Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/443516
16 January | February | 2015 yogesh_more/Thinkstock w Wireless carriers and tower companies own or manage cell towers on land leased from various property owners across the country. Property owners collect ancillary lease income, the amount of which depends on tower location, local population density, and nearby traffi c counts, among other things. Several factors determine the value of these investments. by Ja ennedy Cell Tower Leases IN V E STMENT A N A LY S I S tain early cancellation provisions, designed to permit the lessee to terminate the lease with little notice or penalty. However, cell tower ground lease cancellation occurs infre- quently, particularly when more than one tenant occupies a tower. A cell tower ground lease almost always has a positive ef ect on a property's value, but sometimes it reduces the property's value. T e value penalty typically occurs when the cell tower's lease rights are sold to a third party. T e penalty exists largely because the sale of the lease rights does not eliminate current or future landlord responsibilities to the tower tenant — and a cell tower with no income can reduce a property's value. Lease Buyout Considerations When purchasing or selling a cell tower lease, the following considerations can sig- nif cantly impact current or future lease value, and may also af ect the value of the underlying real estate. Right of First Refusal. A RoFR can af ect the sale of the underlying property, lease cash f ows, or both. A RoFR should be excluded from the future sale of the underlying real estate, or at least only apply to the future sale of the lease rights if they occur separate from the property. Rent. In some locations, it may be dif cult to determine appropriate rent for the tower location and conf guration. Contacting local tower owners with similar conf gurations and locations may provide rent comparables. Web sites such as antennasearch.com or fcc. gov/cellsites provide tower and antenna loca- tions, and a public records search or a title Property owners may also sell their tower leases to tower companies, wireless carriers, private investors, or third-party lease buyout companies. T e primary lease value factors include remaining lease duration, rent, and rent escalators. However, unlike typical com- mercial real estate leases, cell tower leases can actually increase in value during the last years of the f nal lease option term, due to the potential cost of tower deconstruction and relocation if the property owner does not renew the lease. T e quality of the tenant also signif cantly af ects the lease's value. Currently, Verizon, AT&T;, Sprint, and T-Mobile are considered the top-tier wireless carriers and Crown Cas- tle, American Tower, and SBA Communica- tions, the top-tier tower companies. Leases with these companies are generally preferred in the market, as they are all publicly traded and considered safe investments. Lease Basics Most leases between property owners and tower companies or carriers are actually ground leases. Tower leases, which are usu- ally subleases to the main ground lease, are between tower owners and carriers for space leased on a tower and may also include adja- cent ground space. In addition to determining rent and esca- lator clauses, cell tower ground leases also allocate responsibility for items such as government approvals, construction, equip- ment installation, permits, option periods, option fees, access, termination, assignabil- ity, removal, right of f rst refusal, revenue sharing, collocates, and option areas. T ey are of en draf ed with one or two six-month options periods, an initial f ve- to 10-year lease term, and multiple five-year lease option terms, extending the potential lease to a total term of 30 to 50 years or more. Most cell tower ground leases also con-