By Brett Reall
A hot topic in the cell tower infrastructure industry today is cell tower lease negotiations. Whether you are negotiating the initial cell tower lease rates to add a new cell tower or antenna site to your property, or renegotiating an existing cell tower lease, you will face decisions that may seem insignificant, but could change the gross revenue received from your cell tower lease by tens of thousands of dollars.
Gunnerson Consulting has created proprietary tools to assist property owners in determining the fair value of their cell tower lease. We created one of the largest independent databases of cell sites in the nation and our group has over 70 years of combined experience in the wireless industry. This gives us unparalleled experience that we use to assist our customers with cell tower lease rate negotiations.
One tool we created allows us to analyze the impact of different initial cell tower lease rate with varying rates of escalation (or cost of living adjustments). Below are a couple of examples of how cell tower lease rates and gross revenue are affected by different scenarios. Keep in mind that these are very basic scenarios which omits a number of variables that could impact the value or duration of the cell tower lease.
Scenario 1: Different Rent, Different Escalation:
Higher cell tower rent is always better, right? Wrong! Many times during lease negotiations, customers will accept slightly higher cell tower rent in exchange for a reduced rate of escalation.
In the following example, we compare the difference between three different cell tower lease rates combined with varying escalation as follows:
| Monthly Rent | Annual Escalation | |
| Scenario 1 | $1000 | 2% |
| Scenario 2 | $900 | 3% |
| Scenario 3 | $800 | 4% |
When analyzed over time, the cell tower lease income streams compare as shown below:
Arrow #1 shows the minor differences in the initial cell tower lease rate. Arrow #2 shows where the escalation rates cause the cell tower lease rates to converge about 12 years into the lease. Arrow #3 shows a fairly large spread between the lease rates at the end of 30 years.
In comparing the gross rent received over the course of the cell tower lease:
In this image, arrow #1 shows the difference of the gross cell tower rent for the 1st year. Each subsequent year shows the aggregate value of the cell tower lease rent over time. Arrow #2 in year 21 is where "Rent 2" overtakes "Rent 1", and year 22 is where "Rent 3" overtakes "Rent 1".
Scenario 2: Annual Escalation vs. Term Escalation:
Typically, cell tower leases are composed of an initial 5 year term, with multiple 5 year renewal options. Many times, the wireless carrier proposes a base cell tower lease rate, and suggests that the cell tower lease rate adjust every time the cell tower lease term renews. Some property owners insist on an annual cell tower lease rate increase. The following graph shows this can make a substantial difference over the entire term of the cell tower lease:
Scenario details:
| Rent | $1,000 |
| Annual Increase | 3% |
| Term Increase | 15% |
Arrow #1 shows the end of the first 5 year term. The annual rent has had a period of continuous increases while the term increases remained flat and then "popped up" to be roughly equivalent at the end of the 5 year term.
Arrow #2 shows a term of profit gap created by the annual cell tower lease rate increase vs. the term cell tower lease rate increase.
Arrow #3 shows the cell tower lease rate gap increasing over time. The following graph shows the result in terms of aggregate cell tower rent received over the course of the cell tower lease:
This analysis shows that (all other terms being equal) annual escalation in cell tower rent yields a significantly higher profit to the property owner. There are situations where a term escalation will make sense, but that can be discussed separately.
Arrow #1 is at the end of a 5 year term. Arrow #2 shows the rate of disparity decreasing as the term escalation kicks in.
Arrow #3 shows the difference at the end of 30 years.
It is important for property owners to understand the differences small details can play in the long term value of the lease.
It is also critical for property owners to not push a cell tower tenant too far. Knowing why your cell tower site is better than other current and potential cell tower sites, and having details about other cell tower lease rates in the area are critical components to cell tower lease negotiations. It is a fine balancing act, and, as shown above, each "small" decision may improve or decrease your cell tower revenue by tens of thousands of dollars!
GCCSS has been involved in cell tower lease negotiations with all the major cell tower companies and wireless carriers as well as many smaller network operators. Click here to contact us today to see what we can do for your cell tower lease rates!
*Note: Cell tower lease rates and rates of escalation shown in this article are for illustrative purposes only and are not a reflection of market cell tower lease rates in any specific area. Depending on the cell tower location and other important factors, cell tower lease rates may be lower or higher than shown. Cell tower lease rates vary for many different reasons, and should be carefully reviewed by an industry professional to determine what factors may impact your site. For these an other reasons, the information contained in this article and elsewhere on this site is not intended to be financial advice. It is recommended that you always have your specific situation reviewed by an appropriate professional advisor before making any decisions.