A cell tower lease buyout is where a tower company purchases the rights to collect the rent on the current cell tower location. This can be done by purchasing the master lease or through an easement conversion.
If you’ve received an offer of your cell tower lease and are considering a lease buyout, here are 10 reasons why property owners have chosen to accept a cell tower lease buyout.
- 1 Value of Money Today
- 2 Avoiding Technology Risks
- 3 Mergers and Acquisitions
- 4 Improve Your Business
- 5 Unforeseen Life Event
- 6 Pay Off Your Mortgage
- 7 Sell Your Property For More
- 8 Children’s Education Fund
- 9 Capital Improvements
- 10 Retirement Planning
Value of Money Today
Time Value of Money: Money today is worth more than money tomorrow. Time value of money is the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. Although a cell tower lease buyout will not necessarily provide you the exact dollar-for-dollar amount today, the concept still holds true considering other variables that relate to a cell tower lease’s potential longevity.
Inflation and escalator rate are both major factors included in the valuation for the time value of money. In recent years, inflation has shot through the roof, while cell tower lease escalators remain constant or carriers have renegotiated lower rents or escalators. Taking a guaranteed lump sum payment and re-investing that money into investments that are more secure and have greater yield can help property owners maximize their equity.
Avoiding Technology Risks
Technology is always advancing. When it changes or becomes obsolete, the leases associated with that technology lose their value. A lease buyout provides an option for landlords to avoid this risk.
As an example, small cells are going to lower the demand for building new cell tower locations. 5g technology through small cells will be disbursed vastly through government property which will end up costing carriers a lot less monthly than working with individual property owners. Future rent reductions will become commonplace and individual cell tower owners will be at risk of losing their rental income stream.
Mergers and Acquisitions
Mergers and acquisitions can result in the loss of a cell tower lease. When companies merge or are acquired, there are cell sites that often overlap or become redundant in a specific area. These changed circumstances cause the company to decommission cell towers. Some examples include Sprint, Nextel, Cricket and Spring (TMobile) tower leases that lost all of their value although they were once worth millions.
Improve Your Business
Since cell tower leases are not guaranteed, and often have termination clauses that are less than 90 days, banks often do not provide loans that are collateralized by cell tower leases. A cell tower lease buyout can provide a business owner with the funds necessary to do a variety of things to better their business situation, including expanding their business by adding equipment, more employees or more locations.
One of our past clients originally said no to a lease buyout. After learning about his trucking business we found that each truck generates an average of $20,000 per month in income. In order to add a new truck, it would cost him $250,000. The offer on his cell tower lease which produced $2,350 was just over $500,000. After presenting the options he realized that by accepting the offer he could buy two additional trucks which instead of him only producing $2,350 per month in income he could generate $40,000 more per month utilizing funds to purchase additional trucks.
Unforeseen Life Event
An unforeseen life event can often create many problems that are difficult to overcome without the necessary resources. Many times, that unforeseen life event can be solved with money. Whether it is a legal issue, a potential bankruptcy, or a health concern, a cell tower lease buyout may provide you with the money necessary to get back on track.
Pay Off Your Mortgage
A cell tower lease buyout can help your balance sheet and your cash flow. Without a mortgage, you can often use that extra money towards other things that provide you with more “bang-for-your-buck!” We always recommend consulting your tax advisor for these situations.
When landlords sell their cell tower lease separately from the rest of the property, they can often increase their sales proceeds. Companies that only purchase the cell tower lease value them differently than parties looking to acquire the entire property. Whether you’re looking for a lease buyout or to sell your entire property, the Wireless Equity Group disposition team can help.
The great thing about selling your property (or converting your tower lease to an easement and selling the easement), is that the sale can be completed through a 1031 exchange to purchase additional real estate and defer taxes. Our team is comprised of both telecom industry and real estate experts who can help guide you through the best solutions for your cell tower property.
Children’s Education Fund
The cost of higher education has increased exponentially over the last several decades. Even parents that have saved regularly since their children were young, face the difficult realization that it still may not be enough with the rising costs. Selling your cell tower lease for a large lumpsum can help owners with family pay for college education, student housing and other college expenses.
Does your property need repair, restoration or addition to enhance its value? This is another benefit of a cell tower lease buyout. Landlords have used proceeds from a cell tower lease sale for everything from kitchen remodels to adding a second story to their residence.
By selling a cell tower lease, landlords can fund their retirement accounts with a lump-sum payment in order to maximize their money. When combining this purpose with some of the other benefits listed, selling your lease can help leverage your assets. Re-investing the funds into an IRA, taking out life insurance policies and setting up financial plans for you and your heirs can provide financial security long into the future.
Summary: If you’re a cell tower site owner with less than 10 towers, a cell tower lease buyout can provide a tremendous amount of security, flexibility, and options for greater equity return.
IMPORTANT NOTE: Not all cell tower lease buyouts are the same. When completing an easement conversion, many tower companies will add in a Right of First Refusal or other language that can impair your property rights. Speak with one of our Wireless Equity Group site advisors to make sure you get a lease buyout with the most flexibility and highest price.