Cell Tower Perpetual Servitude Payments - Upfront or Over 10 Years
I have a client that owns an income producing office building that he plans to sell within the next 12 months. On the site, there is a cell tower. It’s currently leased (located out of the way behind the building, not on the roof), but the communications company is trying to negotiate a deal with the owner to convert the lease to a perpetual servitude.  The owner wants to do this because right or wrong, he thinks with 5G (smaller towers) and other advances in technology that the big cell tower may be worthless in the future and would rather get as much money out of it now. 

The communications company has offered the following options:

Option A: pay the owner $215,000 today for a perpetual servitude over the property; or

Option B: pay the owner $300,000 in installments over the next 10 years for the same thing. 

If you had to pick one of these options today, keeping in mind you’re planning to sell within the next 12 months, which option would you choose to maximize the current owners profit and why? 

Assume nothing was negotiable and you had to choose one of the options in the next 24 hours and you can not leave it up to the next buyer.

In Option A, the full $215,000 would go the current owner.

In Option B, the installment payments would go to the current owner until he sells the property and then would go to the future purchaser.
[{"id": "gn1vzi5", "text": "Do a net present value calculation.  There are online calculators.\n\nAnd then the other thing you have to account for is a change in tax bracket, if relevant.", "replies": [], "depth": 1}, {"id": "gn1xecd", "text": "This sounds like one of those companies that offer to buy your cell tower at a 10 cap. If this is the case... do not do it... it would be more beneficial to sell the building with the income steam at a much lower cap rate...\n\nCell towers aren\u2019t going away anytime soon", "replies": [{"id": "gn2nvkg", "text": "Also... your option a/b is only the case if you\u2019re going to sell the building and exclude the income steam. If buyers are buying the income steam and you all of sudden say it\u2019s not included they\u2019re going to retrade.", "replies": [{"id": "gnybuul", "text": "They should def include it. \n\n$300K installments over 10 years averages $30K a year. Depending on your market, that $30K at a 6.0% cap would be worth $500K in value today. Sell it with the income stream to make an additional $285K", "replies": [{"id": "gnycin8", "text": "Caps are for perpetual income. If you have a defined period you should present value it and it add it to your value... my point here is that the value of the real estate including the current cell tower income would\nBe higher than the value of the real estate without the cell tower plus the present value of a 10 year agreement", "replies": [{"id": "gnyshn7", "text": "Totes right, that portion flew over my head.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gn2lrrv", "text": "F NPV - take the payments \u2014 re-up in 10 years;", "replies": [], "depth": 1}, {"id": "gn2r0wz", "text": "Whats the PV of Option C (not listed): do nothing?", "replies": [], "depth": 1}, {"id": "gn5rmm9", "text": "Macro towers aren't going anywhere. They can't build enough of them in many areas fast enough.\n\nYou can also sell the building but not convey the tower and its income revenue", "replies": [], "depth": 1}, {"id": "gnra61r", "text": "If I only had these two options, the time value of money would dictate the $215k now is worth more than $300k over 10 years. At a small 5% return per year he would be over $300k in 7 years and if you look at historical market returns he would be doing a lot better than that.\n\nThere may be an option C however which includes keeping the lease the way it is and then surveying off the cell tower location and selling it as a net leased investment or keeping it as part of the income with the office building.  I don't know the particulars or not if it would make it feasible, but may be an option...", "replies": [], "depth": 1}, {"id": "gqgtrxu", "text": "I broker these deals specifically.  \n\nFirst of all, macro sites are not going anywhere.....We own them.\n\nSecond, it would be difficult to tell if you are seeing a good deal without knowing the current lease rate, expiration, rent escalators, tower owner, and tower tenant(s). A terrible ground lease (single tenant Sprint tower in urban area) could be worth $0.  A multiple tenant site in an urban area that is a short term expiration could trade at 30x the current annual rent.  An average solid ground lease typically trades at 16-20x the annual rent, but you really need to know the buyers to make the upper range of that number happen.   \n\nValues on tower ground leases have gotten to the point where it often times makes sense to bifurcate them from the underlying ground/building when selling.  It is extremely important though to make sure that the terms of the easement agreement doesn't cluster the underlying property sale.  \n\nI would be more than happy to take a look at it and co-broker a sale on it if the owner was looking at selling it separately.", "replies": [], "depth": 1}]