Monday, December 8, 2008

The Economy's Impact on the Cell Tower Lease Buyout Market

Over the last few months, there has been a dramatic change in the lease buyout industry. Because of the free fall in the stock market, the increased cost of borrowing capital as well as the change in the apetite for risk on wall street, the lease buyout market has substantially declined.

First signs of this came in September when one of the three major players in the lease buyout market, Wireless Capital Partners, backed out of pending deals and stopped funding new lease buyouts. As we headed into the Fall with the uncertainty of the Wall Street Bailout, our clients saw exising deals with the two remaining players, Unison and Communications Capital Group (CCG), unilaterally re-priced at 15% to 20% less than previously offered. The reason given by both companies was that the cost of borrowing had increased and therefore, the minimum return on investment needed to be mantained.

In addition to reducing purchase prices, Unison and CCG have become much more selective in the cell site leases they are purchasing. For example, they are focusing primarily on "investment grade" carrier leases, i.e. Verizon, AT&T and T-Mobile, and offering deep discounts or shying away completely from cell site leases of distressed Sprint Nextel or regional/local companies such as Cricket and Clearwire. Understandably, these companies are viewed as extremely high risk given the instability in the capital markets.

Secondly, Unison and CCG have increased their due diligence requirements in evaluating a potential lease buyout. For example, they are more closely scrutinizing the credit-worthiness of potential sellers and the loan-to-value ratio on the property involved in the transaction. Moreover, they are requiring Subordination Non-Disturbance Agreements (SNDAs) from the seller's lender which state that the lender agrees to the lease buyout and will honor the agreement in the event of a foreclosure on the property.

All of these developments have had the effect of making it much more difficult on our clients interested in selling their cell site leases. Most recently, Unison and CCG have much more leverage in the lease buyout negotation with respect to the amount of the lease buyout and the terms and conditions in the actual lease buyout agreement (notwithstanding the fact that the Unison and CCG Agreements differ in many of their key provisions). Without increased competition in the lease buyout market, we suspect that this trend will continue.

If you are a landowner interested in selling your lease, please feel free to contact us. We have represented numerous clients who have sold their cell tower leases to both Unison and CCG. We can assist you in evaluating pricing and negotiating equitable terms and conditions in the lease buyout agreement. Finally, we can protect your rights and obligations as they apply to the cell site carrier and the lease buyout company.