Fully Loaded Monopole

DISH Lease Valuations: From Discount to Zero

The DISH situation has moved well beyond a valuation discount — buyers now attribute no value to DISH tenant revenue. Most tower owners are no longer being paid on their DISH leases, and few expect to collect anything meaningful going forward. As a result, tower cash flow (TCF) on DISH-tenanted towers has already declined for many owners, and that reduced cash flow is what buyers are underwriting.

There are two additional headwinds. First, buyers are now factoring in future equipment removal costs, since DISH equipment is widely expected to be abandoned in place. That’s a cost, not revenue. Second, DISH accounted for an estimated 30–50% of new colocation lease activity between 2021 and 2024, and with DISH effectively out of the market (along with US Cellular), the pipeline of new leases and amendments will be meaningfully slower going forward. The AT&T acquisition of DISH spectrum may generate some incremental amendment activity, but we are skeptical it will significantly offset the lost lease-up volume.

The silver lining: when DISH equipment does come down, it frees up a RAD center — and for a well-located tower, that’s a real opportunity.

There Are More Buyers Than Ever — But They Are Getting Smarter

Whether it’s lease buyout firms expanding into tower ownership, lease optimization companies making portfolio offers, new tower companies, or infrastructure funds, there remains strong demand for tower assets. Market valuations are still attractive despite the industry slowdown of 2024. That said, the buyer pool is more sophisticated than ever. Buyers are paying close attention to which carriers anchor a tower, the pace of historical lease-up, and the exposure to carriers like DISH and US Cellular. More buyers does not mean less scrutiny — it means more competition for the right assets, and more discipline around the wrong ones.

Zoning Protection and No Competing Structures Are Still Essential

The lesson from 2024 remains true heading into 2026: tower buyers discount or pass on assets they consider distressed, particularly those with limited lease-up potential. Well-located towers with strong anchor tenants and zoning protection continue to command premium prices. However, towers anchored by second-tier carriers, or located in areas without zoning barriers to entry, are facing harder questions from buyers — especially given that the Big Three (AT&T, T-Mobile, and Verizon) are increasingly willing to build near an existing tower rather than collocate on it if zoning permits. In a three-carrier world, every location decision matters more than it did when DISH and US Cellular were active deployers.

Questions Buyers Ask- and other Concerns in 2026.

Below is a list of questions you should be asking yourself about your towers- because buyers will be. Curious about the other issues that tower owners are facing in 2026?  See our separate post on Top 8 Concerns for Tower Owners in 2026.

Tower Location

• Do any local zoning regulations (or other barriers to entry) prevent new towers from being built near the subject towers?
  • More than at any other time, buyers focus on whether the local zoning regulations would prohibit the placement of another tower near the subject towers.
• Do the subject towers have significant competition from other existing towers?
  • Due to the increasing willingness of large wireless service providers like AT&T and Verizon to consider relocation to other existing towers, buyers like to know that there are no existing towers near the subject towers that will serve a similar purpose. Lack of competing structures combined with difficult zoning regulations improves the odds for future colocation without undue interference from relocation tower providers. One large tower company tends to avoid purchasing towers in areas without zoning that has AT&T as a tenant. Will others follow?
• Why did the developer build the individual towers or the portfolio?
  • Because some developers are intentionally building towers near other existing towers, buyers try to determine why the towers were built. Were the towers built for coverage or capacity purposes (or both)?
• Is the portfolio regionalized?
  • Buyers like to see purpose-built concentrations of towers due to more efficient maintenance, marketing, and operation.

Tower Tenants

• Who is the anchor tenant?
  • Especially for more rural locations, buyers are looking closely at who the anchor (first) tenant is on the tower. The buyers have found that some 2nd tier wireless carriers have towers that aren’t leasing up at the same rate as those anchored by AT&T, T-Mobile, or Verizon. These 2nd tier carriers are building in rural areas without zoning and as a result, the Big Three carriers may be willing to simply build near existing towers rather than collocate on them.
• What is the ratio of broadband to narrowband tenants?
  • Buyers prefer broadband equivalent tenants, i.e., cellular, government, utilities, and FM and TV broadcasters. Narrowband tenants, such as paging, mobile radio, and WISPs are not valued as highly, primarily because of lower expectations of longevity related to those leases.
• How creditworthy are the tenants on the tower?
  • Buyers also assess the creditworthiness of the tenant roster to determine the longevity and churn risk.
• What is the exposure to possible terminations from Sprint?
  • With the Sprint/T-Mobile merger, buyers will examine the exposure to possible terminations due to the merger. Buyers will also look closely at MetroPCS, Cricket, and Clearwire leases for possible termination.

