Cell Tower Lease Valuation and Appraisal
By our count, there are approximately 400,000 cell tower leases across the country. These include ground leases for towers, collocation leases for equipment attached to those towers, rooftop leases, and leases on other structures like water towers and billboards. Steel in the Air provides valuation services regarding cell tower leases and regularly provides valuation guidance to appraisers, financial institutions, and attorneys. Over the last 20 years, we have provided valuation services for more than 5,000 leases.
What is Cell Tower Lease Valuation?
The term “cell tower lease valuation” is generally used to refer to the determination of the value of a lease either on a monthly ongoing basis or as a value at a specific point in time of the future income stream. First, it can refer to a “rental” value – i.e., the ongoing monthly or annual rental payments for the right to lease the property, tower, or structure. Alternatively, it can refer to the lump sum value of the lease if it’s sold or conveyed on a permanent or long-term basis to another owner (also referred to as a cell tower lease buyout). Another way of referring to lease valuation is “fair market value.” Fair market value generally refers to the value that two parties would agree to in order to enter into a lease or agree to sell a lease (assuming that neither party was under duress and that both parties had equal information).
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How Does Appraising Cell Tower Leases Differ from Cell Tower Lease Valuation?
An appraisal is a formal report provided by a licensed appraiser. A cell tower lease valuation generally does not comply with appraisal standards. An appraisal may be preferred if there is possible litigation or if the valuation is being required by some state or federal entities. A cell tower lease valuation is less formal and generally costs less than a full appraisal to complete. While there may be similar aspects in an appraisal as compared to a valuation, an appraisal is more thorough.
How to Calculate Cell Tower Lease Values
Again, it depends upon whether one is referring to the ongoing rental value of the lease or the lump sum value if the lease was to be sold.
1. Cell Tower Lease Rental Valuation
For cell tower lease rental values, we use a comparable data approach. In our proprietary database, we have more than 15,000 leases with lease rate data attached to them. To determine the fair market value of a given cell site lease or tower lease, we examine similar leases of a similar type in the area. We then examine the specifics of the exact location and evaluate whether the subject location is better or worse than similar leases. We then provide our estimate of fair market value for the specific lease. The average ground lease for a cell tower pays $1,300/mo. in our database, but there is wide variation of what companies will pay.
2. Cell Tower Lease Valuation
Another way of looking at the value of a cell phone tower lease is to consider the concept that cell site leases can be sold. Sometimes the owner of the tower may consider “buying” out their lease to remove the obligation of paying rent. Other times, a third party may want to buy out the landowner’s rights to collect rent from a lease the landowner has on their property. The value in these situations would be the lump sum that the buyer would pay to the landowner. This is also known as a lease buyout. To calculate the value of a lease buyout, we use a comparable sales approach. Over the last 20 years, we have maintained a database of thousands of lease buyout offers and sales. Like a rental valuation, we query our database for the sale of similar cell tower leases. We review the number of wireless carriers on the subject tower, the terms of the current lease agreement, the expiration date of the lease, and other factors that influence fair market value of leases. Because lease rates are different across the country, we compare leases using a “multiple of annual rent” equation. For example, if a lease pays $10,000/year and is sold for $200,000, the multiple of annual rent is 20x (20 x $10,000= $200,000). In appraisal terms, this is known as an inverse multiplier and is the reverse of the cap rate. (Cap rate = net annual operating income divided by the purchase price; in this scenario above, the cap rate would be 5%, or $10,000 divided by $200,000). The average annual multiplier in 2023 is around 19 times the annual lease rate – though there is a wide variation depending upon the specific lease or leases.
How Can Steel in the Air Help?
We can provide the following:
- Letters of opinion on the value of a cell tower lease.
- Ongoing rental value
- Rental value at expiration
- Expert reports on cell tower lease valuations for:
- Litigation/Arbitration
- Eminent Domain
- Estate Valuations
- Fair Market Value
- Company Valuations
- Support for appraisers who are tasked with assessing the value of cell tower leases. (We do not sell or share our data without being engaged for a letter of opinion.)
- Referrals to Appraisers. If you need a formal appraisal, we can refer you to appraisers we have worked with. Keep in mind, that they will likely require retaining us to provide our expert opinion on the value of a cell tower lease.
Please note that we DO NOT sell or trade our data separately – we only provide it as part of providing a letter of valuation.
If you would like to discuss your situation, please know that your initial call with us is always free, and you won’t owe us anything until you sign a consulting agreement for services. Information shared during the call will be treated as confidential. Please contact us for further help with the cell tower lease appraisal or valuation.