Growing Needs of Mobile Carriers Result in Opportunities and Risks for Property OwnersAugust 2017
According to a 2016 research study conducted by the Chicago market research firm “dscout,” the average smartphone user engages in 76 separate phone sessions a day, with more than 2,600 touches, swipes, types and clicks. As that usage has grown in the last decade since the first iPhone was released, so too have the demands of customers of mobile service providers. This, in turn, has resulted in an increase in the number of towers erected in fields along highways and on top of (or adjacent to) buildings in urban areas. Each of those towers has a collection of antennas attached to them, which are leased and maintained by providers such as Sprint, Verizon, T-Mobile and AT&T. Indeed, one industry player, TowerPoint Capital, estimates that there are approximately 300,000 cell tower leases in the United States today and that figure is expected to grow to 500,000 by 2020.
In central business districts and other more dense areas, the real estate available to these mobile carriers is a finite and thus valuable asset. In this environment, a property owner may be approached with an offer it seemingly can’t refuse: a third-party rooftop operator specializing in rooftop leasing offering to pay hundreds of thousands of dollars for an easement over the rooftop of the property and the rights to enter into rooftop leases directly with the mobile carriers. In most cases, this potential revenue will be excess revenue the property owner did not consider in connection with its underwriting of the acquisition of the property.
In a sense, these rooftop operators make the property owner’s job easy. They generally perform all due diligence (e.g., title, survey and environmental review), at their own expense. They also promote the transaction as a way for the property owner to immediately monetize the value of the rooftop and remove the hassles of the property owner negotiating directly with multiple mobile carriers.
But, while these transactions can benefit the property owner, property owners should carefully evaluate the long-term impacts of the transaction as they would any other commercial transaction. Some of the many considerations (from both a business and legal standpoint) a property owner should address include the following:
- What is the proposed term of the easement?
- How will the transaction affect future marketability of the property when the property owner desires to sell, or the appraised value when the property owner refinances?
- What is the likelihood that a future lender would be concerned about a third party controlling the leasing on the rooftop?
- Under what circumstances can wireless carriers add equipment to the building, and what approval rights does the building owner need in order to ensure that any new equipment does not impact the structural integrity or other physical aspects of the building or void existing roof warranties?
- What if the property owner wants to redevelop or rebuild the improvements constructed on the property?
- What happens if the building is destroyed in a fire or other casualty?
- What other areas of the building beyond the surface of the rooftop are required for the wireless carriers to store, maintain and service equipment?
- To what extent can the wireless carriers utilize existing building systems (such as electrical or HVAC systems) in connection with their equipment operations?
- How do wireless carriers obtain access to the rooftop, and what consent and supervision rights does the property owner (or its property manager) have related to that access?
- Does a current lender, tenant, ground lessor or other party have rights to consent to some or all of the terms of the easement?
- What are the needs of the other tenants in the building for rooftop equipment, and how will the agreement impact those rights?
- How are utilities delivered to and charged to the wireless carriers?
- Will the party acquiring the easement and leasing rights, or the wireless carriers who are a party to any leases, be required to remove their equipment following expiration of the lease term?
- What insurance and indemnification obligations should be imposed on the party acquiring the easement and leasing rights (e.g., to protect the property owner against liability resulting from a third party’s use of the easement area or the filing of mechanic’s liens against the property)?
- What provisions related to the foregoing should be required to be included in any lease between the party acquiring the easement and leasing rights and the wireless carriers?
Although the up-front cash payment received by the property owner will certainly be welcomed, these easement transactions are often more complicated than they appear. Accordingly, property owners should consult with an experienced real estate attorney if approached with one of these offers. A property owner can often negotiate a reimbursement of all or a portion of its legal fees for reviewing and negotiating the easement documentation if the transaction is closed.
If you have any questions about one of these transactions, please contact Kyle Binns or another member of the Lewis Rice real estate team.