autonomy and are able to rely less on landowner approval.As you can imagine, it’s advantageous for a tower company to own the rights to its own lease, and it can be problematic if someone else does. This is the optimal position for most companies, especially those who foresee equipment upgrades and/ or prefer to make their own decisions rather than navigate through the approval process.
The purchase of a lease is a financially sound investment, and tower companies want to cut costs while increasing profit margins. This equation assumes that inflation will occur at a steady rate and/ or that market demand for mobile connectivity will continue to skyrocket. This is a safe bet, as you might imagine – unless there’s a zombie apocalypse.But even then, the price of mobile phones would peak dynamically – at least initially.
Knowledge is power. If you know that this is their thought process, you have a leg up. And if they know that you know, you have leverage.
B. Cell tower leases with AT&T and Verizon are considered to be the most valuable,followed by T-Mobile. Sprint leases are the least valuable of the “Big Four” carriers.
This involves evaluating the risk factor that the carrier will remain operational during the duration of the lease. The general perception in the wireless industry these days is that AT&T and Verizon aren’t going anywhere, while T-Mobile and Sprint (in particular) have slightly more of a perceived risk. And the greater the risk, the less buyers are willing to pay in a lease buyout.
C.Some third party lease buyout companies buy leases so they can bundle them to sell as a package to a larger buyer.
By bundling leases (this is why the lease buyout companies are also known as “lease aggregators”), lease buyout companies can take groups of risky and non-risky leases and create a portfolio of leases. With larger number of leases, the lease buyout aggregators can diversity risk across a large group of leases which can make the purchase of a portfolio of leases attractive.
This is the most likely reason you have received interest from third party lease buyout companies. In fact, today it’s perfectly nonchalant for lease buyout companies to acquire, sell, and/ or hold bundles of telecom leases, similar to how things operated 15 years ago in the mortgage industry.
We’ve already mentioned that the purchase of a cell tower lease is considered to be a sound investment by brokers and investment managers. But here’s something that may not be so widely known:
*SITA data shows that most cellular leases today are undervalued. If and/or when this becomes common knowledge, you might expect lease rates to accelerate rapidly.
4. Do certain terms of the cell tower lease increase or decrease its value?
Sure they do! Here are the factors that most influence cell tower lease buyout values.
Leases with higher escalation rates are worth more.
By “higher,” we mean more than the industry standard 3%annual escalation rate.
Expiring cell tower leases can be worth more.
It’s much more common for a cell tower lease to be renewed by the tower company than to be allowed to expire;so when the time comes to renegotiate the original lease, the landowner typically has more leverage than he or she is aware of. Cell tower companies and third party buyout companies usually base their purchase offers on the current lease rate being paid; even though they are well aware that the lease is undervalued and could easily be renegotiated to pay out a higher rent.
Consider a case where rent payments are$1,000 per month. When that lease nears its termination date, it could potentially be renegotiated to $1,500 per month or even $2,000 per month. Why? Well, in addition to the lease being undervalued from the get go, it’s worth a considerable amount of money to the tower company to continue operating its tower from the current location, which would of course be impossible if the landowner decided not to renew the lease. Being aware of these sorts of leverage points will help you to gain an advantage in lease negotiations.
Leases with Right of First Refusal Clauses are worth less.
Third party buyers usually won’t make offers to purchase leases that contain first refusal clauses, simply because they don’t want to waste their time making an offer only to have the tower owner match it.
5. Will the cell tower lease buyout be taxed?
Based upon our experience with our clients, in more situations than not, the sale of the lease is treated as a capital gains transaction. However, in some cases our client’s CPA have advised them that income from a lease buyout will be treated as ordinary income. (or in the case of a church- as unrelated business income).
We can’t answer this question for you and recommend that you only seek advice from a trusted CPA or attorney. We also want to offer a word of caution: Do not listen to representatives of any company that could potential buy your lease. In past instances, some of our clients have been misled and told things like “Your lease is [not tax-deductible] or [tax deferred].” So before you consider the buyout of any cell tower lease, be sure to have the paperwork reviewed by are putable advisor.
Generally speaking, the risk of for any cell tower lease being terminated prior to its expiration date is low.However, cell tower lease buyout companies prefer to buy leases that are even less risky. AT&T and Verizon are less likely to be terminated than those with T-Mobile or Sprint. Cell tower leases with more than one carrier on the tower are less likely to be terminated. Leases with rates below the market average are less likely to be terminated than those that are above market average. Lastly, leases in rural and suburban areas are less likely to be terminated than those in urban areas-especially if there are no other towers nearby.
7. How do I determine what is best for me personally?
Our job is to arm you with the pros and cons of each option so that you can make a fully informed choice. We can also share some of the different reasons. Our 3500+ clients have pondered and evaluated when deciding to keep or sell their leases.
