Municipal Lease Negotiations- When Cities Undervalue Their Assets
January 27th, 2010 by admin Posted in cell sites, city, municipality, water tower | No Comments »
There are times when I come across a news story and am saddened when I read about a municipal landowner who has negotiated an undervalued lease. This particular story is about a Village in the Chicago, IL area who negotiated their own agreements with Verizon, US Cellular, Clearwire, and T-Mobile for use of a water tower on school district property. The lease rate negotiated was less than the average of what the typical tower company charges for a collocation lease.
This particular site water tower is located in an urban area. Without knowing anything else about the area, it is easily clear that just by the fact that there were four users interested in going on the site, that this is a unique site and should have commanded significantly higher rents.
I assume that the decision maker’s had the best of intentions. I assume they contacted other municipalities nearby to find out what other villages were being paid. However, they were incorrect in assuming that their location was average and that the comparable lease rates should apply. As a result, they did their constituents a disservice. As a result, this particular Village will lose out on a minimum of $500,000 in future value over the course of the leases. All because they failed to understand the unique value of their property and relied upon average lease rates.
School Cell Towers: Why RFP’s Don’t Work
April 10th, 2009 by admin Posted in cell towers, municipality, school cell tower | No Comments »
- The District and the tower company’s goals are typically aligned in that the tower company needs tenants if it intends to be profitable.
- The District gets to offload the negotiation of lease agreements to a third party vendor thereby decreasing staff time on the projects. (As anyone who regular negotiates leases on school district property knows- these are time consuming leases).
- The District gets a sizable amount of income- especially in more urban areas or in areas where
- 50% of the revenue can be substantially less than the District would have received had it just negotiated the lease directly with the wireless carrier.
- In some cases, it is unlikely that more than one wireless carrier will use a particular location. As the tower company only gets 50% that may not be enough to justify building the tower. As such, the District forgoes whatever revenue it could have negotiated directly for the lease.
- The District can give up some of its control over the placement of towers on its own property.
- Some districts have experienced significant public opposition to cell towers on school property on the basis of the sometimes irrational concerns about radio frequency radiation.
- Despite some common goals, the tower company and the District will inevitably have different goals because the tower company exists solely to make money off the operation of the towers.
The biggest issue we had with this particular District is that they assumed that an RFP would effectively bring in bidders. However, what they don’t know is that the way they intend to craft the RFP will limit the number of bidders. The large tower companies don’t do 50% revenue sharing. There are some tower companies that would be interested in building cell towers at schools, but they aren’t likely to see the RFP. The wireless carriers won’t bid because they would simply prefer to let a tower company deal with the burden and cost. The District is unlikely to know how to find small tower companies who aren’t likely to read or follow school district RFPs. So the District constituents get the short end of the stick because the RFP ends up being bid on by one or two companies. To make matters worse, these bidders almost always know that RFP’s for school sites will only be bid on by one or two companies and therefore aren’t forced to bid competitively.
Our suggestion is that school districts retain outside experts to assist them in determining the most profitable way of leasing space for school cell towers. We can review the District’s goals and help guide you on the method that will maximize your revenue while minimizing the headache to the district. It might be that one vendor is suitable or perhaps multiple vendors. Alternatively, perhaps the District could consider building and owning the towers themselves. Please contact us if you are school district looking to increase its revenue while minimizing the administrative burden from dealing with the wireless providers. We can provide non-biased advice on how best to accomplish BOTH of these goals. Please also see our webpage on municipalities building their own towers.
Water Tower Cell Site Lease Buyouts
August 4th, 2007 by admin Posted in cell phone tower lease, lease buyouts, municipality, water tower | No Comments »
The lease buyout firm had offered approximately 9 times the annual rental income for the rights to these leases for 30 years. We advised them on what the proper amount of the lease buyout should be were they to go forward with the lease buyout firm’s offer. We also advised them that if their goal was to maximize the lump sum, that they were better off considering the sale of the “wireless asset” entirely. Since a municipality would not have an interest in selling the water tower- we suggested that they could sell the current wireless leases and the potential for future leases.
By offering the sale of the “wireless asset” (like a cell tower), the municipality could capitalize on the robust tower market and open the bidding opportunity up to 10-15 more bidders. (There are only a few lease buyout firms). By doing so, the municipality would receive higher offers- possibly ranging to as much as 15 times their annual rent.
The transaction would be structured as the purchase of a fixed term easement- say for 30 years. The municipality would sell the current and future rights to lease the water tower to wireless carriers for that period of time. In return they would receive a higher lump sum today. The easement would mirror the current leases. The purchaser would have the opportunity to market and collect income from any wireless tenant using the water tower. Given that some of the lease buyout firms request 50% of the additional revenue as part of the purchase of the site, the municipality was in essence selling the additional 50% for almost a 60% increase in the purchase price.
Clearly, the municipality gives up some rights with the sale of the easement. However, these rights should mirror those given up in the existing leases. If the leases prohibit unauthorized access to the water tower or set established times when the sites can be accessed, those can be in the easement as well.
This is not the ideal solution for all municipalities- but if the goal is to maximize the lump sum from the sale of the existing leases on the water tower, than it may be appropriate. If you are a municipality and are considering the sale of your water tower leases, please contact us for a free valuation of your water tower cell site leases.