The Self-Storage Cell-Tower Lease: Strategy for Maximizing the Partnership

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By Hugh Odom

When it comes to a cell-tower lease, the one question that still baffles self-storage owners is how much rent should they receive. The answer lies not in looking at the value of having a cell tower on your property but the value and potential value of the use of your property to the company that wants to lease it for decades into the future.

Unlike other contracts you may enter, a typical cell-tower lease is lasting in nature and cannot be renegotiated when you believe the value of the use of your property has increased. It's not a sprint but a marathon. As such, you need a short- and long-term strategy to get the most value from the partnership.

Just Say No to ‘Market Rent’

The mistake many self-storage operators make is, being in the real estate business, they continue to track the elusive “market rent” figures when determining how much to charge a cell-tower company. To be crystal clear, there’s no such thing as market rent when it comes to a cell-tower lease. If you try to use comparable rents in your area, you’re using data that will only cause you to perpetuate under-valued rents that have been paid to property owners for the last few decades.   

Simply put, what another property owner may have been paid doesn't determine the value of your cell-tower lease. If you rely on this measure to determine how to negotiate a new or existing agreement, it can cost you hundreds of thousands of dollars, if not more, over the life of the contract.

How Much Do Cell-Tower Companies Earn?

If you doubt that relying on past rent figures is the wrong way to negotiate your cell-tower lease, look at the revenue and profit garnered by the companies that owned the majority of North America cell towers in 2012. The largest companies averaged almost $2.5 billion in annual revenue. More impressive is the gross profit margin on this revenue was approximately 72 percent.

How can a cell-tower company achieve such profit? It’s a simple formula that has been used since the beginning of time: knowing a lot more than the other guy. This doesn’t mean self-storage operators aren't astute real estate professionals; but at its core and especially when it comes to value, a cell-tower lease is not a real estate deal, it’s a telecom one. The cell-tower companies understand that and so should you. 

Think Long-Term Strategy

So how does a self-storage operator get the best deal when it comes to cell-tower rent? The first step is turning the mirror toward the cell-tower company and looking at the value it gets from either building a cell tower on your property or continuing to have the right to lease your land.

The cell-tower company will try to get you to agree to rent with an escalator that will (hopefully) keep the rent growing at a rate that maintains with inflation. In doing this, it will have achieved exactly what it set out to do. If it can get these terms, it will have fixed the expense of leasing your land for the next couple of decades at minimum, and no matter how valuable the site becomes, you will never achieve any increase in rent received.

Focus on structuring a lease that allows you to capture a portion of the value the cell-tower company derives from your land. This can be difficult if you're unfamiliar with the telecom industry, particularly when you're attempting to forecast how a cell-tower company will derive revenue in the future. You may think this only means subtenant rents, but a cell-tower site may greatly increase in value without another wireless carrier even using the site.

They say the definition of insanity is doing the same thing over and over again and expecting a different result. That is basically what property owners of all types have been doing since the first cell-tower lease was consummated back in the 1980s. This will continue until self-storage owners arm themselves with the information and representation needed to level the playing field.

Hugh D. Odom is president of Vertical Consultants, a telecommunications-consulting firm currently working with approximately 1,500 self-storage facilities across North America to place telecommunications equipment and optimize existing leases. He has more than 18 years of legal and telecom experience, including representing AT&T as an attorney for more than 10 years. For more information, call 877.456.7552; visit www.vertical-consultants.com .

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