Tower Tenant Lease Terms

• What are the rent and escalations?
  • Older leases tend to have higher escalations. Presently, some developers are accepting lower-than-normal escalation rates in their leases, which can damage the value of a portfolio.
• Is there a claw back to the anchor tenant if additional tenants colocate on the tower?
  • Many newer built-to-suit leases include reductions in rent to the anchor tenant when subsequent colocators come on the tower. Buyers prefer that there is no claw back clause in the tenant lease.
• Do the tenant leases allow for additional revenue when modifications by the tenant are requested?
  • Buyers scrutinize the tenant agreements (especially newer leases) with the major carriers and look to avoid the nearly unlimited “buckets of equipment” some developers are conceding to these days. Tower valuations are higher for those with tenant leases which provide that a cellular tenant must pay additional rent to add or modify equipment on the tower. 
• What are the general termination rights?
  • Buyers like to see leases without termination rights vested in the tenant during each term. They do not like to see liberal termination rights. This is especially true if there is no zoning in the area or there are competing structures.
• Are there sublease rights or sharing rights granted to the tenant?
  • If so, buyers may be concerned with the loss of future upside.
• Are any expenses passed through to the tenant?
  • While it isn’t that common, buyers prefer that the tenants be held responsible for reimbursing the tower owner for some expenses, such as insurance, compound or road maintenance, and taxes.
• What is the historical lease-up? 
  • Towers with less lease-up over time are more likely to continue to suffer from below-average lease-up in the future. Since the purchase price is based upon current revenue and future revenue upside, buyers prefer towers with demonstrated lease-up.

Ground Lease Terms

• • Who pays real property taxes on the property?
    • Some leases require the landowner to pay all taxes, while others do not. Tower buyers prefer that the landowner pay all taxes.
  • Is there a revenue share clause within the ground lease agreement?
    • For obvious reasons, buyers prefer not to share revenue with the landowner. A revenue share provision will devalue the tower.
  • Are there prohibitions/restrictions on the sale of the lease to third parties?
    • This may include a right of first refusal or an outright prohibition on the sale of the lease to third parties. Buyers prefer that the lease contains right of first refusal language.
  • Does the landowner need to consent to an assignment or sublease?
    • Tower companies prefer not to have to go to the landowner for consent to assignment or subleases because landowners generally take time to review requests.
  • How much time remains on the lease until final term expiration?
    • The shorter the remaining term, the more likely the tower owner will incur an increased lease rate at expiration and resultant higher expenses for operating the tower.

• Has the tower seller been successful at buying out their ground leases and converting them to long term easements or purchasing the ground entirely under the towers?

• • Buyers prefer easements as opposed to leases because easements generally construe better rights to the buyer than a ground lease and the buyer doesn’t have to worry about extending the lease in the future.  There is an added benefit to tower sellers in that the sale price is commensurately higher without a ground lease expense.  

Tower Specifications

• Do the assets have additional structural capacity?
  • If the assets do not have sufficient structural capacity for additional colocation or modifications, the buyers will reduce their offers. Buyers like to see recent structural analyses and manufacturer drawings to confirm structural capacity and determine what is needed structurally if further modification work on the tower is required.
• Have the towers been well-maintained?  
  • Buyers prefer to purchase tower portfolios that have a clear record of maintenance over time.  
• How old are the towers?
  • Buyers prefer to purchase newer towers because they tend to have lower maintenance costs and higher structural capacity than older towers, especially on guyed towers.
• How many towers have FAA required lighting?
  • This isn’t a material issue for buyers, but it does result in slightly lower offers for towers due to the additional expense from monitoring and powering FAA notification lights.

