Negative Interest Rates: Fixed Rate Investments: Cell Tower Leases

 

Why Negative Interest Rates

Curious why rates have been trending down? Well, here’s my take on it. With an eighteen trillion dollar debt, America would not be able to pay the interest and the only way the debt maintenance can be sustained is to follow the rising debt with inversely proportionate decreases in the rates of interest as controlled by the Federal Reserve. This is, in my mind, the only way the Feds can continue to pay our debt.

S&P Downgrades US Debt

Bloomberg in an article published June 10, 2015 stated the following:

“S&P cut its rating on the U.S.’s debt in August 2011 for the first time, amid gridlock in         Washington over the debt limit and government spending. That didn’t cause borrowing       costs to rise, though. At the time, 10-year U.S. Treasury yields were at 2.56 percent.           Within a year, they fell as low as 1.38 percent.”

The Case for Fixed Rate Investments

Fixed rate bonds, for example go down in price as interest rates rise. The relationship is inverse. So when interest rates trend down (as they must, to be able to stay out of default), fixed rate investments, like bonds, real estate and especially cell tower leases will rise.

Simply Because the Yields Are Disproportionately High

The history of the cell tower lease markets is relatively new; 20 to 25 years old. The yields began, for the cell tower investors in the 8 to 9% area. There was a risk of a smaller carrier (cell phone provider) being gobbled up in a buyout or merger. There have been tens of thousands of these leases being terminated. Giants like AT&T, Verizon and Sprint have grown geometrically through these buyouts and mergers.

Rates paid to property owners for use of their land or rooftops have gone from 90 to 120 times the monthly rent to 200 or more times the monthly. Where the base rents were in the $400 to $600 a month area, they are now hovering around 200 times the base rent.

Base Rent for These Leases Escalates an average of 3 to 4% Annually

Unlike almost any other investment, excepting real estate, the rent escalates 3 to 4%, adjusted each 1 to 5 years. Some are adjusted annually, some each 5 years, depending on how clever your negotiator was/is.

I’ve negotiated a mountain of leases, all towards the very top of these parameters. Very few can make this claim. Having a 3rd party as a negotiator is paramount to achieving the best terms and conditions. The nomenclature, the possibilities are just mind boggling if you have not been around and learned all the ins and outs of the telecom industry. Remember the endgame reward, upwards of 200 times the monthly rent when you get ready to sell your lease.

There are untold possibilities when selling. You can sell only a portion of your lease and turn the management of the lease over to a telecom investor. The purchase price would be calculated at the then monthly rent. So as your base rent increases, so does its value. And as interest rates fall, the values for will rise to new monthly multiples. This is why a properly negotiated lease is paramount.

Andrew G. Kellerman, President and CEO of 1st-CellTowerBroker.com, Inc., areas of expertise: Real estate, mortgages, Stocks, Bonds, Options, Insurance products, Cell tower lease negotiations and sales, V.P. Thompson McKinnon Securities.

Contact info: private line (760) 460-1782 Email Andrew@1st-CelltowerBroker.com

Website: 1st-CellTowerBroker.com

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