Discount rate for cell tower lease

[matt hawk]

I'm negotiating a price on a piece of land with a cell tower tucked in a corner. I know the "I" part, anybody got an idea on the "R" part so I can get to the "V" part.

 

[Howard Klahr]

There are many factors that go in to determining an appropriate "R" part such as remaining term of the lease; renewal options - how many, for how long and at what rate; who is the lessee - creditworthiness, number of competing providers in the area, potential to be impacted by a merger/buyout; amount of tower space within the market - total and available; potential for additional tower space - local laws regulating towers, number of available sites to construct new towers.

As you can tell, this is not just a simple one size fits all factor.

 

[beowulf]

I've seen the cash throw-offs capped out at rates between 12% and 18%, with the mindset that there is a certain perpetuity with cell towers much like billboards. Once they are on the land, they tend to become permanently affixed. Higher cap rates are needed for risks of potential changes in fast-moving industry, hurricanes and other natural disasters, local zoning and development trends in particular areas. Try finding sales of land only improved with cell towers in an effort to extract bonus value for the land lease. What I've found is buyers usually don't pay anything for the lease if the tower lies on a development tract. However, its a different story if the only use of the land is for a cell tower and nothing else. Talk to the cell company site selectors - they are usually a wealth of information.

 

[matt hawk]

Thanks Lee

Thanks for answering the question I posted. Sometimes this forum is so tedious with people forming their answers in a manner that highlights their amazing grasp on the concept of income capitalization. I know my income and expenses for the next ten years. I can come up with a stabilized net income, but if I call up a bank and ask for the DCR for a cell tower, all I'll get is- huh?

Thanks for just answering my question.

 

[Jerry Lieb]

Matt,

I am currently appraising a commercially zoned parcel on which is located a cell tower. The space occupied by the cell tower is leased by a major cell phone company. Like you, I know the I and need the R to I can determine the V.

The comments you have received thus far are interesting, however I have an additional issue with the one I'm working on. There is a business located on this parcel (parcel is about 15,000 SF) and the business owner feels the way his business is growing, the land will have more value to him to use in his business than what the tower lease brings in.

I point this out to you, as it shows yet another factor that must be considered in establishing a discount rate.

The range of 12% to 18% discussed by Lee Lobban is certainly likely, however if the owner (or buyer) of the land can generate more income by putting the land to a different use, then even 18% may be too low.

Your property has a TV tower, which occupies quite a bit of land due to the "guy" wires usually needed to support such a tower. Also, these towers are usually away from densely developed areas. So, under these circumstances, your situation may not be similar to mine whatsoever.

Jerry