Top 5 Risks of Owning a Cell Tower Lease
1. Viability of the Tenant(s) occupying the Tower Site
How long will this Tenant be in business? Are they a Tier 1, Tier 2 or Tier 3 Tenant? Is there a likelihood of acquisition or increased competition from other providers? These are just a few areas that affect the long-term viability of a Tenant.
2. Termination Risk:
The Leaseholder should carefully assess the termination rights of the lease tenant. The Termination Section of the lease will outline the rights of the parties to terminate the lease. In most cases, it will favor the tenant. Unfortunately, this really must be the case to ensure long-term growth in the industry. If the leases were guaranteed, every Carrier would face bankruptcy should the technology change, making Cell Towers obsolete.
3. Consolidation& Mergers Risk:
Consolidation risk is probably the biggest risk to a Leaseholder. Already, tens of thousands of lease have been canceled through consolidation. When Wireless Carriers Merge and Consolidate, Cell Sites become redundant, which significantly increases the likelihood of them being decommissioned.
Since 2004, four major providers have consolidated. Cingular Wireless completed their acquisition of AT&T Wireless in November 2004 and in 2005 Sprint acquired Nextel Communications. In 2008, Verizon acquired Alltel. Further acquisition and mergers will only continue as the market matures.
4. Obsolescence Risk:
Obsolescence risk is associated with the current technology on the tower becoming outdated. Instead of investing more time and money in older technologies, the Carriers will eliminate locations. In addition, as the operational costs have increased exponentially, Wireless Carries have increased their efforts to search for less costly alternatives to the current cell site model.
Alternatives to Cell Towers such as Distributed Antennae Systems (DAS), reduces the need for large cell sites and makes installations on power poles, stadiums and other high density locations feasible. The growth in the use of DAS will continue to render larger, existing wireless lease sites obsolete.
5. Prohibitive Rent Cost Risk:
You can negotiate too good of a deal. Some Sites have escalated beyond the market rates, putting them at risks for becoming economically impractical. Carriers will and do relocate to less expensive sites when an agreement cannot be reached for a rent reduction.
Copyright © 2011 | Cell Tower Expert | All rights reserved.