High-Frequency Profit

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Imagine a scenario where a facility owner makes a call, haggles a bit over a contract, signs some paperwork and someone pays him $25,000 a year--for virtually nothing. In its simplified form, this is what happens all over the country for facility owners with cellular towers on their properties.

The marriage of self-storage facilities and cell towers is growing in popularity, says Joe Niemczyk of Tucson, Ariz.-based Executive Self Storage Associates Inc. "I think self- storage is made for this kind of thing," he says. The arrangement is along the lines of what many rental-truck companies developed with self-storage facilities. "It's a different product, but it's very similar in the respect that you're creating a new revenue center at a location that already has the zoning to do so," Niemczyk says.

But an owner has to do his homework before he makes plans to gear up for improvements or envisions that much-awaited trip to Hawaii. It is a delicate relationship between cell carriers and the properties they seek, and it can and does fall apart in any of the stages of negotiation and approval.

First, contact has to be made. Once the carrier and facility owner are talking and after it is determined a tower will work well on the storage site, the tricky negotiation process begins. After that, the storage owner is almost out of the picture. The cell carrier handles the approval process through the appropriate municipality, and oversees the installation and maintenance of the tower and its equipment. "If you're negotiating this right, the property owner should be incurring no cost whatsoever," says Marv Meier, leasing director at Seattle-based Shurgard Storage Inc. A well-worked contract will have the carriers cover everything down to electricity and applicable tower taxes, he says.

Afterward, all a facility owner does is sit back and watch the money roll in for the life of the contract, which is measured in decades, not months. "It's the type of situation where they do the legwork involved," says Bryce Grefe, vice president of Storage Investment Management Inc. in North Weymouth, Mass. "You can go out to whatever number of cell-phone companies there are and probably give them your latitude and longitude, and struggle through all the decision-making people and possibly do a deal. This is kind of painless for us. It allows us the time to focus on our real business--and that's self-storage."

The Basics

Cell towers come in all shapes and sizes, depending largely on the region. Carriers still use traditional models--four-sided steel structures as high as 300 feet--where they have the space and need a strong signal, but as cellular technology changes, so do the towers. The trend is toward monopoles as high as 150 feet, but even those are shrinking. Some rooftop models are as short as 10 feet. Zoning laws may also require stealth techniques, such as dressing up poles to pass as palm or pine trees.

Cellular carriers have coverage grids that can be likened to a sprinkler system, with overlapping circles of coverage. They look for strategically-located commercial property in those circles, or search rings, where they can place their towers and fill in the gaps. Storage facilities are sought after because they're often far from anything that causes signal interference. "We want to ensure it's in a location where we don't have to worry about anything happening there, whether that's through an inordinate amount of foot traffic or car traffic," says Ritch Blasi, director of media relations for AT&T Wireless.

Traditionally, the carriers contact businesses directly to start negotiations. Lately, though, aggressive self-storage owners have turned the tables by seeking out carriers. The process can be surprisingly simple, some say. "All you've got to do is call up any cellular company, talk to their commercial-leasing department, and tell them you have a self-storage location and would be interested in a tower," Niemczyk says. "They're always interested in putting up new towers. Cell coverage is spotty in some areas, obviously." Some cell carriers deal with third parties for their site selection and tower installation. In that case, the carrier may pass along appropriate contact information.

Niemczyk primarily deals with AT&T Wireless and Verizon Communications. There are about 12 or 15 towers throughout Executive's storage network, Niemczyk says, and some facilities have more than one. "I have two properties in Utah that have two towers--for competing companies on the same project," he says. "The companies don't care because they're competing with each other. If I can put five on one property, I'd do it." Meier says facility owners have to realize carriers get calls all the time from all sorts of businesses. One company, Meier says, has a voice-messaging service that asks callers to leave their contact information--including their property's latitude and longitude, if they have it--which essentially takes the ball out of the facility owner's hands.

"It's pretty difficult to drive that process," Meier says. Ultimately, he explains, radio-frequency engineers are the ones who determine where towers are placed, based on RF-propagation maps. "What you can do, though, is make sure they know about your site," Meier continues. "If they've got 10 sites that all offer an equal benefit, and three of them are with landlords who are more familiar with the process, and you know you can get a deal done quickly, they're going to head toward those sites more than the other ones."

Suggestions

Cell companies or their representation clearly know what they're doing, and they've become more aggressive and frugal given the telecommunications capital crunch over the last 18 months. They'll start with a favorable figure--for them--and see if the owner will bite. "The consultants who represent the carriers are frequently compensated by keeping the rent low," Meier says. "If they can get it below a certain threshold, they will receive a bonus or a percentage of that savings. There are all sorts of reasons why they're far from working in your best interest."

A facility owner who doesn't know what he's doing could run into problems. So what is he to do to protect himself in the negotiation process? Meier suggests the following:

1. Involve an attorney, but try finding one skilled in dealing with the specific issues at play. Those unfamiliar with the subject could either scare off the carrier or not tap into the potential of the agreement. "If I were a property owner, I would want an attorney to review it, even if I had a skilled business person who was familiar with the wireless industry," Meier says.