Intangibles

• Who is the developer or operator?
  • Buyers like to work with established developers who have refined their business processes. They also like to work with developers with a known track record for developing good towers. 
• How does this portfolio fit into the tower buyer’s general or specific acquisition strategy?
  • Some buyers look to buy assets that mirror their existing portfolio’s location or growth profile. Others who have built several towers in the last few years may look to fill in their portfolio with mature towers so they have a more rounded portfolio.

Collectively, these factors account for most of what tower buyers are looking for in today’s market. Make no mistake, it is a seller’s market and buyers are paying high premiums for good towers. 

Curious How Your Tower Portfolio Is Valued In Today’s Market?

Are you curious about how your tower assets would be valued in 2025? Please reach out to us here to request a confidential analysis of the value of your tower assets. 

T-Mobile’s Acquisition of U.S. Cellular: The First Piece to Fall

T-Mobile moved first, announcing in mid-2024 that it would acquire much of U.S. Cellular’s spectrum and subscribers. U.S. Cellular retained ownership of roughly 4,400 towers, while T-Mobile agreed to lease space on about 2,600 of them under a 15-year deal.

For tower owners, the deal was a double-edged sword. On one hand, it preserved lease continuity for sites T-Mobile decides to keep from the U.S. Cellular network. On the other hand, it removed another independent carrier from the market, potentially hindering growth in collocation and amendment activities.

Fortunately, U.S. Cellular focused on owning and building its own towers rather than collocating, so the loss of U.S. Cellular won’t have a measurable impact on future lease-up.

Unfortunately, for tower owners that do have U.S. Cellular as a tenant, there is a higher-than-average probability that they will eventually terminate. While some sites may be kept by T-Mobile if there are no T-Mobile sites in the area, most will not be retained.

The transaction reinforced what many in the industry already sensed: consolidation was accelerating.

DISH’s Exit: There Goes the Bishop

DISH’s path was more drawn out but is likely to end with the same conclusion. After years of struggling to scale its wireless ambitions, DISH (via Echostar) has opted to sell its 600 MHz and 3.45 GHz spectrum holdings—valued at roughly $22.7 billion—to AT&T.

A subsequent deal with SpaceX has Echostar transferring its AWS-3 spectrum to SpaceX. These two deals will effectively end DISH’s run as a facilities-based carrier and transfer valuable mid- and low-band spectrum to AT&T and SpaceX. (There may be more spectrum transfers coming up.)

DISH’s 24,000-site buildout between 2020 and 2024 represented nearly 60%–70% of all new macrocells constructed in the U.S. during that period. In other words, DISH alone accounted for a substantial portion of the “same tower” growth. That surge provided temporary tailwinds for the tower industry.

Many DISH-related leases are vulnerable to termination in the near term, though very few have been terminated to date. The spectrum sales by Echostar are still pending regulatory approval; therefore, most leases continue as is—for now.

Still, tower buyers are already pricing in future risk: DISH leases are valued at a fraction of comparable agreements with AT&T, Verizon, or T-Mobile.

To add insult to injury, DISH has sent letters to some tower owners indicating that they believe they are “excused” from their lease obligations due to “frustration of purpose,” alleging that because the FCC pushed them to sell spectrum, they are no longer obligated to pay lease payments.

AT&T’s spectrum acquisition, once approved, isn’t likely to trigger a surge in new tower builds. Instead, most of that spectrum will be deployed through amendments on existing AT&T sites—offering incremental but modest rent increases for landlords and tower owners.

SpaceX is unlikely to build a significant terrestrial network. The broader impact is one of consolidation and efficiency, not expansion.

Together, T-Mobile’s U.S. Cellular deal and AT&T’s pending DISH spectrum acquisition complete the long-feared contraction of the U.S. wireless market.

What It Means for Tower Owners and Lessors

The move from four national carriers to three fundamentally reshapes the tower business model.

• Less organic growth: With fewer carriers competing for coverage, the number of new colocation opportunities has shrunk. Tower owners can no longer count on new amendment activity from DISH or U.S. Cellular.

• Near-term churn: Expect that many DISH and U.S. Cellular agreements will be terminated in the coming years, especially once FCC approvals are finalized.

• Reduction of valuation: DISH and U.S. Cellular agreements are already being discounted due to uncertainty.

