Rising Inflation Poses Risk to Cell Tower Ground Lease Values, Says Industry Expert
Institutional Investor in cell site ground lease assets cautions that a surge in inflation could dramatically reduce the value of cell site ground leases over the next five years.
ATLANTA, April 3, 2014 /PRNewswire/ — The value of cell site ground leases could decline substantially in the near future, according to a prominent industry expert Jesse M. Wellner, Principal and Managing Director at TowerPoint Capital, a leading institutional investor in cell site ground leases nationwide. Many economists believe that The Federal Reserve’s sustained policy of providing monetary stimulus coupled with slow economic growth could cause rapid inflation over the next five years. While the cost of most commodities, goods and services will rise with interest rates, an inflationary environment would have negative implications for the value of fixed, long duration leases like those found under cell towers and rooftop base stations.
“Elevated inflation levels,” he says, “would greatly diminish the value of long term cellular ground leases.”
“Generally, cell tower leases provide for rent escalations designed to keep pace with normal inflation. However, a hyper inflationary environment quickly outstrips these increases, particularly in leases with annual escalations below 4% or 5%. This dynamic results in a significantly diminished present day value of the lease as the future rental stream lacks the necessary growth over time.”
“While this trend of depreciation is not a certainty,” Wellner says, “it is highly unlikely that cellular lease values will actually increase in the coming years.”
“Right now, interest rates are at record lows and core inflation has been relatively nominal,” he says. “This means cell tower ground leases are essentially at or in very close proximity to peak value. The good news for cell site owners is that you could still monetize your lease today and be confident your market timing is pretty near perfect. Those who choose to hold out for more money risk winding up on the wrong side of inflation with a significantly less valuable lease and increasingly stagnant monthly payments. As it relates to cell site leases, property owners have a choice not to fall victim to inflation and find a more defensive position for their capital.”
About TowerPoint Capital
TowerPoint Capital is a leading institutional investor in cellular site locations across the United States. The company provides cell site owners with lease buyout cell site valuation and marketing services. TowerPoint’s leadership team possesses fifty years of combined experience, having invested in over $1 Billion in telecommunications infrastructure and real estate-related assets. To learn more visit www.towerpoint.com.
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SOURCE TowerPoint Capital