Cell Tower Leases
Several factors determine the value of these investments.
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
traffic counts, among other things.
Property owners may also
sell their tower leases to tower companies, wireless carriers, private
investors, or third-party lease buyout companies. The primary lease value
factors include remaining lease duration, rent, and rent escalators. However,
unlike typical commercial real estate leases, cell tower leases can actually
increase in value during the last years of the final lease option term, due to
the potential cost of tower deconstruction and relocation if the property owner
does not renew the lease.
The quality of the tenant
also significantly affects the lease’s value. Currently, Verizon, AT&T, Sprint, and T-Mobile are
considered the top-tier wireless carriers and Crown Castle, American Tower, and
SBA Communications, 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.
Most leases between
property owners and tower companies or carriers are actually ground leases.
Tower leases, which are usually subleases to the main ground lease, are between
tower owners and carriers for space leased on a tower and may also include
adjacent ground space.
In addition to determining
rent and escalator clauses, cell tower ground leases also allocate
responsibility for items such as government approvals, construction, equipment
installation, permits, option periods, option fees, access, termination,
assignability, removal, right of first refusal, revenue sharing, collocates,
and option areas. They are often drafted with one or two six-month options
periods, an initial five- 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
Most cell tower ground
leases also contain early cancellation provisions, designed to permit the
lessee to terminate the lease with little notice or penalty. However, cell
tower ground lease cancellation occurs infrequently, particularly when more
than one tenant occupies a tower.
A cell tower ground lease
almost always has a positive effect on a property’s value, but sometimes it reduces the property’s value. The value penalty typically occurs when
the cell tower’s
lease rights are sold to a third party. The 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
When purchasing or selling
a cell tower lease, the following considerations can significantly impact
current or future lease value, and may also affect the value of the underlying
Right of First Refusal. A
RoFR can affect the sale of the underlying property, lease cash flows, 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 difficult to determine appropriate rent for the tower location and
configuration. Contacting local tower owners with similar configurations and
locations may provide rent comparables. Web sites such as antennasearch.com or
fcc.gov/cellsites provide tower and antenna locations, and a public records
search or a title company can be used to locate owner information. In addition,
cell tower lease consultants often have proprietary databases or industry
contacts that can provide market rent estimates.
Periodic Escalators. A low
rent escalator — usually considered less than 2 percent annually or 10 percent
every five years — should be renegotiated at the earliest opportunity as a low
escalator can adversely affect a cell tower lease value. It is usually advisable
to negotiate consumer price index plus 1 percent with a guaranteed 3 percent
Collocation. Many cell
towers have more than one tenant, increasing the tower owner’s profit margins through multiple rents.
Collocation also provides a great opportunity for the property owner to receive
a portion of the additional rents, assuming the lease includes a revenue
Revenue Sharing. Revenue
sharing agreements vary considerably but generally provide a revenue split
between the tower owner and the property owner for rents received from tower
tenants; however, revenue sharing will ideally occur with one or more current
tenants, not just future tenants “potentially”
leasing additional ground or tower space.
Expansion Area Option.
Carriers sometimes want to acquire additional land on an existing site.
Generally speaking, expansions command the same rent on a price per square foot
basis as the initial ground lease area, and they are often implemented in
conjunction with new collocates. Property owners should seek an option fee for
future expansion areas during initial lease negotiations.
Rooftop Antennas. Rooftop
antennas historically have been decommissioned at a higher rate than towers,
giving them a lower market value in relative terms.
Location. Limited worthwhile
tower and rooftop locations exist, especially in high-density urban markets,
where space is limited and signal and bandwidth demand is always increasing.
Towers and antennas located adjacent to interstates, major intersections, and
other high traffic roadways are considered premium locations.
Adjacent Towers. Close
proximity of like-kind cell sites can reduce a tower’s desirability. Redundant towers often occur as a
result of carrier or tower company mergers or acquisitions and are one of the
primary causes of site or tower decommissioning.
Selling Term and Lease
Rights. The duration of current and successor lease rights can range from a few
years to perpetuity and the lease rights sold can vary greatly. When
negotiating the sale of a cell tower lease it is important to consider the
total duration of lease term sold and future property objectives, as the sale
of cell tower lease rights can restrict a property unnecessarily if not
James Kennedy is a cell
tower lease consultant to individuals, corporations, and municipalities.
Contact him at email@example.com.