• Shift in leverage: The remaining carriers hold greater negotiating power, which may push down renewal rates and rent escalations.

• Valuation reset: Investors are recalibrating expectations, applying slightly lower multiples for tower asset purchases and prioritizing AT&T, Verizon, and T-Mobile tenancy. Scarcity of available tower assets is helping keep valuations high.

• More predictability: With three major participants left, the risk of further consolidation—and future churn—drops significantly.

For tower owners, the next phase isn’t about adding tenants. It’s about protecting value, optimizing existing leases, reducing costs, pursuing non-traditional tenants, and maximizing amendment opportunities.

Looking at the Chessboard

As the dust settles, 2025 marks a turning point for the tower industry. The sector is shifting from an era of carrier-driven expansion to one of consolidation and strategic management.

Owners who proactively audit their leases, strengthen relationships with core tenants, aggressively seek tertiary tenants, and position their assets for amendment income will fare best.

Let’s be clear: the tower business is still a great business. But the absurdly high-growth years may be behind us, and the margin for error is smaller. Proper site selection is more important than ever, and active site management and marketing are critical.

If you’re a tower owner and want to discuss the state of the industry or how we can help your tower business succeed, we’d be delighted to hear from you.

Time to Take Your Pieces Off the Table?

For tower owners, this consolidation wave isn’t just an industry headline—it’s a signal to reassess strategy. Whether you’re holding assets long-term or considering a sale, understanding how these shifts affect tower valuations and buyer demand is critical.

That’s where SteelTree Partners comes in.

Most brokers put out a memo and step back, leaving you to handle questions, due diligence, and tough buyer conversations. That’s not how we work.

Here’s how SteelTree Partners stands apart:

✅ We stay involved until closing—no disappearing acts.
✅ We visit towers when it makes sense to fully understand the assets.
✅ We help prepare due diligence and review it beforehand to avoid surprises.
✅ No “preferred buyers”—you get full market exposure.
✅ We’ve owned and operated towers and negotiated thousands of leases.
✅ We take time to understand your portfolio and objectives.
✅ We handle everything from single-tower deals to large portfolios.
✅ Two decades of trusted experience.
✅ We help owners even before they formally engage us.

The Inherent Conflict of Interest: How Inspectors Inflate Costs and Lower the Sale Price

We have been involved in several transactions where the buyer’s inspection firm’s structural reports were concerning, warning of imminent failure, leading the buyer to request a significant purchase price adjustment without challenging the findings, even though, in one case, the seller provided multiple passing reports. This is the classic flaw in how buyers conduct due diligence: the buyer chooses the inspector, who has an incentive to find and bid on problems, while the seller is left scrambling to defend the value of their assets.

In most states, commercial and residentialinspectors are prohibited from performing repairs on defects they identify. They also cannot accept referral fees or kickbacks for conducting inspections. In the tower industry, engineering firms that carry out inspections also bid on repair projects, often submitting rushed, inflated bids designed to cover the worst-case scenario. These “bids” are frequently made before the plans for specific repairs are finished. In some cases, the tower company and the inspector know they will re-bid the work after the closing, based on site-specific plans. The tower buyer ultimately benefits from the lower, site-specific post-closing repair bid, but they use the pre-closing, inflated contingency bid to justify the purchase price reduction—effectively profiting from the inflated cost estimate

When inspectors rush or make mistakes, the impact on the seller is multiplied. We have observed simple errors by the inspection company, up to egregious failures, such as completely overlooking completed structural modifications on the tower during routine tower mapping. To avoid giving away value needlessly, sellers must take control of the due diligence process. Here are five strategies we are now implementing for our clients to balance the playing field and mitigate the risk of a costly due diligence dispute, which may put a transaction at risk:

1. Demand Total Transparency

When a claim is made, demand the evidence. Don’t settle for a summary cell tower inspection report from the buyer.  We will now push for requirements in purchase and sale agreements that require the buyer to provide all underlying documentation—including inspection reports, tower mappings, and structural analysis models—within 5 days of receipt. If you can’t audit their inputs, you can’t dispute their conclusions.

