What is a cell tower lease buyout?
After holding your lease for a certain amount of time, you may be approached about a buyout of your lease. You also may be looking to generate some extra income quickly to eliminate technology and corporate merger risks that could end your monthly cell site income. You can do this by selling your lease through a buyout. A buyout simply means that you sell your right to collect future rent on your cell tower in exchange for a single lump payment today. There are many different factors that you need to consider when it comes to a buyout.
Why should you consider a cell tower lease buyout?
There are many reasons why you should, and should not, consider selling your wireless lease today through a buyout. Selling your lease is not a one-size-fits-all solution for all wireless landlords. You should consider both sides of the coin before making any decisions.
Lump Sum Now or Spread out over 30 Years?
If you win the lottery, you can choose to receive your money in one lump sum payment immediately or have it doled out in monthly installments for thirty years. The same concept applies to your monthly wireless rent payment. Wireless carriers prefer that you receive monthly payments rather than a lump sum. Their rationale is that you will be more cooperative and vested in their interest if you are getting monthly rent, but the choice is yours to make.
Factors to consider include the following when considering a buyout:
Do you plan on owning your property for the next thirty years?
Do you plan to retire in the next ten years?
Could you withstand the risk that the lease will be terminated in the next thirty to ninety days?
Do you need lump sum cash today?
Sell Your Property Twice
If you contemplate selling your property in the future, seriously consider selling both assets (the cell tower lease and the underlying property) in two separate transactions to maximize your profits. Besides the real estate property value associated with your land and improvements, your property also has a secondary value as a wireless facility.
At times, wireless facilities such as yours can have a value greater than the land plus improvements originally on the property. Many real estate purchasers fail to understand the true value of a cell site, and they will discount its value in a real estate transaction. This is why it is important that you keep both transactions separate to maximize your returns.
You Want The Cash Today – Think about a Buyout
To maximize the value of your lease, we concentrate only on buyers/investors who understand the wireless industry and its solid standing in the American economy. Consumers are more likely to stop paying their mortgage, car, or make credit card payments along with power and water bills before they stop paying their cell phone bills. A smartphone has become essential in everyday life as a convenience, social status symbol, and professional tool as well as an entertainment and personal safety device.
Our investors (cell tower lease buyers) understand the role that cell phones have in American society and the low-risk status of Fortune 500 wireless tenants that they are willing to pay a premium to buyout your lease and wait many years to recover their investments. Because of the low interest rate environment since the 2008 recession, investors are looking for ways to get higher returns for their funds.
If you need cash today for any reason, many investors are willing to buyout your lease and pay you a lump sum amount. Investors will wait to recover their money over time if they can get a better rate of return on their investment than is currently offered in such income-producing investments as bonds, money market funds, and other diversified real estate investments. They are also willing to assume the risk that a cell site may be terminated for any reason
CellWaves’ history with the industry since its inception allows us to know all the relevant players for the maximum benefit of our clients. We won’t nickle-and-dime our clients by offering to close a deal quickly and offering 130X–150X monthly rent. We will not work with investors if they do not start at high offer on your wireless lease.
Before we put your rent out for buyout bids, we first prepare it for sale by looking for ways to increase your rent as much as possible. Every $100 in increased rent we equate to $18,000 in increased sale price for your lease. More time is needed to consummate this transaction, but you benefit immensely by our approach, having to wait a few extra weeks for us to “dress up your lease” for buyout sale.
Risk of Loss via Lease Termination
While the risk of having your site deactivated by a carrier can be low, it is not zero. It is much the same as having fire insurance on your home even though statistically it is unlikely that your house will be destroyed in a fire. Yet, we buy fire insurance because we can’t afford the loss. As a landlord, however, you cannot purchase insurance on your revenue stream. If you sell your lease through a buyout, the risk of loss now shifts to the buyer of your lease. Whatever happens after you receive your lump sum payment is no longer your problem. The buyer will assume the risk that the carrier will terminate the lease anytime in the future using their 30-day termination notice. But why would a carrier terminate their lease with you?
A carrier would do so for one primary reason:
Mergers and Acquisitions: The industry is in constant flux. After many years of consolidation, mergers are still taking place. Sprint recently became 100% owner of Clearwire, causing many of the duplicating Clearwire cell sites to be terminated. In 2012, AT&T attempted to purchase T-Mobile. Even though the failed attempt cost AT&T $10B in down payment money, the industry remains dynamic. This is mostly because the U.S. market is saturated with cell phone users (there are more subscribers than people in the U.S.).
The only way to grow the business is to steal customers from another wireless carrier. This “churn” is very expensive to the carriers, and they see consolidation of companies as a way to combat churn in the industry. This consolidation means less churn (customers jumping from one carrier to another), fewer cell sites, fewer employees, less power, less telco, less administration—thus, greater profit. While the percentage of sites deactivated due to mergers and acquisitions is low industry-wide. To the affected landlord, it most likely is 100% of his wireless rent revenue.
