Market Data and Values for Wireless Infrastructure from the Data We’ve Gathered
If you are a property owner considering monetizing your wireless lease rents or an institutional investor trying to determine the value of lease/easement cash flows under wireless infrastructure, information on street-level market pricing is not readily available to you. Our Market Data section provides current, real-time insight into the market that could be of use to you as you weigh your options or undertake due diligence.
The various firms that offer to purchase wireless leases from property owners are motivated to do so as cheaply as possible. Having information on current lease offer trends is imperative, and TCA is the only firm to publish them. Knowing how much an asset is worth in today’s market is a must for a seller.
Full Year 2022 Update – Valuations and Historical Prices for Wireless Leases and Towers
TCA analysts track (confidentially) the offers for wireless leases and tower purchases made by aggregation firms to property owners that contact us, subsequent offers for the same assets from TCA and the overall trend of value for the leases in the industry. Based on a review of the full year 2022 data, we have distilled the following information and trends:
Note: Averages are calculated by TCA from discussions with both site / tower owners and industry personnel. They are opinion. Unless otherwise noted, most of TCA’s statistics are normalized for perpetual purchase terms and 3% per year (or 15% per term) escalations, as they are the most common in the industry. Lower escalators would result in lower offer prices. Higher annual escalators could result in higher than average offer prices. Data also nets out short-term expiration purchase offers (offers for leases with 5 or fewer remaining years in the lease terms provide a pro forma rent hike opportunity for the buyer).
TCA Tower Acquisitions and Valuation Data
Tower Capital Advisors currently performs a regular service as part of our scope of work as a national partner of one of the 4 major carriers that requires us to analyze, structure, evaluate and price numerous tower and rooftop leases being acquired for our own account or for AT&T directly. Our own acquisitions are consummated with one of two well capitalized funds or on behalf of our carrier partner. If you own one or more cell towers with cellular tenants, we believe our expertise in maximizing the value of these assets would benefit any current or future seller of wireless infrastructure.
In addition to suggesting that you view our Recent Transactions page (updated quarterly), below we have provided data from our 2020-2022 tower acquisitions that we hope you find useful:
TCA Commentary – 2022 in Review – A seller’s market as prices continued to rise despite rising interest rates – for now:
Seemingly able to buck the common sense notion that as rates go up, prices come down, the markets and values of both wireless easements/leases and cell towers have fared better than the values of the very properties they reside on. 2022 saw a peak reached over our 22 years in the space for both asset types. Peaks of 21x for leases with the big 3 carriers and 3% or higher escalations were not uncommon. Some single towers we saw (and closed on) traded in the low 30’s. The equivalent cap rates for these transactions were, on average, just under 5% for leases and in the mid-3%’s for towers. As rates rise, however, so has the cost of debt for aggregators of towers and wireless infrastructure – which will mean the party should be coming to an end… but it hasn’t.
As stated in our last update, uncertainty in the capital markets and the COVID-19 pandemic’s effect on commercial property values combined to increase buyers interest in and prices for this asset class and stimulated wireless lease landlords to monetize and tower owners to sell. Few other commercial property types were doing well (think office and apartment buildings, retail, shopping centers, etc.) and, with investment-grade tenant credit counterparties like AT&T, T-Mobile and Verizon paying the rents – new capital entered the market in record amounts.
We noted many of the more seasoned portfolios exhibiting discipline in the latter half of 2022 with a focus on fewer, but more profitable transactions. A select few portfolio buyers did not. Our opinion is that those that did not are working on market share strategy (a land-grab) that may dissuade newer capital and push the less well capitalized funds out in anticipation of a downturn. We saw this exact situation in 2009-2011 – and it inevitably results in very few competitors and much lower prices. Those with high overhead that cannot survive the onslaught of low returns leave and the land-grabbers then more than making up for their past expensive acquisitions by being able to feed on easier, less expensive prey.
* Financial aggregation firms are companies that acquire the assets with the intent of either just collecting the cash from the lease as is and holding it or, more often, firms that buy with the intention of ‘flipping’ to tower companies or into securitizations. Despite often requiring that they buy an expanded easement area with a ‘sharing’ arrangement back to the seller for any new tenants that come to the site, financial aggregation firms have little to no history of being able to ‘lease up’ a property. Note that Sellers should be very cautious of letting any financial buyer expand their easement as part of the purchase process. See the Recommendations for Sellers in the Lease Buyout section of TCA’s website.