2. Neutralize Conflict of Interest

If an inspection firm’s business model inherently incentivizes finding flaws and bidding high on repairs, they are a threat to your valuation. We are not suggesting that firms intentionally identify issues with towers – just that their incentives may not be aligned when they also bid on repair and maintenance work while submitting the inspections.

We now make it part of the bid process to ask which firm the buyer plans to use for inspections. If a bidder insists on using a high-conflict inspection firm, their accepted bid must be significantly higher than competing offers to offset the anticipated risk and due diligence adjustment. In other words, both the seller and buyer should agree on who will conduct inspections, or the seller must be compensated for the risk.. In other words, both the seller and buyer should agree on who will conduct inspections.

3. Establish the Right to Rebut

The seller must have the contractual right to challenge flawed findings with their own expert analysis. In the future, we will add to the purchase agreement a contractual right for our own engineers to review and, if necessary, provide our own structural analysis to rebut the inspector’s findings- especially if the engineering firm that did the original structural analyses is available.

We rely on trusted, honest experts to quickly audit these reports. The Turris Group (https://turris-group.com/) was highly responsive and instrumental in quickly illustrating flaws in the competing analysis, especially on complex tall towers. We also highly recommend Armor Tower (www.ArmorTower.com) for their thoroughness and ability to execute rushed, difficult analyses on uncommon tower types. Both firms prioritize accuracy over expediency.

4. Conduct Your Own Inspections and Structural Analyses Prior to the Offering to Pre-Identify Issues

If you don’t regularly maintain your towers or have inspections done, it probably makes sense to pay the cost upfront to have your own inspections completed by a trusted vendor. You might consider having your own Phase 1 Environmental Assessment completed to verify there are no new environmental issues that could be a concern. In some cases, buyers will even reimburse the costs of these inspections if they were conducted recently enough.

5. Self-Perform Repairs to Control Costs

The highest financial pressure comes from the buyer’s initial high-ball repair quote. Remove this leverage by including a contractual mechanism that allows the seller to self-perform (or subcontract) any necessary, mutually agreed-upon repair work. Establish realistic timelines in advance to complete the work, accounting for the time of year and issues encountered on the towers.

This guarantees the final price adjustment is based on the actual, verifiable cost of the fix, not the buyer’s inflated contingency bids. It puts the seller in charge of both quality and cost, protecting the asset’s true value through closing. To ensure the adjustment is based on actual cost, any required price adjustment should be structured as an escrowed holdback on the transaction. Any surplus funds remaining after the mutually agreed-upon repairs are completed (within a 6-12 month window) must be refunded to the seller..

By proactively incorporating these five strategies, tower sellers can transform the Tower due diligence period into a fair process, successfully protecting the hard-earned value and stability of their Tower portfolio valuation. And tower companies will get the assets they thought they were getting, or a fair reduction in the purchase price.

1. Are interest rates finally the “New Normal”?

In 2025, we were all holding our breath waiting for rates to drop. Now that we’re in 2026, the reality has set in: rates have stabilized, and while they remain elevated, the predictability has brought buyers back to the table. Investors remain frothy for towers, which continue to stand as one of the three critical pillars of the data center/fiber/tower triangle. Valuations for larger portfolios with established management teams remain robust. However, we are seeing a trend of smaller developers selling off mature sites to “recycle capital” into new, high-growth development pipelines. This isn’t due to a drop in asset value, but rather a strategic necessity as commercial bank debt carries high interest rates that make traditional funding for future development more expensive.

2. What does the “Three Tenant Reality” mean for your rent roll?

The industry is finally adjusting to a world with only three healthy national carriers. With the T-Mobile and UScellular merger fully closed as of August 2025 and the integration in high gear, we are seeing the peak of “site rationalization.” If you have both tenants on one tower, the churn risk is real. Furthermore, UScellular has rebranded as Array Digital Infrastructure, pivoting to become a tower owner themselves rather than a retail carrier. Simultaneously, optimism for DISH has evaporated following its $23 billion spectrum sale to AT&T. DISH has signaled a move to an “enhanced MVNO” model, which effectively means it is decommissioning physical mobile sites over time. This is creating a real “DISH Discount” in the M&A market, with many buyers valuing those leases at zero.
However, there is a silver lining to this consolidation: the three-carrier landscape has brought predictability and stability to the developer market that were missing during the volatile “fourth-carrier” chase. With three well-capitalized, rational players, tower developers can now project long-term demand with much higher confidence. The “wildcard” variables have been reduced, enabling more disciplined business planning and a more stable environment for those focused on core densification.

