Contributory Value for Cell Phone Towers

[Ricky LaFleur]

I'm not certain to be honest. This particular report is for a private client, not through a lender and anything subject to Fannie/Freddie requirements

Fannie mae or may not care, but they don't regulate all of appraisal practice. I believe most states have a "code of state regulations" of some kind that include governance over real estate appraisal. While there is the Competency Rule in USPAP to keep in mind as well, there is often licensing restrictions at the state level. Might want to check on that, especially if you're not sure!

 

[George Hatch]

As I understand it, the real property consists of an SFR+acreage. Setting the cell lease aside for a moment, the 200ac lot area might exceed the scope of practice for CR license level IF the HBU for the land area exceeds 1-4 residential units. But what the HBU is for that acreage is an opinion to be developed, not an assumption for anyone to make. I don't know of any regs in writing that would prohibit a CR from appraising an SFR with a cell tower or a power line easement or a billboard or a farm or grove use .

 

[Tiffany Gibbons]

Low cap rates for most properties indicate to aggressive expectations for increases in either the rents/income or the resale price later on.

Let's say a property was financed with a 70% LTV @ 7%

.70mtg x .07interest = 0.0490 (4.9%). If the property is selling at a 4.9% cap rate the 30% equity position (aka the borrower) is earning 0% return. It the property is selling at 4.5% cap rate the equity position is cash-flow negative (before we get into any tax considerations). The property is costing the property owner every month unless/until they get the income up. Or resell for more than their (acquisition+losses).

In the abstract these numbers look small, but when applied to $10,000 or $100,000 or $500,000 worth of net income the results add up really quickly. If using (for example) a $50k net income,

$50,000 / 4.9% = $1,020,000
$50,000 / 4.5% = $1,111,000
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$90,591. That's not an insignificant variance in a $1M valuation.​

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View attachment 79465

In Tennessee, (Assessment) there was a set cap rate and rental amount set by the state depending on the piggybacking on the tower for taxes. And the land the tower sits on was essentially not valued, just parceled out. The taxpayers would always come in and try to get "damages" on the rest of the land. We would ask to see the lease and "no way", real leases are really high especially with the 5G. It probably is already separated for tax purposes, check that out, for sure.

 

[Ricky LaFleur]

As I understand it, the real property consists of an SFR+acreage. Setting the cell lease aside for a moment, the 200ac lot area might exceed the scope of practice for CR license level IF the HBU for the land area exceeds 1-4 residential units. But what the HBU is for that acreage is an opinion to be developed, not an assumption for anyone to make. I don't know of any regs in writing that would prohibit a CR from appraising an SFR with a cell tower or a power line easement or a billboard or a farm or grove use .

I said state regulations as well. State regulations in my state:
[State-certified residential real estate appraisers may perform appraisals on residential real estate of one to four (1–4) residential units without regard to transaction value or complexity and may perform appraisal consulting in the area of residential real estate, if, and only if, performed in compliance with all state and federal laws, rules and regulations pertaining to the appraisal assignment. This designation permits the appraisal of vacant or unimproved land that may be utilized for one- to four- (1–4) family purposes. This certification does not permit the appraisal of subdivisions or of agricultural real estate. Individual parcels of property located within a residential subdivision shall be considered residential real estate. For all other appraisals, the appraisal report shall be signed by the state-certified residential real estate appraiser and a state-certified general real estate appraiser. For the purposes of this rule, “agricultural real estate” shall be defined as improved or unimproved land with a highest and best use and primary purpose devoted to income production by crops, livestock and other products of the soil (fruit, pasture, timberland, etc).]

 

[BRCJR]

I'm not certain to be honest. This particular report is for a private client, not through a lender and anything subject to Fannie/Freddie requirements. It's to assist with both the settlement of the current estate and will involve a retrospective value as of the DoD, as well as a current value of a portion of the estate to assist with possible marketing. The client has already indicated they may end up splitting the cell tower away from the property and selling the rest separate, while keeping the tower and income for themselves. If it wasn't for the retrospective, I could probably ignore the tower and and only deal with the rest of the property. But alas, tis not so.

The IRS will review this appraisal since it is for an estate valuation determination.

 

[Phoenix Ashwalker]

I said state regulations as well. State regulations in my state:
[State-certified residential real estate appraisers may perform appraisals on residential real estate of one to four (1–4) residential units without regard to transaction value or complexity and may perform appraisal consulting in the area of residential real estate, if, and only if, performed in compliance with all state and federal laws, rules and regulations pertaining to the appraisal assignment. This designation permits the appraisal of vacant or unimproved land that may be utilized for one- to four- (1–4) family purposes. This certification does not permit the appraisal of subdivisions or of agricultural real estate. Individual parcels of property located within a residential subdivision shall be considered residential real estate. For all other appraisals, the appraisal report shall be signed by the state-certified residential real estate appraiser and a state-certified general real estate appraiser. For the purposes of this rule, “agricultural real estate” shall be defined as improved or unimproved land with a highest and best use and primary purpose devoted to income production by crops, livestock and other products of the soil (fruit, pasture, timberland, etc).]

