Cell Tower Lease Expiration Review Process
When we are contacted by landowners who have short-term leases that are coming upon final expiration within five years (as opposed to long-term leases that are simply coming upon the expiration of a renewable 5-year term), we recommend strongly that they retain the services of an expert - even if it is not us. Reviewing the value of an expiring lease is a difficult task involving a number of factors that influence how much the tower company or wireless carrier will pay to continue the lease after the lease expiration. The highest lease rates we have assisted clients in negotiating are for expiring leases. Steel in the Air has found that there is also more variation in the value of expiring leases than for new leases. When the tower companies are first erecting a tower or cell site, they typically have other parcels that they can consider in lieu of the subject parcel. But with expiring leases, the companies already have a considerable investment in the subject property, including the tower itself as well as antennas and ground equipment. To effectively determine how much a landowner or rooftop owner should be requesting, we have developed a process that involves the following steps:
- Identification of the Purpose of the Tower or Cell Site
- We first start by reviewing the cell site's purpose whether for coverage or capacity or for both. Think of coverage as signal strength (whether your phone has 1 or 5 bars) and capacity as the ability of multiple users to tap that signal. For instance, capacity deficiencies are when you have 4 or 5 bars but drop or simply can't make a call; there are too many users trying to tap the coverage at once. A cellular network needs both capacity and coverage – and for landowners reviewing the value of their lease, they should understand what purpose the cell site serves for both capacity and coverage reasons. In more rural areas, the cell site is where it is because it provides coverage. In urban areas, there are almost always multiple sites that provide coverage, but the individual site is necessary to fill a specific coverage objective or to augment the capacity of the network.
- Once we know the cell site's purpose, we first determine whether it is possible that the carrier or tower company would simply decide to terminate the site altogether rather than pay higher rent.
- Review of the Zoning Regulations Regarding Tower or Cell Site Relocation
- We review the zoning ordinance to determine whether a replacement tower would be allowed. Many landowners mistakenly assume that a new cell tower would not be allowed because the existing one is there or because they have heard that it is difficult to get towers approved. The tower companies are accustomed to this and will put forth an application that states that they will remove the existing tower and replace it with a stealth tower or more aesthetically pleasing tower. Alternatively, they might look to lease from the municipality directly in order to avoid the zoning process altogether. If we find that the tower company can't move the tower, we skip step #3.
- In the case of rooftops or existing structures like water towers, we look to determine whether there are other existing structures in the area that will provide similar coverage. We look to see whether there is the possibility that the carrier could "split" the site to two other possibly inferior but cheaper sites. If we find that there aren't suitable structures available for placement of the cell site, we also skip step #3.
- Review of the Cost of Construction of Replacement Site
- In the case where it is at least feasible for the tower company to move the tower, we estimate the cost of the relocation of the tower. This will include the construction of a new tower, relocation of the carrier's transmission equipment, and removal of the old tower per the terms of the lease agreement.
- In the case of rooftop and existing structure sites, we examine the cost of removing the equipment from the existing site and building a new site on another structure.
- Determine the Effective Cost of Relocation
- We review our comparable tower and cell site database (Link to Tower Data) to find out what the average lease rate for new towers or new rooftop sites is in the area surrounding this tower. Because we have thousands of lease rate data points across the US, we can tell you with a good degree of accuracy what the tower company or carrier would have to pay to lease land on an adjacent property or on a neighboring rooftop or tower.
- Based upon the construction costs determined in step #3, we estimate how long it would take the tower company or wireless carrier to recoup their investment that they would have to make in order to relocate the site.
- Evaluate the Tower Cash Flow to the Tower Company
- In the case of i) a tower owned by a tower company or ii) a tower owned by a wireless carrier with additional carriers subleasing the tower, we examine how much money the tower owner is making from the operation of the tower. If the client doesn't know how many wireless tenants are on the tower, we ask them to take pictures of the tower for our review.
- We independently research the identity of these collocators to assess their use of the site. We evaluate the equipment and antennas on the tower and the ground to figure out how much revenue the tower company is making from the operation of the tower (Tower Cash Flow).
- Review Comparable Data for Other Lease Expirations
- Only when we have evaluated the entire list above do we begin a comparison of like offers from other landowners we have assisted with negotiating their expiring lease agreements. We don't simply look at what other landowners received when they extended their leases, but we classify towers in our database based on the following characteristics:
- Term remaining to expiration (closer is better)
- Number of users on the tower
- Identify of tenants on the tower
- Owner of the tower
- Remaining structural and vertical capacity on the tower
- Presence of microwave dishes (more is better)
- Difficulty of zoning replacement tower
- We then provide a list of the comparable situations where our previous clients had a similar situation as the subject one. We share what those landowners (without identifying the location or the landowner name) received in their situations. We are fortunate to have over 2,200 clients and over 10,000 people who have contacted us with lease information over the last 7 years. Without this volume of information, we could not effectively provide truly comparable situations.
- Recommend Appropriate Counteroffer
- Once we know what other landowners have received in nearly identical circumstances and understand the specific nature of the subject tower, we make recommendations on the appropriate counteroffer for the client to make to the tower company or wireless carrier. The counteroffer is the key to negotiations – if it is too high, the company will attempt to find alternate locations, too low and the landowner accepts below market rent. The counteroffer we provide is rarely what we think that the tower company will agree to, but it reflects an amount that we believe isn't too high to cause them to stop negotiations altogether.
- We address other appropriate terms and conditions that the landowner should ask for as well. We determine whether revenue sharing is appropriate, or more importantly, desirable. We recommend the suitable escalation and extension term. We will address the sufficiency or lack thereof for the signing bonus.
- We suggest to the client what they should listen to when they make their counteroffer to the tower company or wireless carrier. The tower company or wireless carrier agent is well versed in what to say to difficult landowners. They will almost always threaten to remove the tower (Somewhat like threatening to take their toys home when they don't get their way). They will provide their own comparable data about what the “average” lease rate is for the subject area. They will play hardball and get angry. This is when you have to know when to stand firm and when to bend – and we are there as your trusted advisor to make sure you know when those times are.
Unless you have the information we have and access to the experts and tower data we do, it is impossible for you to know whether you have left money on the table when you think you have their highest offer. And even worse, you don't want to have the tower company move the tower because you asked for too much money. We get calls from people who waited too long to ask for our assistance; once the tower company notifies them that they are terminating their lease and moving to another property, there is little we can do. Our fees aren't cheap, but as the old saying goes: you get what you pay for. Our fees are far cheaper than losing the tower altogether or losing hundreds – maybe thousands – of dollars per month, month after month, because you negotiated an agreement for less money than you should have. Let our expertise and experience guide you through this harrowing process and get the most for your expiring lease.
Please contact us to submit your information.