2. Get a site-management company for representation, such as SpectraSite Communications Inc. (www.spectrasite.com) or AAT Communications Corp. (www.aatcommunications.com). "There are people out there who present themselves as experts, who present themselves as knowing what the carriers will and won't do, and represent themselves as working in your interest," Meier says. The challenge lies in the fact that a facility owner may not get the best service from a site-management company if he's not a huge property owner. Also, cell carriers often want to negotiate directly with the decision maker, e.g., the facility owner.

3. Generate exposure. Some companies list facilities in reports that are accessed by carriers as they look for properties. Get on those lists and get noticed by carriers when they come calling. Contacting cell carriers directly may prove futile--since they receive calls from all kinds of businesses all the time--but establishing a dialogue is a good thing, because you let carriers know you speak their language and understand their needs, Meier says. "If they think you're familiar with and open to that concept, they may keep an eye out for your facility if it falls into a search ring."

Negotiation

Since cellular carriers handle so much--if not all--of the approval, installation and continual maintenance of their towers, it is vitally important self-storage owners work out the cut they want when they have the most input: at contract negotiation. Owners who aren't prepared to work a deal could leave money on the table.

"As I'm out here talking to independent operators, I'm realizing it really is a specialized field," says Sunil Dewan, vice president at Shurgard, "and I find that a lot of operators--and they are negotiating directly with these companies--don't realize what is involved." Through its Preferred Partners program, Shurgard provides independent facility owners the experience they may require at the negotiating table. "For us, it's a big enough business that we have three full-time people devoted to this who have built relationships with cell-tower companies across the country," Dewan continues.

Meier is one of those full-timers. "We spend a ton of time on this particular revenue stream for Shurgard," he says. The necessity is a result of volume. Shurgard has more than 200 leases across the country--roughly half of its properties have a wireless lease.

How much facilities get depends on cellular demand in a particular region. While Shurgard's properties have leases that pay between $1,000 and $4,000 a month from cellular carriers, others sites it purchased had existing leases of $500 a month or less. "For one property we purchased in Texas, I believe the rent is $300 a month for 25 years," Meier says. "The market there is probably closer to $1,500 a month."

Scott Harden, president of National Self Storage Management Inc. in Tucson, advises against taking the first offer, as is the case with negotiations of any type. "The cell-tower guy will come in and say, 'I'll give you 500 bucks a month.' You're sitting there saying, 'That's a great deal. I'll take it.' In essence, you probably could have gotten double that, but you didn't know better."

Meier has seen other snags in existing contracts besides the cost of the lease, including a carrier's first right of refusal on purchases, 50-year flat-rate terms and perpetual easements. He also says carriers rarely want rent adjustments and wish to absolve themselves from as much responsibility as possible when it comes to access to the tower and equipment.

Cellular providers want long-term contracts--anywhere from five to 20 years, often with options of five or 10 years. "But if you're not negotiating any escalator clauses or any option, you're stuck with something that's paying the same amount month in and month out," Harden warns, "and they're getting a tremendous benefit from it."

Rents for units increase periodically, so why wouldn't the rent go up for the cell tower? Some may choose to have the rent reworked at the end of each option period, but Harden says a facility should hope to get 3 percent more in tower rent per year.

Pitfalls

Yes, there are catches. But with careful planning or clauses in the contract, their effects can be minimized or avoided altogether. Anyone considering making major changes to their property in the next decade or so, such as redeveloping, selling or changing land use, will want to think long and hard about whether they want a cell tower on their property. While a long-term contract can pay well, it is quite difficult to change since the carrier has the reins.

"People who wouldn't want this are people who are just not sure what their long-term plans are for the property," Meier says. "Anything can be done with the right amount of funds, but you'd sure hate for a little cell lease to get in the way of a substantial redevelopment."

For some, a negotiation buster is the fact that cellular carriers need 24-hour access to their equipment. This may prove to be a problem for facilities that have off-site management or that lock down the building during nonbusiness hours.

"If you have a store, for instance, that's all enclosed, and it's shut down and no one's there, that may pose an obstacle," Niemczyk says. Even this can be worked around. Meier says some facilities have installed a gate to the property to which only the carrier has access. The carrier should be expected to pick up the cost of gate installation, of course.

If a cell company has a unit where equipment is stored, it will likely need electricity. While the installation expense is covered by the renter, the electricity may have to be absorbed by the facility--again, depending on whether it was worked out in the contract.

At one of Grefe's facilities--an eight-story self-storage conversion off Interstate 93 in the heart of Boston--the building actually serves as the cell tower. There are communication antennae mounted to the side of the building and a GPS-type system on the roof, Grefe says. There's a rooftop egress point for cabling to the unit where the equipment is stored.

"We negotiated a deal with them that included a small unit--it's like a 5-by-10," Grefe says. "Inside the unit, they've got their own battery backup. We had to bring power into the unit so they can power the equipment and keep it online." He pays for the electricity to the unit, but Grefe gets $18,000 annually from the carrier.

Realty Investment Co. Inc., based in Silver Spring, Md., recently acquired an old warehouse for conversion to self-storage. The building, which already has two cell towers on it, is set to open this month. Brian Harrigan, Realty Investment's director of acquisitions, says the agreements for AT&T Wireless and VoiceStream Wireless are $2,000 a month, which translates to almost $50,000 a year. "I don't know if we got a good deal or a bad deal," Harrigan says. He had nothing to do with the contracts since they were already in place, but he says he'd definitely consider cell towers for his other three properties. "It's almost free money."

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