I sure hope I'm allowed to appraiser vacant or improved land with a HBU as agricultural, because I do it on a fairly regular basis, lol. There is a large percentage of vacant land used for both for crops and Christmas trees in the surrounding counties that I services. All joking aside this is what I could find off Michigan's occupational code related to appraisers:

"(e) "Certified residential real estate appraiser" means an individual who is licensed under section 2610 to appraise all types of residential real property involving real estate related financial transactions and federally related transactions as authorized by the regulations of a federal financial institution regulatory agency and resolution trust corporation as well as any nonresidential, non federally related transaction for which the individual is qualified."

"(k) "Residential real property" means real property used as a residence containing a dwelling that has not more than 4 living units."

 

[Phoenix Ashwalker]

In Tennessee, (Assessment) there was a set cap rate and rental amount set by the state depending on the piggybacking on the tower for taxes. And the land the tower sits on was essentially not valued, just parceled out. The taxpayers would always come in and try to get "damages" on the rest of the land. We would ask to see the lease and "no way", real leases are really high especially with the 5G. It probably is already separated for tax purposes, check that out, for sure.

I've pulled tax information, parcel ID's, and legal descriptions for all the parcels involved in the estate. The parcel with the tower includes nearly 102 acres, and according to the legal description I see nothing indicating a portion of it parcels or split off separately. I've not heard of a scenario similar to what you're describing in my area.

I was able to review the lease, but not given a full copy, only a few key pages. Unfortunately, I didn't have the time to review every aspect of the lease, but again I've not heard of cell towers or windmills being parceled of separately for tax purposes. What I do know from the documents I was able to get related to taxes and the property is the, "Tenant will pay all personal property taxes asses on, or any portion of such taxes directly attributable to the Communication Facility. Tenant, upon presentation of sufficient and proper documentation will pay, within 30 days, an increase in real property taxes levied against the Property, excluding additional taxes related to the period prior to the Commencemetn Date, which is directly attributable to Tenant's use of the Property, provided Tenant will be entitled to appeal any such increase payable by it. Landlord agrees that it will cooperate with an appeal of such taxes and will promptly pay all real estate taxes levied against the Property."

 

[Tiffany Gibbons]

I've pulled tax information, parcel ID's, and legal descriptions for all the parcels involved in the estate. The parcel with the tower includes nearly 102 acres, and according to the legal description I see nothing indicating a portion of it parcels or split off separately. I've not heard of a scenario similar to what you're describing in my area.

I was able to review the lease, but not given a full copy, only a few key pages. Unfortunately, I didn't have the time to review every aspect of the lease, but again I've not heard of cell towers or windmills being parceled of separately for tax purposes. What I do know from the documents I was able to get related to taxes and the property is the, "Tenant will pay all personal property taxes asses on, or any portion of such taxes directly attributable to the Communication Facility. Tenant, upon presentation of sufficient and proper documentation will pay, within 30 days, an increase in real property taxes levied against the Property, excluding additional taxes related to the period prior to the Commencemetn Date, which is directly attributable to Tenant's use of the Property, provided Tenant will be entitled to appeal any such increase payable by it. Landlord agrees that it will cooperate with an appeal of such taxes and will promptly pay all real estate taxes levied against the Property."

That's Tennessee only. I have no idea how Michigan assesses cell tower sites. But, the Personal Property clause there indicates not considering the lease. Is it a temporary collapsible tower? You might want to call the county and check it out. They might night even be aware of the tower.

 

[Phoenix Ashwalker]

Cap rates were low. 5%-7% - Now higher due to interest rates now. I personally would use a sinking fund calculation since comparables you can get data on is scarce.
View attachment 79442

Terrel, I've been trying to do some digging and research into the Hoskold Premise. Unfortunately, when I find formulas that look like this:
I'm at a bit of a loss on how to even begin calculating a result. I took higher level math in college like calculus, but that was years ago, and never got into advanced financial formulas and theories

So I've come to a rough conclusion based on the much more simplistic NPV formula (as stated earlier NPV and DCF are the same, except NPV subtracts the initial investment, which is 0 in my case on the part of the owner). The facts that I've concluded after reviewing my field notes and the portion of the lease given to me are this: The tower pays $700 per month. The subject has and initial 10-year lease (started Dec. 2017), with up to 16 additional 5-year renewals. As of the DoD (Feb. 2023), that leaves 58 months into the initial 10-years, or 4 years and 10 months. If I add the first 5-year renewal, that's a total of 9 years and 10 months remaining. So, using the NPV formula, with $7,000 for the first year, and $8,400 for each subsequent year, and a discount rate of 4.75% (based on rates in Feb. 2023), I get $64,320. If I triple the rate, as your Hoskold Premise does (and I'm sure I'm doing this portion wrong, but for the sake of argument), to 14.25% I get $42,165.

Thoughts, considerations, criticisms? (I fully expect to be torn apart btw, but hey sometimes you gotta throw something there to find out if there's a nugget of gold hiding in your turd logic).

 

[Phoenix Ashwalker]

That's Tennessee only. I have no idea how Michigan assesses cell tower sites. But, the Personal Property clause there indicates not considering the lease. Is it a temporary collapsible tower? You might want to call the county and check it out. They might night even be aware of the tower.

Definitely not temporary or collapsible. The total lease has a potential to last 90 years if all future 16 x 5 years leases are renewed after the initial 10-year lease end, lol. Even if they only renew half of those 5 year leases, it has the potential to stick around awhile.