A recent article about Clearwire in Wireless Week doesn’t directly address lease terminations by Clearwire, but does suggest some reasons that may account for the terminations.   Clearwire is obligated by their license requirements with the FCC to build out certain rural areas.  Hindered by poor retail sales, Clearwire doesn’t appear to have the funds to continue its aggressive build out.  Furthermore, Clearwire’s partners aren’t likely to come to the rescue with additional investment given Clearwire’s questionably poor execution of the nationwide build strategy.  (IMHO) 

Since some of the lease terminations our clients received contained 6 month penalties for termination, we assumed that Clearwire would not be back soon.  This article seems to confirm this.   If you have a lease from Clearwire that has been terminated recently, we would not suggest counting on the revenue any time soon.  As we stated in our previous article, there isn’t anything you can do about this.  So just be patient and see if Clearwire comes back.

The last month has been a tumultuous time in the cell tower lease industry, primarily on the side of lease buyouts. With the plummet of the stock market, rising concerns about the availability of credit, and consumer confidence very low, the industry is starting to see the impact. Through our consultations, we have already started to see tangible evidence of a declining market especially in the lease buyout side.

From our vantage, there is a distinct shrinking of the lease buyout market. Of the numerous players who purchase long term easements under cell towers and rooftop sites in exchange for a lump sum, there has definitely been a slide in the purchase prices and an increase in the due diligence requirements for purchases. Companies that buy the leases are looking to pay less and to be more selective in their choice of leases – preferring to purchase only “investment grade” leases. (i.e. those that are from AT&T, T-Mobile, Verizon). While they still purchase non-investment grade leases, the multiples paid for all leases has definitely gone down.

One primary reason for this is that Wireless Capital Partners shut its doors about a month ago. With one major competitor out of the way, the remaining firms recognized the advantage they now have and have started to lower their prices and increase their due diligence requirements. Prices are lower than they were just two months ago. There are rumors that a new entity may be formed to fill WCP’s shoes, but SITA has not seen any evidence of such yet.

Even the tower companies have started to pull back from previous offers. Crown Castle’s agents have been representing to landowners that today (Oct 16, 2008) is the last day that they will be honoring most if not all of the lump sum buyouts they previously made. Unlike virtually every other time that lease buyout firms give “hard deadlines”, SITA believes that this one is for real. Crown’s stock price has plummeted from a 52 week high of $43 to their current price of $19. One specific reason for this is that Crown may have to pay back a $160MM credit facility. SITA does not believe that Crown or their landowners are in any jeaopardy- but this does put Crown in a situation where they need to retain their capital for more immediate needs than purchasing long term easements under their leases. Crown’s representatives have stated that they will still continue to push the extensions of the leases but won’t be making lease buyout offers until they can resolve their credit facility issues. This could take quite a while.

WHERE DOES THIS LEAVE ME AS A LANDOWNER?

Recognize that the value of your tower or rooftop lease is still the same. Nothing has changed that would reduce the value to the owner of the tower. What has changed is availability of capital to those companies that purchase tower and rooftop leases. Unfortunately for many landowners, the recent turmoil comes during a time when many landowners are going to need capital to keep their houses or run their businesses. So as the average landowner’s need for the capital increases, the number of competing companies that want to buy the lease decreases and the rates that the remaining companies are willing to pay decreases as well. We are getting an increased number of inquiries from landowners who need to sell their tower lease(s).

Our advice: if you don’t need to sell at this time- DON’T. We started in this industry in 1997, weathered the downturn in 2001-2002 and have seen the cycles. As with previous downturns, this too shall pass. The vacumn filled by WCP and by the reduction of offers from towers companies will either be filled again by the tower companies or opportunistic companies that see value in the lease buyout market.

If you do need to sell, recognize that you don’t have the same negotiating position that you had just one month ago. However, don’t believe that you have to accept the offer that you are given. Even now, we rarely see situations where the first offer is the best. At SITA, we can assist you in making sure that you get the best offer available. We know the players and we have assembled substantial comparable data to assist us in recognizing trends in pricing- both short term and long term. Please see our cell tower lease buyout page for more information.

If you don’t know whether you should sell, please contact us. We can help you determine whether there is any probility that your lease might be terminated. We can also help guide you on what the pros/cons of selling now are and discuss what the future holds for this industry and lease buyout firms.

A potential client received a letter from Cincinnati Bell Wireless stating that they have reviewed the client’s property and were potentially interested in leasing a portion of the property for their cell tower site. The letter includes a template lease from Cincinnati Bell Wireless and a request for the landowner to review the lease with his/her attorney first to confirm which clauses that the landowner might find objectionable. While this is understandable, Cincinnati Bell also states in the letter that legal review is a prerequisite to negotiating terms like rent or escalation. Meaning that the landowner either has two choices. First, they can assume that the lease rate will be favorable, call their attorney to review the lease and pay $1500 or more in attorney’s fees before ever actually knowing whether Cincinnati Bell intends to pay them $100/mo or $1000/mo. Second, the average landowner might decide not to review the lease in order to save the money and indicate to Cincinnati Bell that they are interested. In this case, they might give up the right to thoroughly review the contract.

