Tower Capital Advisors
Our offers for your tower or lease and advice about selling
The principals of TCA have purchased over $300 million in cell towers and leases and provided capital to hundreds of Site Owners across the country. We have raised over $300 million to fund our acquisitions, acted as advisor on the deployment of more than $500 million more and have served the industry and it’s constituents since 2001.
In September of 2014, TCA announced their re-entry into the direct lease and tower buyout business in a partnership with an institutional funding partner (and more recently with AT&T). Since this announcement, we have shown that our offers for wireless leases are higher than most any other in the industry. This is made possible because we do not employ sales personnel or have a call center and all of our origination come from inbound inquiries by landlords that have seen the data we provide the market at no charge or from our carrier partner. With more than $1 billion in infrastructure capital available, we would be pleased make an offer on your asset as well.
For more information, contact us at email@example.com
Article series for property owners: Negotiating Wireless Leases with an Outlook towards Monetization
Part I: Escalation Provisions – pdf
Transaction Structures for the Sale of Wireless Leases:
Wireless lease purchase transactions are typically structured with two components, the sale of an easement and the assignment of the lease/rents. Sales are done for fixed durations ranging from 30 years to perpetual (99 years). Purchasing an easement provides a ‘real-estate’ like feature to the sale that benefits both seller and buyer, and taking assignment of the lease (and any successor lease) is how the rents are transferred to the buyer. While shorter terms are often available from some buyers, sellers should consult their tax professionals for advice on short-term easement sales.
Regarding easement purchases:
Use of the easement purchase structure benefits the Seller because it is the sale of the easement that affords him long-term cap gains tax treatment. Buyer benefits because it looks and smells like real estate and is REIT compliant, among other credit related reasons. The easement being purchased is a telecom easement and can be either: specific (meaning not requiring any expansion of the space defined in the existing lease), expanded (meaning drawn slightly larger than the current compound) or general to the property.
Regarding the assignment of the lease:
The assignment of lease and successor lease gets the buyer his rents. It is also for the same fixed term, so the rent reverts back to the seller (or future property owner) when the term of the purchase expires. The ‘successor’ part comes because the lease often expires and has to be renegotiated (up or down) by the buyer. It is more often down than up unless the site currently has a below market rent and knowledgeable landlord / seller . The ‘successor lease’ part is because, if the tenant terminates the lease the day after it is purchased or anytime during the term, great for the seller who has his/her money, but the buyer is in a world of hurt (no more rent) and has to have the right, for some period of time (negotiable typically between 2-10 years) to ‘try’ and find another tenant. Finding a replacement tenant rarely happens. In such a case, if the buyer fails to re-lease the location, after the negotiated easement ‘abandonment’ period is up, the easement goes away. That results in a less than expected return for the buyer, or a loss.
What to sell, for how long and to whom:
- WHAT TO SELL: If a property owner is also looking to sell the underlying property / business / building that wireless infrastructure is on, they should sell the wireless leases/tower first and THEN look to divest the actual property. This is because the cap rates on wireless leases are typically much lower (meaning higher prices) than they are on the underlying property. Many buyers will try and get expansions at a minimum to participate in any upside that might occur down the road if the tenant whose lease is being purchased needs more space. Other buyers pitch taking a general easement across the entire roof or property and promise to ‘bring more tenants’ and share anywhere from 50/50 to 75/25 (seller favor) in new tenant revenue. Almost no one other than the carriers knows where the next sites are needed, so marketing is tough to begin with and finding one for a specific roof has little history (other than accidental) of success. It is impossible to ‘find’ new tenants when you have literally no employees that market to the carriers and zero history of success doing so even if you did (the financial buyers). It is improbable that the buyer will find new tenants when they have cell towers all around the subject property that, when the next tenant need arises, they would much prefer to put them on their own tower because they don’t have to share any of the rent with the seller (the larger towercos). But the take-away here should be: – If you are selling the entire property, sell the leases first and then the building/business and – if the price is significantly improved using an expanded easement or general easement structure, consider accepting it. Just do not bet on seeing additional revenue in the near-term with any offered sharing arrangement.
- TO WHOM: Sell a specific easement to anyone unless the price is better from a middle market, low site count tower company. Don’t believe anyone that says they are bringing new tenants to your rooftop or (if a tower) to a tower they don’t own and couldn’t put tenants on if they wanted to (only the tower owner can). Further, review the purchase documents of any prospective buyer as they can differ significantly and limit the time they have to review and close to 90 days or less.
- FOR HOW LONG: Selling for > 30 years gets better tax treatment (TCA does not provide tax advice, so consult with your accountants). Do you sell past the end of all renewals? 98% of the time, sellers do and probably should. The longer the purchase term (obviously), the greater the proceeds and unless your horizon is > 30 years, why would you care? The buyer is more than likely to have to take a reduction to get a tenant to stay (if we are using cell phones anyway) 30 years from now. In our opinion, sellers should consider maximizing the dollars received and sell a perpetual or 99 year easement to insure the best tax treatment and de-risk the technology.
