Why are cell tower leases so long?
Cell Tower Leases Are Like a Marathon, Not a Sprint! 🏃♀️💨
Are you a landlord with an existing cell tower lease with American Tower, SBA Communications, Crown Castle, or Vertical Bridge? Or perhaps you've been approached by companies like TowerCo, Harmoni Towers, Tower Ventures, CitySwitch, Horvath Towers, or Diamond Communications regarding a new cell tower lease? 🤔 A common question arises: Why are cell tower leases structured for such extended durations?
Understanding the Rationale Behind Extended Cell Tower Lease Terms 📶⏳
In the wireless infrastructure industry, lease proposals typically exhibit significant lengths:
Wireless carrier proposals (e.g., Verizon, T-Mobile, AT&T, DISH / Boost) for rooftop sites often span a minimum of 20-25 years, or even longer. 🏢
Cell tower companies generally lease terms of 30-35 years or more, ideally extending for the maximum possible duration.
This preference for lengthy terms is fundamentally driven by substantial capital investments and long-term financial objectives.
Perspectives from Tower Developers:
Significant Capital Outlays: Tower development involves considerable capital expenditures. The combined "soft costs" (such as site acquisition) and "hard costs" (including steel, concrete, and groundwork) for a new, non-stealth cell tower can quickly accumulate to $300,000 to $400,000. This high initial investment represents a substantial barrier to entry in the market. 💸🏗️
Extended Break-Even Horizon: For a tower developer, achieving a cash flow break-even point requires the rent received from wireless carriers to consistently exceed the ground rent paid to the landlord. For example, if a developer pays a landlord $1,200/month (with a 2% annual escalator) and receives $2,200/month (with a 2.5% annual escalator) from a tenant, the cash flow break-even may not occur until after 20 years. This timeline can only be shortened by securing higher tenant payments via an amendment or adding additional paying tenants. 🐢💰
Strategic Tenant Acquisition: While most developers initially build a tower with an anchor tenant, there's always an expectation of attracting additional tenants over time. However, this process can be lengthy. The extended lease term provides the necessary duration to realize these projected revenues. 🙏🌐
Wireless Carrier Considerations:
Substantial Site Investments: Wireless tenants like Verizon, T-Mobile, AT&T, and DISH / Boost also make significant capital investments, often in the range of $100,000-$300,000+ per site. This includes costs for power cabinets, transport/fiber connections, lines, antennas, radios, and mounts. As publicly traded entities, these carriers require a long-range return on their substantial investments, which necessitates extended operational periods. 💲📡
Network Optimization and Stability: A meticulously chosen lease location that seamlessly integrates into a wireless carrier's network (optimizing antenna placement and signal propagation) is highly valuable. Carriers are disinclined to relocate from such optimal sites, making long-term leases essential for maintaining network integrity and stability. 🧩📍
Our direct experience at American Tower (in both Attorney and Merger & Acquisition roles) provides invaluable insight to help navigate these complex agreements. This is further bolstered by over 10 years of experience in real estate and construction management at T-Mobile, giving us a comprehensive understanding of carrier operations and site development. 🤝
Do you have any more questions about your cell tower lease? Feel free to reach out to us!👇
JW@jwttc.com / (720)295-5333