Impact of CPI Based Escalation
One of the recent questions we have been getting quite frequently is whether it makes sense to modify an existing lease to a Consumer Price Index (CPI) based escalation rate. This is because a few of the tower companies, including Crown Castle are actively looking to change their existing leases to a CPI based escalation due to changes in how they are required to report expenses over time related to a lease.
To help make sense of this issue, it is important to start with what CPI has done over the last 10 years. Please see the chart below. This is based upon the Urban Wage Earners and Clerical Workers (yes- there are multiple versions of CPI that can impact your actual escalation from year to year positively or negatively).
You will see that over the last 10 or so years, CPI escalation has ranged from a high of 4.08% to a low of 0.09% with an average of 2.38%. It is not difficult to see then that if you have a fixed based escalation in your lease that is greater than 2.38%, it might be detrimental to agree to a CPI based escalation. Clearly, CPI fluctuates and could go higher or lower. But based upon the last 12 years, many landowners will not be better off going to a CPI based esclation rate as compared to a fixed escalation rate.
To further complicate matters, the tower companies are placing ceilings on the escalation rates so that even if CPI is greater than a certain percentage rate, that you will only receive that rate. This is ridiculous. If you are willing to risk your escalation on what happens with CPI- you should receive the reward as well if the CPI is higher than average.
In short, we see little reason why a landowner would agree to amend their lease to reflect a CPI based escalation unless they are confident that CPI will be higher over time than their current lease escalation. Even then, the landowner should understand what they are giving up in the amended lease before agreeing. This could include the right to share in revenue from the tower, the right to an increased base lease rate, and/or the right to landowner friendly terms.
If you are contacted to modify your lease, please don't hesitate to contact Steel in the Air, Inc. for more help.
Labels: cell phone tower lease, CPI, crown castle, escalation
How will cell tower leases be impacted by the current market conditions?
The last month has been a
tumultuous time in the cell tower lease industry, primarily on the side of lease buyouts. With the plummet of the stock market, rising concerns about the availability of credit, and consumer confidence very low, the industry is starting to see the impact. Through our consultations, we have already started to see tangible evidence of a declining market especially in the lease buyout side.
From our vantage, there is a distinct shrinking of the lease buyout market. Of the numerous players who purchase long term easements under cell towers and rooftop sites in exchange for a lump sum, there has
definitely been a slide in the purchase prices and an increase in the due diligence requirements for purchases. Companies that buy the leases are looking to pay less and to be more selective in their choice of leases - preferring to purchase only "investment grade" leases. (i.e. those that are from AT&T, T-Mobile, Verizon). While they still purchase non-investment grade leases, the multiples paid for all leases has
definitely gone down.
One primary reason for this is that Wireless Capital Partners shut its doors about a month ago. With one major competitor out of the way, the remaining firms recognized the advantage they now have and have started to lower their prices and increase their due diligence requirements. Prices are lower than they were just two months ago. There are rumors that a new entity may be formed to fill
WCP's shoes, but
SITA has not seen any evidence of such yet.
Even the tower companies have started to pull back from previous offers. Crown Castle's agents have been representing to landowners that today (Oct 16, 2008) is the last day that they will be honoring most if not all of the lump sum buyouts they previously made. Unlike virtually every other time that lease buyout firms give "hard deadlines",
SITA believes that this one is for real. Crown's stock price has plummeted from a 52 week high of $43 to their current price of $19. One specific reason for this is that Crown may have to
pay back a $160MM credit facility. SITA does not believe that Crown or their landowners are in any jeaopardy- but this does put Crown in a situation where they need to retain their capital for more immediate needs than purchasing long term easements under their leases. Crown's representatives have stated that they will still continue to push the extensions of the leases but won't be making lease buyout offers until they can resolve their credit facility issues. This could take quite a while.
WHERE DOES THIS LEAVE ME AS A LANDOWNER?
Recognize that the value of your tower or rooftop lease is still the same. Nothing has changed that would reduce the value to the owner of the tower. What has changed is availability of capital to those companies that purchase tower and rooftop leases. Unfortunately for many landowners, the recent turmoil comes during a time when many landowners are going to need capital to keep their houses or run their businesses. So as the average landowner's need for the capital increases, the number of competing companies that want to buy the lease decreases and the rates that the remaining companies are willing to pay decreases as well. We are getting an increased number of inquiries from landowners who need to sell their tower lease(s).
Our advice: if you don't need to sell at this time- DON'T. We started in this industry in 1997, weathered the downturn in 2001-2002 and have seen the cycles. As with previous downturns, this too shall pass. The vacumn filled by WCP and by the reduction of offers from towers companies will either be filled again by the tower companies or opportunistic companies that see value in the lease buyout market.
If you do need to sell, recognize that you don't have the same negotiating position that you had just one month ago. However, don't believe that you have to accept the offer that you are given. Even now, we rarely see situations where the first offer is the best. At SITA, we can assist you in making sure that you get the best offer available. We know the players and we have assembled substantial comparable data to assist us in recognizing trends in pricing- both short term and long term. Please see our
cell tower lease buyout page for more information.
