Discover the value of lease and whether you should sell
At Steel in the Air, one of our daily topics of discussion with our clients is whether they should consider a cell phone tower lease buyout. Our clients and leads ask frequent questions about cell tower lease buyouts. We compiled them in the following list for your benefit.
For 2022, the easiest way to estimate the value of your lease is to multiply the annual rent you receive by 17x. This is a rough approximation of the value of a cell tower lease. However, be aware that leases can be worth far more than 17x the annual rent, and some are worth less.
In the past four years (2018-2022), there have been many lease buyout companies chasing more deals with cheaper capital than ever before. This has resulted in an ultra-competitive market which primarily benefited leaseholders. We highly doubt that future offers will significantly exceed those being made in 2021 and 2022. We also believe that if interest rates climb or the market enters a depression, lease buyout values will decline. We can help you determine whether offers for your specific lease are likely to go up or down in the future, and whether you should sell.
Furthermore, regarding selling, different times of the year are better than others. These periods may vary from year to year and are dependent upon market dynamics; if you are curious about when you should sell, please contact us.
Even if they pay the same amount of rent, some leases are worth more than others. Here are the factors that most influence cell tower lease buyout values. Leases with higher escalation rates are worth more. By “higher,” we mean leases that have an annual escalation of 3% or more, or term-based escalation of 15% or more.
Leases that do not contain a right of first refusal clause will typically go for more because potential buyers don’t have to worry about having their offer matched.
Leases that have revenue share clauses will also generate better offers because the potential buyer can realize additional income in the future as additional revenue is added to the tower.
Leases that don’t have enough lease space for additional tenants are valued slightly higher because buyers may anticipate that the lease area will need to be expanded, which increases the rent.
Based upon our experience with our clients, in more situations than not, the sale of the lease is treated as a capital gains transaction. However, in some cases our clients’ CPAs have advised them that income from a lease buyout will be treated as ordinary income (or in the case of a church, as unrelated business income).
We can’t answer this question for you and recommend that you only seek advice from a trusted CPA or attorney. We also want to offer a word of caution: Do not listen to representatives of any company that could potentially buy your lease. In past instances, some of our clients have been misled.
Generally speaking, the risk of for most cell tower leases being terminated prior to their expiration date is low. Otherwise, there wouldn’t be as many companies lining up to purchase your lease. Furthermore, there are leases that are less likely to be terminated. AT&T, T-Mobile, and Verizon leases are less likely to be terminated. Sprint leases are more likely to be terminated. Cell tower leases with more than one carrier on the tower are less likely to be terminated. Leases with rates below the market average are less likely to be terminated than those that are above market average. Lastly, leases in rural and suburban areas are less likely to be terminated than those in urban areas, especially if there are no other towers nearby.
Our job is to arm you with the pros and cons of each option so you can make a fully-informed choice. We can also share some of the different reasons our 3500+ clients have pondered and evaluated when deciding to keep or sell their leases.
REASONS TO KEEP THE LEASE
A cell tower lease buyout is a transaction where one party buys the rights to a cell site lease from another party. These buyouts involve:
a. A seller – typically the landowner or building owner who is leasing the site.
b. A buyer – this can be either a tower company, a wireless company, or a specialized lease buyout firm.
c. A lump sum payment – paid at closing based upon a “multiple” of the annual cell lease rent.
d. A long-term easement – the right to collect rent from the cell tower lease.
Since 2004, we’ve had ample opportunity to become familiar with major and minor industry players, including cell tower companies, wireless carriers, and third-party buyout companies. We have reviewed thousands of lease buyout offers and assisted in the sale of hundreds of millions of dollars of cell site and cell tower assets. From our experience, we’re able to share the following insights:
A. American Tower, Crown Castle, and SBA Communications leases tend to be the most valuable because these companies pay the most for their own leases.
These two players are the nation’s #1 and #2 tower companies respectively, and they have a wealth of capital. It follows that they can pay more for cell tower leases than third party companies. Here are two reasons that tower companies prefer to purchase leases that they are already party to:
Convenience for the Tower Owner: When tower companies purchase their own leases, they enjoy a greater degree of autonomy and are able to rely less on landowner approval. As you can imagine, it’s advantageous for a tower company to own the rights to its own lease, and it can be problematic if someone else does. This is the optimal position for most companies, especially those who foresee equipment upgrades and/or prefer to make their own decisions rather than navigate through the approval process.
Money: The purchase of a lease is a financially sound investment, and tower companies want to cut costs while increasing profit margins.
Knowledge is power. If you know these companies’ thought processes, you are at a great advantage. If these companies know that you know, you have leverage.
B. Cell tower leases with AT&T and Verizon are considered to be the most valuable, followed by T-Mobile. Leases with other cell providers are typically worth less.
This involves evaluating the risk factor that the carrier will dissolve the lease, as opposed to remaining operational for the duration of the lease. The general perception in the wireless industry these days is that AT&T and Verizon aren’t going anywhere, while T-Mobile and Sprint (in particular) have slightly more of a perceived risk especially now with their potential merger. The greater the risk, the less buyers are willing to pay in a lease buyout.
C. Some third-party lease buyout companies buy leases so they can bundle them to sell as a package to a larger buyer.
By bundling leases (this is why the lease buyout companies are also known as “lease aggregators”), lease buyout companies can take groups of risky and non-risky leases and create a portfolio of leases. With a larger number of leases, the lease buyout aggregators can diversify risk across a large group of leases which can make the purchase of a portfolio of leases attractive.
D. Buyers perceive that they know more than you do and are able to negotiate better amendments for the lease in the future, especially on the leases that are undervalued.
This is the most likely reason you have received interest from third party lease buyout companies. In fact, today it’s perfectly nonchalant for lease buyout companies to acquire, sell, and/or hold bundles of telecom leases, similar to how things operated 15 years ago in the mortgage industry.
Our job is to arm you with the pros and cons of each option so you can make a fully-informed choice. We can also share some of the different reasons our 3500+ clients have pondered and evaluated when deciding to keep or sell their leases.
REASONS TO KEEP THE LEASE
We can help broker the lease, but if you go at it alone, here are some guidelines to
keep in mind:
If you think you may need help, or you simply have questions, call us or contact us. The initial discussion and proposal for services won’t cost you a dime, but it could save you tens or even hundreds of thousands of dollars.
Discover the value of lease and whether you should sell
