|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.
Redundancy occurs when 2 carriers merge, Sprint and Nextel, for example. A
tower that houses both of these carriers has a 'redundancy' or duplicated sets
of equipment. You can bet that either the Nextel or the Sprint lease will be
terminated (most leases contain a provision that allows the tenant the right to
cancel with as little as 30 days notice). Another example is AT&T's potential
purchase of T-Mobile.
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'.
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.
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 wishing to co-locate on your tower and how much rent each will pay
either you, if you own the tower or have rights to additional income, or the
holder of the master lease.
Offers of up to 200 times the monthly rent are viewed as considerable 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 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 merging.
Leases made with tier 1 carriers will garner the highest offers as they are
considered 'credit worthy' and will more than likely be around years from now.
The lease with a tier 1 will bring pricing up to and in rare cases of 210 times
the equivalent monthly rent.
Tier 2 carriers are considered a 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 at 160 to 180 times monthly rent.
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.
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
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 T-Mobile 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 T-Mobile lease
will probably not be of value due to the duplication (AT&T has purchased
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
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
Absolute must read - "How Cell Tower Lease Buyers Have a Big Advantage"
Tags: cell tower sites, cell tower leases,cell tower site leases