Streaming live revenue: leasing space to wireless carriers and cell phone companies makes for a...

To most people, a ringing cell phone signals a simple phone call. To property owners and managers, it can be an audible reminder of the lucrative revenue streams generated by leasing space to a wireless carrier.

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The highly competitive wireless industry

is seeking land to erect more cell phone towers, antennas and other equipment to cater to the increasingly mobile U.S. population--maddened by interruptions to wireless services. More sites mean better service, and wireless carriers fearful of losing customers are going to great lengths to provide the most far-reaching service.

"There is a continuous race between the carriers to provide the best services because they are afraid of the high rates of churn they've been experiencing as customers look for better coverage," said Ken Schmidt, owner of Steel in the Air Inc., a Ft. Meyers, Fla., cell tower consulting firm.

Property owners and managers are taking advantage of the situation--leasing land to wireless carriers and cell tower companies at premium prices. The money-spinning leases have created stiff competition among real estate executives vying for the extra income. Owners and managers are learning, though, negotiating these leases isn't just a matter of allotting some roof space, kicking up their feet and counting money.

CAN YOU HEAR ME NOW? GOOD

Since 2000, the number of U.S. cell sites has more than doubled to almost 200,000 sites, according to information from the Cellular Telecommunications & Internet Association--also called The Wireless Association--in Washington, D.C. The number of sites has increased by about 11 percent each year.

Driving the increase in U.S. cell sites is the increase in U.S. cell phone subscribers. About 10 years ago, an estimated 38 million Americans subscribed to wireless services. In 2006, an estimated 200 million Americans subscribed, according to information from The Wireless Association. Additionally, subscribers are using wireless services more often, increasing their minutes of use by about 15 percent each year.

The widespread use of data services like e-mail and GPS location-based technology now offered by wireless companies is also driving the increase in sites. The effectiveness of those data services is contingent upon proximity to towers, and the more cell towers, the quicker the data services would presumably work, Schmidt said.

Further, cell sites and towers have limited capacity, meaning they can handle only a certain number of calls at a time. In an environment where everyone needs to be accessible all the time, good coverage is important, he said.

"It's become expected of the American worker to be accessible," Schmidt said. "Being wireless has increased our productivity, simultaneously increasing our need to be productive and accessible."

Before wireless carriers can attain ubiquitous wireless coverage in the United States, a dramatic increase in the number of cell sites--more than double the current number--is needed, Schmidt said.

With the potential of receiving up to $2,000 a month in revenue from each carrier, real estate owners and managers aren't likely to stand in the way of the development of more cell sites. Leasing out space for wireless equipment is an alluring proposition for property owners. It can have indirect value, too: The more income a property brings in, the higher its net operating income and value, and the more attractive that property becomes to investors.

"It can be highly profitable," Schmidt said. "For what it's worth, I think the trend [of more sites going up] is going to continue significantly."

LANDING THE DEAL

The profitability of leasing land to carriers creates competition among property owners. Many more property owners want to catch the eyes of wireless carriers and cell tower companies than the number of carriers interested in their properties.

Schmidt said he was fielding so many calls from landowners seeking help in arranging lease agreements with wireless carriers and cell tower companies, he added a disclaimer to his Web site stating his firm neither evaluates properties nor markets them to carriers.

The Web sites of some wireless companies accept information from interested property owners about their land, and Schmidt provides links to those companies on his Web site. It's a step closer to a lease agreement, he said, but only a small one with no guarantees to open doors.

"The reality is, landowners are seldom going to be able to procure a lease on their own properties," he said. "I'm not going to suggest it's not worth trying, but the carriers make it a point not to accept phone calls from interested landowners. The carriers have always known that anytime they want to, they can go out to an area and find a piece of property."

Michael Blank, a principal at Braintree Street Realty LLC in Boston, said his company's 150,000-square-foot, seven-story commercial property attracted six major carriers to set up their equipment on its roof because of its desirable location along the Massachusetts Turnpike.

He said the building is ideal for rooftop cell sites because of its line of sight to downtown Boston, its proximity to the tremendous amount of traffic on the Mass Turnpike and its 80-foot height. Wireless providers approached his company about 12 years ago. His company did not approach them. He said he is grateful for the business and doesn't regret taking cell carrier companies up on their offers to do business.

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"It's one of those fortuitous things," Blank said. "[Working with carriers] has always been a very positive experience. I find the cell companies tend to be very reasonable, very professional and very responsive. It doesn't impact our ability to service the needs of our tenants. It's a low impact opportunity for revenue."

BEHIND ENEMY LINES

Striking deals with wireless carriers and cell phone companies doesn't come without some hassles: Planning and zoning issues can present challenges. Schmidt said he's seen everything from little objection to resounding objection to erecting a site, which eventually ends up in litigation.

"Dealing with zoning is difficult: You never know what is going to actually happen," Schmidt said. "There is a lack of rhyme or reason as to why people object or don't object to the placement of cell phone towers."

