How COAS Can Benefit from Cell Site Leases

In the United States, there are over 300,000 cell sites, encompassing those that are located on cell towers, other structures (like telephone poles and water towers), and rooftops.  Ken Schmidt, President of Steel in the Air, estimates that in Florida, there are between 500 – 750 cellular leases tied to rooftops located on condominium buildings. In SITA’s home state of Florida, there are approximately 22,000 Condo Owner Associations (COAs) and, as of June, 2014, there were 1,508,376 registered units[1].  According to our cellular asset database, some COAs in Florida are party to up to six cellular leases.

Cellular antennas
Cellular antennas on the roof

Lease rates range from $500 to $7,000 per month, depending on the number of tenants that share the site among other things. COAs are suitable locations for cellular equipment for a number of reasons.  In some cases, they are the only tall structures within a given area (e.g. along one of Florida’s 1,350 miles of coastline).  Because COAs are built to accommodate a specific population of homeowners, reliable cellular coverage is important not only for the condo owners themselves, but also for the wireless service providers who are in neck-to-neck competition to provide optimal data plans to subscribers. Cell site coverage on COA buildings is highly desirable to wireless carriers; however, gaining approval to build a new cell site and enter into a lease agreement isn’t always the easiest task for site acquisition agents to accomplish.  COAs, by their very nature, are made up of multiple owners who may not always see eye to eye – especially regarding cell site development, installation and lease agreements. Similar to municipal cell tower proposals that require committee approval, board meetings are called, during which the pros and cons are discussed and debated – occasionally even leading to contentious arguments between owners regarding potential safety hazards.  Often, COAs are unable to agree to even look at the potential benefits to their community, such as the passive income stream of regular rental payments and/ or the potentially profitable future buyout of the lease. Additionally, in Florida specifically, many condo owners use their units as seasonal homes, which makes meeting for board proposals difficult.

Cell Site Leases: Understanding the Process In the case where a COA is open to considering a potential cell site lease, we do advise paying careful attention to the approval process.  The wireless service provider (the “Lessee”) will require documentation from the COA (the “Lessor”) assuring that the members are on board and approval has been granted before proceeding to discuss specific terms.  Since the lease would be regarding a common area, COA bylaws often require that the membership, as a whole, must vote on the issue.   In fact, In some states, membership approval (e.g. a vote) is required by law. Once approval has been granted and the COA is ready to begin negotiations, we recommend careful consideration of the following aspects regarding new cellular leases:

Financial Terms.  This short list outlines issues that will affect the monthly rental amount that wireless carriers offer.  The uniqueness of the location and how well it serves subscribers while augmenting the carriers’ network capacity goals is perhaps the number one factor in determining lease rates.  In other words, how valuable is this particular location to the carrier?  This is something that the carriers know, yet the COA does not.  Steel in the Air can help determine the sweet spot (the amount the carrier is willing to pay to rent on your property) by querying our cellular asset database; however, there are some standards that are more or less givens across the board.  For instance, leases in urban areas typically command higher lease rates (but not always).  Additionally, local zoning regulations will factor in, since some municipalities allow building owners (including COAs) “monopoly-like” rights over wireless tenants, while others do not.

Longevity.  A standard cell site lease lasts for 25 years. Wireless carriers will hold the right to terminate the lease, but COAs should expect to remain locked into it throughout the duration.  As such, your COA should evaluate whether or not there are any pending plans for renovation that might affect the installation.

Maintenance.  Cell sites on rooftops are typically installed on space that is otherwise un-used.  Even so, like everything, the installation will require periodic maintenance, and it should be clearly written into the contract that this is the Lessee’s responsibility. For instance, we advise our clients to request that the wireless carrier use “non-penetrating mounts” to every extent possible during installation. Furthermore, the wireless service provider should be required to fix any problems (like water leakage) that might occur as a result of the installation.

Modifications.  Wireless service providers need some flexibility to make modifications to their systems over time.  However, COAs should not have to sacrifice control over the aesthetics nor the tranquility of their community, therefore there should be reasonable restrictions places on the ability of wireless carriers to add antennas or additional equipment to their site.  In some cases, they should only be allowed to do so by paying a fee.

Structural Capability. The equipment that the wireless service provider installs on the roof can weigh in excess of a ton.  Thus, it is paramount to the safety and maintenance of the building that the wireless service provider provides documentation signed/ stamped by an engineer attesting to the fact that the building’s rooftop will support any equipment.

Access. Wireless service providers typically want 24/7 access written into the contract.  This can present security and noise issues.  The best way to address this is by restricting normal maintenance to business hours and to require written notice in advance; however, you can also allow emergency access on a 24/7 basis, subject to specified terms.

Taxation. While entering into a lease will not require a change in not- for-profit status, income from cellular leases is typically classified as “unrelated business income” and as such can be taxable.  Said income can, however, be written off against expenses or business related loss.  COAs should consult with their CPA or tax attorney prior to entering into a lease to determine specific tax consequences.

Subleasing. Subleasing to another wireless provider (aka collocation) is never appropriate in a rooftop lease.  Thus, it should always be removed.

Nationwide Data Usage and How it Will Affect Cell Site Lessors Going Forward According to CTIA (a wireless infrastructure association), as of March 2014, smartphone use surpassed TV use for the first time ever at 151 minutes per day (vs TV at 147 minutes per day). Internet data usage rose 120% from 2012 to 2013 and is expected to climb even more for the foreseeable future.  More cell site build outs (on towers and rooftops) are necessary to meet rising consumer demand for data, and becoming party to a cellular lease can be a rewarding endeavor.  After all, it’s difficult to argue with a passive and regular income stream!  We can say, for instance, that our clients who are COAs (and their members) are happy to receive these “bonus” checks in the mail.  Some even say paybacks from cellular leases are able to reduce (or cancel) Association fees. Steel in the Air has been assisting property owners in negotiations against wireless carriers for over a decade now. We are well-respected in the industry for our no-nonsense, ethical and informative consults.  If you are currently party to a cellular lease or are considering negotiating one with a carrier who has approached you, do contact us.  We are happy to review your case in detail. We can help explain the pros and potential cons regarding entering into a long-term agreement and can answer any questions any of your members might have.

[1] According to the Florida Department of Business and Professional Regulation

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    2 thoughts on “How COAS Can Benefit from Cell Site Leases”

    1. As much as I like to disagree with the FASB, I think they hit the nail on the head with this Exposure draft. I have had to relauve leases many times, and interestingly enough, not for work, but for personal investment. With so many firms financially vested in their leases as a capital lease, yet structured as an operating lease, it only makes sense to convert the treatment of these leases whenever feasible. The problem herein lies when many investors (i.e. the vast majority of them) either are not aware of how many firms treat capital leases as operating leases, or they have some knowledge and fail to follow through with making the lease conversion to make an informed financial decision. A great industry example here is the airline industry. The bulk of airplanes that are actually leased (and not owned) are operating leases, yet the way the airplanes are used, financially and physically, these should be treated as capital leases. This can have an impact on earnings and stock value to an investor that can be very insightful, and moreover, provide an edge when the decision to trade that security is a tough decision.

    2. Honestly, depends on your state. Consult a real eattse lawyer. It is a big legal issue that shouldn’t be left to our hands. Use the money you saved on an REO and spend it on a good lawyer.References : Was this answer helpful?

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