Exceptions: Rooftops and single tenant towers: – If you have a lease expiring over the short term (e.g. < 5 years), have below market rents and you do not need the money immediately, seek professional advice as it could be that buyers will pay more for the opportunity to raise rents than you, as the landlord, will be able to negotiate in any renewal. Think carefully before renegotiating a lease without professional advice. If you are renegotiating a lease on a tower, try and add revenue sharing provision if additional tenants are added. In the case of either a rooftop or a tower, keep the compound size small. If you are not selling at all, negotiate as short a term as possible. Multi-tenant towers: If you get paid for a ground lease under a tower with more than one viable tenant on it (the big 4 carriers), the lease expires over the medium term (e.g. <10 years) DO NOT sign any amendments or extensions and give TCA a call for some free, sound advice.
For years, landlords to the wireless carriers have not been offered full value for their leases by the aggregation community. TCA is committed to making the market efficient by providing Seller’s with regularly updated statistical data on values and transparent, simply constructed, ‘best-foot-forward’ offers to acquire their asset.
How are we different than the other firms that want to buy your lease? Among other things;
- In most all cases, we only purchase the exact space your current lease encompasses. Unlike other buyers, we do not attempt to ‘expand’ our easement area and offer to ‘bring more revenue’ to a tower or rooftop we don’t own. Financial buyers of these assets have no track record of success generating new tenants and are looking to take a piece of any new rent that might be charge-able to your existing tenant if and when they need more space.
- We start, not finish, by putting our highest number on the table with our first offer. Tower Capital Advisors does not employ ‘call centers’ or a paid sales force. Site Owners find us or we connect with them via our network of wireless industry and real estate professionals local to their market. Because of this, our overhead is significantly lower than the ‘buy and flip’ aggregation firms, whose paid sales personnel and call centers are expensive to maintain. TCA’s lease purchase offers are currently averaging in excess of 16.5x the annual rent of the 3 big carriers, while ‘opening’ offers by the aggregation firms average 10+% less. Our offers are even higher when the lease escalates more than 3%/year or 15%/5 years.
- We publish the average of our own purchase multiples and those of our competitors and update the information on a quarterly basis. No other firm in the industry does this because their objective is to pay as little as possible for the lease. Our objective is to pay you more and have it cost us less to do it.
- Our purchase documentation is the simplest and most concise in the industry. We do not require an expansion of or general easement on your property, but only request a specific easement in most cases. That means that future tenants that come on your property or an expansion of the need of the existing tenant that results in additional revenue is yours to keep and does not have to be shared with us. Most other firms attempt to take expanded or general easements and offer you back a portion of what should have been your future upside potential to begin with.
- We don’t tell you your site is ‘at risk’ of being taken down as a sales tactic. While it is true that some sites are decommissioned every year, especially the sites of tenants other than the ‘big 4’ carriers and tower companies, we wouldn’t be in the business of buying them if it represented a sizable risk.
- Read a testimonial from one of our lease purchase clients: BC Baseball League – pdf
TCA recommends that property owners seeking to monetize their leases should follow some simple suggestions:
- Do not sign amendments, expansions or extensions to your existing lease: Did you know that your lease may be worth MORE, not LESS when all the renewals are up? Depending on the tenant, odds are very good the site will not be going away and acquisition firms price the opportunity to raise rent at the end of all lease expirations into their offers – so do not sign amendments extending your lease term. Both the carriers and the tower companies use 3rd party vendors to contact their landlords and attempt to amend or extend leases when the purpose of these amendments is more often than not to, among other things, REDUCE rents, insert Rights of First Refusal clauses and expand space. Contact TCA instead for a free valuation estimate and free advice on your particular situation.
- Do not accept Right of First Refusal language in an amendment or extension: The owner of the equipment or tower on your property wants to lock you in for as long as possible – and while the right to match an offer you have for your lease might seem harmless enough, many buyers will not bid on leases with ROFR’s in them or will do so at reduced prices. This is mostly applicable to towers owned by the public tower companies. Leases with the carriers directly often contain ROFR’s and they are rarely exercised.
- Do not accept a Staged payout or payments over time: Many firms offer payments over time instead of a lump sum of cash up front, or payments of ‘new rents’ over time. Sometimes this is done with naïve property owners in the hope that he or she will simply add up all future payments and look at it as the total they are being paid. First, paying for something over a number of years does not take into account inflation and is not the same as being paid up front. A good everyday example is that lotto’s ‘cash option’ does not pay the same as the stated 20 year payout. This is because a dollar tomorrow is worth less than a dollar today. Second, and even more importantly, do you know who exactly it is that you in effect are becoming a creditor of by accepting a stages payout or future rent payment schedule from? What is the financial wherewithal of the firm promising to pay you some significant amount of money 3, 5, 10 or more years from now? Few if any of the firms in the space that buy leases are publicly traded and no one should take the credit risk of a privately financed company without some form of collateral backing (e.g. letter of credit, escrow, etc.).
- Don’t sell an expanded easement to a financial buyer. Financial buyers are not capable of bringing new tenants to a property, and most promise to. Financial buyers are all those buyers that are not tower companies.