We object to this specific type of site acquisition as predatory. Cincinnati Bell Wireless is forcing the landowner to either spend money on an attorney before even negotiating the lease terms or putting them in a situation where more ignorant landowners will simply choose not to get legal representation at all. To us this is lazy and predatory.

Why not simply state in the letter what Cincinnati Bell Wireless is prepared to offer? Then the landowner can make an informed decision of whether the money spent on an attorney will be well spent.

From a landowner perspective, what is to prevent the landowner from simply lying about whether they have objections to the agreement so that they can get to the discussion of the rent and other financial terms? I can’t think of anything.

In late 2005, Global Signal announced the lease of 6600 Sprint towers and the sublease back of the towers by Sprint. One of the questions that we pondered during that time was how this lease would be interpreted if the underlying ground lease between the ground owner and Sprint prohibited subleasing. In a number of cases, Global Signal’s response was to simply craft a site management agreement and not sublease the tower.

Fortunately, it appears that we will soon find out. Oak Forest, IL has sued Sprint PCS over the alleged improper sublease of the tower to Global Signal, claiming that the sublease violated their underlying lease agreement. One of the other questions we pondered was whether there was any damage to the landowner by allowing Global Signal to sublease the tower. In effect, all Global Signal was doing was taking the place of Sprint in managing the tower. If the underlying cell tower ground lease prohibited subleasing, Global Signal could not sublease space on the tower without Oak Forest’s consent.

Oak Forest could argue that by subleasing to Global Signal, that now there were two companies that need access to the cell tower. But really is the burden any greater?

Either way, it really does not appear that this suit was motivated by the “damage” from the unauthorized sublease. Oak Forest is developing a mixed use development where the cell tower sits- and negotiations on the voluntary removal of the tower weren’t moving fast enough. Rather than use eminent domain to “take” the cell tower and compensate Global Signal, the city simply sued for breach of the lease. Having assisted a number of municipal clients navigate through the issue of eminent domain and cell towers, Steel in the Air has found that many municipalities are poorly informed about the cost of relocation of a cell tower.

The legal question here is whether or not the City was actually damaged, and if so, if removal and forfeiture of the tower is an equitable solution to the issue. That will be for the court to decide, if this actually isn’t settled prior to the court hearing arguments.

A landowner sold their cell phone tower lease to Wireless Capital Partners. The Wireless Capital Partners lease assignment and successor lease provided that they controlled the rights to the cell phone tower lease for 30 years. The lease actually has only 26 years remaining, so Wireless Capital Partners received 26 years under the assignment of lease and 4 years under a successor lease. A successor lease provides for the rights vested under the current cell phone tower lease after the expiration of the current lease.

Crown Castle notified the landowner that to “process” the efficient transfer of payment, they needed an “Acknowledgement” of the sale of the agreement. Never mind that Crown Castle actually received a Signed Affidavit from Wireless Capital Partners and the landowner “acknowledging” the sale.

What we specifically dislike about the letter from Crown Castle is that it suggests that if the landowner does not sign the “acknowledgement” that payments to WCP may be delayed. (As if WCP would allow this to happen). To make matters worse, the proposed acknowledgement is not an acknowledgement at all- but a questionnaire about completely irrelevant questions to the transfer of the lease to WCP.

As part of the Crown Castle Lease Cell Phone Tower Lease Extension Program, Crown offers a nominal one time payment of $4000, plus reinstatement of the lease (AT THEIR OPTION) at the conclusion of the successor lease for 15% escalation of the current lease rate then in effect. The landowner ends up extending the lease at what may be below market terms for a cell phone tower lease. Crown gets the security of extending their lease without any real obligation.

We cannot suggest to anyone that they accept this offer. If you have sold your lease to Wireless Capital Partners or to Unison Site Management, simply keep the lease as is. We don’t even suggest that you contact us for help- because this offer is so one-sided as to be ridiculous in most cases.

Steel in the Air, Inc. got into this business because we felt that the tower companies and wireless carriers were taking advantage of landowner’s ignorance. It is this type of one-sided offer that makes us glad that we did.

Global Tower Partners announced their acquisition to a consortium led by Macquarie Infrastructure Partners and Macquarie Communications Infrastructure Group. A quick search for Macquarie finds that they created the entities last year to fund investments in infrastructure.

From their website, it appears that Macquarie currently controls:

Broadcast Australia is Australia’s leading independent broadcast transmission provider.
Arqiva has a global broadcast, media and mobile communications capability.
National Grid Wireless was recently acquired by Arqiva.
Airwave is the primary provider of secure communications to Britain’s emergency services.

It appears that Macquarie will keep the current management intact, which we believe is a good thing. GTP, through Mark Ganzi and associates, has experienced excellent growth. GTP controls 4500 or so rooftops for wireless use. Given Ganzi’s background with Apex Site Management (one of the original rooftop management companies that was acquired by Spectrasite), we surmise that he understands the value of rooftops far better than many people in the industry.

We have heard that GTP is actively purchasing rooftop leases. If you compare the purchase multiples paid for rooftop cell site leases vs those paid for towers, it seems like a great strategy assuming that GTP is purchasing the rights to the entire rooftops.