By Hugh D. Odom
Thousands of self-storage sites across North America contain some form of telecommunications equipment. The most prevalent situation is one in which a self-storage owner has allowed a telecom carrier (AT&T, Verizon, Sprint or Cricket) or a tower company (Crown Castle International, American Tower Corp., SBA Communications Corp. or Global Tower Partners) to lease a portion of his property for the placement of a cell tower.
Most property owners believe that once they’ve signed lease with one of these companies, its “true value” is simply the rent check they receive each month. Actually, that’s not at all the case. This article will provide insight to the true value of your cell-tower lease and guidance to help you take advantage of unrealized options and opportunities in relation to your telecom lease.
Are You Being Paid Correctly?
Thousands of property owners who are currently leasing property to a tower company are not being paid correctly. Yes, I said thousands. Why is this occurring? The simple answer is as much as a cell-tower lease is a real estate transaction, at its heart, it’s more of a telecommunications transaction.
Most landlords do not have the information they need to truly understand what their property is being used for and whether they’re being paid correctly by a tower company. In most cases, there’s no clear description of who’s actually using the leased area and what’s really being used.
In reality, many property owners are being shortchanged when it comes to their lease. In the event a property owner does contact a tower company to discuss these matters, the company is usually reluctant to share any information regarding their use of the site, claiming it is “proprietary.”
Before you can truly optimize the value of your cell-tower lease—through a lease extension, buyout or any type of renegotiation—you have to make sure you’re being paid correctly. How do you determine this? It’s a little tricky. As previously mentioned, the cell-tower or rooftop lease is more of a telecommunications transaction than a real estate one, so having your real estate attorney review the lease—unless he has experience with telecommunication leases—will not provide you with what you need.
A more preferred method is to engage a company that not only has legal and real estate expertise but experience in the telecommunications industry, as this will need to be the focus on any tower- or rooftop-lease review. The tower companies have seasoned industry veterans on their side, and the only way to level the playing field is for you to have the same sort of representation. If you don’t, it could end up costing you and, truthfully, this is what many tower companies rely on and how they profit.
Lease Extensions: What You Should Know
Many tower companies are now aggressively seeking extensions to their current leases. Self-storage owners, like other property owners, have been contacted out of the blue by tower companies who want to negotiate an extension to their existing agreements. Why are tower companies doing this if there’s still time left on the original lease? The answer is simple: time and money.
A tower company needs time to better market the tower site for future subtenants it may be seeking out and, more important, to satisfy existing sublet commitments it may have already made. A tower company also benefits financially from an extension in that securing a tower site long-term calms the nerves of investors, acting as a form of guaranty that a site’s revenue stream will not be interrupted. This especially holds true for those companies that are publically traded.
So how should you interpret a tower company’s sales pitch? The following are some claims a company will make and what they really mean:
- "Due to the value of the long-term relationship we have with our property owners, we are willing to extend our lease with you.” In reality, the tower company needs the extension more than you do.
"The current market rent in your area is X, and we will be willing to raise you current rent to that amount.” The tower company is basing market rent solely on what it’s paying other landlords in the area. It’s not taking in account your particular location, the revenue it’s collecting off the use of your site, and the cost it would incur if it were forced to relocate its tower.
"We are willing to allow the lease to continue to escalate as provided for under the current terms of the lease agreement.” This is basically giving you something in which you already have a right. In some cases, the tower company is actually seeking to reduce a property owner’s annual rent escalations by having him agree to certain things like a consumer price index rent escalation.
"We are willing to pay you a ‘signing bonus’ if you agree to extend the lease.” While a signing bonus is great, it’s usually only a fraction of what should be offered for the property owner’s consent to an extension.
- "If you agree to an extension of your lease, you’ll be securing future payments of rent.” In reality, the majority of all cell-tower leases have extremely liberal tenant-termination clauses. As a result, any extension agreed to by a property owner basically provides the tower company with a long-term commitment with no reciprocal agreement.
The decision you make today as it relates to an extension of your current lease may mean hundreds of thousands of dollars over the life of the lease. This is an important negotiation and should not be taken lightly. The decision should be based on the true value of the lease to the tower company and not solely the current rent is under the terms of the lease.