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Lease Buyouts: 5 Keys to Success

LEASE BUYOUTS: 5 KEYS TO SUCCESS

Perhaps the hottest topic today in the wireless industry is cell site lease buyouts. Cell site leases are long-term real estate leases whereby the landlord grants a property right in the form of a lease and easements to the cell site tenant. The most common tenants are the large wireless carriers such as Verizon and AT&T and the large tower companies such SBA and Crown Castle. The basic structure of the lease is tenant pays landlord rent monthly for a long term. The tenant utiltizes the leased space for the installation of its facilities and connections to utilities.

Lease buyouts are structured as the purchase by a company of certain assets and pre-payment of the rent due to the landlord under the cell site lease. In most cases, the company making the offer is not the tenant.  Offers are typically based on a multiple of the current rent paid to the landlord and may be impacted by several factors.  For example, the more rent the landlord gets today means a higher buyout offer.

Landlords need to know five important facts in evaluating buyout offers.

  1. 1. What’s in our lease? Understanding the details of the original lease and subsequent lease amendments is a crucial initial step to a successful lease buyout. For example, it is common that the lease has been assigned from one tenant to another. There may also be significant changes to the original lease in amendments. Collecting and carefully reviewing all documentation regarding the lease must occur before proceeding with a lease buyout.

  2. 2. Is this a good financial decision? Suddenly receiving a large sum of money can certainly be a good thing. However, landlords must fully explore the impact of this in terms of accounting and taxes. In addition to these important factors, non-profit organizations such as churches must also consider the responsibility of trading an increasing revenue stream for a lump sum payment. Getting solid advice on such matters early in the process helps to fully analyze the buyout as a financial decision.

  3. 3. What asset(s) are we selling? Besides the price, this is perhaps the most important factor in a lease buyout. The landlord’s rights under the original lease include the right to receive an increasing rental payment during the lease term. However, most lease buyout companies seek to acquire more than the assignment of the rent. Landlords must be concerned about unknowingly selling additional property rights and selling rent assignments beyond the original lease term. Accurately determining the assets for sale impacts the price and structure of the transaction.

  4. 4. Is the price fair and reasonable? Properly calculating the value of cell site leases requires experience with negotiating and drafting such leases, expertise in contract law and real estate law, understanding of how lease buyouts work, and local knowledge about the landlord and cellAs discussed above, perhaps the most important factor in valuing the leases is determining what is actually being sold.  In arriving at a fair price, it is advisable to seek multiple bids on terms acceptable to the landlord. Using an experienced attorney or other licensed professional can also help achieve better results since they are aware of other recent transactions establishing market pricing.

  5. 5. Who is the buyer? In some ways, all lease buyout companies are alike. They all want the same result and tend to deal with landlords similarly. An important initial distinction is whether the person representing the buyer is a broker. Brokers set up deals that are then passed along, for a fee, to the buyout company. It is advisable to work directly with the authorized in-house representatives of the firm buying the assets. Please note that the buyout firms are themselves intermediaries for the institutional investor funding the buyouts. However, they have direct contact with their investors and are not brokeringUnderstanding the buyout company’s history, goals, and tactics are useful tools in evaluating them. If all other aspects of a sale are equal, intangible factors may be the only differences. Landlords should work only with timely, professional and ethical buyer representatives.

 

Lease buyouts are typically portrayed by buyers as simple, quick and easy. Many buyer representatives are aggressive and dishonest. Some are just plain unethical. Success in negotiating and closing a cell site lease buyout requires carefully considering five key elements. Seeking professional representation pays dividends in these unique and sometime complex transactions.

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Valuing Cell Site Leases

VALUING CELL SITE LEASES

One of the hottest topics we see today is lease buyouts. Cell site landlords are inundated with inquiries from buyout companies seeking to offer lump sum payments.  Interestingly, some of these companies make their initial pitch not as a buyout offer but as an offer to bring the landlord additional lease tenants.  Now, this is misleading and the subject of another blog entry so I won't digress.

If a landlord considers a buyout, the first question is "what are my leases worth?"  Calculating the value of cell site leases properly requires experience with negotiating and drafting such leases, expertise in contract law and real estate law, understanding of how lease buyouts work, and local knowledge about the landlord and cell site. 

Perhaps the most important factor in valuing the leases is determining what is actually being sold.  Defining the assets purchased by the buyer is at least as important as the price.  The sale of an easement is quite different than the sale of the rent.  Selling additional space on the property is also crucial to determining the price.  Other key elements are who the tenants are and how much time remains on the leases.

In my experience, lease buyouts require a deep understanding of the goals of the seller.  The buyout company representatives may claim to be interested in the seller's plans but beware.  Clearly, they are not an advocate (despite what they say or do) for the landlord. 

Since we work mainly with churches and non-profits, it is our duty to fully understand our client's needs apart from getting a big check.  In many cases, the buyout scenario does not make sense.  Retaining the increasing monthly income is more important than cashing out.  It's also an easier decision for church leaders who may feel intimidated by taking responsibility for a huge pile of money.

Valuations of cell site leases can be tricky.  The most prudent sellers take into account the tangilbe and intangible factors.  They also get professional help.

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Valuing Cell Site Leases

VALUING CELL SITE LEASES

One of the hottest topics we see today is lease buyouts. Cell site landlords are inundated with inquiries from buyout companies seeking to offer lump sum payments.  Interestingly, some of these companies make their initial pitch not as a buyout offer but as an offer to bring the landlord additional lease tenants.  Now, this is misleading and the subject of another blog entry so I won't digress.

