*Time sensitive* Buying a property with a cell tower, hoping for some advice

[PhaedrusZen]

Hi, I've read through what I could find about cell towers up to this point, on this forum and elsewhere but haven't seen my particular situation addressed and was hoping for some advice.

I'm looking into a property that was advertised as a home on 5 acres with a cell tower that has a current rental agreement. We just put an offer in and were waiting on a counter-offer when we were told the sellers are going to be delayed in getting back to us because they are working with a lawyer to get their ducks in a row. Apparently there are two cell tower sites on the property, where they gave the impression of only one. The assumed tower they included in the property description was a 75 foot tower 150 feet from the home. The actual tower they were talking about was a 5-10 foot tower perched on top of a shed. This wouldn't be a problem for us, as I would have assumed that both contracts would transfer to us as the new property owners, but I'm now getting the impression that the current owners are trying to get a lump sum settlement for the large tower and grant them a permanant or perpetual easement where there is currently not one. There is still an easement but it is controlled under the rental contract, I'm assuming.

With a permanent easement we'd lose control of that part of the property without any of the benefits of the cell tower rental. The property cannot be subdivided under the current county zoning regulations. I wouldn't be as upset, except for the fact that the appraisal/ property value that we've been operating under has been under the assumption that there is added value from the rental agreement of a single tower (the large tower) not two tower sites, and that we would retain control of that site.

My main question is won't a permanent easement to the cell company adversely affect the property value, and if so, shouldn't we be operating under the value that the property will hold when we take possession of it, not what it currently holds? I don't feel like I should be paying for a piece of property that will give me no added value and for all intents and purposes I will not be able to build on or develop.

Any suggestions would be great! We're currently waiting on the counter-offer and expect to hear from them tomorrow, 3/17/13. Thanks!!

 

[Michigan CG]

I just finished an appraisal with a cell tower on it and the tower does have income and can add value while it can also limit your rights as what you can do with the property.

You will need to go over the new sales contract very closely and you might need an attorney who specializes in Real Estate.

If an appraisal has already been completed it is most likely worthless if they are going to take the rights to the cell tower or if they are looking for a lump sum payment.

You will most likely want to get a new appraisal performed by someone who has experience with cell tower leases and that will not be easy. Most residential appraisers have not dealt with cell tower leases.

 

[George Hatch]

It sounds like the seller wants to sell off the other cell tower lease to a third party. Supposedly that's the new trend as the 3rd party buyers will pay more than the buyer of the real property (what you're buying).

Some of these leases have co-location clauses in them that allow the cell tenant to sublease to other cell companies without paying any extra on their own rent. Instead of one company using that tower you could end up with 3 or 4, and depending on how the lease is written you might not see a dime off of any of those subleases.

Since a lot of leases also include early-out clauses that allow a cell company to end their lease at almost any time with a 30-day or 90-day notice it's even possible that the tower you are getting with your property could end it's lease with you and relocate to the other tower.

In your place I wouldn't want to simply give these other companies the permanent easements they need for free. The leases most likely already guarantee access so any compensation you'd be seeking for granting the other cell lease company to basically compete with you would have to come in the form of a discount off the value of the property you are buying.

In essence, unless you're really charitable and want to give that access to the cell company for free the property you're buying is probably worth less than it would be if there was no 2nd cell tower lease onsite. Possibly by a lot. As I say, you could even lose the cell lease that you are getting due to the 2nd cell tower being taller. If the tower lease you're getting has an early-out clause the 2nd tower wouldn't even have to undercut your lease rate - their tower would still be more attractive.

BTW, the cell guys say that about 25% of all cell leases include provisions that are being violated. Co-location (subleasing) without passing on extra rents, adding in extra equipment or antennae, etc. You should be carefully looking at the lease you are getting to see what it is you're really getting vs what the lease says you should be getting. Hopefully the two are the same - if not then it could become a big deal.

 

[Meandering]

You should have a commercial appraisal completed because this concern is obviously over riding any concern for the residential nature of the property.

The others are correct in what they are telling you. There is a possibility the tower you are getting with the house is old, obsolete and/or the current leases are not strong or are up for renewal.

I've appraised these where the land owner had an FCC license and the rents from the tower were considerably higher than other towers where the cell companies were simply renting the land.

Cell tower leases can be complicated. I would not be leaving any of this up to a typical salesperson. If there are current leases in place, I would have an attorney look at them along with a good commercial appraiser.