3. Will 2026 be better than 2025?

It’s likely a year of “slow and steady” rather than “fast and flashy.” The initial 5G coverage builds are in the rearview mirror, and we’ve now entered the “5G-Advanced” cycle (3GPP Release 18). The massive AT&T swap from Nokia to Ericsson gear is nearing the 50% completion mark. While carriers have generally been successful at staying within their existing equipment allowances—limiting massive amendment revenue—the sheer volume of activity keeps the industry floor high. While the technical shift to “AI-native” architecture is largely a carrier-level evolution, it is already driving increased power and fiber connectivity requirements.

4. How competitive is the Build-to-Suit industry?

The Build-to-Suit (BTS) landscape in 2026 remains highly competitive but increasingly segmented. While the “Big Three” carriers have slowed their macro-coverage builds, they are aggressively issuing BTS awards for targeted densification. However, the barrier to entry for developers has never been higher. Carriers favor developers who can demonstrate a strong “speed-to-market” and a track record of navigating complex local zoning. Competition for these awards is fierce among regional developers, often leading to compressed initial yields. The successful developers in this environment are those who view BTS not just as a construction project, but as a strategic entry point to secure a location that will eventually host multiple tenants and edge compute applications. Developers who can innovate to acquire sites and get towers standing faster will gain ground on those who do not. (Yes, it is still possible to innovate in tower development.)

5. What’s Happening with Build to Relocate?

The “wild west” days of build-to-relocate (BTR) have matured into a more tactical game. Carriers are still seeking partners to build adjacent towers to lower their rent, but the developer mindset has shifted. Tower developers are now more carefully scrutinizing BTR opportunities for real lease-up potential beyond the anchor tenant. Because a BTR tower by definition implies a low-barrier-to-entry zone (as the carrier was able to permit a second tower nearby), developers are increasingly pushing back on anchor tenant rent levels to reduce volatility and protect their yields. The market is moving away from “volume at any cost” toward a model where developers demand better terms to compensate for the inherent risk of a high-churn, low-barrier environment.

6. Why are developers increasingly focused on “the dirt”?

The focus on the underlying land has intensified as owners look for ways to future-proof their assets. Tower companies are becoming much more aggressive in securing long-term ground leases or buying the land outright to eliminate ground-rent escalations. But it’s not just about owning the dirt; it’s about what you’re allowed to do with it. Savvy owners are revising their leases to ensure they aren’t limited to “wireless communications.” As we look at the potential for battery backup, AI processing, and edge data storage, owning the “dirt” and having the right to use it for power-intensive applications has become a top strategic priority.

7. Will AI and remote sensors finally provide the “Killer App” for 5G?

For years, the industry has been searching for the use case that justifies 5G, and 2026 might finally be the year we see the first real “AI-native” deployments. We’re hearing more developers ask whether “Edge AI”—moving data processing to the tower base—will finally create the massive surge in data traffic and local compute demand that was promised years ago. While the potentially massive deployment of industrial IoT, smart city sensors, and autonomous system telemetry is still ramping up, the technical foundation is finally solid. If 2025 was the year of “AI hype,” 2026 is the year we start to see how that intelligence is physically deployed at a tower site. It’s an upside scenario that most owners are watching with cautious optimism.

As a broker for cell towers and cell tower leases, my first question tends to be “what multiple of rent will someone pay for these assets?” 

The answer to that question over the last few years has been an easy one: “more than last year.” Between low interest rates, a lack of inventory for sale, and the amount of stimulus introduced to the US economy over the last three years, the valuation of towers and leases has continued to climb during that time. Despite inflation, we haven’t seen a material impact to asset valuation. But there is a question stuck in the back of my head: “how long can this last?” 