- TCA recommends that you do not sell your lease to your tenant without professional guidance. Realizing future revenue from your site may be made more difficult if your tenant is their own landlord. This also applies to selling to a buyer that, in turn, is going to sell or assign extensions to your tenant!
- Every dollar you are able to extract when and if your tenant needs more space could be worth $168-$200 dollars in a sale of that new amendment or lease – so don’t give up additional space unless you are getting paid for it – substantially.
Give TCA a call before doing anything. Our advice is free and given independently of our interest in acquiring leases.
Is it time to sell?
The principals of TCA have been in the business of acquiring wireless leases since 2001. Prices for the leases have translated into yields for the buyer that have ranged from a high of 15% or more to a low of 8.5% or so (like a bond, the higher the yield, the lower the price and vice-versa). That trend has been almost continuously down in yield (and thus up in price offered), with the exception of the 2008 financial crisis, over the entire 13 year period. Based on our most recent analysis of industry wide offer multiples (see our Market Data section), that trend seems to be continuing, but for how long? With the COVID-19 pandemic likely to result in a recession, the cost of borrowing is likely to rise for buyers, sellers are likely to have difficulty getting their mortgage holders to consent to letting them monetize the leases and, most importantly, the number of buyers will be reduced as firms that are not capable of competing exit the business. This will result in prices eventually coming down – so sellers should consider monetizing now.
While there are multiple factors in play in this or any market, four factors stand out to us as having the largest potential of starting a downward trend in offer prices for these leases: Inflation, Spread over Carrier bond yields, Competition and Telecom mergers.
Regarding inflation: we have been in an extraordinarily low rate environment for years as the Fed has endlessly pumped money into the economy to bolster us out of recession. In 2018, the start of what has to be a series of increases to interest rates began. With those increases, underlying index yields will go up, forcing money into safer instruments and yield requirements up. That means prices for these (or any riskier financial asset) will go down and that trend has started.
Regarding Spread: Yields to the buyers of wireless leases, when accounted for over 99 years, are approaching 9%. The leases are cancelable by the wireless carrier at a moment’s notice almost without exception. The yield-to-maturity on the long-term bonds of the same wireless carriers are, on average, not far from this 9% number (ranging from 3 to 8+%). Unlike his lease payments, the bond payment a wireless carrier issuer must make is a ‘hell-or-high-water’ obligation to pay it for the term of the bond. When the difference in these yields becomes small, as it is now, capital will flow to the more secure investments – which is the bond. TCA thus believes that the natural floor on the prices for wireless leases is rapidly being approached and that it is a very good time to monetize these leases.
Regarding Competition: By definition, this is a Seller’s market. High prices being offered for wireless leases are, in part, a direct result of heavy competition. Too much capital chasing too few deals makes for a Seller’s dream. The dream always has the same ending. Firms that price too thin to support their overhead fail. Financial sponsors and private equity firms bail because they can no longer make their required returns. The market is then left with fewer and fewer players until the one or two survivors no longer have to remain competitive in their offers – and they raise prices. During the meltdown of 2008, we saw exactly this happen to this market. All of the firms but one or two had their facilities pulled and the remaining firms took their yields from 11% to 14% overnight (and their offer prices down commensurately). For months, prices and competition stayed low. It looks like this is happening again. The next 12 months will, in our opinion, see significant fallout amongst the aggregation firms – so selling now makes sense.
Mergers among the carriers: Historically, decommissioning of wireless sites by the carriers has averaged less than 1/2% per year. Site owners continued to see higher and higher offers for their rents and historically, more space was needed by existing tenants and more coverage by new tenants. Now we see that some of the risk was quite real and that the 1/2% has the potential to be much, much higher in the near term. The trend has already started as property owners who are (or ‘were’) landlords to MetroPCS, Clearwire and Cricket/LEAP will attest. Offers for these credit-tenant counter-parties have gone from 10-13 x annual rent to literally nothing in just a few months. These site owners waited too long to sell. While no one knows the eventual outcome of continued M&A in the US telecom markets, it makes sense to take the risk off the table today.
If you are a site owner/landlord to any of the national carriers, call us to find out what your lease is really worth.
A Message to Brokers/Originators
After years of being taken advantage of, property owners/landlords that are currently selling their wireless leases are finally starting to see the prices they have always deserved. If you are a sales professional in the wireless lease buyout space, you might be asking where your ‘share’ of this market upswing is going. We don’t have to ask to know that it is not going into higher fees for you.
If you are a wireless industry or real estate professional that knows property owners who have cellular revenue on their property, TCA provides you with an opportunity for sizable fees. Why would you accept fees in this business that are lower than traditional commercial and/or residential commissions are?
Send us the details in confidence of your intended offer to a site owner for his lease and we will let you know what your compensation structure would be for that trade. If you are new to the business, TCA can both provide training and the materials you need to be successful buying wireless leases.
Our standard program has no caps and creates an arbitrage opportunity for the originator between the purchase price he negotiates and the value of the lease.
Contact us today for more information.
Registration for both site owners and prospective originators is free and confidential. Register today and TCA will value your lease or option.
Please call us at (800) 675-0144, or e-mail us at firstname.lastname@example.org for more information.