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.