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Don’t fall for false comparisons

November 21, 2021
Author: JD Stride

Why access to accurate and comparable site rental data is key to ensuring you get a realistic annual rate for your carrier lease.

Sometimes the initial reaction of landowners upon receiving a low-ball renewal offer is to dig in and not budge off the outgoing rent.  Where the market data is against you, and there are alternative site locations available to the carrier, the carrier will form a clear business case to relocate the site at probably a much lower rent. However, relocating is a costly exercise they’d rather avoid.

Background

It’s common practice for carriers to contact landowners two to three years before the expiry of a lease agreement. The carrier will usually request to renew the agreement for another 20 years or so at a significantly reduced annual rental and escalation rate.

Carriers are now dealing with numerous renewals for sites constructed in the early 2000s.  Back in those days, it was not uncommon to see rents in the tens of thousands of dollars with generous annual increases. As a result, landowners have become accustomed to receiving high rents.  Like any business, carriers are now trying to reduce their operational costs whenever and wherever they can. One such way is asking landowners to accept 30 to 40% rental reductions as well as requesting that the annual rate of increase come down in line with CPI.

Recently, a client contacted siteXcell with a renewal offer of just 35% of their rooftop lease’s final year’s rent.  In justifying the proposal, the carrier provided the landowner with a report from their valuer citing ‘comparable’ site rentals.  The client asked siteXcell to review the offer and advise a fair market rental for the site.   

Our approach 

When a carrier ‘cherry picks’ sites to provide ‘comparable’ rental data, they’re using one of the oldest negotiation tactics in the book.  Unfortunately, carriers have had some success with this approach. Faced with a carrier’s threat to relocate, many poorly informed landowners reluctantly accept a rental reduction request.

However, the outcome can be a completely different story for those landowners who contact siteXcell to get a fact check on the carrier’s ‘comparable’ rental data.  This was precisely the case for our client.  The rental data provided by the carrier was for sites more than 15kms away and not from the immediate area (let alone the same recently negotiated rooftop).

To establish the market rate for our client’s rooftop site, we considered a wide range of factors, including:

  1. The operational attributes of the site
  2. Opportunities for the carrier to relocate the site to another location with equal or better operational characteristics
  3. Whether the carrier could decommission the site without replacement
  4. Recent rental data from newly acquired or renewed sites of the same type in similar areas (apples for apples).   

A successful outcome 

Following an extensive review of our database, our findings supported what we felt was a commercial and reasonable market rent for our client’s rooftop site. Our client heeded our advice, held their position, and with siteXcell’s assistance, was able to negotiate a per annum rental of more than double the original rent offered, equating to a net present value improvement of $450,000 (over the entirety of the new term).  

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