With inflation at 8.5% over the last 12 months and 4.7% in 2021, it seems like there should be some type of rationalization of tower and lease valuations. Furthermore, while the sale prices for most tower types are very attractive, the actual business of building and operating towers is becoming more difficult and expensive. As a result, I thought I would conduct a deep dive into what it is like to be a tower developer these days. To do so, I contacted the CEOs of four tower developers with portfolios of anywhere from 100 to 1,000 towers. Here are their thoughts (and mine) about the state of the tower industry. 

Increased Costs for Tower Developers

• Increased Capital Expenditures for Tower Development

First and foremost, the cost to build towers has increased at a rate that has outpaced inflation over the last 20+ years. The tower developers we spoke with indicated that the average cost of construction of cell towers has nearly doubled over that time. This translates to inflation of approximately 4.5% per year. 

There are a few reasons for this. First, carrier loading has more than doubled over that time. Long gone are the days where a carrier would install 6,000 to 7,000 square inches of equipment on a tower. Today’s installations commonly exceed 20,000 square inches and some newer master lease agreements entitle the carrier to install upwards of 40,000 square inches of equipment. 

Secondly, the rising cost of materials – especially steel – has had an outsized impact on development cost. One developer indicated that the cost of steel has increased by 50% in the last 5 years. Increased fuel costs impact both tower crews building the tower and the cost of transporting the tower and other supplies to the tower site. Further, tower construction contractors are able to charge more for jobs because there is so much modification and constriction activity related to 5G.

• Increased Operating Expenditures for Tower Developers

On the operating expense side, there are also increased costs. The cost to perform regular maintenance at sites has increased by 10-25% over the last 10 years. Insurance and real property tax expenses have also increased. Furthermore, as towers become older, they require slightly more maintenance and repair. For one developer, maintenance costs have risen by 40% over the last 10 years. Two of the tower developers we spoke with mentioned that land leases have also increased as the typical landowner has better information available to them. Fortunately for tower developers, total operating expenditures for tower operation typically equates to 20% or less of the revenue generated by the tower (except for single tenant towers). So even a moderate increase in operational cost typically doesn’t have an outsized impact on profitability. 

• Increased Debt Costs for Tower Developers

As recently as 4 months ago, large tower developers could obtain debt (via a loan) at 3.5% per year. Today, that’s closer to 5-6%. As inflation continues to climb, so will costs – especially for borrowers with variable rates. One tower developer indicated that they are using more equity than debt because the cost of equity is approaching the cost of debt. While the increase in borrowing costs has not impacted tower multiples (yet), it does increase the cost of holding onto towers. For developers that tend to build and flip (sell towers within a few years of building them), the increased cost of borrowing doesn’t have much of an impact. But for developers who plan on holding onto the towers, it’s just one more lever that decreases the profitability of owning and operating towers. 

Flat or Lower Revenue for Tower Developers

It is important to distinguish between existing towers and newly built towers for the following discussion. For existing tower portfolios, especially those in areas with even moderate zoning, the tower owner maintains the ability to negotiate fair market value leases. For “built-to-suit” (BTS) towers where the developer builds a tower for a wireless carrier who leases space back from the developer, there tends to be greater competition between tower developers for those opportunities. As a result, the lease rates for anchor tenant collocation leases for a BTS tower have not even remotely kept pace with inflation. 

• Lower Rents

By way of example, I looked back at the collocation lease rates that we were charging back in 1997 when I started in the tower business. At that point, our collocation rate for BTS leases and for collocation leases was between $1,650/mo. to $1,750/mo. Today, some tower companies are entering into BTS leases with the Big Three wireless carriers for rates that are lower than $1,650/mo. At the low point in the market a few years ago, one company was agreeing to $800/mo. for an anchor tenant collocation lease. In other words, not only has the market for BTS leases not kept pace with inflation – it has receded.

Even non-anchor collocation leases (2nd sublease tenant on the tower) have failed to keep pace with inflation. Lease rates today for collocations on existing towers are typically in the range of $2,000/mo. with more expensive construction sites commanding slightly higher rents of $2,500/mo. The difference in today’s rates compared with what we were getting in 1997 suggests that collocation lease rates have increased by less than 1% per year over the last 25 years. 

• Lower Escalation

To the further detriment of tower developers, wireless carriers have been aggressively negotiating down the escalators in leases. Long gone are the days of a Consumer Price Index-based escalation. Most collocation leases today have flat escalation of 2% per year while DISH has been pushing 1% per year escalation in its collocation leases (and getting it). 

