Lease Buyouts

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 purcclass=”services_list”hase leases that they are already party to:

Convenience:
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.

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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.

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 oclass=”services_list”ffer 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].

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.

A. REASONS TO KEEP THE LEASE

• You are not in immediate need of a large lump sum payout.
• You might want to sell or develop your property in the future and don’t want the tower to hinder the sale or development.
• The risk of termination is low, especially for towers with multiple carriers.
• If your lease is within 15 years of expiration and is undervalued, you may be able to extend the lease and get a significant increase in the cell tower lease rate. If the tower owner needs to extend the lease footprint, you may be giving up future revenue you otherwise would have received.
• After selling the lease, you will still have an obligation to the cell tower owner to grant access to the property and avoid interfering with their equipment. If there is a dispute, you can’t sue without getting permission from the buyer of the lease.

B. REASONS TO SELL THE LEASE

• You believe the money you’ll receive from the buyout can be better used elsewhere. Perhaps you want to build on a new addition to your house or pay for college. You might be close to retirement, or need the money for a medical or other emergencies. You also might find a different investment to be more lucrative and wish to use the capital.
• You want or need to liquidate assets for estate purposes or after a divorce.
• You are selling the underlying property and realize that buyers either don’t really care about the cell tower lease income or won’t pay as much as third party lease buyout companies will. In most cases, it’s more profitable to sell the lease to a specialized buyout firm or the tower owner than it is to sell to the purchaser of the remainder of the property.
• You don’t like the possibility that the lease could be terminated, and would prefer a lump sum of money now as opposed to ongoing payments. This may be because your specific lease is subject to a higher risk of termination due to current or future market consolidation (such as the current possible merger of Sprint/T-Mobile or the past mergers of Sprint/Nextel, Alltel/Verizon, MetroPCS/T-Mobile, and AT&T/Cingular or AT&T/Cricket).
• Convenience. You are sick of dealing with constant calls from the cell tower owner or third party cell tower lease buyout companies regarding their lease.

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.

• Don’t sell for a perpetual term.
• Get more than one offer.There are many buyers with many different approaches to buying leases. Furthermore, some buyers prefer specific types of leases and will pay more for them in a buyout.
• Don’t be misled by claims of future revenue from the lease, either in the form of revenue sharing or expansion rights. These almost always prove to be false claims.
• Do require that the purchaser must be liable for any real property taxes attributable to the property especially if the current lessee (tower owner) is responsible for them under the current lease.
• Do require that the buyer takes on the same responsibilities asthe lessee (the company with whom you have a lease) as it pertains to accessing and maintaining the property.
• Don’t attempt to completely rewrite the underlying lease.If you are dealing with a third party unrelated buyer, neither of you can legally rewrite the lease without the consent of the lessee.If they are the owner of the lease (say a tower company), they can change the terms, but they won’t make them significantly more favorable to you.
• Ask for a copy of the easement purchase agreement or lease assignment agreement BEFORE you sign the letter of intent.

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.