Factors to consider when thinking about a cell site lease buyout
Improve Your Business
Many landlords find that getting a lump sum payment today helps them grow their business or consolidate debt to improve their financial standing. Landlords cannot obtain loans against the future revenue of cell sites because of the 30-day termination clause. Banks refuse to take risks on contracts that carriers can terminate anytime. Therefore, the only source of immediate revenue against the stream of future rent revenue is a buyout your wireless lease.
If you are younger and you do not intend on selling your property in the future, it is highly likely that you will benefit from the full extent of the lease terms for the next fifty years. If you are older, however, and looking to retire or intending to use the funds now while you can, a buyout and taking the lump sum payout may make sense for you. The reality is that if you are fifty-five years old and your lease term extends for thirty years, you would get the full benefit of your lease if you wait for monthly payments when you reach eighty-five. Many of our clients consider the reality of their health, their available time to travel and enjoyment of their freedom, and decide accordingly.
Tax implications are involved when you sell your lease through a buyout.We suggest that our clients consult with their tax professionals to discuss implications to 1031 exchange, capital gains, and other tax consequences involved in all financial transactions.
Lock In Today’s Price
Like any commodity, price will fluctuate based on a number of factors. Interest rates, available buyers, alternative competing investment vehicles, economic conditions, and real estate pricing all affect what Wall Street buyers are willing to pay for your lease. Since 2011, lease buyout purchases have remained elevated, much in line with national real estate prices in a low interest rate environment. A reduction in real estate value or increased interest rates will certainly have an adverse effect on the price of lease buyouts. Many of our clients want to lock in today’s price while real estate property values are elevated to cash in at all-time high wireless lease prices.
What should you do when you are approached for a cell tower lease buyout?
The rental income from your wireless site is generally predictable, and Wall Street investors looking to invest a portion of their portfolio in real estate will pay a premium for it. The trick to picking the right buyout is to know who to sell your lease to, how to sell it and, more importantly, who not to sell to.
By way of illustration, let’s use the example of selling your home. You generally have two choices for how you could conduct the transaction:
Choice 1: You could sell your home to someone who will buy it, fix it up, and then sell it and keep all the profit. That business model requires that he buy low from you and sell it high to the end buyer later.
The benefit to you is that many of these “flippers” are around. They will contact you day and night asking to purchase your property. It is easy to sell to them because you don’t have to find them. They will find you.
The downside to selling your home to these people is that you will sell at a low price. You will not get market value for your property. If it were sold at market value, they could not make a profit after paying for such items as transaction costs and taxes and assuming market risks.
Choice 2: You could hire a real estate agent whose job is to market your property so that they attract the most buyers in the marketplace and get you the highest offer, which would be the real fair market value of your property.
The benefit to you with this approach is that you get the highest price because all available buyers have an equal chance to consider your property and offer the highest price they are willing to pay. Your agent will facilitate the entire transaction to ensure that you avoid “pitfalls” and to protect your interests.
The negative effect with this approach is that it may take little longer to market and attract as many potential buyers as possible to your property, and that this will cost you a commission.
Which option is CellWaves?
We are the second choice. We are the agent who has access to a network of public and private buyers who will competitively bid for a buyout of your wireless lease. We do not “buy low and sell high.” Because of our established network of buyer connections, even after our commission, we are still able to get you much more money than you would on your own.
Our role in representing you is not limited to just getting you the highest price. Besides getting you the most money for your lease buyout, our expertise, years of experience, and connections in the wireless industry make us an ideal representative to protect your non-financial interests in your cell site lease buyout transactions.
In every buyout transaction, so much more is involved. The terms of purchase vary greatly among purchasers. Payment terms can also be very diverse, as some landlords may prefer a lump sum payment, while others may want to spread the payment over several years. This and many other terms and conditions must be negotiated to deliver the best beneficial results for our landowner clients.
Our clients tell us that having our team guide them through a complex buyout transaction is one of the most valuable aspects of our services. This degree of service is unmatched by our competitors. We are so confident that we will deliver value to our clients that we only charge when we deliver results, and we always put this promise in writing.
So who are the “Choice 1” people? They are those who call you day and night wanting to buy your lease with their lowball offers. Your safest response is to just hang up because we know so many landlords who have sold their leases for less than 50% of market value to these buy-low-sell-high marketers.
When is it the wrong time to sell your lease?
In some instances, we will advise our clients not to sell their leases. We do so because it is in the best interest of our clients that some corrections need to be done to their leases before they are sold so that we can get even higher prices. We would inform our clients what needs to be fixed, how we would go about doing it, how long it would take, and how much more we believe the price would be after we make those contractual corrections.
Upon our client’s’ approval, we then contact the appropriate carriers and tower companies and commence buyout negotiations. Again, we never charge a fee unless we deliver meaningful monetary results for our clients.