How will cell tower leases be impacted by the current market conditions?
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.
Labels: cell phone tower lease, cell tower ground lease, crown castle, lease buyouts, wireless capital partners
Wireless Capital Partners - Potential Woes
In recent months, we have received numerous inquiries from cell site lease holders who have entered into letters of intent with Wireless Capital Partners to sell their leases. These owners have contacted us because they have had difficulty getting Wireless Capital Partners to close on the purchases in a timely manner. To be fair to
WCP, in some cases, the landowners were given a non-refundable fee to "hold" the closing for up to 3 more months. However in other cases, these owners could not reach their agent at Wireless Capital Partners. These owners wanted to see whether there was anyone else that would close quicker.
On September 4, we were informed by a Wireless Capital Partners agent that the vast majority of the agents were let go. They were informed on conference calls that they would no longer be needed. Allegedly, there are some upper managers still left. Other associates in the industry have confirmed that they have received a number of calls from prior
WCP agents looking for new employment last evening. This is after Wireless Capital Partner released a large percentage of their sales force just a few months ago. At that point the suggestion was that the minority of their sales force was getting the majority of their deals done- so they let go the majority that weren't getting deals done.
This doesn't bode well for Wireless Capital Partners. They confirmed previously that they were having some funding issues to us, but that those issues would soon be resolved. In the last few months, they haven't been. They still might be resolved, but prudent landowners should consider how long they can wait for closing on selling their lease. We suggest that landowners who are in negotiations with a Wireless Capital Partners representative for purchase of a lease discuss how and when your deal will be funded. Perhaps ask that the funds be placed in escrow. If you already have a deal that hasn't been funded, please contact us regarding getting other offers from companies that have not had funding issues. Make sure to read your letter of intent with
WCP, you may have legal restrictions from getting other offers during the term of the letter of intent. If so, you might contact
WCP and ask them to either honor their agreement with you or release you from it.
Labels: lease buyouts, wireless capital partners
Wireless Capital Partners tells Landowners of Sprint/Nextel Credit Problems.
So today, two seperate clients who are considering
cell site lease buyouts from Wireless Capital Partners received emails from their WCP reps that has a cryptic message regarding Sprint/Nextel's credit rating being downgraded to junk bond status.
The messages include an attachment of a news story about the downgrade. One goes on to say that there have been some amazing changes for WCP since they approached my clients first and that pricing leases is a "moving target". The other doesn't suggest or tell why the story was sent. Neither really states why they were sent at this time.
I surmise that WCP is using the article to scare landowners into selling with the implication that if it happens to the mighty Sprint/Nextel it can happen to the other carriers. Secondly, I assume that WCP will either reprice their cell tower lease purchase offers for Sprint/Nextel leases or discontinue offers altogether. (EDITOR'S NOTE- 6-1-08- Since writing this post, it has come to our attention that WCP has simply stopped purchasing Sprint/Nextel leases. Contrary to what was written above- WCP's financing group simply felt that there was too much risk in owning more Sprint/Nextel leases in the WCP portfolio. WCP's business model is based around spreading risk on their leases and the Sprint/Nextel leases increased that risk too much. WCP is working on acquiring alternative financing for Sprint Nextel leases.)
If you are a landowner that has an offer from WCP for a Sprint Nextel lease- don't dispair. Contact
Steel in the Air- because their are other companies that are still buying Sprint/Nextel leases. If you are concerned about your Sprint/Nextel lease as a result of this- remember that Sprint and Nextel has no value without its cell sites. So while there may be a risk of termination due to the merger and
duplication of Sprint/Nextel cell sites- these sites still form the basis by which Sprint/Nextel service their subscribers. Without them, Sprint/Nextel will really be in trouble.
Steel in the Air, Inc. and the author are not affiliated with Wireless Capital Partners or Sprint/Nextel. If you reached this post while looking for Wireless Capital Partners- go to www. wireless capital. com (without spaces) or
http://www.sprint.com/.
Labels: lease buyouts, Sprint PCS, Sprint/Nextel, wireless capital partners
Are Crown Castle and WCP Working Together?
In a tale of "strange bedfellows", we are starting to wonder whether Crown Castle and Wireless Capital Partners are working together. A letter that Crown Castle is sending out to its landowners warns of the pitfalls of dealing with various lease buyout companies. However, the letter has one noticeable buyout company not included in the list- Wireless Capital Partners. We assume that this is because Crown Castle and Wireless Capital Partners have come to an agreement whereby they have coordinated their efforts to negotiate lease buyouts.
