Optimizing a Buyout Offer
Self-storage owners with existing cell-tower leases are constantly contacted by third-party finance companies (Unison, AP Wireless Infrastructure Partners LLC, Landmark Dividend LLC, Wireless Capital Partners LLC, etc.) looking to purchase them. These companies often say they can increase the value of a cell-tower lease by placing additional antennas on the property. Don't be fooled. More than likely, it's just a false come-on, intended only to induce you to discuss the purchase of your lease.
What is their true motivation? They strictly want to buy your existing rent stream, nothing else. These companies buy rents at a discount and leave you with all the obligations of the lease. Be careful if you are approached by one of these companies, as they’ve trained sales staff to work on getting the most while giving up the least.
Tower companies are also looking to buy out existing cell-tower leases and have made a dedicated effort to contact property owners with this option. A tower company will typically structure a lease buyout as a simple one-time payment for assigning the self-storage owner’s remaining rights under the lease and converting the current lease to a long-term or perpetual easement. The motivation is much the same as with a lease extension: A lease buyout allows a tower company to secure the time it needs at the site and secures revenue streams, which makes investors happy.
Why Consider a Buyout?
First, a lease buyout may present an opportunity to a self-storage owner to immediately realize the value of a cell-tower lease. In some cases, if structured correctly, this can be advantageous, as a properly structured buyout can far exceed the present value of the projected rent to be received over the life of the lease. A buyout can also be valuable because most existing cell-tower leases have favorable tenant-termination provisions, so an immediate realization of these rents can eliminate the risk of the revenue stream ceasing to exist in the future.
Second, buyouts can be a beneficial way to maximize the value of a self-storage owner’s property if he’s looking to sell his facility. Again, if the buyout is crafted correctly, it can greatly exceed any value given to an existing cell-tower lease by a prospective self-storage buyer. Even based on the most favorable capitalization-rate valuation, an owner will more than likely receive significantly less for his cell-tower lease than if he disposed of it separately via a lease buyout transaction.
How do you determine if a buyout offer is fair? The only real way is to have an expert in the telecom industry review your lease and the existing tower on your property. True value of any buyout is not based on your current rent but the utility and value of your site to the party leasing it. Just like an extension, a buyout is an important negotiation that should be based on the true value of the lease as determined by multiple factors, including the actual lease and the physical site location and telecom equipment.
Making the Right Decision
There are numerous factors that contribute to the value of a cell-tower lease and site of which the average landowner is not aware. Unfortunately, cell-tower companies have profited and continue to profit from property owners not having this information.
Whether it be a review of your lease to ensure you’re paid correctly, a lease extension or a lease buyout, it’s best to engage an outside party. A third-party consultant should be able to provide you with information about the real estate, legal, financial and telecommunications aspects of a cell-tower lease as well as work on your behalf to ensure you’re getting the most while giving up the least in the deal.
There’s a fine art to negotiating a cell-tower lease, as you need to know when and how hard you can push a tower company. Unfortunately, when a self-storage owner is faced with a decision regarding a lease extension or buyout, he often guesses. Many owners don’t even realize there are parties out there who can help them with these matters.
Don’t guess when making a financial decision on your cell-tower lease—it could cost you hundreds of thousands of dollars over the life of the lease. The tower companies have experts on their side making the best deal for them. Shouldn’t you have the same?
Hugh D. Odom is president of Vertical Consultants and Vertical Developments, consulting firms that work with approximately 1,000 self-storage facilities across North America to place telecommunications equipment on these properties and optimize existing telecommunications leases. For more information, call 615.385.2984; e-mail email@example.com; visit www.verticaldevelopments.com or www.vertical-consultants.com.