Investors such as private equity funds and publicly traded REITs are building large portfolios of cell phone towers and rooftop antennae.
Demand for cellular infrastructure continues to strengthen as new companies build national networks for sending and receiving cell phone signals. The big three cell phone providers—AT&T, T-Mobile, and Verizon—also continue to add new antenna locations to strengthen their existing networks, especially since new 5G antennas don’t broadcast as well as older 4G antennas. .
As cell phone companies sign long-term lease contracts for cell phone towers and corners of roofs, investors such as infrastructure private equity funds are more than happy to buy and sell these contracts—almost for a steady income from cell phone towers. Accepts 5 percent average cap rates and rooftop antennas according to dealmakers.
“It’s the strongest market I’ve ever seen,” says Jason Lund, leader of technology infrastructure in the U.S. for JLL, who works at the firm’s offices in Charlotte, NC. “There are more players out there than ever before. trying. .”
Investors chase yield and steady income
Investors around the world are hungry for returns as interest rates remain low. Steady income from a portfolio of lease contracts for cell phone towers and rooftop antennas can be very attractive. The prices of these contracts are rising and the investors’ income is decreasing due to the high bidding of the investors.
“In two to three years, cap rates have decreased by 100 to 200 basis points, depending on the market,” Lund says. He says the average cap rates are now around 5 percent.
Large, recent deals include Diamond Communications’ $1.6 billion purchase of 2,300 cell phone towers from Melody Capital Management in May 2021 — one of the largest deals ever in the space.
“Investtor interest in cell towers has increased in recent years and there has been a significant increase in acquisitions,” says Spiratos. For example, Colony Capital, a private equity fund based in Los Angeles, once focused on real estate, but has recently transformed itself into an infrastructure fund.
Spiratos says that while the majority of tower assets in the US are held by publicly traded tower companies, private portfolio business continues. Strategies for these investors range from small build-to-suit providers to mature portfolios with high tenancy rates.
It is also becoming easier to buy and sell these properties, as more lenders are willing to offer loans against cell phone towers and rooftop assemblies. Most of these lenders are private equity debt funds such as the Macquarie Infrastructure Fund—effectively an infrastructure debt fund.
“That’s the key to liquidity — if you have a large market, you have to lend against those assets,” says JLL’s Lund. “Lenders are getting more aggressive and getting better at underwriting assets. This means interest rates will generally fall and fall over the last three to four years.”
Cell phone companies compete to build the best network
An increasing number of cell phone companies need access to more cell phone towers and rooftop antennas.
“Carriers are expected to continue to deploy macro towers (including lease-ups) in the coming years as they seek to increase coverage and improve reliability for customers,” says CBRE’s Spiratos.
In addition, the new companies are joining the three big established cell phone networks Verizon, AT&T and T-Mobile. Satellite television company Dish, for example, is building its own network—and a reliable network requires 60,000 or 70,000 cell phone towers and rooftop antennae across the US, Lund says.
“The new entrant Dish is expected to cost other carriers in the coming years as it rolls out its national network,” Spiratos says.
Facebook connectivity, Google Fi and cable provider Cox have also begun building their own networks – signing contracts to transmit and receive wireless signals from a growing number of cell phone towers and rooftops.
Signed leases have little risk
These major cell phone carriers sign long-term contracts — as do tenants of other commercial property types — to lease space on a tower or a few square feet of space on building roofs. After the leases are signed, building owners can often sell the contract and their proceeds to investors.
Once a cell phone tower or rooftop antenna has been leased to a major cell phone carrier, there is little risk that anything will damage the value of the long-term contract—even if cell phone technology changes.
“As generations of cell phone technology continue to evolve — 3G 4G, 5G — cell phone companies will come out there and replace antenna equipment at their own cost,” says Lund. “Antenna devices are fairly cheap. What they really want is right to broadcast and receive using your roof.”
It’s also unlikely to break the cellphone carrier’s lease once it’s signed.
“Churn in the industry is low and is usually the result of carrier consolidation, which has subsided as the competitive landscape in the US has matured,” Spiratos says. “We believe investors can expect long-term, stable and growing cash flows with a strong yield profile.”