If you don't know whether you should sell, please
contact us. We can help you determine whether there is any probility that your lease might be terminated. We can also help guide you on what the pros/cons of selling now are and discuss what the future holds for this industry and lease buyout firms.
Labels: cell phone tower lease, cell tower ground lease, crown castle, lease buyouts, wireless capital partners
Are Crown Castle and WCP Working Together?
In a tale of "strange bedfellows", we are starting to wonder whether Crown Castle and Wireless Capital Partners are working together. A letter that Crown Castle is sending out to its landowners warns of the pitfalls of dealing with various lease buyout companies. However, the letter has one noticeable buyout company not included in the list- Wireless Capital Partners. We assume that this is because Crown Castle and Wireless Capital Partners have come to an agreement whereby they have coordinated their efforts to negotiate lease buyouts.
We could see where this might make sense for Crown Castle. Because of the rigidity of their proposals for buying out their lease agreements, they typically must buy a perpetual easement. However, some landowners are rightfully scared of selling anything in perpetuity. That's where we assume Wireless Capital Partners come in- they offer their "non-recourse loan" for a shorter term purchase. The offer is less than Crown's offer, but the landowner doesn't have a perpetual easement on their property either to Crown.
So why should the landowner care? Because Crown Castle would not be working with Wireless Capital Partners unless they had something to gain from Wireless Capital. This gain might come at the disadvantage of the landowner. We surmise (but don't know) that Wireless Capital Partners has committed to Crown Castle that they won't increase the lease rates at the expiration of the purchased Crown Castle lease agreement. How does this negatively impact the landowner? Because as part of the
WCP agreement, the landowner gives
WCP the right to negotiate an extension to lease even if the extension is for a period greater than the amount of time granted in the non recourse loan. So
WCP could bind the landowner to an extension of the lease that benefits
WCP and Crown Castle, but is significantly undervalued as compared to what the landowner could get if he/she were aware of the value of his/her property to Crown at the expiration of the
WCP non-recourse loan.
In our opinion, this "partnership" is not improper provided that
WCP discloses any such relationship with Crown Castle to the landowner prior to any purchase of a lease agreement. If Wireless Capital doesn't disclose, than the landowner might end up selling to
WCP without knowledge of what they are giving up.
If you have been approached by Wireless Capital Partners regarding purchasing a Crown Castle lease agreement, speak with your attorney to fully understand what rights you are giving up. Ask them what
WCP's intentions are at the expiration of the current lease agreement. If you need help understanding the actual value of the lease buyout or what the lease should be worth after the purchased term,
contact Steel in the Air.
If you have found this post while searching for Crown Castle's or Wireless Capital Partner's websites- please note that Steel in the Air is not affiliated with either entity. You can find more information about Crown Castle at
http://www.crowncastle.com/ or for Wireless Capital Partners at www .
wirelesscapital.com.
Labels: cell phone tower lease, crown castle, lease buyouts, lease purchase, wireless capital partners
Crown Castle offers landowners who sold to Wireless Capital Partners the "opportunity" to extend their cell tower ground lease.
A landowner sold their cell phone tower lease to Wireless Capital Partners. The
Wireless Capital Partners lease assignment and successor lease provided that they controlled the rights to the cell phone tower lease for 30 years. The lease actually has only 26 years remaining, so Wireless Capital Partners received 26 years under the assignment of lease and 4 years under a successor lease. A successor lease provides for the rights vested under the current cell phone tower lease after the expiration of the current lease.
Crown Castle notified the landowner that to "process" the efficient transfer of payment, they needed an "Acknowledgement" of the sale of the agreement.
Never mind that Crown Castle actually received a Signed Affidavit from Wireless Capital Partners and the landowner "acknowledging" the sale.
What we specifically dislike about the letter from Crown Castle is that it suggests that if the landowner does not sign the "acknowledgement" that payments to
WCP may be delayed. (As if
WCP would allow this to happen). To make matters worse, the proposed acknowledgement is not an acknowledgement at all- but a
questionnaire about completely irrelevant questions to the transfer of the lease to
WCP.
As part of the
Crown Castle Lease Cell Phone Tower Lease Extension Program, Crown offers a nominal one time payment of $4000, plus
reinstatement of the lease (AT THEIR OPTION) at the conclusion of the successor lease for 15% escalation of the current lease rate then in effect. The landowner ends up extending the lease at what may be below market terms for a cell phone tower lease. Crown gets the security of extending their lease without any real obligation.
We cannot suggest to anyone that they accept this offer. If you have sold your lease to Wireless Capital Partners or to Unison Site Management, simply keep the lease as is. We don't even suggest that you contact us for help- because this offer is so one-sided as to be ridiculous in most cases.
Steel in the Air, Inc. got into this business because we felt that the tower companies and wireless carriers were taking advantage of landowner's ignorance. It is this type of one-sided offer that makes us glad that we did.
Labels: cell phone tower lease, cell tower ground lease, crown castle, lease purchase, wireless capital partners
