1. How Much Of An Option Payment Should You Ask For?
In 2019 the request by tenants to be granted an option to lease your property is a common one. Ideally granting no option, is better than granting an option. An option ties up your land for an agreed upon period of time in exchange for flat rate. Often tenants are proposing multi-year options and offering to pay landlords pittance. Sums as small as $500.00 for one year. In T-Mobile’s lease template they propose an option fee of $100.00 for one year. That comes out to $8.33 per month to tie up your land. I am not sure if T-Mobile is aware that today’s economy operates in 2019, not 1919. This brings us to our second point…
2. Tenants Need To Have Skin In The Game.
If the prospective tenant will not agree to pay you a multi-thousand-dollar option fee in exchange for tying up your land for a minimum of one year, than how serious are they?
It typically costs hundreds-of-thousands of dollars to construct a cell tower, so another few thousand dollars payable to YOU the landlord is a drop in the bucket to legitimate developers.
Beware companies who are looking to tie up your property for little or no money. This is called speculative development and is almost always a waste of your time.
2. How Much Rent Should You Charge Your Tenant?
Cell tower and cell site lease rates continue to rise year after year. Typically, we are seeing higher rental rates on rooftop in urban markets and lower rental rates to lease raw land in rural areas.
Rates vary depending on the following variables: (i) the site build, (ii) who the contract is with (ie: Verizon or American Tower Corporation) and (iii) how many other options are in the area for the tenant.
When constructing a new site, a developer typically identifies a few candidates, however, they usually have their sights set on one location. The other two are typically back-ups in case the first location falls through.
To truly understand your leverage in the negotiation you need an expert on your side who can view your property the way the cell tower industry views it. Contact Airwave Advisors to learn more about what your property is worth.
3. How Often Should Your Rent Escalate?
We continue to see tenants present cell tower lease agreements to landlords with ridiculously low rent escalators. Lately I have viewed contracts presented with no rent escalator or the rent going up every five years by only 5%!
As Mr. Wonderful on NBC’s Shark Tank says…
Inflation has historically trended at 2-3% annually. The whole point of a rent escalator is to maintain the value of the dollar paid from the tenant to the landlord over the course of time.
Why should you accept a rent escalator that is less than the annual rate of inflation? The value of the dollar you receive next year should be equal to or greater than the value of the dollar you receive today.
4. How Long Of A Contract Should You Agree To?
Over time tenants have become more aggressive with the terms they present to Landlords. Years ago, tenants would present contracts that were a maximum of 20-25 years, which is a very long time. Now we are seeing some tenants get as bold as to present 100-year lease agreements. Basically, you would be selling that piece of land to your tenant and they would pay you monthly payments until either they voluntarily terminate their agreement, or you pass away.
It is important to keep in mind that term in cell tower lease agreements locks in the landlord only.
The tenant typically has the right within the termination provision of the cell tower lease to terminate the contract with 30 days’ notice. So really what your tenant wants from you, is to remove your ability to renegotiate a better deal for you decades into the future. Meanwhile they are not giving you a guarantee in rent, instead they can walk away in 30 days’ notice and that income disappears.
When we view Crown Castle’s 8-K filing from Q3 of 2019 their average lease renewal term for 2019 was a total of 30 years. By no means show a property owner agree to renew or start a new lease for greater than that amount of time. Ideally the less amount of time the property owner agrees to, the better off the property owner is.
5. What Else Should I Need To Know?
A lot. You are about to enter into a multi-decade agreement with a cell tower company that does cell tower leasing for a living.
To create leverage on your side, you need more information and a cell tower lease expert in your corner to advise you of pitfalls and what is market with cell tower leasing. Give us a call today to discuss your cell tower lease opportunity further.
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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).