We could see where this might make sense for Crown Castle. Because of the rigidity of their proposals for buying out their lease agreements, they typically must buy a perpetual easement. However, some landowners are rightfully scared of selling anything in perpetuity. That's where we assume Wireless Capital Partners come in- they offer their "non-recourse loan" for a shorter term purchase. The offer is less than Crown's offer, but the landowner doesn't have a perpetual easement on their property either to Crown.
So why should the landowner care? Because Crown Castle would not be working with Wireless Capital Partners unless they had something to gain from Wireless Capital. This gain might come at the disadvantage of the landowner. We surmise (but don't know) that Wireless Capital Partners has committed to Crown Castle that they won't increase the lease rates at the expiration of the purchased Crown Castle lease agreement. How does this negatively impact the landowner? Because as part of the
WCP agreement, the landowner gives
WCP the right to negotiate an extension to lease even if the extension is for a period greater than the amount of time granted in the non recourse loan. So
WCP could bind the landowner to an extension of the lease that benefits
WCP and Crown Castle, but is significantly undervalued as compared to what the landowner could get if he/she were aware of the value of his/her property to Crown at the expiration of the
WCP non-recourse loan.
In our opinion, this "partnership" is not improper provided that
WCP discloses any such relationship with Crown Castle to the landowner prior to any purchase of a lease agreement. If Wireless Capital doesn't disclose, than the landowner might end up selling to
WCP without knowledge of what they are giving up.
If you have been approached by Wireless Capital Partners regarding purchasing a Crown Castle lease agreement, speak with your attorney to fully understand what rights you are giving up. Ask them what
WCP's intentions are at the expiration of the current lease agreement. If you need help understanding the actual value of the lease buyout or what the lease should be worth after the purchased term,
contact Steel in the Air.
If you have found this post while searching for Crown Castle's or Wireless Capital Partner's websites- please note that Steel in the Air is not affiliated with either entity. You can find more information about Crown Castle at
http://www.crowncastle.com/ or for Wireless Capital Partners at www .
wirelesscapital.com.
Labels: cell phone tower lease, crown castle, lease buyouts, lease purchase, wireless capital partners
Subprime impact on Cell Tower Valuations and Cell Tower Lease Buyouts
It appears that the
subprime issues will have an impact on the wireless/tower sector particularly regarding cell phone tower acquisitions and
cell phone tower lease buyouts- especially for the mom and pop side of the industry. We suspect that 1/4 to 1/3 of the new tower being built this year come from Mom Pop tower companies or individuals.
One of our associates mentioned that they have
definitely seen a greater number of restrictions on commercial loan terms. As interest rates rise and loan covenants become more restrictive, small borrowers will find it more difficult and more expensive to borrow to build a tower or finance other business or non-business related purchases.
Meanwhile, the large tower companies and lease buyout firms who have fixed cost of capital will be sitting in the proverbial cat-bird seat. As the disparity between their cost of capital and the small borrower's cost of capital increases, the buyouts or the tower acquisition offers will start to look more attractive and in some cases absolutely necessary for those who have extended too far or assumed that they could get low cost funds to finish an existing project. This could have the affect of reducing
cell tower valuations.
Labels: cell tower valuation, lease buyouts, subprime
Water Tower Cell Site Lease Buyouts
We recently provided a consultation for a municipality that was pondering the sale of its cell tower leases on its water towers and electric transmission poles to a lease buyout firm. Like many municipalities, this particular city was looking at the lease buyout as a means of increasing available funds without raising taxes.
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.Labels: cell phone tower lease, lease buyouts, municipality, water tower
American Tower Corp tower ground space targeted by opportunists
A client of our was approached by a site acquisition agent who they mistakenly thought was a representative of American Tower Corporation. American Tower leases space on their property for a tower. Due to the physical size of the building and the small size of the parcel, there is not much room remaining for expansion.
The site acquisition agent offered to sign a lease with the landowner to allow for future expansion for wireless collocations on the American Tower site. The problem is that this wasn't an American Tower Corporation rep. We believe that the site acquisition agent was simply trying to get a below market lease from the landowner so that they could turn around and release the space to the next wireless carrier who was going to collocate on the American Tower site. This particular landowner thought the representative was from American Tower but after we investigated further, it was clear that they weren't.
If the site acquisition agent was willing to pay for the lease, this might not have been so bad. Instead, they wanted an indefinate option to lease. In other words, they would not have to pay any rent until they chose to which would only occur when American Tower corp added another tenant and found that there was no expansion room for the ground lease.
We don't know for sure whether this was only a one time only thing- but we suspect that it wasn't. If it wasn't, then it appears that cell site ground lessors have yet one more group of people that they don't want to be contacted by.
Labels: American Tower, cell tower ground lease, lease buyouts
