By Hugh D. Odom
Self-storage operators are always looking to increase the ancillary revenue they derive from their properties. One highly pursued avenue is cell-tower placement; however, facility owners with existing cell-tower leases are often not taking advantage of the opportunities they have to increase their value.
For many owners, it’s easy to overlook their cell-tower leases because these are not the primary source of facility income. In addition, most believe that several years remaining on a lease inhibits them from renegotiating and re-entering their lease now. On the contrary, even if you have 10 or more years remaining on your lease, you may be able to negotiate terms that will immediately increase the lease value and cell-tower rents received.
Here are some things to consider when determining if you're able to increase the value of your existing cell-tower lease.
Reviewing Market Rent
“Market rent” doesn’t determine the value of your cell-tower lease. Many cell-tower landlords are being approached to extend their current leases and they, unfortunately, continue to rely on market rents that have been set by the same companies who are leasing the land. Relying on this to determine how to negotiate these transactions can cost you hundreds of thousands of dollars over the life of a cell-tower lease.
Why? First, a cell-tower lease isn’t a real estate asset for the purposes of valuation. Wireless carriers and tower companies value these leases as telecom assets, and so should you.
Second, every cell-tower site has a different value. For example, you can have two cell towers within one mile of each other—both paid the same amount of rent, were leased by the same company and have the same basic lease terms—but they can have significantly different values. This is because value can be based on:
- Revenue being derived from the equipment located on the tower
- Revenue generated through sublets at the site
- Importance of the tower site to the overall wireless network
- Options the tenant has in the immediate area to relocate the site
- The costs associated with relocation
Wireless carriers and tower developers rely on these market rents because they’re the ones who set them and will continue trying to perpetuate them. If you use their market rents as a guideline, you won’t be paid correctly. Look at the 2011 revenue figures in the accompanying chart and learn why.
The revenue and profit margins are not only staggering and some of the highest of any corporate sector, but are directly tied to the market rents these companies have been able to maintain for years. This is important for new cell-tower leases, but even more so for existing ones.