ARTICLES

Why Carriers are Retaining Real Estate Asset Managers

"It’s time for American corporations to take a closer look at their real estate portfolios."

Commercial Investment Real Estate

A reevaluation of the way corporations handle their real estate is especially important in light of the anticipated growth in buying and selling, says a recent Coldwell Banker Commercial/National Real Estate Investor corporate real estate survey reported in CIRE.

This forecast is particularly significant to the wireless communications industry. With nearly 184,000 cell sites nationwide (which reflects a growth trend of 4.5% year over year since 1985), wireless carriers have officially acknowledged the magnitude of their real estate portfolios. In fact, cell site leases represent the first or second largest expense for wireless carriers internationally. Managing these costs has become a number-one priority as carriers navigate their forward planning and the new technology that will profoundly impact the growth of their cell site networks.

A by-product of the wireless industry’s growth strategy since its inception, carriers’ real estate portfolios have been a largely overlooked asset for 20 years. Now, the industry is taking steps to manage their commercial real estate interests with the same savvy indicative of corporations focused on maximizing their investments.

But commercial real estate is a complex business and building owners for decades have tapped industry experts to represent their interests. Professional landlords or partnerships that own small office buildings often employ their own brokerage listing agents who monitor the competition’s lease terms and conditions, while large office complexes owned by institutional investors employ professional property and asset managers.

An estimated three to ten percent of brokers focus exclusively on representing tenants, a more recent industry segmentation that equalizes access to critical market information. Says CIRE magazine, most Fortune 1000 corporations utilize tenant rep services.

“When tenants do not go to the marketplace to fully determine whether the renewal terms and conditions are competitive, they almost always lose. Knowledgeable landlords keep pace with the marketplace and fully appreciate the financial rewards to the property owner when tenants enter lease renewal negotiations without a broker and without bringing alternative locations into competitive play.”

This commercial real estate management strategy is overtaking the wireless industry and a new niche has developed for the administration and evaluation of cell site leases – real estate asset managers for the wireless industry. With their sprawling nationwide network that functions in dozens of markets simultaneously, carriers require yet another level of specialized tenant representation.

High Credit Tenants Are Money in the Bank – Literally

A recent New York Journal article overviewed top issues affecting office leasing, which included negotiating tenant improvements, guarantees, building services and default remedies, noting that “of critical importance to landlords is who the tenant is, what its creditworthiness is and what credit support is provided.”

Given the level of maintenance required to satisfy most tenant leases, not to mention risk factors involved with each signing, it’s no wonder commercial real estate owners have been clamoring for cell site leases for nearly two decades.

Says Commercial Investment Real Estate Magazine (CIRE), “Commercial real estate owners have discovered gold mines right in their own backyards… Whether mounted on rooftops in urban areas or on vacant land in less-populated communities, cellular antennas are close to being perfect tenants. Telecommunications companies have solid credit, few property management issues, high renewal rates, and a willingness to take otherwise wasted space.”

Cell site leases not only allow building owners to achieve 100+% tenancies, but the net profit of these leases is considerably higher than other tenant leases, says David Marino, partner at Irving Hughes, commercial real estate advisors. “Carriers do not consume property management resources or exact operating expenses related to occupancy, such as tenant improvements or broker commissions, from the landlord’s bottom line.”

Marino notes it’s not unusual for landlords to spend 20 to 30 percent of the lease value on these costs. “Nobody is calling to report a theft, complain about a stained carpet or request restroom maintenance,” he explains. “In most cases, cell site leases are automatically paid by the carrier, so even invoicing is not required.” In short, cell site leases provide sheer profit to the landlord.

Beyond the revenue you can count on from a Credit A tenant, did you know that the tenant’s credit rating also impacts your ability to financially leverage your property?

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 and/or with only local tenants. Top-drawer tenants lend credibility to a project and factor into cap rate valuations as they represent a certainty of cash flow and ability to realize the project’s maximum value.

Says CIRE, “Property owners who meet the (cell) site selection needs encounter few problems (with wireless industry tenants). Telecommunications companies pay to survey the land, obtain building permits, and build access roads. They provide construction drawings and pay for installation and operating costs.”

Summarizes Marino: “Carriers are tenants landlords want to retain.”