Cell Tower Leases: …like playing Texas Holdem?

Am I gambling with my cell tower lease?

What you need to ask is, “Am I gambling with my cell tower lease?” With Fed Chief Bernanke announcing a ‘tapering’ of $10B in the Federal Reserves buying of US Treasuries, it is time to know that risk/reward could affect the market for cell tower lease buyouts. Rates will probably rise as they continue to unwind their control of the bond market by buying fewer bonds.

Cell tower lease risks…

The buyers of cell leases, like all other investors have defined a risk/reward that they are comfortable (and profitable) with. Herein lies the potential problem. Risk can be measured from 1 to 10. A ‘1’ are assets that have little or no risk, like a treasury bill and a ’10’ might be associated with gambling like Texas Holdem. Those with a passion and skill for gambling tend to be the risk takers. Some have a higher tolerance for risk than others.

Cell tower lease rewards…

Financial rewards can be measured as reversed to rewards. the bigger the reward, the bigger the risk to be taken. Cell lease buyers are somewhere in the middle of this parallel shaped graph and require a certain yield for the gamble they take. The yields are not necessarily always consistent and do vary according to the guaranteed yield of US Treasuries. If ‘guaranteed’ yields go up, so do other investment rewards. this is why everyone watches the Fed’s actions, as these are a precursor of interest rates to come.

Risk/rewards means lower buyouts

Since the the yields for cell tower buyers have been decreasing due to stability of the bond markets, any change in the base (risk of “1” and a yield of “1), like going to a base (reward of “2” while risk remains at “1”) increases the buyer’s yield spread. Buyers will not react positively to this news. On Wall Street, there’s an old saying, “down is faster.”

Author’s financial background: Stock market, bonds, commodities, options, insurance, real estate, mortgages, cell site lease consultant

 

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