How to Evaluate Third-Party Lease Buyout Offers
Third party lease buyout companies buy cellular leases, bundle them together and then resell them as a packaged product. During the past few years, between 3-6 major buyout companies have begun operating in earnest. Because of their reliance on the market’s fluctuations, they are especially susceptible to economic trends. As such, the amount they will offer for a particular lease can vary greatly year to year, if not month to month.
While it’s true that each buyout offer is as unique as the property on which it’s located, there are certain aspects that most of them have in common.
Steel in the Air has been amassing data on buyout offers since these companies first arrived on the scene. Since 1999, our proprietary cellular asset database has grown to encompass over 285,000 cell tower and cell site locations nationwide. We have served over 3,000 clients, reviewed over 8,000 cellular leases and tracked over 2,000 lease buyout offers to date.
Steel in the Air prides itself on being a valuable industry resource. Our process begins with providing our potential clients with as much information as possible via our website. If you have specific questions or are ready to take action based on your particular situation, do contact us! In the meantime, you should be aware of some things: Buyout companies sometimes use coercive sales tactics, and each claims to have the best terms. Because these terms vary greatly from company to company, you may have a hard time telling the difference between one offer and another.
We’ll bring you up to date on current market dynamics affecting the industry, including who the players are and what their motives are. We’re happy to provide an outline of each company who might be interested in buying your lease and how they rank competitively.
Identifying the Purpose
We start by reviewing the cell site’s purpose, which considers service coverage and available capacity. Think of coverage as signal strength (whether your phone has 1 or 5 bars) and capacity as the ability of multiple users to tap that signal. For instance, capacity deficiencies arise when you have 4 or 5 bars but still can’t connect because there are too many users tapping the coverage at one time. Cellular networks require sufficient, reliable capacity and coverage, and for this they need several things, most noticeably a sound infrastructure (but also appropriate spectrum).
In rural areas, the cell site exists where it does for a reason. It’s meant to provide coverage to a predetermined amount of “potential customers” for which it’s allotted a spectrum license (that it pays a great deal of money for).
We can identify and explain which terms are necessary for the completion of a deal, which terms are negotiable, and which are simply unacceptable.
In urban areas, there are usually many more cell sites (that use a higher frequency spectrum) to provide coverage, however each one is still essential and is mapped out specifically by the carrier to fulfill a predetermined capacity (including frequency and amount of not just users, but data per user).
Identifying the cell site’s purpose is critical when determining a value for the lease – and we know how to do it. Using our proprietary database, we take a look at what other structure or ground space might be equally lucrative in promoting a wireless carrier’s agenda.
We can identify all cell sites (on towers, rooftops and other structures) within a given location.
Assessing the Climate
A major concern is technological innovations, which are happening as we speak. Questions such as: Is there a risk my lease will be terminated due to LTE deployment, are valid and actionable. We provide our opinion of potential future risk in three ways: whether new technology will replace terrestrial-based cellular sites (sites that require property), how recent mergers and acquisitions will affect the likelihood of consolidation between or amongst carriers, and how the most advanced cellular technologies might influence the infrastructure of wireless carriers’ networks now and in the future.
Performing a Cost/ Benefit Analysis
We identify the specific pros and cons of accepting any buyout offers. Many property owners are unable to identify the potential downside of these agreements. The fact is that it might not be the best time to sell, meaning the most profitable time for you. However, we also understand the risks involved. The industry is, as we’ve mentioned volatile and dynamic at any given point in time. Depending on the climate, we will recommend that you sell now – or don’t. If we recommend a sell, we will provide you with a spectrum of buyers, and can even broker the deal for you – or advise you in some capacity along the way.
Determining a Price – Metrics
We will evaluate the current cash flow of anyone interested in buying your lease. In the case of a tower owned and operated by a tower company (or a carrier-owned tower with multiple tenants), we examine how much money the tower owner is making from the operation of the tower. We independently research the identity any and all tenants (the companies who are using the tower to service their subscriber base) to assess their use of the site. We also evaluate the equipment and antennas on the tower and the ground space itself to determine the cost/ revenue, future revenue and total value of the cell site.
We’re happy to share with you our metrics, including a comparison of amounts being paid for similar sales.
Preparing the Playing Field.
If you do decide to sell now, we will help you understand and negotiate terms that are favorable to you. Lease buyout companies offer different revenue sharing and duration options. Some force you to pay additional but undisclosed fees as part of the sale of your leases. We have found that the highest offer doesn’t always coincide with the best value, and will recommend how to best place yourself in any final contract – which might involve going with a different company altogether. We can also help facilitate a closed bidding process where you decide upon the final terms yourself.
Again, please give us a call. We’re happy to discuss the situation. If we can answer questions easily, off the top of our heads, we will gladly do it, in good faith and for free.
If you’d like more information about lease buyouts, please see our website: Cell Tower Lease Buyout Guide, which we’ve created just for you.
Buyout companies are in the business of making profits. They buy and sell cellular assets. If you have been contacted by one that is interested in purchasing your lease, you should presume that it’s because your lease if valuable. But before you sell, we advise you to investigate other offers.
The trend with new cell site leases is to include a “Right of First Refusal” clause. This means that if a third-party were interested in buying your lease you would first have to offer it to the original Lessee. This could substantially lower the final purchase amount. While it might not be possible to avoid the ROFR clause altogether, you might be able to negotiate away from “pro-rata” matching.
While there may be valid reasons to consider splitting the lump sum payment into a few payments, you should never agree to accept payment terms that stretch beyond three years.