Cell Tower Lease Values

Let's clear up a myth. "Cell tower lease buyout firms will pay almost anything to get your cell site." This is patently false and has caused many potential sellers to have passed up great deals and cause many more to hold onto their cell tower leases waiting for a buyer to pay some unrealistic price (value) that will never come to pass.

Let me breakdown the perspectives of cell tower lease buyout companies. First and foremost, these firms measure risk/reward when looking at a cellular site's value to them.

The risks are real. Present redundancy or potential redundancy due to technology or newer and cheaper tower sites becoming available. Historically, although thousands of new cell sites are built yearly, 1 to 3% of present sites are terminated early each year.

When your cell site is sold (transaction closed) and then the carrier chooses to cancel the lease, you are not liable. The cellular buyout firm is stuck, not you.

Cell Carrier Redundancy

Redundancy occurs when 2 carriers merge, AT&T and Cingular, for example. A tower that houses both of these carriers has a 'redundancy' or duplicated sets of equipment. You can bet that either the AT&T or the Cingular site lease will be terminated. In this case it was Cingular. Thousands of Cingular lease owners got the shaft.

The reward is a purchase that achieves a cash flow of 10 to 12% gross or more for the buyer. Some firms offer a gross purchase price and some offer a net figure. Bottom line is what you should be looking at. Problem is comparing value as 'apples and oranges'.

Selling a Cell Lease

The cost involved in selling a cell site are very much like selling real estate, even though a cell site normally involves a long term lease and 'right of way'. In a 'gross' transaction, the seller will pay normal pro-rations, such as real estate taxes and prepaid rent. A 'net' transaction will have these costs borne by the buyer. No matter what your offer is, net or gross, the buyer is looking for an IRR (Internal Rate of Return) that has been targeted by their investment policy. This is the bottom line.

Tower Site Location

The location of your site will have a great effect on pricing. Maybe not for the same reason that general real estate has, but for the amount of cellular traffic that is carried by your site. This normally dictates the desirability of other carriers that wish to co-locate on the tower and how much rent each will pay either you (if you own the tower or have rights to the additional income) or just the holder of the master lease.

Offers to Purchase Your Lease

Offers of up to 200 times the monthly rent are viewed as considerably generous offers. An offer of this magnitude depends on all the best scenarios. Location we talked about, but there are others equally important. The carriers are split into 3 categories as far as the gravitas of the buyers are concerned: ‘Tier 1’ - top cell carriers such as Verizon and AT&T; “Tier 2’ - carriers who are small enough to be bought out and ‘Tier 3” - those carriers who are in financial trouble or who have been bought out or are rumored that a merger or buyout are in the offing.

Leases made with ‘Tier 1’ carriers will garner the highest offers as they are considered most 'credit worthy' and will more than likely be around years from now. The lease with these buyers will bring pricing up to and in very rare cases of 210 times the equivalent monthly rent.

‘Tier 2’ carriers are considered a slight risk because if they merge or purchased a duplication or redundancy may cause their lease to be terminated. Depending on the industry outlook for a particular company the leases with these can bring between 170 and 190 times monthly rent.

Leases for ‘Tier 3’ cell carriers may or may not be worth an offer to a buyout firm as the risk is just too high, but may be valued by some at 160 to 170 times monthly rent.

Cellular Lease Terms

Lease terms are another important factor in valuing your cell site. There are 3 that are most important: the present rent; escalation percentage and frequency. if your lease allows you rights to additional carrier revenues should the master lease holder may add another carrier during the term of their lease (referred to as co-location rent).

The structure that the carrier's equipment is attached also determines a large and important element in pricing. All else being equal, a 180' tower is going to bring more of a purchase price than a rooftop structure, especially if the tower is owned by the carrier who holds the master lease and right of way. The cost of decommissioning a cell tower (normally the carrier's responsibility in case of a termination) is much higher than a rooftop site. There are other factors with regards to fiber that increase the value of either.

Pricing a Cell Tower Lease

Let me set up a couple of scenarios that will give you some idea of what you may be looking at when trying to calculate the value of your cellular site.

Scenario #1 - A 150' tower with the master leaser a ‘Tier 1’ tenant like Verizon that is paying you $2,500/month including 3 sub leases that you receive a portion of the rent and you receive 3% annual escalations. There is fiber to the site.

Evaluation: Tenant is great; rent is good, depending on the location; if the 3 sub leases are ‘Tier 1's or ‘Tier 2's, that is a positive. The fact that the tenant added fiber, a big expense, says that they feel the site is going to be around for a while. This site should bring near top pricing.

Scenario #2 - A rooftop site with 2 leases. 1st lease is Cingular and 2nd is AT&T. Escalations are 3% yearly for each and both rents are $1,250.

Evaluation: The AT&T lease will bring close to top dollar; the Cingular lease will not be of ANY value due to the duplication (AT&T has purchased Cingular and will eventually be decommissioned).

There are dozens of various combinations that can affect the value. Without a more than working knowledge of these you will be at a great disadvantage and will more than likely not make the optimal deal or worse yet, 'get taken to the cleaners'.

Multiple Bids for Your Site

Setting up simultaneous bidding where each firm is invited to bid, but no firm knows which other firm are is bidding, brings the highest offered prices in my experience. Municipalities have been doing RFPs (Request For Proposals) for years when they want bids on city owned properties for sale as a sure measure to receive the highest offers while clearly not showing favoritism or

1st-CellTowerBroker.com, Inc. can act as your advocate to make sure your cell tower sit lease is going to be sold for the very highest price the industry will offer.

Absolute must read - "How Cell Tower Lease Buyers Have a Big Advantage"

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