** Strategic aggregation firms are companies that own and operate thousands of assets across the US and are capable of bringing additional tenants to a property that has their own tower on it.
Market Outlook for 2023 for Wireless Leases and Cell Towers
While many employers big and small are demanding their employees actually come to work in the office once in a while, many of their employees seem to have missed that email. As a recent survey suggested, only 34% of US workers returned to the office full-time in 2022 with 40% of employees still working remotely at least once a week while claiming they’d quit if their employer mandated a full-office return. This does not bode well for cap rates associated with commercial office real estate in 2023. In general, alternative commercial real estate investments are unlikely to again become as (or more) attractive than wireless infrastructure in this coming year – meaning a continuation of low relative cap rates for the sector.
What does the future look like for the value of wireless leases and tower assets?
Here are some of our thoughts:
A Seller’s Market: In the short-term, prices are likely to have stabilized at the current level. We can see some of that in our Q4 2022 data – but the level at which they have stabilized is quite high. 2023 Q1 and Q2 are likely to continue favoring seller’s, but with a decreasing number of buyers being willing (or able) to play.
With Tower Values – Fantasy pays more than Reality: The number of possible investment-grade carrier tenants a tower owner might solicit to their structure is and always has been countable on one-hand. Tower owners very much want these tenants and their rent. But what happens to price and value of the asset once they you get them? In that regard, we have noted a continued negative correlation between the multiple of current tower cash flow buyers are willing to pay for a tower and the number of premier tenants the tower has on it. Higher multiples (but of course based on less cash flow) are paid for towers with 1 or 2 tenants (but that have the HOPE of getting more) than are paid for towers that have achieved perfection by leasing up the structure to 3, 4 or more premier tenants (i.e. that have the HISTORY of actually doing it).
Management financial models projecting potential upside have always worked magic on investment committees – initially. History is harder to argue.
Pricing Projections: In the near term (1-2 years at most), and based on our opinion only, it is our belief that prices for the assets we track will come down for the following reasons:
Inflation, and the resultant increase in the cost of borrowing for the buyers of these assets is a likely result of undisciplined monetary and spending policy. With resultant increases in the cost of funds of the buyers of these assets, will come decreases in prices to the sellers.
Commercial real estate businesses and values will be negatively affected. Properties reliant on rent from retail establishments, offices and apartment buildings will likely see significant reductions in their cash flow. This will result in defaults and reduced debt-service-coverage ratios that may mean banks that hold mortgages on commercial properties that have cellular revenue will be less likely to attorn (consent) to the sale of those assets. Such consent is a requirement of 97% of all closed lease sales and by all buyers in the space.
The number of buyers may eventually be reduced as firms that are not capable of competing exit the business or fail. Less competition will mean lower prices. This happened in 2008-2009 and will happen again, especially with new, less experienced capital entering the market.
Our recommendation is that landlords and tower owners consider monetizing these assets while the market continues to be hot. Further, 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.
Other Valuation Considerations
Buyer Focus is on Possible Upside via expansion of the size of the easement being purchased and shorter remaining terms on the leases:
The most significant (positive) differentiation in pricing for both rooftop and tower ground leases can be seen in offers structured with upside potential (real or perceived) for the buyer. The highest prices in the market today for lease/easements are available to sellers if;
Their lease and all renewals expire inside of 20 years,
Their escalations are at 3% per year or 15% every 5 years or higher,
They are willing to accept a general or expanded easement purchase structure.
The first characteristic (nearer term expiration) provides an opportunity for the buyer to increase rents. Note that this is in spite of the fact that in more than 50% of the cases we have seen in the last 20 years, rents are REDUCED at lease expiration.
The second characteristic that optimizes a sellers price is the escalation provision. For a given price, yields to the buyer are, of course, lower if the escalation in the lease being acquired is low and that is reflected in a lower price.