While escalation may not seem like it has a significant impact, consider what happens over time. Take for example the following two scenarios.

1. Standard collocation lease at $2,000/mo. with 2% per year escalation 
2. Standard collocation lease at $2,000/mo. with 2% per year except for the last two years 

Any idea how much of a delta there is in overall income over 25 years for these two scenarios? Scenario two will net the tower developer an additional $68,000 over the course of the lease – all because of the significant inflation we are facing in only the last two years.

• High Rent Relocation

If flattening lease rates and lower escalation weren’t enough for tower developers to contend with, they also must address possible relocation of higher rent leases on their towers. One need only look at Tillman Infrastructure and its rise to the top of tower developers in the country by number of towers (1700) in just 6 years to understand the impact. Tillman is one of a number of tower companies who are willing to build new towers near existing towers in order to relocate AT&T or another wireless carrier. The net result is a few thousand existing collocations that have moved to nearby towers. We believe that the threat of relocation has negatively impacted some tower companies in that they have either had to agree to lower rents on individual leases or had to negotiate more favorable master leases with the carriers to prevent relocation.

Tower Development Is Still a Great Business

To be fair, the tower development business is still a great business to be part of. Despite the increased costs and lower revenue per lease, it’s hard to be jaded about being a tower developer. Due to increased competition for assets, limited availability of quality portfolios, previous very low borrowing costs, and the impact of new entrants into the market chasing lower yields, values for towers have never been higher. Every developer I spoke with confirmed my suspicion that the increased costs/lower or flat lease rates hadn’t reduced their desire to develop towers. Some were pickier in choosing which BTS opportunities they pursued, but they were all still actively looking for more opportunities. 

If interest rates stay elevated, perhaps we see some belt-tightening or some rationalization in terms of lease rates and escalation, but under the current market it is difficult to see that there will be much change to the current equilibrium. Wireless carriers are getting more for their leases while tower companies still generate outsized returns when selling their portfolios.   

The business of tower development may be harder than it has been historically, and developers may need to be pickier on the opportunities they choose. (If you want to know more about the criteria that tower buyers evaluate when pricing a portfolio- please see this article on what tower buyers want in 2022.)  Absent a significant downturn in the economy, there are (and will be) no shortage of companies interested in developing and owning towers.  Nor will it be difficult to find buyers for those towers once they are developed.   

It just won’t be as easy as it used to be. 

Number of Towers Constructed

First, we examined which tower companies and wireless carriers have been most active over the last 3 months.  Noticeably, Verizon was the most active. The numbers though are deceiving in that many of AT&T’s site builds are being done by Build to Suit partners including some of the other tower companies on the graph below.  It is also important to realize that some of the towers built in the last 3 or 6 months are sites where AT&T is relocating their equipment from an existing tower to the newly built tower.  These are known as build-to-relo towers.

Next, we looked at the last 6 months.

The results are pretty similar although there are tower companies that have decelerated their build plans in the 1^st quarter 2020, notably Tillman Infrastructure who was third over 6 months, but absent in the top 10 entirely in the last three months.  As you may remember, we wrote about Tillman Infrastructure’s efforts to build towers near existing towers so that AT&T and Verizon could relocate to the new towers.  The graph below shows the drop off over the last three quarters for Tillman.

Does this mean less “build-to-relo” type towers?  Not necessarily as some of the other known BTR tower developers are still building towers adjacent to existing towers.  However, it may reflect fewer towers from Tillman.

Location of Newly Built Towers

Not surprisingly, many of the towers built over the last 6 months were built in the southern states including Alabama, Florida, Georgia, Texas.

This is likely the result of three factors.  First, construction is muted in northern states during the winter due to the weather.  Second, zoning is limited in more rural states and build-to-relo companies typically can’t build new towers near existing towers in areas with more restrictive zoning.  Third, there are multiple wireless providers who are expanding their rural coverage within the southeast.

Looking for a more detailed analysis regarding recent tower construction?  We have a phenomenal database of tower location data and unique expertise with which to evaluate tower related data.  Contact us for further information.