2015 Cell Phone Tower Cap Rates | 4 Tips
When I was a commercial real estate broker with Cassidy Turley San Diego, cap rates were of utmost importance to investors. Shopping centers were trading for around a 5% cap, value-add office buildings were trading for around 8% cap, and the rare multi-tenant office building, maybe with an underlying land-lease, at a 10% cap. Every property has a story to tell – and a cap rate to help assess the property’s asset value.
The challenge I faced, with my unique expertise in cell towers, was and always has been, how to communicate to the commercial real estate world how cell tower lease investors value cell phone tower leases. 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 multiple of rent, either on an annual, or a monthly basis, not based on a cap rate. For example, an investor using a monthly rent multiple would ask, “Can I buy this 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 across the industry, but most importantly investors in cell tower leases don’t assess leases based on cap rates.
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 those questions, and the lease has been properly underwritten, then we can identify the correct cap rate.
3. Often You Will Make More Money Selling The Lease Separate
One tip that many savvy commercial real estate investors hold secret, is that often you will make more money selling the cell tower leases separately from the property. If the property is going to sell for a 10% cap however the cell tower leases are going to 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 every year where the leases have already been sold on the property, and they will continue to trade far into the future. As the saying goes, everything sells, its 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 $30,000,000.00 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 maximize your opportunity?
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