Changes Coming to Rooftop Leases for Cell Phone Towers

Smart co-op and condo boards are always looking for ways to generate revenue, and about 20 years ago a lot of them started to realize that their rooftops were a lucrative asset. Verizon, T-Mobile and other mobile phone carriers were willing to pay to put cell phone towers on urban roofs. Boards and landlords began negotiating leases, and their rooftops turned into money machines.

“Everybody wanted to get on those tall buildings I represent,” says attorney Tara Snow, a partner at Novitt, Sahr & Snow. “But that happens less frequently now. Now my clients get mailings about renegotiating the terms of their rooftop leases.”

Welcome to the changing world of cell phone technology. The so-called macro-cell towers, located both in rural areas and on urban roofs, are being complemented by a rising technology in urban and suburban areas called small-cell nodes. Roughly the size of a fuse box, they’re placed close to the ground on light poles, the sides of building, bus stations – anywhere. While macro-towers provide the coverage, small-cell nodes increase the ability to deliver better coverage, well as increase capacity, a prime consideration as carriers try to move ever-greater amounts of data, including video.

“The towers don’t need to be on high buildings any more,” says Kevin Donohue of the consulting firm Tower Genius. “Because they work in conjunction with these small-cell nodes, carriers can put these big macro-cell tower on a four-story building. Also, the small-cell nodes make it possible to position macro-cell towers on cheaper real estate much farther away, such as a storage facility in Westchester, or a warehouse in Maspeth, Queens. They can put hundreds of cell towers miles away for cheap and then connect these small-cell nodes to them.”

Macro-cell towers have not gone the way of the Tin Lizzie just yet. They will remain the only option at so-called “unique sites,” such as historic districts that frown on positioning small-cell nodes at street level or on building exteriors. Last summer, a six-story condominium in Jersey City got an offer from Verizon to build a macro-cell site on their roof. “Initially they came to us from a third party, saying, ‘This is the deal, there is no negotiation,’” says property manager Nellie Downes of Denali Property Management. “‘If you start negotiating with us, it’s off the table.’” The board contacted its lawyer, who referred them to Tower Genius. The consultant identified the building as a unique site because a nearby building had been demolished, making the condo’s roof valuable to the carrier.

“We negotiated all the terms the carrier was trying to force upon them,” says Donohue of Tower Genius. “We got a 40 percent increase in value – and lowered their liability.”

“[Tower Genius] explained everything to us,” says Downes. “They also got us a signing bonus, which covered their fee. There were also many particulars in the contract, like for instance the electricity. You want to make sure that Verizon [provides] their own electricity. All these changes in the contract made a difference.”

Some boards consider selling their lease to a third party, known as tower companies or cash flow companies – in effect cashing in now instead of receiving the revenue over the contracted number of years. If a board received $3,000 per month from a cell phone carrier, selling the lease at the customary 12 times the annual revenue would yield a $432,000 payday. “Conservatively,” says Donohue, “we’ll get 16 times the revenue for that building. That means we can get  $500,000 to $750,000 for that $3000 monthly lease.”

Boards with towers on the roof should begin investigating if it’s more profitable to keep their monthly revenue stream or negotiate a buyout. If a mobile carrier offers a new lease, boards should negotiate the terms. When they do, they need to remember that with the rise of small-cell nodes, the technology five years from now will look very different from what it looks like today.