Cell Tower effect on property value?

Question

I'm evaluating a property in NH. It has 100 acres, with a house and a barn. It was purchased in 2008 (just prior to the crash) for 632K. The owners allowed a cell tower to be constructed on the property last year. This produces approximately 15K annually, with an easement on the property. It is unclear whether the sellers have struck a deal with a 3rd party of the tower operator, but for the purposes of a sale, they are saying that the cell tower easement will remain, and there will be no income or benefit to the buyer once the house is purchased. Home prices in the town have gone up slightly, perhaps up to 10%, since 2008 on average. Current asking price is $750K. In my opinion, a house/property that has not been even slightly improved since purchase in 2008, and now has a new easement to a cell tower company that may be permanent, in a market that has not gone up much in the past 9 years, should be worth less than it did 9 years ago.

My specific questions are:
1. Does the easement, without any benefits from the cell tower, inherently lower the property value?

2. If the 15K/year was included in the purchase, would you expect the purchase price to be much higher than what it was if there were no cell tower? The sellers quoted 254K as the value of the lease assignment and are expecting that to be negotiated separately from the purchase of the house.

Thanks!

My specific questions are:1.  Does the easement, without any benefits from the cell tower, inherently lower the property value?

2.  If the 15K/year was included in the purchase, would you expect the purchase price to be much higher than what it was if there were no cell tower?  The sellers quoted 254K as the value of the lease assignment and are expecting that to be negotiated separately from the purchase of the house.

Thanks!

Charlie MacPherson · Answer

I'm surprised that the tower revenue is so low, but regardless, they're asking you to buy and pay taxes 100 acres, but to let the tower company use a chunk of it in perpetuity, while the seller earns the revenue it produces.

"Did I understand that right, Mr. Seller?"

So in my opinion, yes. That situation lowers the property value.  At the very least, it restricts what you can do with the property.  What if you wanted to create a subdivision?  With a cell tower right in the middle of it?

Lots of folks either think cell towers are ugly or cause cancer.  Right or wrong, that impacts the salability of whatever you build - and the tower and equipment will mean there's one less lot to develop.

If the seller were to assign the cell tower lease and rents to you, I'd treat it as a business purchase.  Many businesses sell at a low multiple of annual earnings, commonly 1.5X or 2X.

I'd also do your due diligence on the lease, whether the seller conveys the lease and income or not..

When does the lease expire?

Does it automatically renew?

If they don't renew, do they remove all tower equipment and restore the land?

Does the easement dissolve?

Is there a price escalation clause at lease renewal?

Is the tower and equipment insured?

Are maintenance and repair people insured against injury?

Is there a hold-harmless agreement protecting you from liability while tower people are on your property?

There are a lot of moving parts to this one. Personally, I wouldn't do the deal unless the tower lease and revenue came with the sale.  Otherwise, it just rubs me the wrong way.

William Kagan · Answer

Good afternoon,

I am in contract to purchase a building which is host to a Sprint cellular antenna on the roof. The previous owner sold all the rights to collect rent from the antenna's. Further, the lease was bought out by Unison and included a perpetual easement. Does anyone out there have any insight or experience with this type of deal. I am concerned about the risks.

Thanks in advance,

William Kagan

Ron Reiss · Answer

If the person sold off the cellular tower rights, than there is no value to that easement.   The only way there would be value was if they sold it in a 15,20, or 25 year term and there is a reversion that is happening.   The actual location of the access/utility easements are what you are really going to want to know.  Do they divide the property?  Does it run along property lines?   If it is the former, you can argue that it impacts future developments.    I work in cellular and solar real estate, so feel free to PM if I can help at all.  Ron

Paul Williams · Answer

@Timothy Lin, I purchased a commercial property (office/retail) 3 years ago with a cell tower on it.  It was a similar situation, where the owner had sold a permanent easement to the cell tower company and no benefit to me. I always had trouble with the property.  Some potential tenants were worried about what the signal would do to them or their equipment, and some just didn't like it.  When I tried to sell it, every prospective buyer wanted to know what benefit they would get from having the tower on it, and the answer was nothing.  No one wanted it on the property, and that seemed to be the deal killer with every prospective buyer. I just sold the property earlier this year for a 10% loss.  It was an expensive lesson to me.  At the time, I was fairly new to commercial investing.  In the future, I would be reluctant to purchase a tower with no benefits unless the property is at a significant discount. My parents own a residential property with a cell tower on 22 acres that they picked up pretty cheap. I'm guessing they'll have trouble selling it anywhere near market value (compared with other properties without a cell tower on it).  Based on these two experiences, I would think you need to get it for at least a 30%, if not 50% discount.  I hope this helps.

Joel Garfinkel · Answer

@Charlie MacPherson Sorry placing towers is pretty difficult. Carriers generally reach out to a property owner when they need coverage in that area. If you go on their sites you can put in your property information and if they can use it they will reach out

Charlie MacPherson · Answer

@Joel Garfinkel Sadly, it's not my deal - I'm not licensed in NH.

That said, I have a home in West Plymouth MA that's about 225' above sea level and has 5 acres of forest.  I would LOVE to talk to any of the cell or other radio companies about a lease.

I might even pay a nice finder's fee if we did the right deal!

Joel Garfinkel · Answer

Charlie,

I'm not sure if you are still working on this deal but there are a lot of different things that might be going on and ways it can make/lose you money.

JD Martin · Answer

1. Yes.

2. They sound crazier than hell. Property that now has a permanent easement on it, that does not produce income, is at best static and at worst worth less than it had been. If there's no income or benefit to the new owner, why would they pay $254k for it?

I'm guessing what they want is to retain the income from the cell tower. There's no logical reason why the income from that tower shouldn't convey with the property.

Cell Tower effect on property value?

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