How to compare a cell tower lease buyout offer

An offer of $500,000 looks better than one for $480,000. But what if the $500,000 buyer takes $25,000 in costs out of your check, or wants more of your land?

To compare buyout offers, look at three things: the cash you keep, the income you sell and the rights that go with it. Then get each buyer to put the same details in writing.

New to buyouts? Start with our cell tower lease buyout guide. Here we focus on the offers you already have.

Compare what you keep, not the headline price

Start with the price. Subtract every cost that comes out of your proceeds. Then check when the rest gets paid. Taxes are a separate question, so don't treat the check at closing as your final number.

Ask each buyer for a line-by-line list of deductions. That means any broker or adviser fee you agreed to, your share of closing costs, and any credits or adjustments. If a buyer says they will “cover closing,” get it in writing and find out exactly what that covers.

Here is a simple example:

Offer B has the bigger price and the higher multiple. But Offer A puts $5,000 more in your pocket before taxes. If the timing and terms are the same, A is the better deal.

Use the real deductions from your own offers. If a cost is still unknown, don't count it as zero. Get the number.

Use the same rent figure for both offers

The multiple is the price divided by one year of base rent. At $2,000 a month, a year of rent is $24,000. So a $480,000 offer is 20 times rent.

When two buyers bid on the same lease, run both multiples off the same current rent. If they used different rent figures, redo the math yourself. Then list anything else each buyer is buying, like equipment payments or future tenant income, plus any income you keep. Put that next to the multiple.

The multiple is a handy shortcut. It won't tell you the deductions, how long the buyer collects, or what else the deal lets them do.

Are both buyers asking for the same thing?

Two offers can look alike on page one and give away very different rights in the fine print. Read the proposed terms next to your current lease and the site drawing.

Ask each buyer these questions:

Same tower doesn't mean same deal. An offer that covers more land or more years has to be judged that way.

Our lease agreement checklist shows you where to find these terms. If the offer includes an easement, the cell tower easement guide walks through the area, length and access terms.

Three deals show how far bids can differ

Getting more than one bid can turn up a big price gap. Or it can show the top offers are so close that the other terms decide it.

Here is how the bids came in on three deals:

Fair Oaks: a big gap, and different rights

In Fair Oaks, nine buyers bid on the Miller Park site. The top bid was $484,943 above the lowest. The bids also differed on length and expansion rights. The $2,055,000 bid asked for a 99-year term, an option on 1,000 more square feet, and a share of income from new tenants in that added space.

That's why you compare the terms next to the price. Don't just circle the biggest number.

Jamesburg: four buyers, not one

The four bids were $464,500, $570,000, $609,000 and $664,000. Jamesburg picked the $664,000 bid in September 2012, subject to a signed contract. Even the top two were $55,000 apart.

If you only have one offer, the real question is whether another serious buyer will put a different price in writing. Jamesburg shows what competition did there. The 2012 numbers are not a price target for today.

Panama City: the last two offers were close

The final offers were $735,000 and $742,000 for a permanent easement. The gap was $7,000, less than 1% of the lower offer.

When offers are that close, small things decide it. Seller costs, a change in the rights, or a condition that makes one price less certain can all tip the scale. Check each one before you pick.

The lesson from all three: get enough detail to make a real comparison. More bids can show you more options. They don't guarantee a higher price.

Know the rent you're giving up

A buyout trades your future rent for one payment. Write down that income before you decide if the trade works for you.

Start with today's rent. Add the next scheduled increase, later increases, renewal terms and any extra payments. Check which ones your lease really provides and which would go to the buyer.

Read the tenant's right to end the lease, too. Don't assume every renewal will happen just because a projection adds up decades of rent. Run a short case and a long case. That shows how much your decision depends on the lease lasting.

Keep the math simple. A flat $24,000 a year adds up to $480,000 over 20 years, before any increases or gaps. That is not the same as $480,000 today. Money in hand now can be invested, and inflation eats away at money paid later. So a dollar today is worth more than a dollar in 20 years. Our calculator lets you compare the two and change the assumptions.

Get a revised offer in writing before you choose

Once you spot the gaps, send every buyer the same questions. It is hard to compare a full written proposal with a price someone mentioned on the phone.

Here is a message you can send:

Thanks for the offer. Before I decide, can you confirm the price, every cost or adjustment you would take out of my proceeds, and when I would get paid?

Can you also tell me exactly what income you are buying, how long the deal lasts, how much land and access it covers, whether there is an option to expand, and who gets rent from future tenants? Please send the draft agreement and the site drawing too.

Last, let me know about any exclusivity period, what has to happen before closing, and anything that could change the price.

A better price is great, but keep both the old and new offers. Check whether the buyer also changed the length, the land, the deductions or the conditions. More cash can come with a different deal.

Know who is making the offer and who would actually sign the purchase agreement. Our guide to cell tower lease buyers and their roles explains the difference between a buyer, a broker and an adviser.

Which offer should you take?

Decide on the whole written package: the cash you keep, the rights you sell and the conditions on payment. If the higher offer comes with more costs or a bigger easement, ask yourself if the extra money is worth it.

If a key term is missing, you're not done comparing. Get the answer before you call either offer the winner.

Is the highest multiple always the best offer?

No. A higher multiple can still leave you less cash after costs, or make you sell more income or land rights. Compare what you actually take home and the terms, not just the multiple.

Should you get another bid?

If you can, yes. A second written bid from a serious buyer gives you a real number to compare. First check that you haven't agreed to exclusivity. Give every buyer the same current lease information. Don't promise access or documents you have no right to share.

What if both buyers offer almost the same price?

Look at costs, length, expansion rights and closing conditions. A small price gap can easily be outweighed by a big difference somewhere else in the deal.

What should you do next?

Plug your current rent, increases, offer and costs into the calculator to compare the numbers. Then go back to the checklist above for the terms the math can't settle.

Compare your buyout numbers