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Rent Guarantee
Cell site leasing has become a competitive business. With the massive industry growth and technological advances in recent years, wireless operators are making expense reductions and network efficiency a priority. It’s a fact that on average, operators pay up to ten times more for their traditional cell sites than fair market rates for comparable space. Operators nationwide are actively pursuing competitive lease rates, or alternate site locations if necessary.
One way to keep your rental income intact is by obtaining a rent guarantee. A rent guarantee is a substantial upgrade to your lease and to your business investment because it secures an average of five years of income. This is significant, since most cell site leases contain 30, 60 or 90-day termination rights for the carrier.
A rent guarantee can increase the value of your lease and give you important financial control. Landlords can leverage the value of a guaranteed lease by taking it to a lending institution and borrowing against it, then using the guaranteed payments to pay back the loan.
For building owners, a guaranteed lease also increases the value of your property by tens of thousands of dollars when calculating the capitalization rate. With top credit rating and name recognition, operators lend credibility to your tenant portfolio, which ultimately enhances the quality of your investment due to better cap and default rates.
When selling or refinancing a building, both buyers and lenders look for known names on the tenant roster, particularly with projects that may be in secondary markets or house only local tenants.
The net profit of your cell site lease is considerably higher than other tenant leases, considering a carrier does not consume property management resources or subtract operating expenses related to occupancy, such as tenant improvements or broker commissions, from your bottom line — costs than can deduct 20 to 30 percent from the lease value.
What’s more, small space tenants will typically only commit to a two to three-year lease, while operators are often willing to offer a five to 10-year guarantee. And, because they rent space that no one else wants, cell site leases allow landlords to earn income they otherwise wouldn’t, and potentially achieve more than 100% tenancy.
One way to keep your rental income intact is by obtaining a rent guarantee. A rent guarantee is a substantial upgrade to your lease and to your business investment because it secures an average of five years of income. This is significant, since most cell site leases contain 30, 60 or 90-day termination rights for the carrier.
A rent guarantee can increase the value of your lease and give you important financial control. Landlords can leverage the value of a guaranteed lease by taking it to a lending institution and borrowing against it, then using the guaranteed payments to pay back the loan.
For building owners, a guaranteed lease also increases the value of your property by tens of thousands of dollars when calculating the capitalization rate. With top credit rating and name recognition, operators lend credibility to your tenant portfolio, which ultimately enhances the quality of your investment due to better cap and default rates.
When selling or refinancing a building, both buyers and lenders look for known names on the tenant roster, particularly with projects that may be in secondary markets or house only local tenants.
The net profit of your cell site lease is considerably higher than other tenant leases, considering a carrier does not consume property management resources or subtract operating expenses related to occupancy, such as tenant improvements or broker commissions, from your bottom line — costs than can deduct 20 to 30 percent from the lease value.
What’s more, small space tenants will typically only commit to a two to three-year lease, while operators are often willing to offer a five to 10-year guarantee. And, because they rent space that no one else wants, cell site leases allow landlords to earn income they otherwise wouldn’t, and potentially achieve more than 100% tenancy.
Frequently Asked Questions
Who is Md7?
Md7 is a preferred real estate asset manager for top national wireless carriers and is authorized by your carrier to administer this program. We have built our business and reputation upon solid relationships with both landlords and carriers. Our excellent credentials validate our experience and expertise and are evidenced by letters of authorization, industry reports and testimonials from among the thousands of landlords we have helped to secure their cell site revenue
What are the steps in the process?
Contact an Md7 lease consultant to review your eligibility. Our lease consultant will send you a proposed lease amendment for your review. When you sign the lease amendment, Md7 will notify the carrier that you have chosen to participate in the program and the carrier will execute the amendment.
I have multiple carriers on my site who are not proposing a rent guarantee. Why should I participate in your program?
This is an industry-wide movement that all carriers are actively participating in. Carriers are committed to achieving operating efficiency and rent guarantees are an important initiative in all of their business plans. If you haven’t heard from other carriers yet, chances are you will.
Is this negotiable?
You have the option to participate or not. The terms of the program are set forth by the carrier and we are authorized to assess your eligibility, explain the benefits to you and report your decision to the carrier.
I have the tallest building in town. Wouldn’t the carrier want to keep my site?
Not necessarily. Your site may still be at risk for lease termination. With the introduction of wireless broadband and such technologies as wireless streaming video, the need for more sites at lower heights has become more common, making the height of a cell site less important.
Why is the carrier looking to change our contract?
The contract currently includes a termination clause that the carrier may invoke for many reasons. In your case, the reason is likely that the carrier is paying eight to ten times more per square foot for the space they lease versus tenants inside the building. Like any tenant, the carrier has every right to expect to pay a fair market rate for its lease. The carrier is honoring its relationship with you by bringing this issue to your attention, when in fact, it could be more economically advantageous for them to relocate to a new site. But they would prefer to reinvest in their relationship with you, which includes offering to secure your site and guarantee your income.
If I don’t do this deal, are you going to terminate my site?
The possibility of losing your site is real as carriers are constantly reevaluating their network design. But if you secure your site with a rent guarantee, the future network will be designed around you, no matter what changes occur along the way.
I just started a new lease. Why would my site be at risk?
This is a dynamic industry that provokes constant change and incites continual risk. For example, new technology requirements have left some sites incompatible to the future network design. These sites are often cheaper to decommission than to upgrade. A guarantee would assure that this kind of volatility does not continue to jeopardize your cell site income.
Why have I been selected to participate in this program?
Your carrier’s network engineers have initiated a site review based on the specifics of your location or lease.
Is my site being terminated?
Carriers are actively reviewing their real estate portfolio to evaluate which sites to retain and which sites to decommission. The possibility of losing your site is real. Years ago, carriers were terminating less than one percent of their cell sites. Due to mergers, new technology and a commitment to operating efficiency, the industry’s volatility has significantly increased this decommission rate up to 20 percent. Market analyses have revealed that carriers pay eight to ten times more per square foot for their lease than do interior tenants— tenants who often have less desirable credit ratings or worse, no credit at all. The market to retain cell sites is more competitive as carriers seek to relocate to sites that offer fair market rates.
Does Md7 work for the carrier?
Md7 has been authorized by your carrier to contact cell site landlords who have been invited to participate in a rent guarantee program. Your carrier determines which landlords should be contacted, and has partnered with Md7 to administer this program because of our expertise in real estate asset management and cell site leasing. Md7 will oversee all aspects of your rent guarantee and guide you through the decision-making process efficiently and with the highest standard of care.
What is a rent guarantee?
A rent guarantee is a renegotiated lease that has removed the current early termination clause and replaced it with an average of a five-year guarantee from the carrier. In exchange for amending the termination language, the new lease includes a new lease rate, escalator, and/or lease enhancements that optimize site maintenance.
Md7 Success Story
Realizing the Value of a Guarantee from a National Credit Tenant |
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