quote:
I think the church got about $230,000 for the perpetual easement. The property is on a ridge within the city limits, so it might have made it more valuable.
Nope, that's not what drove the value. It may have been part of the calculation on the rent paid to the church but not in the calculations on the easement.
When a perpetual easement is purchased the price is driven largely by the rental stream the landlord (in this case the church). Be that base rent or other money paid to the church under the ground lease.
You'll hear what we call "vultures" talk about deals in terms of "multiple" which means they're going to value an easement deal in terms of a multiple of either monthly or annual rent. This is sort of an unsophisticated way of looking at the deal and I'll get to that in a moment.
Typically, market on multiples is around 14-16 times the annual rent or 180-190 times the monthly rent. Vultures discuss deals on these terms because they are not in deals for long-term hold. They're not tower operators. They're simply financial middle-men who want to buy as many towers as they can at about 13-15 times the annual rent on average, put them into a portfolio and sell them to one of the big companies at 16-18 times the annual rent and make their money on the spread. This allows them to smooth out the averages so they might pay 19 times the annual rent on one tower but they may only pay 11 times the annual rent on another.
Anyway, their basic goal is to pay wholesale to the landlord and sell to a tower operator at retail.
For our purposes as an operator we simply do a NPV calculation on the cash flow of the revenue to the landlord and determine whether our outlay meets our hurdle IRR. The idea is that at some level we actually save money over the life of the tower by paying a lump sum (or even installment payout over as much as 20 years) vs. paying rent every month. We'll do this as a sort of debt arbitrage on our own sites as well as purchasing the revenue stream on towers owned by other companies.
Essentially, we're purchasing the revenue stream. So say a landlord is getting $1000 per month currently and the rent escalates at 3% annually (fairly representative terms in most markets) and the lease expires in 2050.
We'll do a deal for about $175,000 in a lump sum on a site like that whereby we execute a grant-of-easement & assignment of lease. The landlord gives us an easement on the tower & access premises and assigns us their interest in the lease as lessor. So, we'll either become our own landlord or we'll become landlord for the owner of the tower.