Cell Tower Valuation Q and A
Getting an accurate cell tower valuation of what your cell phone tower or rooftop cellular site’s value should be worth is not as easy as talking to a real estate appraiser. Most real estate appraisers know nothing about vertical real estate. There are no databases of cell tower lease rates of surrounding towers or cell sites. That information is site specific and proprietary, and real estate appraisers have no access to it. In fact, even seasoned real estate attorneys have little idea or are completely clueless about what the appropriate values of cell tower assets are once the steel is in the air. Here’s the basic cell tower valuation formula we use to determine lease rates for landlords in the USA and Canada.
High Demand for Coverage + Low Supply of Available Cell Sites = Higher Landlord Profitability.
Crucial in determining value of a particular cell tower site is analyzing how that specific cell site ties into the carrier’s wireless network. Since each wireless carrier though utilizing the same rooftop or monopole tower locations have different criteria for meeting their radio frequency and coverage objectives just as each set of frequencies offer various levels of penetration of signal within buildings and coverage areas, so the values of the leases will also differ in most cases, when taking into consideration other aspects such as zoning, land use, topography and supply of alternate locations. High carrier demand with a low supply of available sites that can be leased equal a higher rental price for the landlord. We have seen major wireless carriers paying as little as $100 per year for a cell tower (yes $8.33/month) up to $14,000 per month for a single cell site.
Typical cell site valuation Q&A’s…
Q: Our rooftop cell site has multiple carriers leasing space. Technicians are constantly going in and out of our building, and some of these rooftop antenna leases have changed hands more than once. I have no idea of what infrastructure we have up there, and if we are getting the proper rental amount as it seems to me that they keep adding more equipment?
A: This is a typical question we hear every week. Our answer may surprise you, but we have found that at least 30% of all rooftop cell sites are not in compliance with the terms of their lease agreements, and as a result the landlords are not being compensated properly. We have also found many issues with cell phone tower leases, albeit not as frequent or severe as issues observed with the rooftop antenna sites we have seen in the United States and in Canada. We estimate that the values of approximately quarter of cellular leases are incorrectly appraised for this reason. When any deviation is present on site favoring the landlord, they gain an advantageous position from a negotiating standpoint. A cell tower audit or a rooftop cell site audit performed properly can significantly impact the future value of a wireless lease for the landlord and impact the true value of your carrier lease.
Q: Perhaps you are wondering what should your monthly rental rate be on your tower or rooftop site if the carrier is trying to expand or is upgrading to 4G LTE antennas? Do you determine the value of the upgrade to the square footage of the expansion in proportion to the area they are currently occupying, or do you count the number of antennas they are adding?
A: There is no database of cell site lease rates, additionally, cellular carriers are not comfortable with publicly disclosing what rent they are paying on a given cell site lease. If you look hard enough you can see what municipalities are getting from carriers like Verizon Wireless, T-Mobile, US Cellular, Metro PCS and AT&T because the towns publish the information. Occasionally when a landlord plays hardball with a carrier in a negotiation their real estate department or lawyers will disclose a short list of property addresses where they are paying $1,000 per month for example. But these lists are never accurate nor are they complete if the carrier is providing them to landlords to get you to sign on the dotted line. The value of the LTE upgrade or 4G upgrades that are primarily being done by Verizon and AT&T can be worth a few hundred dollars extra to landlords. However with the site expansions and ALL cell tower leases, the lease rates are site specific and need to be reviewed on a site by site basis. The determining factor is what they are trying to cover, and the availability of alternative sites willing to take less money per month than you, and the cost to develop that alternate site. It’s all about leverage.
Q. If my cellular tower is so important to the carrier’s wireless network, and they recently added more equipment and increased the rent when they signed the LTE lease amendment, why then are they trying to lower the monthly rent only a few months later?
A. Your cell site is probably very important to the network of the carrier but they will never admit that to you because you do not speak Telecom in all likelihood. You’d think that multi-billion dollar corporations had the foresight to plan 5 or 10 years ahead when they built a cell tower?
Q: What about this Right of First Refusal (ROFR) clause that they are trying to get you to sign? Does that affect the value of the tower in the future?
A: Since a cell site lease is a commodity and is bought and sold like ay other commodity. On Wall Street, when someone wants to purchase a Right they pay money for that option to make the purchase. When you give up the Right of First Refusal you are essentially giving up your right to let the free market determine the value of your cell tower rental revenue stream. If you are going to agree to that, shouldn’t it be worth something? Do you think that if a lease buyout company sees that Carrier X has a ROFR on your lease, they will make you an aggressive offer? Why should they? The carrier with the ROFR only needs to match it.
So what is the actual value of your cell tower asset?
Landlords in the United States, what is the fair market value of your Verizon Wireless, AT&T Wireless, Alltel, Cingular, Clearwire, LightSquared, West Central Wireless, Cricket, Alaska Communications, Cox Communications, GCI Communications, Cellular One, Frontier Wireless, US Cellular, MetroPCS or Sprint Nextel lease? Canadian landlords, how much is your Aliant Mobility, MTS Mobility, Bell Mobility, Mike (Telus Mobility), Fido (Microcell), Mobilicity, PC Mobile, Primus Canada Wireless, Public Mobile, Rogers Wireless, SaskTel Mobility, Telus Mobility, WIND Mobile rooftop or tower lease rate valued at? What’s it worth if they want to expand the Premise and add an upgraded array of antennas? Well… that’s the sixty-four thousand dollar question, isn’t it?
And don’t expect the cellular carriers to provide you with the answers or any guidance whatsoever regarding the site-specific values of tower or rooftop leases. Landlords will never know the true values of their cell site leases until they have a comprehensive cell tower lease audit.