By Hugh D. Odom
There are thousands of cell-tower and rooftop leases on self-storage properties throughout North America, but how many of these leases are “smart”? What does this mean? The answer is pretty simple, but for some reason, it has been ignored by self-storage companies of all types and sizes until now.
A smart cell-tower lease is one that looks beyond the immediate future and allows for a structure that will maximize the value of the lease, not only on day one, but throughout the entire term. At the same time, it minimizes the negative impact the agreement can have on a self-storage facility's development, disposition or even financing.
The Lease Value
So why is it important to have a smart cell-tower lease when it comes to lease value? The first question almost every self-storage owner asks when it comes to a new cell-tower lease or a lease extension is how much the rent should be. However, most of them are focusing on the amount the rent should be on day one rather than how to construct a lease that gives them value throughout its entirety, which can be upward of 30 years.
Self-storage owners rely on annual or renewal term-rent escalators to maintain lease value throughout its term. However, all these escalators really do is keep your lease on track with inflation, which means at the end of the lease, you’re basically being paid the same amount you were being paid on day one.
The cell-tower companies have done a masterful job of getting property owners to agree to lease terms that are almost a fixed expense while giving themselves the ability to increase the profitability of a cell-tower site by adding subtenants or upgrading it with new technology. Simply put, the cell tower on your property could be the most valuable in your city, state or even the country and you wouldn’t see one more dime over the term of the lease than what you originally agreed. If you want evidence, look at the numbers, they don’t lie.
In 2012, the largest tower companies averaged more than $2 billion in revenue. This is impressive, but what’s more remarkable is the extreme profit margin from this revenue. The tower companies continue to rely on property owners entering or extending leases based not only on incorrect or outdated methods of determining initial rent but, more important, agreeing to a structure that will ensure the tower companies' continual profit growth.
A Bigger Paycheck
How do you make sure you have a smart cell-tower lease when it comes to value? The answer is simple but can be difficult to implement if you’re not familiar with the industry. You should have a lease that provides for rent to be determined based on value of the lease to the cell-tower company and not on the value of the property being leased.
A cell-tower lease should also be crafted to allow for re-entry points in the lease for the landlord, based on who’s using your property and the utility they get from that use. You should see more rent every time a new subtenant enters the site and every time there's a site upgrade that allows the tenant or subtenant to get more value from the location.