Cell-tower leases represent a potential, long-term revenue source for self-storage operations. Just make sure you know the intricacies of this profit center before signing on.
A cell site typically consists of a transmitter and antennas, and may be attached to a rooftop, water tower, billboard or, in most cases, a cellular tower. CTIA - The Wireless Organization, an international association representing the wireless telecommunications industry, estimates there were 196,000 such sites nationwide at the end of 2006. RBC Capital Markets, the international corporate and investment bank, projects an additional 15,000 to 17,000 sites will be added in 2007, and estimates for next year are around 20,000.
For every one of these cell sites, someone will be compensated for use of the land or structure upon which it sits. The majority of these sites will be in urban and suburban areas. In some cases, the land will be part of a self-storage facility.
Cell-site leases are desirable sources of ancillary revenue for many small businesses. The tenants are typically blue-chip corporate tenants who have a significant amount of capital invested in the equipment and almost never default. Even though the leases have liberal termination rights vested in the wireless carrier, they usually last at least 10 years. In addition, with the exception of the initial cell-site construction, the wireless companies tend to have little impact on a facility’s day-to-day operation. Most important, on a dollar-per-square-foot basis, wireless companies pay better than the average self-storage tenant.
The Income Varies
One storage company I know has three cell towers on site that collectively net more than $5,000 per month in additional income. There are wide variations in cell-tower lease rates, however, with some earning $1,200 per year and others close to $20,000. Based on my company’s internal data, the average U.S. cell-tower ground lease is around $700 per month. Below are the main reasons for the wide variation in rates:
Local zoning ordinances. In many municipalities and counties, the local government has enacted land-use regulations regarding the placement of cell towers. These ordinances are often in response to opposition from NIMBY (not in my backyard) residents and prescribe where cell towers can be located. In many areas, towers are only allowed in commercial or industrial zoning classifications. Fortunately, many storage facilities are near or in residential areas where it very difficult to find other suitable cell-site candidates; hence, they can claim a higher lease rate.
Availability of suitable land and interested landowners. It’s sometimes difficult to find an interested and eligible landowner who has available space for a tower. A site must have decent access and proximity to power and telephone service. If there aren’t any other suitable parcels, the chosen landowner has a virtual monopoly over the placement of the tower and can command greater rent.
Age of the lease and the escalation clause. Some leases have been in existence for 20 years and have 4 percent escalation annually.
Landowner ignorance of lease negotiation. Many landowners attempt to collect lease rates that are comparable to those claimed by others. Their first erroneous assumption is all cell-tower sites are the same. The second is that the previous owners actually knew what they were doing when they negotiated the original lease. Even large corporations sometimes fail to correctly gauge the appropriate value.
Most self-storage owners won’t have an opportunity to lease space for a cell tower. Out of the 15,000 new cell sites to be built this year, approximately three out of four will be installed on existing towers or rooftops. That leaves only 3,750 new towers being built annually.
To complicate matters, the wireless carriers use complex radio-frequency propagation software to determine the optimal sites for their networks. Their choices are based on the location of existing sites and the need for new service in the area. The mere fact that you cannot use a cell phone in your area is rarely an indication that your facility is suitable for a cell tower. Furthermore, it is virtually impossible to reach the wireless carriers to inquire whether your site is suitable.
What Do You Do?
So what can a storage owner to do to improve his chances of getting a cell-tower lease?
- Contact your local zoning department first. Ask if your specific parcel is suitable for a communications tower. If it is, find out what the limitations are and note them.
- Submit your location to the carriers using their online forms. Make sure to include your GPS latitude and longitude. If you don’t have a GPS unit, download Google Earth for free from http://earth.google.com and insert your address to find the coordinates. For specific links, visit www.steelintheair.com/get-a-celltower-on-your-property.html.
- Be patient. The carriers will not respond to inquiries. They simply put the site you submit into their database so when there’s a need in your area, they know they have an interested landowner to contact.
- Inform your site manager about what to say if someone approaches him to lease space for a tower. Because the site-acquisition agent will often approach multiple candidates and work with the first one who demonstrates interest, do not delay in responding.
- Make sure your facility displays clear outdoor signage, including a phone number.
- Do not pay a marketing service or management company to “market” your site to wireless carriers. Either the site works for them or it doesn’t. If it does, rest assured they will contact you.
If you are contacted with a request to place a cell tower on your property, there are some issues to consider—beyond what to charge. Most cell sites require at least 300 square feet or more. The carriers have pretty specific needs in terms of ground space, and they will often just place their equipment inside one of the larger storage units.
The tower and surrounding area must be easily accessible. Although most cell towers are placed at the rear of the property, some facilities have put them out front. This is especially true with stealth towers such as a light standard or flagpole.
Due to the significant investment involved, the wireless carrier or tower company will require a lease of at least 20 years, with the typical lease being five terms of five years. In exchange, the carrier should take care of any real estate taxes that result from the increased assessed value of the property.
Because of recent revisions to building codes related to towers, the structures are very durable. It’s more likely your buildings will blow away than a tower will collapse. Nonetheless, you should require $2 million in general-liability insurance coverage. It is also an absolute necessity that you clearly negotiate and define the specifics of the tower and lease area. These should be reflected in the construction drawings, which you must sign prior to the beginning of construction. All changes outside of the lease area should need to be approved in writing.
In regard to fair market value of the lease, there is no easy formula. As discussed previously, the pricing should reflect the difficulty of finding other suitable locations. Listen to the agent negotiating the lease—he is often not motivated by the economics, and it’s a rare occasion where the first offer is the best.
Don’t assume, however, that because one wireless carrier is interested in your location that others will be as well. Just be prepared to negotiate in earnest for a long-term, reliable increase in your facility’s profit, and be happy the carrier is interested in your property instead of your neighbor’s.
Ken Schmidt is president of Steel in the Air Inc., a cell-tower-lease consulting firm that provides guidance to public and private landowners in determining the fair market value of cell-tower leases. The company has assisted more than 1,000 clients with proposed and existing cell-tower and cell-site lease issues, including a number of self-storage owners. For more information, visit www.steelintheair.com.