It's pretty scary that what you are trying to buy has not been defined in the agreement of sale that you are offering with.

If your reason for purchasing the property in the first place is to receive income from tower rents you should get an attorney quickly, because it appears to me, just from reading what your wrote, that none of this is a consideration in the offer you are trying to make. You should not be making any offers without copies of the leases that are in place today.


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[PhaedrusZen]

I'm extremely grateful for the replies and insights so far. Please keep sharing if you have any experience with this kind of situation. To give a few more details, the last time the property was appraised (with towers already in place), it was worth about $195k. The sellers had the property on the market for about 6 months when we found it and had lowered the price to $189k. We placed an initial offer of $185k plus closing costs, and understand that they are going to counter-offer at $188k plus closing costs. After finding out this piece of information, however, I feel like I should be countering with a lower price than even my first offer.

Is there any way for me to estimate the value of the land separately from the value of the home so I could reasonably submit an offer reflecting the property value minus the permanent easement for the larger cell tower? I don't feel like I should be paying on the value of a part of the property I can't even use.

@ Michigan, I will definitely look into what their contract stipulates. They've told their agent that they don't plan on letting us look at the entire contract that they have with the cell company, leading me to believe they're getting a pretty hefty sum for selling out. I don't care what they're getting for compensation, but it's like George said, I don't want to be stuck with a company that essentially has free reign over MY property. Frustrating!

Thanks again and keep the insights coming!

 

[Webbed Feet]

<....snip.....>

Any suggestions would be great! We're currently waiting on the counter-offer and expect to hear from them tomorrow, 3/17/13. Thanks!!

Why is not your Realtor representing you advising you on any of this? Hopefully, you comprehend that a "counter-offer" is really a rejection of your offer and a completely new offer back to you from the seller.

You are involved in a complex real estate purchase. I personally would not proceed without a real estate attorney that specializes in residential property with income leases to utility type entities.

 

[PhaedrusZen]

The cell tower information was a surprise to both our real estate agent as well as the seller's agent (apparently they weren't fully forthcoming with their agent who listed the property. The cell tower revenue was never a prime motivator for us in considering this property. We like where the land is and hope to build our own home eventually, and were ok with the large cell tower since it is to the side of the property and reasonably unobtrusive and doesn't block the view. We thought (ourselves and both the listing agent and our agent) that the secondary, smaller "tower", which is the one referenced in the property listing, was just something the owners had installed for their own use.

Our realtor has been great at getting us all the information we've requested so far, and (gratefully) she admits that this situation is new to both herself as well as the selling agent who both happen to work out of the same office. I do realize that the counter offer negates our original offer. I've simply been trying to get as much information as I can about what could possibly be going on and what the ramifications are for the changes they're pursuing for the property. The new information about the cell tower came over the weekend and our agent was out of town. We've already scheduled a second walk through for tomorrow with her so my wife and I can look over the property with a more critical eye and decide if the property is worth this kind of hassle.

I'm in an information gathering stage until I actually get a solid counter-offer from the seller in front of me. Thanks for the suggestion, and we'll have to seriously consider a real estate attorney if we decide to pursue this particular home.

 

[George Hatch]

In this region I don't think I've ever valued the contributory value of a cell lease for less than $100,000. Double that is really common and I've seen a few transactions involving 3rd party purchases where the prices of the lease - by itself - stretched into the high 6-figure ranges.

Just as an example, a very modest $500/month cell rental payment with a 2% annual cost of living adjustment will generate over $30,000 in the first 5 years and over $66,000 in the first 10 years. Most leases I've seen are written with multiple options for renewal stretching out 20 or 30 years. There's a lot of disagreement about how long the technology will last so that figures into it, but applying a little math to these numbers can get real interesting real fast.

It's not like valuing a swimming pool.

 

[berniek]

You have to have full disclosure of all encumbrances to the property in order to make an educated decision. You need to know about all easements and types of easements (exclusive/non-exclusive) crossing the property, the lease terms etc. do not purchase this property without knowing all aspects that might get in the way later. Hire a local real estate attorney/appraiser who know about easements and cell tower leases.

 

[Michigan CG]

................They've told their agent that they don't plan on letting us look at the entire contract that they have with the cell company, leading me to believe they're getting a pretty hefty sum for selling out..........

If I were in your situation I would not buy unless I saw the entire lease. I had a litigation case where the owner would not supply the lease. I found three "good" comps for about $1,000/month and presented them and the capitalized value of my "estimated" income. Miraculously they provided the lease.