A cell tower lease buyout can be a tempting offer, however, you may not know exactly when or to whom you should sell your cell tower lease. You will need to consider many different factors before making a final decision, though you don’t want to weigh your options for too long, as timing can be critical for getting the most out of a lease buyout.
So, if you’re thinking about selling your cell tower lease, you probably have a lot of questions. For example, is selling even a good idea for you? What are the tax implications of selling your lease?
In today’s guide, we will answer all of these questions and more by examining the 9 most important things to consider before selling your cell tower lease:
1. Are The Current Cell Tower Lease Terms & Conditions Good?
Sometimes, you accept a cell tower lease just to guarantee the extra monthly income. However, the terms and conditions of the agreement may not work in your favor. For example, does the lease allow the wireless carrier to end the contract early without cause and without penalty, or did you unknowingly give away expansion rights without future monetary compensation? Are your rents well above the market rates? You may think this is a positive, but read on and you will see it may not be to your benefit. So, if the terms and conditions do not work for you, this could be a good reason to sell your lease as soon as possible.
2. Do You Need Cash Now?
A cell tower lease ensures that you have a passive income for the foreseeable future. However, getting relatively small payments every month may not serve your interests right now. As previously mentioned, there is no guarantee that the other party will not end the lease if it is no longer serving their best interests (e.g. overlapping sites due to mergers or relocation programs geared to achieve lower rents on neighboring locations). Let’s say that you want to put a down payment on a new property, but you don’t have the cash on hand. Selling your lease could provide you with a lump sum to purchase the new property and defer the taxes through a 1031 exchange (more on that below).
3. Can You Sell In A Tax-Friendly Way?
Typically, you can sell a cell tower lease and have the earnings taxed in one of two ways: capital gains or regular income. Capital gains is usually the cheaper option, especially if you have held the lease for more than a year. Regular income tax rates tend to be far higher, regardless of how long you have held the lease. It is also important to note that many buyouts that are taxed at capital gains rates may qualify for a 1031 exchange, allowing you to defer tax payments until a later date. However, taking this route will require you to reinvest the buyout funds in a similar investment within a set period of time. You can learn more about how the IRS treats buyouts in our cell tower tax treatment guide.
4. Can The Cell Tower Owner Terminate Their Lease At Any Time?
All cell tower leases have early termination clauses allowing the cell tower company to terminate the contract without cause, provided they give advance notice (generally between 30 and 90 days). This gives the other party the right to terminate the lease early without any penalties. Alternatively, there could be restrictions involved that make it impossible for you to sell your leases without your tenant’s authorization such as the Right of First Refusal or Consent clauses. Just make sure that you are familiar with any assignment and sale restrictions clauses in your lease contract before trying to get a lumpsum buyout.
5. Can You Purchase A Building And Simultaneously Sell The Cell Tower Leases?
Yes, you can structure a simultaneous closing and even use the proceeds from the cell tower to purchase the building or apply the money to the acquisition of another building.
6. Can You Get More Property Value By Splitting The Sale Of The Cell Tower Lease & The Building Itself?
The short answer is ‘yes’ — you can get more money by splitting the sale of your cell tower lease and your property. Why? Because when you sell your property, the full value of the cell tower lease is not always factored into the building price. This means that lumping the cell tower lease rent in with your commercial or residential rent roll will yield far less value for these assets than selling the leases on their own. Therefore, you can extract the full value of the cell tower lease(s) by accepting a buyout now and then selling the building or property separately.
7. Does The Math Make Sense?
Naturally, you should always make sure that it makes sense to sell from a fiscal standpoint before signing on the dotted line. You will need to evaluate different factors including the current opportunity cost, time value of money principal, the value of your monthly payments accounting for the risk of sites being decommissioned or rents lowered during renewal negotiations, the amount of your highest buyout offer and what level of tower management services they can provide, and even your ability to put the buyout funds toward more profitable investments. While some property owners find that keeping their cell tower lease can offer them recurring revenue and value over the long term, more often than not, property owners find out that selling would have been the best option.
8. Is Now The Best Time To Sell?
This is a difficult question to answer, which is why it is always a good idea to get expert advice before selling (more on that below). However, it is important to remember that cellular technology is always advancing. While your cell tower lease may be valuable now, it could be terminated at any time. With the merger of carriers and deployment of relocation programs to identify neighboring properties at reduced rents, many site owners who declined to sell in the past now find their site is decommissioned and worthless. At Nexus, we are finding the current market conditions to be in the favor of property owners and would urge landlords to take advantage of this now.
9. Do You Have A Cell Tower Consultant Getting You The Best Terms and Price?
A cell tower lease consultant is a must-have whenever you begin negotiating a lease buyout. Without one, you could end up getting far less than the real value of your lease. Having a cell tower consultant is one of the best ways to see all of the options you have on the table. For example, an investor could approach you with a cell tower buyout offer, but with just one offer on the table, you have no way of knowing if you could get a better deal.
With a cell tower broker/consultant, you can have an expert in cell tower buyouts presenting you with multiple offers on your behalf. When more than one potential investor is competing for your lease, it not only gives you options, but it can potentially drive up the buyout price. Additionally, brokers and consultants offer guidance on how best to proceed so that you can get a cell tower buyout that works for your individual needs and circumstances.
Are you a property owner who has been approached by cell tower companies? Are you interested in leasing your property or looking to sell an existing cell tower lease? Do you need help navigating an upcoming cell phone tower lease buyout? If so, be sure to contact the experts at Nexus Towers today!