Cell Tower Lease Cap Rates | 4 Tips

By Nick G. Foster

June 16, 2015

(article updated on February 18, 2020)

Years ago when I was a commercial real estate broker with Cassidy Turley San Diego (now known as Cushman & Wakefield), cap rates were of the utmost importance to investors.

Back then, shopping centers were trading for around a 5% cap. Value-add multi-tenant office buildings were trading for around a 8% cap. The rare multi-tenant office building, maybe with an underlying land-lease, would trade at a 10% cap.

Every property has a story to tell. A cap rate is a simple metric used to help assess the return on investment if one were to pay all cash for a piece of real estate.

The challenge I faced at the time, with my unique expertise in cell towers, was how to communicate to the commercial real estate world how cell tower lease buyers value cell phone tower leases.

So how do investors who buy cell tower leases value the agreements? Let’s get started.

1. Buyers Of Cell Towers Leases Don’t Use Cap Rates

It may come as a shock, however, investors acquiring cell phone tower leases make offers based on a specific rent multiple. Not cell tower lease cap rates. They may use either an annual or monthly multiple – not on a cap rate.

By example, an investor using a monthly rent multiple would ask, “Can I buy this cell tower lease at 120x, or 100x (x = months of current rent) if I am lucky?”

While other investors will look at cell phone tower leases on an annual multiple and ask, “Can I buy this lease at 10x or 8.3x (x = years of annual rent)?”

The point is that there is no standard metric of valuation across the cell tower lease buyout industry. The important take-away is that investors in cell tower leases don’t use cell tower lease cap rates as a metric on the value of a cell tower lease.

2. Both My Client And I Do Use Cap Rates – How Can You Help?

This is when you need a cell tower lease expert on your side, such as Airwave Advisors, who can speak both your language, and the language of cell tower investors.

There is no standard cap rate for cell tower leases, instead there is a range. Where a cell tower lease falls in that range is dependent on a number of variables:

  • Who is the cell phone tower lease tenant?
  • When does the lease expire?
  • What is the current rent?
  • What is the rent escalation amount?
  • Does the tenant have a right of first refusal in the lease?

Once we have the answer to the above questions, and the lease has been properly reviewed, then we can identify the correct cap rate. Too often property owners will call me saying, “I get $1,000.00 per month in rent, what is my lease worth?”. As you can see above, there are more variables that go into a valuation of a lease than the current rental rate. 

3. Often You Will Make More Money Selling The Lease Separate Than The Property

One tip that many savvy commercial real estate investors hold secret, is that often the property owner will typically make more money selling the cell tower lease separately from the property.

If the property is going to sell for a 10% cap, however, the cell tower lease would sell for a 9% cap, then the seller will make more money selling the leases separately from the property.

Some brokers may argue that buyers will not purchase a property where the leases have been sold separately, however, that is simply not true.

Thousands of properties trade hands every year where the leases have already been sold on the property, and they will continue to trade hands far into the future.

As the saying goes, everything sells, it is just a matter of time.

4. Engage A Cell Tower Lease Expert To Maximize Value

Airwave Advisors has an exceptional track record of securing the highest purchase prices for sellers. With over $50,000,000.00 in cell tower lease buyouts we have sold leases on office, industrial, retail, and every other type of real estate property in existence. We track the cell tower lease market so that you don’t have to.


Are You Looking To Sell Your Cell Tower Lease?

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4 Comments

  1. Ivan on March 1, 2018 at 7:22 am

    Hi, what is the 2017-2018 cap rate range for cell towers? is there any website or publications where i can find this information?

    Thank you!

    • Nick Foster on March 6, 2018 at 9:00 am

      Hi Ivan,

      Most cap rate range information you will find online will either be inaccurate, or lower than actual cap rates leases trade for. Ranges are typically proprietary and to freely divulge them at no cost would not make business sense for those of us in the industry.

      All the best,

      Nick G. Foster

  2. Brian Skinner on August 12, 2015 at 8:08 pm

    Hi,
    Can you use any help finding acquisitions in Latin America? I live in Costa Rica and spend about half my time in Panama. I left your company a voicemail today. Let me know if I can get you portfolio’s overseas! Thank You

    • Nick Foster on August 12, 2015 at 8:25 pm

      Hi Brian,

      Thank you for your voicemail and your comment. Unfortunately, at this time we are not doing any business in Central America. Should we enter into those markets, we will certainly contact you.

      All the best,
      Nick Foster

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Nick Foster Airwave Advisors

About Nick G. Foster

Since founding Airwave Advisors® in 2014, Mr. Foster has added value to over 400 clients ranging from the State of Nevada, City of Beverly Hills, to Habitat For Humanity. Mr. Foster focuses on cell tower lease renewals, buyouts, new lease negotiation, and cell site lease management. Prior to starting Airwave Advisors® Mr. Foster founded and led the Cell Site Services Group within nationwide commercial real estate services leader Cassidy Turley (now known as Cushman & Wakefield).