Schmidt said concerns about aesthetics, fear of the unknown, anxiety about health risks and worries about the devaluation of property--whether they're warranted or not--spur nearby land owners' objections to erecting cell towers on land or putting cell sites on property roofs.

"We recognize there are multiple sides and that's what zoning hearings are for," he said. "As the number of cell sites increases, the locations where they are being placed will become more objectionable. The areas where they will want to provide service are going to be where high concentrations of people are."

Schmidt said municipalities are becoming less resistant to approving applications for cell phone towers, as long as the towers blend in with the surrounding area or are virtually invisible. The two types of towers most likely to win favor with zoning boards are monopole and stealth structures because they have less aesthetic impact.

Monopole structures are solid poles or tubes typically less than 200 feet tall. Stealth towers are camouflaged to look like flagpoles, church steeples, or even trees and cactus. Property owners can still expect proposals for two other types of structures, though. Guyed towers are tall, narrow structures requiring wires to help them stand. They can range up to 2,000 feet and need a lot of property. Lattice towers, or self-support towers, look like latticework made from steel or iron rods.

Schmidt said 99 percent of the time land owners don't have to get involved with zoning proceedings. However, leases with wireless carriers are contingent upon zoning approval and other due diligence, and lack of approval means lack of extra revenue. He said if a property owner or site manager has influence in the community, it might behoove him or her to get involved.

Property owners and managers actually don't have to get too involved with constructing or erecting cell phone sites or towers, either. An owner or manager approves a wireless carrier's site drawings, the carrier goes through the zoning process and then construction commences.

"In terms of constructing a tower, there aren't too many requirements other than having enough space to place the equipment and bringing a large heavy crane onto the property to erect the steel," Schmidt said.

He said carriers typically work with whatever land is there. For cell phone towers, they often have to do some site preparation--clearing trees or drilling a hole for the foundation. Eventually they pour the concrete and erect the tower on the foundation. The entire process takes between 30 and 45 days on average, Schmidt said.

For rooftop cell cites, even less construction is involved because the sites are smaller and are usually contained inside an electronic center of about 8 x 10 feet. However, keeping an eye on antenna maintenance and roof access can keep property managers busy after construction--especially if several wireless carriers rent space.

LEVEL THE PLAYING FIELD

Fine-tuning a lease's provisions with a wireless carrier is one of the biggest challenges property owners or management companies face. Blank, the Boston real estate owner, said while he is happy with his current carrier leases, his earliest agreements' terms favored carriers. He said he secured better terms by hiring a consultant.

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"When it started out, we had no idea of the dynamics of the industry," Blank said. "As time has gone on, we've become wiser. It's much more of a level playing field for us."

Blank said lease terms are often slanted to the carriers' advantage. Carriers typically want long-term deals and control of the option to renew. They reserve many rights related to lease termination and backing out of the deal, he said.

"Building owners have to be careful with these agreements so they don't hamper the building's operations," said Ari Brumer, a partner in the law firm Jeffer, Mangels, Butler & Marmaro LLP in Los Angeles.

Brumer said when negotiating leases, look forward: Consider the future and any changes it may bring. For example, property owners often want carriers to agree to terms stating their equipment will not interfere with other wireless carrier tenants--present or future.

Property owners may also stipulate that carriers must move or modify their equipment if it interferes with other customers' roof rights or spaces for equipment like generators, antennas, satellite dishes or any other apparatus other building tenants may own.

Similarly, property owners should seek lease language allowing them to temporarily relocate a carrier's equipment if they have to repair or replace the roof, said James Fredericks, a principal with Polsinelli Shalton Welte Suelthaus, a regional real estate law firm in Kansas City, Mo., and St. Louis.

One major concern wireless carriers bring to negotiations involves the possibility a property owner may sell a building or portfolio of buildings before their lease agreement expires, Brumer said. Wireless carriers, therefore, want documentation putting buyers and lenders on notice about the telco's lease rights.

If such a memorandum is recorded, Brumer said--on behalf of his property-owner client--he requires the licensee to provide explicit paperwork detailing the agreement's end. He said a recorded memorandum of the agreement against the building would show up on the title and be an encumbrance.

To ensure lease agreements are not a hassle, Fredericks said property owners should include three or four clauses allowing them to terminate a lease--for instance if a carrier does not attain a needed F.C.C. license or construction permit. Property owners should also be sure lease agreements include damage clauses protecting their core tenants if they grant carriers access through tenant spaces to repair or maintain wireless equipment, Fredericks said.

Property owners, wireless carriers and other technology companies are likely to haggle over the nuances of lease agreements for years to come as new technology arises, presenting additional revenue opportunities as well as potential headaches.

Because his building is a prime location for wireless carriers, Blank said he feels less pressure when carrier tenants make demands--like asking him to cut rent. He said he knows wireless companies need his space, and if one backs out, another carrier will be knocking on the door.

"We're inclined to not accept the offer, and if they walk away, they walk away," he said. "We're willing to let them terminate the lease. It's a prime location."

Allan Richter is a contributing writer for JPM. Questions regarding this article can be sent to kgunderson@irem.org.