Five Myths About Your Lease

What Myths?

 

Some folks seem to believe more in the myths about cell towers than they know about the realities of owning a cell tower or rooftop lease. I speak with owners often who don't understand the lease document and their rights and obligations under that lease.


Disclaimer:

Let me start by saying that I am not an attorney and that you should consult one before entering into a ground lease for a cell site or before selling a cell site lease.


Myth #1: 5 Year Options


My knowledge is limited to my experiences as a real estate agent and a cellular acquisitions specialist for a top telecom buyout firm. I've read hundreds of these leases and the number one myth is that a mobile carrier (tenant) has a series of 5-year options, so you are good for five years at a time.


Most of the time they do extend with the intent to stay on the site, however, and this is big, yet, virtually all carrier leases have the right to terminate their contract with as little as 30 days notice. I'm not trying to invade your secure feelings because you just had another 5-year extension begin. I'm just making you aware that the fishy smells in the room are the options, which are the 'red herrings.' The clear intention is that the tenant has the opportunity to terminate, not you.  


Myth #2: Cell Lease Payments Never go Down


Myth #2 is that the cell lease payment will always go up and never down. I've talked to dozens of site owners who've had their rents reduced. Someone representing a carrier knocked on their door, explained that the carrier wants a freeze on further rent escalations or wants to lower the present rent or is going to terminate your lease. What do you do? 


I refer to these companies as hired guns. Their job is to reduce rents the carrier has to pay. These reductions often happen when smaller carriers merge or get bought out by other cellular carriers, creating redundancy and giving them choices about the importance of a particular cell site.


Myth #3: Carriers Want to Own Their Towers


Third myth: Cell carriers like ATT and Verizon own all their towers. Not so. These companies would rather not own any towers, but would rather have a long term lease with the ability to sublease space on the tower to other carriers.


How do the 'books' look to Wall Street? A $200,000 to $500,000 tower investment that has an income of $5,000 from sub-leases and a payment to the landowner of $1,500 rent, has a net of $3,500 monthly. The rate of the yearly recapture of their investment would be 8.4% to 21%. The carriers prefer letting others own their towers and using those funds to fund other cell sites and develop new technology and invest in strategic frequency spectrum, mergers, and acquisitions.

 

Myth #4: sBuilld It and They Will Come


Some folks seem to believe more in the myths about cell towers than they know about the realities of owning a cell tower or rooftop lease. I speak with owners often who don't understand the lease document and their rights and obligations under that lease.


Disclaimer:

Let me start by saying that I am not an attorney and that you should consult one before entering into a ground lease for a cell site or before selling a cell site lease.


Myth #1: 5 Year Options


My knowledge is limited to my experiences as a real estate agent and a cellular acquisitions specialist for a top telecom buyout firm. I've read hundreds of these leases and the number one myth is that a mobile carrier (tenant) has a series of 5-year options, so you are good for five years at a time.


Most of the time they do extend with the intent to stay on the site, however, and this is big, yet, virtually all carrier leases have the right to terminate their contract with as little as 30 days notice. I'm not trying to invade your secure feelings because you just had another 5-year extension begin. I'm just making you aware that the fishy smells in the room are the options, which are the 'red herrings.' The clear intention is that the tenant has the opportunity to terminate, not you.  


Myth #2: Cell Lease Payments Never go Down


Myth #2 is that the cell lease payment will always go up and never down. I've talked to dozens of site owners who've had their rents reduced. Someone representing a carrier knocked on their door, explained that the carrier wants a freeze on further rent escalations or wants to lower the present rent or is going to terminate your lease. What do you do? 


I refer to these companies as hired guns. Their job is to reduce rents the carrier has to pay. This attempt at rehappens a lot when smaller carriers merge or get bought out by other cellular carriers, creating redundancy and giving them choices about the importance of a particular cell site.


Myth #3: Carriers Want to Own Their Towers


Third myth: Cell carriers like ATT and Verizon own all their towers. Not so. These companies would rather not own any towers, but would rather have a long term lease with the ability to sublease space on the tower to other carriers.


How do the 'books' look to Wall Street? A $200,000 to $500,000 tower investment that has an income of $5,000 from sub-leases and a payment to the landowner of $1,500 rent, has a net of $3,500 monthly. The rate of the yearly recapture of their investment would be 8.4% to 21%. The carriers prefer letting others own their towers and using those funds to fund other cell sites and develop new technology and invest in strategic frequency spectrum, mergers, and acquisitions.

 

Myth #4: Build It and They Will Come


My favorite myth is, "Build it, and they will come." Believe it or not, some have tried this. Might work in baseball, but not necessarily in telecom. Before a cell carrier decides where they will need a cell site, they survey the area with their frequency engineers.


Now that said, if you hire engineers, and guess right, you just may hit the jackpot. I'd instead try my luck in Las Vegas where the stakes aren't so high.


Myth #5: Buyout Prices Will Always go Up


The last of the myths I'll cover in this article is, "That if a cell buyout firm offered me $100,000 rent tomorrow, they would pay more next year or five years down the road". I've written about this a dozen times, but some just don't get it. 


Cellular buyout firms operate on risk/reward and closely monitor the level of safe rates of return, say US treasuries. When the rates on treasuries rise, to cut off inflation or boost a falling dollar or even a recession, the higher rates of return that drive the cell site prices would require either more reward or less risk. Can't change the risk a lot, but paying less for cell site leases would boost the reward. Don't minimize the potential for terminations caused by mergers and acquisitions that create terminations, oh yeah, and new technology that WILL come someday to eliminate cell towers. Just saying.