The third opportunity for buyer upside comes from expanding their easement area. The highest offer prices for tower ground leases and rooftop leases are coming with general and/or expanded easement areas that hope to capture either new tenant or expansion needs by existing tenants down the road. Offers to share with the seller in this potential future upside tend to only be structured for new tenants and range from 50/50 to 70/30 in the sellers favor.
Despite this uptick in value and price, initial offers made by the firms that use outbound calling and mail to contact landlords with wireless leases on their property continue to lag the pricing available from firms without marketing staff.
We recommend sellers who have been ‘cold-called’ by prospective buyers of their leases reach out to TCA to determine both the pedigree of the buyer (are they brokers or actual buyers?) and whether the price being offered represents the true value of their asset. Tower Capital does not make outbound calls to try and buy leases or towers. In addition to working with AT&T at their request to acquire their towers or leases, TCA responds to inbound inquiries only.
While landlords to the carriers and tower companies are enjoying this recent sizable uptick in prices based on a buyers potential upside potential, do not expect such offers to be simply crafted. Many require general telecom easements across the entire property allowing the buyer to ‘market’ the property for additional tenants while offering sharing arrangements back to the landlord in any new rent ‘found’ (or more often fortuitously happened upon). The probability of finding additional tenants for a site remains low as there are both fewer viable ones (AT&T, T-Mobile and Verizon) and the tenants themselves have a strong preference as to who is managing a property with most preferring to avoid properties managed by tower companies (particularly public ones) altogether. We also continue to believe that strategic acquisitions of rooftop leases that offer seller’s sharing in new tenant revenue can be conflicted with the buyers interest in locating new tenants on their own towers rather than on a rooftop that requires a split with the property owner.
Additional Information for Wireless Landlords and Prospective Sellers
Tower Company offers for their own ground leases: The public tower companies have demonstrated that they are quite interested in protecting their tower assets and in defending against 3rd party acquisitions of ground leases under their towers. As you can see from the above chart, TCA has managed to stay ahead of most of their initial offers for their own leases as they are made through their vendors who must be compensated. We continue to recommend that landlords to tower companies who are approached by their tenants to extend, amend or sell their current leases seek professional advice before doing or signing anything. TCA offers a much simpler closing process, documentation and shorter closing time (absent a need to get the consent of a mortgage holder, closing time should be less than 45 days vs. times 3 to 5 times longer to close with some of the public tower companies). Shorter closing time means lower legal costs for the seller.
Near-term expiring tower ground lease pricing: While offer prices for ground leases under cell towers have seen a recent modest increase in price, offers for ground leases under towers with multiple tenants whose final expiration is within a 1-10 year time frame have reached extraordinary levels. TCA continues to recommend that property owners with leases whose final expiration is coming due in the next few years not sign extension amendments or lump sum offers without consulting with an expert. We provide pro bono estimates of value for tower ground leases meeting this criteria to all property owners.
Who Is a Buyer and who Is a Broker?
Here are some of our thoughts:
The influx of formerly employed sales staff from now departed acquisition firms into the market has reached astounding proportions. The number of ‘brokers’ or intermediaries operating in the market offering to either advise sellers for a fee or seeking to broker their transactions to one of the few actual portfolio buyers for a fee is now well into the double digits. We have seen a number of these brokers attempting to arbitrage huge profits at the expense of the seller, so caution when dealing with them is advised. Note TCA does not charge private property owners for our advice, regardless of whether we do a transaction with the seller or not.
In 2019, we continue to see a number of the formerly capitalized financial aggregation platforms that have lost their own funding become ‘straw’ buyers for the tower companies. This type of relationship may require the ‘straw’ buyer to sell the assets directly to your tenant after closing or assign the rights they have obtained to your tenant, thereby making any promised revenue-sharing arrangements hollow at best. If there is a Right of First Refusal clause in your lease and someone other than your tenant is making an offer to buy it, a seller needs to understand that this buyer is almost certain to have a relationship with your tenant and will be ‘giving’ something to them to get them to waive their rights under this clause.
TCA cautions prospective sellers that offers by buyers to ‘share’ in rent increases above ‘scheduled rent’ at lease expiration or renewal should be viewed with suspicion or ignored when evaluating purchase price and structure, especially if there is a Right of First Refusal in your lease. Those transactions are highly likely to be favorably amended for the tenant by the buyer post closing.