Contributory Value for Cell Phone Towers

[Phoenix Ashwalker]

Look for other sales w/cell leases and which disclose the rents. Even if they're not residential properties or are otherwise not directly comparable to your subject. I can't stress this enough.

Models and formulae indicate to what the market participants *should* do, but all RE is local and what matters in an appraisal is what those market participants *actually* do. It's okay to quote studies or interview brokers and report their opinions as support but there's no substitute for seeing what these buyers and sellers actually did.

Due to the types of properties I appraise (mostly neighborhood or community oriented) I basically NEVER quote studies or stats on property types that my subject doesn't compete with, and I also almost never built cap rates or discount rates using mtg/equity buildups or bond yields or safe rates. I don't even poll the brokers because - unless it's a specialty broker - if I can't see it then neither can they. If my subject's market segment has rental investor activity then I extract their doings from those sales - after all, those rates are the most relevant to that market segment.

Just because we often have the ability to build the more complicated mousetrap doesn't mean we should use that as our default. It's good to have extra tools to turn to when you get cornered, but primary is always better than secondary. If you know what I mean.

Thanks for the advice. I actually find myself on very complicated reports developing two approaches / values. For AG land in the past I’ve interviewed farmers to get and idea of what they would pay for for different types of ground cover. Then apply their estimations to my subject property. In addition I’d run out a traditional SCA and cross defense the two indicated values.

I think I’ll end up doing something similar in this case. Try to develop an adjustment to make for the tower based on paired data analysis, and cross reference that with a DCF.

 

[Terrel L. Shields]

reference that with a DCF

Inwood is basically a DCF of a uniform income stream

 

[Mark K]

FWIW, an older cell tower near my house was auctioned a few years back. It was split from the larger tract and auctioned separately. It sold for about $100K. The income at the time of the sale was low but the new owner, local guy, attracted additional customers and it is cash flowing very nicely.

I've appraised two cell towers in conjunction with larger parcels using Terrel's method, i.e., NPV via DCF, the same approach I've used for a few billboards.

 

[George Hatch]

Here's a reference which speaks to using what we would normally refer to as a (net income multiplier), which I've seen a number of brokerage sites mentioning similar. But as I mentioned before, when bundled with the real property interests the cell leases often end up conveying for about 1/3 of what they would have sold for if sold off separate from the realty. Billboards sometimes get valued this way, too.

The challenge is to find and analyze enough sales to isolate the contributory of the cell tower lease, because that is the starting point for the equation. Pulling a factor (multiplier) or a rate (discount rate or cap rate) out of thin air isn't how we do it. Leastwise, it isn't how we're supposed to do it.

This isn't the ONLY way to do it, but when market participants are using a certain mode of analysis then that justifies doing the same in an appraisal.

Cell Tower Lease (Rates, Agreements, Buyout, Value)

Cell tower lease rates showcase the multi-decade relationship between the wireless carriers leasing space from the tower companies who rent infrastructure.

dgtlinfra.com

 

[Phoenix Ashwalker]

FWIW, an older cell tower near my house was auctioned a few years back. It was split from the larger tract and auctioned separately. It sold for about $100K. The income at the time of the sale was low but the new owner, local guy, attracted additional customers and it is cash flowing very nicely.

I've appraised two cell towers in conjunction with larger parcels using Terrel's method, i.e., NPV via DCF, the same approach I've used for a few billboards.

Out of curiosity from your experience does the NPV of the cell towers and billboards come out to be 1/2 or 1/3 of the value if it had been sold off seperately as George was mentioning? I'm finding that my preliminary conclusions are somewhere in the 1/2 to 1/3 range as compared to a buyout figure the client mentioned to me.

Also how did you develop your discount rate? Were you able to substantiate a specific discount rate for your market, or did you use a more general rate based on national cap rates?

 

[Mark K]

Out of curiosity from your experience does the NPV of the cell towers and billboards come out to be 1/2 or 1/3 of the value if it had been sold off seperately as George was mentioning?

Didn't have enough data from split/sales to make this type of determination. The two cell towers were appraised as contributory value to a larger parcel. There have been a few splits but not sales. The property owners split the cell tower off and kept it before selling a larger parcel.

Also how did you develop your discount rate? Were you able to substantiate a specific discount rate for your market, or did you use a more general rate based on national cap rates?

Cap rates used were based on a blended rate from national and local data. The cell towers were relatively new with 5 yr. leases (still in the first period) and 3 auto 5 yr. renewals at 10% increases so the discount rates were at the lower end, maybe 8%+/- IIRC.

 

[George Hatch]

Out of curiosity from your experience does the NPV of the cell towers and billboards come out to be 1/2 or 1/3 of the value if it had been sold off seperately as George was mentioning? I'm finding that my preliminary conclusions are somewhere in the 1/2 to 1/3 range as compared to a buyout figure the client mentioned to me.

Also how did you develop your discount rate? Were you able to substantiate a specific discount rate for your market, or did you use a more general rate based on national cap rates?

All RE is local, so when I mention what's common in this region that may not translate into what's happening in your region. These are conclusions to be developed by the appraiser, not assumptions to be made.

 

[Phoenix Ashwalker]

All RE is local, so when I mention what's common in this region that may not translate into what's happening in your region. These are conclusions to be developed by the appraiser, not assumptions to be made.

The question wasn't posed to copycat his results. It was more out of curiosity. I understand RE is highly local, and what is occurring in my market may or may not be occurring elsewhere.

 

[George Hatch]

As long as you get the point: there are no shortcuts in an assignment like this. I've done a fair number of these over the years and I still have to start from scratch every time I run into one because I don't do them often enough to have my finger on the pulse.

 

[Phoenix Ashwalker]

As long as you get the point: there are no shortcuts in an assignment like this. I've done a fair number of these over the years and I still have to start from scratch every time I run into one because I don't do them often enough to have my finger on the pulse.

The company I work for has been in business for 47 years and has a reputation in the local real estate community for producing high quality reports. We didn't earn that reputation by skimping out and taking shortcuts. The fact that I'm asking peers for suggestions should (hopefully) be some kind of indication that I'm trying to develop an accurate value with the proper techniques. I get it, I've seen and reviewed enough of my peer's work in my market area to know what sloppy work looks like and it drives me nuts. I've done my fair share of highly complicated reports (like land conservancies) and can only assume if I do another similar report in the future, I'll have to start from square one again; however, I'll at least have some data, research, and techniques to review the next time around. Thanks for all the tips, advice, and precautionary warnings, I truly do appreciate it.