Cell Tower Lease Valuation and Appraisal
Cell Tower Lease Valuation and Appraisal
Across the United States, there are approximately 400,000 cell tower leases that exist. These leases include ground leases for towers, collocation leases on towers, rooftop leases, and leases on structures like water towers and billboards. At Steel in the Air, we specialize in providing expert cell tower lease valuation services. We are dedicated to aiding appraisers, financial institutions, and attorneys with their leases. Over our two decades of experience, we have reviewed 15,000 leases and delivered valuation services for more than 4,500 leases. Knowing how much your cell tower lease is worth can help inform your financial decisions. This information is crucial when making decisions about your lease or property.
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Understanding Cell Tower Lease Valuation
One of the most significant challenges in valuing cell tower leases is the lack of accessible information. Leases are recorded, but usually in short form, without disclosing the specific lease rates. This lack of transparency complicates understanding fair market value. Unlike other real estate transactions, there is no Multiple Listing Service (MLS) for cell tower leases. Wireless carriers and tower companies only share detailed information when they aim to persuade landowners that their lease is overpriced. Because of this secrecy, it becomes difficult for the average landowner or appraiser to find substantive information on lease values. This lack of clarity often leads to lowballing, as landowners cannot accurately gauge the market worth of their leases.
Understanding the value of a cell tower lease can be complex due to the multiple types of leases and the varied factors that influence valuation. This page outlines the key elements in valuing a cell tower lease, including the different types of leases, factors affecting value, and the process we use to determine lease value.
Types of Cell Tower Lease Valuation
There are two primary types of leases associated with a cell tower:
- Ground Lease: This lease exists between the tower owner and the landowner.
- Collocation Lease: This lease occurs between the tower owner and the wireless companies that have installed their equipment on the tower.
Each type of lease comes with different values. The ground lease typically reflects the rental income generated from the land on which the tower stands. In contrast, the collocation lease reflects the rental income generated from wireless carriers who install equipment on the tower. Beyond these are additional valuations, such as lease rate value and lease buyout value. The latter refers to the amount that a third-party company or the tower owner would pay to acquire long-term rights to the lease, often for a lump sum.
Valuation Vs. Appraisal
Valuation: Valuations are less formal and more affordable than official appraisals, which have stricter standards. They estimate a lease’s value without following all the strict guidelines of formal appraisals. Even if they are less thorough, they are just as accurate, quicker to finish, and offer crucial insights on market worth.
Appraisal: An official process conducted by a licensed professional, appraisals produce a comprehensive report about the lease site and are necessary for legal, tax, or regulatory purposes.
*Please note that SITA is not a licensed appraiser but has provided letters of opinion on the fair market value of cell site lease to other appraisers to “wrap” their appraisal around.
Aspect | Appraisal | Valuation |
Goals | Determine official value for legal and tax issues | Estimate market worth for investment decisions or for simpler valuation purposes |
Process | Conducted by licensed appraiser | Conducted by cell tower lease expert |
Report | Formal appraisal | Letter of opinion on value |
Cost | Higher Cost | More Affordable |
Timeframe | 2-5 months | 3 weeks to 2 months |
Usage | Required for legal disputes, tax issues, some eminent domain proceedings. | Used for financial decisions, informal valuations, selling, investing. |
Litigation | Used in litigation in some cases. | Used in litigation or by appraiser to support their valuation of a property. |
Standards | Appraisal standards | Does not follow formal guidelines |
Examples | Lease of government land, tax assessments and contested tax cases, property valuations for eminent domain | Market assessments, estate valuation letters for IRS, bank lending valuations |
Why Lease Values Differ
If you look at our page on cell tower lease rates, you will see a wide range of average lease rates in major cities across the US. ($700/mo. in Houston vs. $2,500/mo in San Francisco). Why are leases valued differently in one part of the country vs another? Here are the top reasons that lease values differ:
- Scarcity of alternatives: The fundamental nature of cellular networks is that overlapping sites cover more expansive areas, creating a consistent coverage layer. In some areas, it is easy to find multiple options for placing a tower or cell site. In others, there may only be a single option. This could be because of unique topographical factors, limited ownership of private property, or zoning regulations that prevent new towers on most of the properties in the area. If you have that property, you have more negotiation leverage and can yield a higher value.
- Underlying property values: It’s important to understand that cell tower leases track property value. There is a direct relationship between underlying property value and cell tower lease rates. A lease in Manhattan or San Francisco is higher because the value of the property is higher. This knowledge can empower you in your negotiations, ensuring you are well-informed and can make strategic decisions.
