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.
Multiple factors may be used to determine fair market value; however, a ballpark conservative estimate can be calculated like this:
Annual Rent X 14 = Cell Tower Lease Buyout Value
In most cases, multiplying your annual rent by 14 approximates the low-end value of your Lease. Some leases though can be worth even more though.
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. Because of this, we’re able to share the following insights:
A. American Tower and Crown Castle 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’re bankrolled in liquidity.So 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:
When tower companies purchase leases they are already party to, 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.
The purchase of a lease is a financially sound investment, and tower companies want to cut costs while increasing profit margins. This equation assumes that inflation will occur at a steady rate and/ or that market demand for mobile connectivity will continue to skyrocket. This is a safe bet, as you might imagine – unless there’s a zombie apocalypse.But even then, the price of mobile phones would peak dynamically – at least initially.
Knowledge is power. If you know that this is their thought process, you have a leg up. And if they 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. Sprint leases are the least valuable of the “Big Four” carriers.
This involves evaluating the risk factor that the carrier will remain operational during 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. And 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 larger number of leases, the lease buyout aggregators can diversity risk across a large group of leases which can make the purchase of a portfolio of leases attractive.
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.
We’ve already mentioned that the purchase of a cell tower lease is considered to be a sound investment by brokers and investment managers. But here’s something that may not be so widely known: *SITA data shows that most cellular leases today are undervalued. Lease buyers anticipate purchasing your lease and managing it more effectively than the average landowner. They see the upside that exists over time by negotiating a better lease.
Sure they do! 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.
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 thereby increasing 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 client’s CPA 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 potential buy your lease. In past instances, some of our clients have been misled and told things like “Your lease is [not tax-deductible] or [tax deferred].
Generally speaking, the risk of for most cell tower leases being terminated prior to their expiration date is low. However, cell tower lease buyout companies prefer to buy leases that are even less risky. AT&T and Verizon are less likely to be terminated than those with T-Mobile or Sprint especially with the merger of T-Mobile and Sprint appearing likely to be approved shortly. 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 that 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.
In most but not all cases you will want to sell to the highest bidder. If the offers you have received are pretty close in value, the next “tiebreaker" is the paper that the seller uses. Some companies are more difficult to work with and their purchase agreement is more onerous. It may be worth taking slightly less on the buyout than working with a difficult company who bids more. We can help you understand the pros and cons of each buyout company and their agreements. We can tell you which companies are more likely to close without nickel and diming you.
In 2019, there are 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 2019. 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, some times of the year are better than others. These can vary from year to year and are dependent upon market dynamics; so if you are curious about when you should sell, please contact us .
We can help broker the lease-but if you go at it alone, here are some guidelines to keep in mind.
And if you think you may need help or just 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.
