Cell Sites, Lease Rates, and the Emergence of Small Cells

Cell Sites, Lease Rates, and the Emergence of Small Cells

Background

Procuring a wireless lease- whether for a cell tower installation or a site that uses an existing structure, such as a building, to install their equipment- can be a great financial windfall for property owners. These sites can provide substantial income with little effort on the landlord’s part. Of course, it is critical that the potential landlord negotiates a landlord-friendly initial lease, both in business terms and the other issues that affect the overall value of the lease.

Wireless leases are invariably long-term (30-40 years and up) and one-sided in favor of the tenant on one crucial term- the tenant retains the right to terminate the lease effectively at will, and will not give the landlord that same right. Wireless carriers and tower companies do have flexibility on many other terms, usually including rent amount, and it is important for the property owner to identify and address those issues during negotiations.

People often ask me what the going rate for a cell site is, and my consistent answer is “However much you can get for it.” There is no set formula, no magic numbers. Of course, there is some order as to rates based on the characteristics of a site that the landlord must observe to negotiate both rationally and effectively. Is the site rural, urban, or otherwise? What are nearby traffic, residence, and business patterns? What other surrounding sites might be acceptable to the carrier and provide competition to your site? All of these factors help determine how far you can push a prospective tenant.

Capacity and Costs

Two of the biggest problems facing wireless carriers are network capacity and the spiraling cost of their network infrastructure, especially lease rates.

Wireless carrier networks have traditionally consisted mostly of macro sites- cell towers that can provide a relatively wide area of coverage, supplemented by rooftop installations where towers cannot be built. These sites are relatively expensive to both build and maintain, and their coverage and capacity is both limited and static. Because of this, wireless carriers and the tower companies that serve them are looking for more affordable ways to expand coverage and increase capacity.

Enter the Small Cell

In an effort to extend coverage and capacity while throttling costs, carriers have begun to deploy small cell sites. Think of it this way: future deployments will use a combination of layers; macro sites, small cells, and other technologies to improve coverage and capacity. This new network design is commonly referred to as a “HetNet” (heterogeneous network.)

Think of small cells as “fill in” sites, bridging the gaps between macro sites in a more portable and cost-efficient manner. The equipment used in these builds is generally small enough to be attached to or hung from a much smaller structure than a traditional cell tower, such as existing poles, street lights, small building and the like. This changes the nature of the site requirements needed by the carrier- there is no longer the need for a large shelter and equipment footprint on the ground under a 200-foot tower that is typical of a macro site. It does call for many more sites to provide effective coverage, though.

Recently, Sprint Wireless announced plans to deploy tens of thousands of new small cells for its “Next Generation Network,” and are doing so without the assistance of the traditional tower companies that have provided the backbone of their networks for years. The repercussions of such a widespread change in network deployment strategy have not only sent a shudder through the tower industry, but also may very well change the leasing end of the industry as well.

What Does This All Mean to the Property Owner?

From a rent amount standpoint, what should a potential landlord expect?

Let’s talk general terms. In a medium to large sized urban area, a new macro site could command a typical initial rent in the range of $1,500 - $2,500 per month. Again, that range is typical, not absolute, and can vary within or without the range based on circumstances.

Most of the small cell lease proposals we have seen start in the $300-$500 per month range.

The first wave of small cell leases that have been proposed by the carriers have looked much like traditional macro cell leases in form. They have simplified them a bit, made them seem less obtrusive than a standard marco site lease in an effort to sell their pitch that these sites are smaller and are not as valuable to them.

On the contrary, from a pure value standpoint they are as valuable as Macro Sites.

There are, however, numerous reasons why the carriers may be unwilling (or unable) to pay anywhere near the typical Macro Site rent, not the least of which is the large number of these sites that must be built.

This leaves the property owner in a quandary as to how hard they can push back on rental rates. Of course, the answer is dependent on the property owner’s individual situation.

As an example, I recently consulted with a property owner on a Verizon small cell lease proposal in a somewhat rural area. We knew Verizon had a specific need straight across the lake the property was on. The equipment was going to be hung on an existing flagpole (with a little beefing up by Verizon.) The initial offer was $400.00 a month, and we countered at $1,250.00. A month later after a lot of posturing and a standoff, my client settled at $700.00. He weighed the fact that Verizon’s need was so specific that they could have done without it. Could he have gotten more? I think so, and I told him so, but he decided to take the offer because “it’s $700.00 a month I didn’t have before.” The lease was signed, the installation took a matter of days, and my client remains happy to get the lease.

This tug of war for advantageous lease rates will remain a fluid situation during the initial widespread rollout of Small Sites. It is important for property owners to be able to make well-informed decisions in the event of such a proposal. Of course, we recommend that property owners seek the advice of industry professionals when presented with any wireless lease negotiation.

Q & A

Q & A

Office Building Conundrum: Enhancing Cellular Coverage One Tenant at a Time

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