Cell Tower Myths
Posted: Thursday, September 15, 2011
by Andrew Kellerman
1st Cell Tower Broker
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 really don't understand the lease document and their rights and obligations under that lease.
Let me start off 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 #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 owns a cell site down the road and that owner would take $300 a month less than you are getting. Here comes the bluff (or is it?): either you take the reduction AND a freeze on further rent escalations or the carrier is going to terminate your lease. What do you do?
Two of the rent reduction companies, I refer to them as hired guns, are BlackDot and MD7. Their job is to do just that, reduce rents the carrier has to pay. This happens a lot when smaller carriers merge or get bought out by other cellular carriers, creating redundancy and giving them choices about the importantance of a particular cell site.
Third myth: Cell carriers like ATT and Verizon own all their own towers. Not so. These companies would rather not own any towers, but would rather have a long term lease with the ability to sub lease space on the tower to other carriers.
The reasoning is how do the 'books' look to Wall Street. A $200,000 tower investment that has an income of $5,000 from sub-leases and a payment to the land owner of $1,500 rent, has a net of $3,500 monthly or $42,000 a year or a cap rate of 21%. Not bad, however if the company only has the cell equipment to pay for and not the cost of building a tower. Say $50,000 for equipment and same lease economics as above now you have near a 82% cap rate. What looks better on the corporate filings.
My favorite myth is 'build it and they will come'. Might work in baseball, but not necessarily in telecom. Before a carrier decides where they will need a cell site they have engineers plan on where the sites should be in relationship to their other cell sites. This site placement is necessary so a cell phone call can be triangulated and a 'soft handover' can be achieved. This involves knowing what the carrier's plans are.
Now that said, if you hire your own engineers, and guess right, you just may hit the jackpot. I'd rather try my luck in Las Vegas where the stakes aren't so high.
Last of the myths I'll cover in this article is that if a cell buyout firm offered me $100,000 rent tomorrow they will pay more next year or 5 years down the road. I've written about this a dozen times, but there are some who just don't get it. Cellular buyout firms operate on risk/reward and are governed by the level of 'safe' or 'guaranteed' rates of return, say US treasuries. When the rates on treasuries rise, to cut off inflation or boost a falling dollar, the higher rates of return that drive the cell tower 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. Just saying.
Is there a possible cell tower bubble?
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Top-level comments on this article: (1 total)Feel free to disagree. I will listen and learn
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