A. Reasons to Keep the Lease
- You are not in immediate need of a large lump sum payout.
- You might want to sell or develop your property in the future and don’t want the tower to hinder the sale or development.
- The risk of termination is low, especially for towers with multiple carriers.
- If your lease is within 15 years of expiration and is undervalued, you may be able to extend the lease and get a significant increase in the cell tower lease rate . If the tower owner needs to extend the lease footprint, you may be giving up future revenue you otherwise would have received.
- 5. After selling the lease, you will still have an obligation to the cell tower owner to grant access to the property and avoid interfering with their equipment. If there is a dispute, you can’t sue without getting permission from the buyer of the lease.
B. Reasons to Sell the Lease
- Youbelieve the money you’ll receive can be better used elsewhere. Perhaps you want to build on a new addition, or pay for college.You might be close to retirement, or need the money for a medical or other emergency. You also might find a different investment to be more lucrative and wish to use the capital.
- You want or need to liquidate assets for estate purposes or after a divorce.
- You are selling the underlying property and realize that buyers either don’t really care about the cell tower lease income, or won’t pay as much as third party lease buyout companies will. In most cases it’s more profitable to sell the lease to a specialized buyout firm or the tower owner than it is to sell to the purchaser of the remainder of the property.
- You don’t like the possibility that the lease could be terminated, and would prefer a lump sum of money now as opposed to ongoing payments. This may be because your specific lease is subject to a higher risk of termination due to current or future market consolidation (such asthe past mergers of Sprint/Nextel, Alltel/Verizon, MetroPCS/T-Mobile, and AT&T/Cingular or AT&T/Cricket).
- Convenience. You are sick of dealing with constant calls from the cell tower owner or third party cell tower lease buyout companies regarding their lease.
In most but not all cases you will want to sell to the highest bidder. If the offers you have received are pretty close in value, the next “tiebreaker” will be the offer that has the shortest term. Additionally, we recommend offers that do not involve revenue sharing. We know this seems counter intuitive, but in most cases buyers won’t reduce their offer if they don’t get the revenue share component,so giving up a share of future revenue is rarely wise. Many of our clients ask why they aren’t better off allowing the buyer to market the tower or site for them. Generally, the rationale these people give is that some additional revenue is better than none.However, in most cases, the cell tower lease buyout companies aren’t going to bring anyone to your tower who is not already interested. So why give a buyer a share of the revenue when little they do will change the probability of additional revenue?
Generally, selling directly to the owner of the tower or cell site is preferable. That way you aren’t inserting a third party between you and the tower owner whose goals may be different than yours.
9.Under what market conditions should I sell? What signs should I be looking for?
In the summer of 2015, there were more lease buyout companies chasing more deals-with cheaper capital -than ever before. This resulted in an ultra-competitive market which primarily benefited leaseholders. It is our belief that this was the market’s high water mark, and it is unlikely that buyout offers will ever approach such levels again.Since 2015, a number of cell tower lease buyout companies have either reduced their offers or shut operations down entirely.Wireless Capital Partners shut down completely. APWIP stopped buying leases in the US, for the most part. Unison Site Management reduced their sales staff in the US by a significant margin. Tower companies American Tower and Crown Castle have responded to the decrease in competition from the lease buyout market by reducing their initial and final offers on lease buyouts for their own towers. In other words, times change and offers adjust accordingly. We can help you determine whether offers are likely to go up or down in the future, and whether you should sell.
Furthermore, regarding selling, some times of the year are better than others. These can vary from year to year and are dependent upon market dynamics; so if you are curious about when you should sell, please contact us .
We can help broker the lease-but if you go at it alone, here are some guidelines to keep in mind.
- Don’t sell for a perpetual term.
- Get more than one offer.There are many buyers with many different approaches to buying leases. Furthermore, some buyers prefer specific types of leases and will pay more for them in a buyout.
- Don’t be misled by claims of future revenue from the lease, either in the form of revenue sharing or expansion rights. These almost always prove to be false claims.
- Do require that the purchaser must be liable for any real property taxes attributable to the property especially if the current lessee (tower owner) is responsible for them under the current lease.
- Do require that the buyer takes on the same responsibilities asthe lessee (the company with whom you have a lease) as it pertains to accessing and maintaining the property.
- Don’t attempt to completely rewrite the underlying lease.If you are dealing with a third party unrelated buyer, neither of you can legally rewrite the lease without the consent of the lessee.If they are the owner of the lease (say a tower company), they can change the terms, but they won’t make them significantly more favorable to you.
- Ask for a copy of the easement purchase agreement or lease assignment agreement BEFORE you sign the letter of intent.
And if you think you may need help or just have questions- call us or contact us. The initial discussion and proposal for services won’t cost you a dime-but it could save you tens or even hundreds of thousands of dollars.