Four Trends in Cell Site Leasing
Published on: Saturday, December 12th, 2015
Commercial real estate properties across the country serve as the foundation for tens-of-thousands of cell sites. Institutional investors who own a large amount of buildings can often have hundreds of cell sites in their real estate portfolio. However, cell tower leases are often misunderstood as they relate to understanding the building’s current and future value.
To help you better understand the value of your cell site tenants, we want to share with you four trends in cell site leasing. These items will help you maximize the NOI related to your cell site lease.
- Cell Site Upgrades Present You an Opportunity to Increase Rent
Technology is always changing, and with the change of technology comes the request for more antennas and space. Typically, this request is often an opportunity for you to increase rent– but how do you seize this opportunity?
In your original lease, the landlord and the tenant agreed upon a specific leased premises. With cell site upgrades, we often find cell site tenants breaching this agreed upon leased premises in their proposed plans. Occasionally, tenants will present their project to the landlord requesting only landlord consent (to do their project at no additional increase in rent), when they really should be discussing an amendment to the lease with a rent increase for the additional items.
Your rooftop space or building façade has just as much value—if not more—than the square footage of your commercial real estate space. Make sure you aren’t leaving money on the table by agreeing to rooftop cell site projects without compensation.
- New Cell Site Leases Should Be Negotiated with Caution
Unlike an commercial real estate tenant who agrees to a lease term of one, three, or maybe ten years, a cell site lease is typically 25 – 35 years in length. As a result, you need to understand how this long term can affect the future plans of the property. Will this property be redeveloped in the future and if so, what language, if any, is in place to move the tenant? In the “boiler plate” lease template language proposed by major carriers (AT&T, Verizon, Sprint, etc.), the answer is none.
Proceed with caution. There are many common pitfalls with new cell site leases that can best be identified by an expert. Most leases are drafted by the cell phone carrier, with the rights heavily slanted in favor of the tenant. Although you will be receiving rent long-term from a credit worthy tenant, the language that you agree to in the lease agreement is just as—if not more—important than the increase in NOI.
- Consider Selling the Cell Site Lease Separately from the Property
When exiting a property, depending on the cap-rate of the investment property, it may make more sense to sell the cell site lease separately than with the fee simple interest. For example, if the property is positioned as a value-add investment office building which is selling at an 8% cap-rate, and the cell site, if sold separately from the property, can sell at a 6.5% cap-rate, then it makes sense to sell the cell site lease prior to putting the building on the market, thereby maximizing your sales proceeds when exiting the property.
The bottom line is that it all comes down to simple math: what will the total sales proceeds be from either packaging the lease in with the property, or selling the lease separately?
- Carriers Hire Cell Site Experts to Secure Them the Best Deal
Top US carriers, such as the one you pay monthly for your cell phone plan, don’t negotiate their own cell site deals. They hire experts, called site acquisition agents, to negotiate the best deal for them. The agent’s goal is to get the property owner to agree to the lowest rent, with the most minimal changes to their lease agreement possible. Knowledge is power and your cell site tenant is well-equipped when negotiating rooftop leases. If you feel you could benefit from having an expert on your side, seek out assistance to tip the scales of negotiation in your favor.
About the Author
Nick G. Foster is one of the nation’s leading cell site lease experts exclusively serving landlords. President and Founder of Airwave Advisors, based out of San Diego, California, Mr. Foster’s team has a combined 25 years of experience and over $30,000,000.00 in transactional volume. To learn more, visit Airwave Advisors or call (888) 443-5101.