Cell tower leases are a unique niche in the commercial real estate industry…
1. Lease Forms
Cell phone companies do not use AIR (Industry Standard) forms and prefer lease agreements drafted on their own paper. Their paper with rights slanted heavily in favor of the tenant is drafted as a telecommunications agreement not a real estate agreement. While they do lease a specific area from a property owner, it’s important to understand their primary use is for telecommunications.
2. Apples and Oranges
With that being said, per square foot rental rate negotiations standard in office, retail, and industrial leasing, does not apply in cell tower leasing. If you are trying to nail down a cell tower rental rate on a per square rate, you will be leaving A LOT of money on the table. Also, it is common for landlords to call other landlords and ask what they are getting paid for their cell tower. This is another common mistake as every property is very unique and landlords without expert consultation often agree to below market rates thereby making bad deals. You need to know how to maximize cell tower lease rates!
Optimize Cell Tower Lease Rates…
3. Yes, there is a Market!
There are many factors that go into how high you can push cell tower lease rates. We will start with the difference of new vs. existing leases. With a new cell tower lease the cell phone company typically identifies three (3) candidates in what is known as a “Search Ring”. This gives the cellphone company other options if you or your client push rental rates too high. It is important to understand no matter how much you or your client love your property, there almost always are other options nearby.
4. Coverage Gaps
To understand how high you can push the lease rate before the tenant goes away you need to understand the tenant’s needs. What are the tenant’s coverage objectives? Why have they picked your property? What are they planning to construct? It is best to have their project ran by a cell tower lease specialist to help you determine the desirability and value of your property.
5. What is a trigger event?
With existing leases the opportunity for you or your clients to raise rents typically comes around with “trigger events”. These are events such as site upgrades, site expansions, or lease extensions. If a tenant is adding equipment, expanding their lease area, or asking for additional lease terms, it’s time to talk about increasing the rent. In addition to rent, this also opens the door for opportunities to renegotiate or add other terms in the lease (a relocation clause for example).
Maximize The Value Of The Lease…
6. Cell Tower Current Lease Value
The three most important variables to the value of a cell tower lease are:
(i) the current lease rate
(ii) the rent escalator and
(iii) the remaining term of the agreement
If you can increase the rent or the rent escalator, the value of the cell tower lease will be worth considerably more. If you or your client are thinking of selling a property with a cell tower lease you need to know the value of that lease. In addition to knowing the value of the lease it may make financial sense to sell the cell tower lease separately than the property.
For example if the property will sell at a 9% Cap Rate and you can sell the cell tower lease at a 7% Cap Rate you should sell the cell tower lease separately. Another example is if it is an owner-user building and buyers will not give full value for the cell tower lease, sell it separately. By packaging it in with the property your owner could be missing out on hundreds of thousands of dollars and if you are a broker you could miss out on thousands of dollars in commission.
7. Market Knowledge is Power
The only way to determine the true value of the cell tower lease is to contact a cell tower lease expert who trades cell tower leases. In the past twelve months we have sold over $2,000,000 in cell tower leases and the values have ranged from $175,000 to $375,000 per lease. If you have a tower with multiple leases on it the transaction is typically valued over $1,000,000.
If you have any questions regarding your cell tower opportunity feel free to contact Airwave Advisors at [email protected] or leave a comment below and we will reply.
Source: Airwave Advisors