- Ignorance of Landowners: Less than .1% of landowners in the United States even have a lease. So, when landowners are faced with negotiating a proposed lease, they haven’t dealt with it before. They do their research by checking a few other leases and do their best. The result is a wide disparity of lease rates, even amongst similar properties in the same area. Understanding this disparity can give you an edge in negotiations, making you aware of the potential for securing a more favorable lease.
Our Approach to Valuing Leases
Here is a breakdown of how we do it:
Location Review: We begin by evaluating the site’s location (urban, suburban, or rural) and the carrier’s coverage objective for the area.
Nearby Sites: We assess other properties and towers in the vicinity, determining the carrier’s network layout and the proximity of adjacent sites.
Equipment Assessment: We review the specific equipment installed on the tower, such as the number of antennas, upgrades to 5G, and the number of carriers using the tower.
Zoning and Permitting: Local zoning and permitting regulations are scrutinized, especially any restrictions limiting tower placement or height.
Relocation Feasibility: For existing sites, we evaluate the cost and difficulty of relocating the tower, which can significantly impact lease rates.
Data Analysis: We leverage our database of over 15,000 leases to compare lease rates in the area. While we consider average rates, we also examine the range of lease rates to identify any outliers or particularly relevant data points.
This process results in a thorough analysis that determines the value of the specific site in question. Appraisers use the term “fair market value” or FMV. FMV is typically defined as what two parties would negotiate assuming that they were negotiating at arm’s length, with neither party under duress or being forced to enter the deal, and that both parties were privy to the same information.
While typical cell tower lease negotiations may occur at arm’s length- one party almost always has better information than the other. The wireless provider or tower company has tens of thousands of leases in their database, and they know the location and need of each specific site. The landowner rarely has any of that information. So, how can a landowner or appraiser determine the FMV of a particular site? In most cases, they can’t. What does this mean? Most cell tower leases are not at fair market value.
Two Main Formats for Revenue Generation from the Towers:
- Rental Value of Cell Tower Leases
The standard cell tower lease consists of monthly or annual rent payments over 25 years or longer. Understanding the rent, escalation, and revenue-sharing clauses helps determine the lease’s worth.
- Leases for Cell Towers Valued by Lump Sum
When a lease is going to be sold, we look at the total amount a buyer would pay to take over the lease completely. We use the “multiple of annual rent” method to compare similar sales from our extensive database. For example, a lease that makes $10,000 a year and is sold for $200,000 has a 20x multiplier. This method is the opposite of the cap rate calculations often used in real estate appraisals. (In the previous example, the cap rate is 5% or $10,000 divided by $200,000.)
| Method | Description | Example |
| Multiple of Annual Rent | Used to compare sales of similar assets with different lease rates | A lease that makes $10,000 a year and is sold for $200,000 has a 20x multiplier |
| Cap Rate | Often used in real estate appraisals | In the previous example, the cap rate is 5% or $10,000 divided by $200,000 |
If you want information on valuing the actual tower instead of the lease, please see our page on Cell Tower Valuation.
Values are Relative
If you have come to this page from other pages on the website, you will likely see statements on those pages that describe the “average” values. While referring to “average” values may be tempting, these figures are often meaningless without context. Just as houses have different values based on location, cell tower leases vary widely depending on factors such as location, tower type, and tenant usage.
For example, our database’s highest cell tower ground lease is just under $20,000 per month, while the lowest is less than $12 per month. Likewise, lease buyout values have ranged from four times the annual rent to over 100 times the annual rent. These examples highlight that average values are just averages and do not necessarily reflect the actual value of your lease.
How Can Steel In The Air Assist You?
Our services include:
- Providing letters of opinion on cell tower lease values
- Assessing ongoing and end-of-term fair market rent
- Producing expert reports for litigation, eminent domain cases, estate valuations, and more
- We have been qualified as experts in cell tower lease and communication tower valuation litigation matters.
- The principal of Steel in the Air is an attorney and understands what is required of expert witnesses.
- Supporting appraisers with robust data and expert opinions
- We commonly provide letters of opinion to appraisers to “wrap” their appraisal around.
- Offering referrals to reputable appraisers for formal needs
It is important to note that we do not sell or trade our data independently—it is only provided as part of our comprehensive valuation services.
Are you trying to figure out how much your cell tower lease is worth either on a lump sum buyout basis or an ongoing lease basis? Speak with Steel in the Air today to get the help you need. Until you choose to use our services, your initial consultation is free and confidential. Find out how our years of experience and highly qualified professionals can assist you in making well-informed decisions on the lease of your cell tower. As an FYI, we do not share or sell our lease rate or lease buyout data unless it is part of a letter of opinion.
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