If you are a property owner that has a cell site located on it, you most likely been besieged by consistent letters and phone calls from large companies offering to purchase your cell site lease.
What does it mean to sell your cell site lease? How might you decide if you want to actually sell the lease? And, if you decide you want to sell your lease, how do you make sure you sell it in a manner that does not have residual negative impact on the operation of the rest of your property? This article will answer some of those fundamental questions and give some guidance about how to go through the cell site sale process.
First and foremost, it is important to know that most cell site lease sales do not make financial sense. Yes, that's what I said: Most cell site lease sales don't make sense, but let me delve into those fewer cases where it might make sense...
To determine whether a sale like this makes sense, a property owner should ask two fundamental questions:
- Can the owner invest the sales proceeds and get at least the same income they would otherwise get from rent over the remaining term of the lease; and
- What negative impacts on the rest of the property might occur from the sale of the cell site lease?
As to the first question, I often find that owners tend to consider selling their cell site leases because they are in a dire financial situation and need cash – fast! Clients in this situation view selling their cell site lease as an alternative to getting a hard money loan. However, in my experience, a hard money loan is often a better option because you have the potential opportunity to pay it off. If you are in a dire financial situation and take less money than your cell site is worth and agree to terms that are not balanced and fair, you live with that bad financial decision for usually a minimum of 50-99 years, or even forever. Not surprisingly, forever is a long time to be in a bad deal!
Given the complexity involved in the lease sales process, selling your cell site is not usually a fast process, especially if you work through the process correctly, and in a manner that will ensure that you get top dollar.
Selling a cell site usually involves an experienced attorney doing due diligence on the cell site lease(s) and the property. This process can often involve putting together a competitive bid package, putting together a list of potential buyers, and then sending a comprehensive lease sales package to the client to run an auction process where the client solicits multiple bidders. This can sometimes involve two rounds of bidding. This auction process, while extensive, ensures that the seller can compare the business terms and pricing on which the cell site is sold on an "apples to apples" comparison basis.
Once the owner has selected what appears to be the best offer from a cash perspective, the parties may enter into a letter of intent wherein the property owner agrees to negotiate legal documents for a specific period of time. If the parties cannot finalize the deal within that specified period, the client is free to go to the next "best offer" and the process begins all over again. It's common for the negotiation and legal terms part of the transaction (along with any necessary third-party approvals, such as from a lender or the existing wireless tenant) to take at least 4-6 months (or even longer) to close the transaction.
It is important to note that the "best offer" may not necessarily be the offer with the highest sale price. Of course, price is the primary consideration, but the terms of a cell site sale are also critically important in evaluating which bid is best to select.
A cell site sale is often a much more involved process than a simple sales transaction. The legal documentation often includes a purchase and sale agreement, assignment of lease and easement agreement, title work and obtaining any third-party consents. The process should start with a baseline survey showing location and dimensions of the property, the proposed easement, and an updated preliminary title report. The term "lease sale" is therefore misleading to many property owners because they believe once the "sale" is complete they will have no further obligation with respect to the cell site. This is not the case with respect to cell site lease sales. The owner of the property subject to the easement retains all obligations with respect to that property (including all "landlord" obligations to the tenant(s) under any cell site leases in the property "sold").
As to the second question, the most important factor to consider when deciding to sell a cell site lease is to ensure that the terms of the sale will not impact the use of the rest of the property. Sellers must consider whether the sale will interfere with the primary use of the property remaining outside the easement area and what impact the sale will have on future use, development, and financing for the property. Failure to focus on this key factor may result in a short-term gain but leave the property owner with a property that has a reduced function, or a reduced income other than to support the cell site lease that has been sold.
I think you'll agree that it is critical to work with legal counsel who has expertise in these types of transactions because there are endless terms which, if not identified and negotiated, can unwittingly leave a property owner with long term financial responsibilities or, even worse, leave a property owner with a "white elephant" building that effectively exists exclusively for the purpose of maintaining the cell site easement. I've seen it happen.
An attorney experienced in cell site transactions will ultimately be in the best position to assist a property owner in evaluating whether to sell their cell site lease, to analyze all the potential alternatives, and to guide you through the process...if it makes sense.
Originally published in Commercial Real Estate Insight Newsletter
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
