It should be understood that not all properties (nor all cell tower leases) are candidates for Lease Stripping, and that Lease Stripping can actually contribute or enhance the presence of Value Penalty (a term used to describe the loss of value a property is exposed to for having a cell tower constructed on a property which is not more than offset by the income generated by the cell tower lease).
The fact that I mention that not all properties are candidates for Lease Stripping does not necessarily mean that Lease Stripping cannot or should not occur, only that the absence of the lease payments in conjunction with the remaining presence of the tower (or antennas) and associated cell tower lease can bring attention to the undesirability that the tower-lease combination’s very presence creates for the prospective property buyer when compensation is not also present.
What Is Lease Stripping?
Lease Stripping is a term used to describe the process by which a cell tower lease is separated from the underlying real estate and is either sold or held under separate ownership. If you are reading this, you no doubt realize that cell tower leases can typically be purchased and sold separately from the underlying real estate and that, in some instances, if done correctly, the process of Lease Stripping can create value for the property owner.
Is Lease Stripping Problematic?
Lease Stripping can be particularly problematic and expensive in cases in which a tower is very unsightly, large, obtrusive, requires a lot of land area (such as is the case with most “Guyed Towers”), is located on a low-density residential property, or if the tower/tower location prevents future development or expansion according to the primary/highest and best use of the property.
A lease that was originally negotiated and/or subsequently amended inadequately can also contribute to or create Value Penalty on virtually every property, as the lease payments may have been too low to begin with or, in the case of a low escalator (generally anything less than CPI), the value of the lease can actually become “Negatively Performing” — a case in which a cell tower lease sale value increases at less than market (CPI) and as such negatively affects its market sale price and demand) until such time as a renegotiation opportunity presents itself.
Lease Stripping can also be problematic based on the bundle of rights assigned to the lease buyer at the time of sale.
The least restrictive form of Lease Stripping is typically a short-term sale of lease cash-flow’s with no other leasehold interests assigned to the buyer; the most restrictive form of Lease Stripping typically involves a perpetual easement for the leased area, with expansion area options to the buyer (should the buyer elect to purchase more land in the future), and some form of a non-complete clause for the underlying property which would prevent the construction of another tower by a competitor on the property for the duration of the easement (particularly problematic on large pieces of property).
As you can see, Lease Stripping is a bit of an art and, if executed correctly, should actually minimize or eliminate Value Penalty while, at the same time, Lease Stripping should maximize a property owner’s equity position in the combination of the cell tower lease and underlying real estate.