If a landlord considers a buyout, the first question is "what are my leases worth?"  Calculating the value of cell site leases properly requires experience with negotiating and drafting such leases, expertise in contract law and real estate law, understanding of how lease buyouts work, and local knowledge about the landlord and cell site. 

Perhaps the most important factor in valuing the leases is determining what is actually being sold.  Defining the assets purchased by the buyer is at least as important as the price.  The sale of an easement is quite different than the sale of the rent.  Selling additional space on the property is also crucial to determining the price.  Other key elements are who the tenants are and how much time remains on the leases.

In my experience, lease buyouts require a deep understanding of the goals of the seller.  The buyout company representatives may claim to be interested in the seller's plans but beware.  Clearly, they are not an advocate (despite what they say or do) for the landlord. 

Since we work mainly with churches and non-profits, it is our duty to fully understand our client's needs apart from getting a big check.  In many cases, the buyout scenario does not make sense.  Retaining the increasing monthly income is more important than cashing out.  It's also an easier decision for church leaders who may feel intimidated by taking responsibility for a huge pile of money.

Valuations of cell site leases can be tricky.  The most prudent sellers take into account the tangilbe and intangible factors.  They also get professional help.

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Divine Deployment: Cell Sites on Church Property

Divine Deployment: Cell Sites on Church Property

While churches are becoming more and more popular as sites for cellular antennas, the fact remains that organizations focused on theology may not have the requisite knowledge of the leasing business. Sometimes it pays to ask for help.

Most churches love leasing space to wireless carriers. Just ask Doug Williams from University United Methodist Church in Irvine, CA. “Our leases have made a big difference for us,” he said.

Williams was referring not only to the recurring lease revenue but also to the two 50-foot crosses on the church property that were installed as stealth antenna sites. The money helps fund ministries and the crosses draw attention to their property. University United Methodist negotiated its leases well by enlisting the help of an attorney.

“We made sure we got a fair deal and we continue to enlist someone to help us with ongoing questions and issues” said Williams. This is not the rule for most churches, however, because few are able to spend the money it takes to get professional advice.

Sites with appeal

Churches have been sought out as sites by the wireless carriers for several years. Their appeal is related first to their location and second to the features commonly found on church properties. Many churches are located in densely populated communities where carrier coverage and capacity needs are high. Churches also typically have taller structures such as steeples or bell towers providing excellent line-of-site coverage for cell site deployments. Nearly all have ample space for the addition of a ground-based cross similar to the one at University United Methodist. As carrier build-outs continue into residential areas, the desirability of church properties is likely to increase. It’s not always a good fit, though. Some congregations bristle at the idea of cell sites on their property. Citing concerns about health hazards, tax liability, aesthetics, and even network content, some churches turn away the lucrative lease offers. Zoning challenges and community resistance sometime impede the process and there are typically additional costs to conceal antennas. Despite these challenges, the United States has an estimated 10,000 church landlords.

Lease negotiation

When it comes to negotiating the lease, several specific issues concern churches. The rent amount is always important because churches are typically self-supporting non-profit organizations where budgets are tight. In some cases, the rent from a lease can make the difference between funding a ministry or mission or not. Access to the property by the tenant must usually be restricted during church services and other functions.

Taxes are another important matter. Although most churches qualify for U.S. income tax exceptions, some may not be exempt from local property tax reassessment and will seek reimbursement from the tenant. Churches are not usually looking for special treatment but want their tenants to understand the attributes that differentiate them from other building and property owners. Most churches make decisions by committee vote. This can cause long delays and may turn carriers away because time-to-market is the primary goal of most cell site deployments. Understanding the decision-making process and offering incentives to quick lease signings will help speed the process. Few churches seek the assistance of outside representation to assist with negotiation and help streamline the process. In recent years, companies have emerged offering advice and counsel to landlords seeking such assistance. The goal is to level the playing field for lease negotiations and expedite the deployment process so that both sides benefit.

Marketing church properties

Some churches are taking a proactive approach by marketing their properties. They want wireless companies to know they are friendly and willing landlords. Churches needing extra revenue are actively seeking it. Consultants provide help to landlords by offering them education and professional representation with lease negotiation and site management. This benefits the church client but also has an upside to the tenant by expediting the lease signing and speeding deployment.

Current local planning and zoning requirements in urban areas frequently means concealment of the antennas. As a result, “stealth sites” are more common now than ever when deployed at churches. This adds to the cost and time required for construction but eases the aesthetic effect on the surrounding area. In fact, recent advancements in stealth siting can improve the look of a church. At a minimum, larger sites, such as crosses, attract attention to the property to the benefit of the church.

A common scenario with churches is the presence of schools either co-located or adjacent to the property. This usually raises concerns about the health effects of radio frequency emissions and can sometimes cause opposition from parents and neighbors. While this rarely influences the church to turn away a lease offer, it may cause delay in getting the site approved by local officials in addition to straining relations within the church. Accurate and unbiased information goes a long way to quelling the emotions surrounding such issues. Publications from the FCC and FDA available online can help provide facts for those concerned.

Once the lease is signed and the site deployed, the landlord and tenant may experience difficulty communicating. This problem may arise when carriers merge and leases change hands. Thirdparty renegotiation offers and buyout proposals may cause confustion. Church leaders who seek answers from their tenants may find it a challenge to connect with the right person or office.

Church landlords are grateful for the opportunities that come from leasing space to wireless tenants. Besides recurring revenue, the tenants sometimes offer improvement to the land or buildings. “They actually helped improve our facilities by replacing the roof of our steeple” said Pastor Bill Jenkins from Christ United Methodist Church in San Diego. For Jenkins and his church, the lease just made sense.

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