As a potential cell site landlord, the ability to negotiate favorable financial terms of a cell site or wireless tower lease will have a direct effect on the income and the overall value of your wireless lease over the life of that lease.
Rent is the lease term that gives the most direct value. Obviously, the higher the rent, the more revenue you receive. If the monthly rent is $1,000 instead of $800, then your monthly income increases by $200.
Less obvious but equally important are rent frequency and escalator frequency.
Assume the agreed upon rent is $1,000 a month. How should the payment schedule be structured? Whether you are paid annually or monthly, your wireless tenant’s financial obligation stays the same, but from a present-value standpoint, a dollar today is always worth more than a dollar tomorrow. Therefore, an upfront, annual payment of $12,000 is worth more to you than 12 monthly payments of $1,000 spread over the year.
The frequency of escalators also has a large effect on the value of your lease. The most common types are annual escalators (rent increases each year) and term escalators (rent increases every five years). Although both a 15 percent term escalator and a 3 percent annual escalator add up to 15 percent after 5 years the lease is worth 6 percent more if the rent escalates annually. This is due to the compounding effect of the rent. In Year 6, the rents would be almost identical ($1,150 for the term escalator vs. $1,159 for the annual escalator), but the true increase in value occurs during Years 1 to 5. The lease that increases on a term basis would have generated only $60,000 in rent payments ($1,000 a month for 60 months), while the lease that increases annually would have paid you $63,710. That’s about $3,700 (or 6 percent) more over the same 60 months.
Taking these ideas one step further, when an annual payment of $12,000 with a 3 percent annual escalator is compared to a $1,000-per-month rent with a 15 percent term escalator, the difference in value is even more pronounced.
If you would like further tips on how to negotiate a wireless lease please feel free to contact us at the Wireless Landlord Association and we will be happy to help.
Jeff Scott
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