By Hugh D. Odom
Adding a cell tower to your self-storage property can generate new revenue. However, many facility owners continue to make the same mistakes when it comes to negotiating and structuring the cell-tower lease—and it’s becoming costly. The average landlord throws away more than $852,400 during the life of a typical cell-tower lease, and this amount continues to grow.
To ensure you’re getting the most from this add-on profit center, here are five tips to maximize the cell-tower lease revenue at your self-storage property.
Tip 1: Level the Playing Field
Property owners sometimes treat a cell-tower lease like a do-it-yourself project, and the Internet like a home-improvement warehouse where they can get all the information they need. The problem is most of the information found online regarding cell-tower leases is incorrect and not necessarily applicable to your situation. It’s like buying a ruler that isn’t straight and trying to build a house with it.
The cell-tower companies not only anticipate this, they rely on it to increase the revenue margins they derive from your property. The numbers don’t lie. In 2016, the three largest cell-tower companies generated more than $12 billion in revenue, but only paid about 16 percent of it to property owners in the form of rent payments. Why? Because the property owners negotiated undervalued cell-tower leases.
Tip 2: Take Your Time
Whether you’ve been asked to enter a new cell-tower lease or extend the term of an existing one, one of the most common tactics these companies use is to set false deadlines. They’ll say an offer is only good for a limited time to apply pressure on you to make a quick decision. Why? Because quick decisions about matters with which you’re unfamiliar lead to big mistakes.
Cell-tower companies will also play the “rent card.” This happens two ways. In the case of a new lease, they’ll say you’ll lose potential rent if you don’t agree. Even more drastic, in the case of an existing lease, they might say that if you don’t sign the offer, they’ll relocate the tower and you’ll be in jeopardy of losing your revenue.
Remember, you’re in the driver’s seat. It’s your property, and they’re knocking on your door because they need you.
Tip 3: ‘Market Rents’ Don’t Exist
One phrase that should never be used when negotiating a lease for a new or existing cell tower is “market rent.” Because most property owners view this type of contract as a traditional real estate transaction when it isn’t (it’s a utility transaction), they turn to familiar pathways to structure the financial components of the lease. This is bad news for you and great news for the cell-tower companies. Why? Because they want you to perpetuate the bad deals that other cell-tower landlords have made over the last 20-plus years.
Every cell tower has its own individual value. There’s no one-size-fits-all answer when it comes to these leases.
Tip 4: 180-Degree Turn
When property owners get an offer for a new cell-tower lease or to extend an existing one, they almost always focus on what’s being presented to them. It’s not only human nature, it’s a tactic cell-tower companies promote and bank on.
While it’s important to understand what’s being offered to you, it’s more critical to comprehend what you’re offering to the cell-tower company. They’ll never disclose the true benefit they achieve from getting you to sign an agreement. More important, they’ll never tell you the detriment it might incur if you decline their offer.
Tip 5: Structure, Structure, Structure
How can you make an additional $1 million from your cell-tower lease? The answer is “structure.” It’s only common sense that a property owner will look to see how much rent is being offered with any lease. Again, this is what a cell-tower company counts on, as it wants you to micro-focus on this one component.
If you get a cell-tower lease that pays $1,000 per month with a 3 percent escalator every year, you’re effectively getting paid the same amount every year when you take inflation into account. No matter how much the cell-tower company makes from the use of your land, you won’t see another dime. Why? Because the company got you to focus on the rent, not the financial structure of the lease.
Again, a cell-tower lease is a utility agreement, not a real estate transaction. Your rent should be based not solely on how much space is being used, but how valuable that use is to the cell-tower company over time.
What could you do with an additional $852,400? That’s what you’re at risk of giving away by not having the information and representation you need to level the playing field with any cell-tower company or wireless carrier that approaches you about a lease. Remember, you don’t get the lease you deserve, you get the one you’re able to negotiate.
Hugh D. Odom is president of Vertical Consultants, a cell-tower consulting firm currently working with approximately 4,000 self-storage facilities across North America. He has more than 20 years of legal and telecom experience, including as an AT&T attorney for more than 10 years. For more information, call 877.456.7552; or visit www.celltowerleaseexperts.com.