Offers from third party lease buyout companies

Many leases are undervalued, and the buyout companies and tenants know it. They expect that at some point in the future, they will have an opportunity to renegotiate the terms of the lease agreement to a point more favorably and will receive the upside in doing so. For instance, when a lease is coming up for final expiration (with no more renewal periods), it is often possible to significantly increase the lease rate if the site is undervalued. Because landowners almost never know the true value of their leases, if they receive an offer from a company that is higher than other offers, they tend to believe it is a good offer.
Interest rates are low and because of this, the cost of capital is low. Furthermore, many equity investors are looking for better returns than the stock market and are willing to invest in niche products like lease buyouts. When cost of capital is low, the amount a buyout company or tenant can make for your lease will be higher as compared to when capital is more expensive. Since the value of the future cash flow from your lease really isn’t likely to change, the value of your leases don’t fluctuate, but the attractiv ness of making an investment in a lease can.
Because of low cost of capital, there have been new third party buyout companies entering the market. And because of the increase in the number of lease buyout companies entering the market, there is heated competition. When there is competition, the result is two-fold. First, prices tend to increase as more companies make offers for the same finite number of cell site leases. Each company has capital to deploy and investors to please. Secondly, without a sizeable number of leases, they can’t take advantage of diversification. By diversifying their portfolio of leases, the lease buyout companies reduce the risk of events that would reduce the value of the portfolio like termination due to mergers or consolidation between carriers.

Offers from Tower Companies

The companies that own the towers have found the hard way that when a third party lease buyout company purchases the lease under their tower, tower owners end up paying more rent eventually and they have a harder time getting anything done because there are now two entities that have to consent to changes. For the large tower companies, they have excess cash and need a place to put it. By buying their ground leases, they not only protect their assets (their towers) but they also get to turn an operating expense (lease payments) into a long term capital asset (land rights). The tower companies have historically not dedicated a significant amount of resources to purchasing their ground leases, although that is clearly changing of late. The stock market analysts who cover the tower sector started to question how the tower companies could forecast revenue from towers where they didn’t have the legal right to keep the tower on the property for the long term.
As a result of this questioning, and to protect their valuable assets (towers) while not adding a significant amount of staff, the tower companies have entered into agreements with third party companies who contact landowners on their behalf to purchase the leases. These companies are compensated on a contingency basis in some cases, meaning that they don’t get paid unless the landowner sells the lease.