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Sprouting of 5G Technology Could Boost Revenue for Property Owners

Driverless Cars and Smart Homes Mean More Tower Sites as Government Pushes Some Lease Prices Down.

CoStar: Cell towers and smaller transmitters will increasingly be added to structures including commercial office buildings to support nationwide 5G wireless infrastructure.

Commercial property owners could be among the biggest beneficiaries of the expected explosive growth of fifth-generation wireless services, a development expected to require millions of new cell towers to power emerging technologies ranging from driverless cars to internet-connected smart home and office devices.


Depending on scenarios that are still shaping up, landlords willing to lease space for new cell towers to the major wireless carriers in some locations could profit on spaces that aren't otherwise suitable for rent, depending on how the cell service known as 5G infrastructure falls into place.


“As real estate increases in value, and the demand for these towers rises, that would probably go hand in hand with increases in lease prices,” said Nick Foster, president of consulting firm Airwave Advisors in San Diego. His firm negotiates cell tower leases on behalf of clients including cities and commercial property owners.


Cell towers could increase almost 3,678% by 2025 across the United States as 5G goes mainstream, according to data firm Rethink Technology Research. There are currently about 225,000 U.S. cell towers operating, mainly geared to fourth-generation technologies, but the firm predicts that number could grow to 8.5 million by 2025.


Now in relatively early stages of buildout in the United States, 5G is a more efficient digital cellular network than the 4G that is common nationwide now. The 5G system is expected to be as much as 100 times faster than 4G, once fully built out, and allow mobile data transfers in just milliseconds.


Fifth-generation cell sites generally can make use of smaller transmitters than earlier generations. Some are no bigger than a suitcase, with others 100 feet or taller. They are placed in various configurations on vacant land parcels, utility poles, rooftops and other high-altitude areas of buildings.


Industry analysts note that 5G cell sites offer more powerful but shorter-range connectivity than earlier cell technologies, and need to be clustered closer together in higher numbers to provide uninterrupted service. That accounts for the higher required location count, especially in and between urban areas with numbers of technology users.


Foster said cell tower lease rates are currently highly negotiable and can range anywhere between $1,000 and $13,000 per month per tower or even higher in some locations desired by the carriers in major cities, based on factors including location, nearby population and the coverage gaps that a carrier is trying to close in a region.


Demand could rise as many cities add new mixed-used developments, stadiums and apartment complexes to their urban cores, requiring more power and service capabilities as technologies like autonomous vehicles require coverage that doesn’t fall out between cities or neighborhoods.


Rent Limits

Private landlords may be positioned to capture much of that demand, but their ability to do so could be affected by recent moves by federal authorities to speed tower installation approvals and prevent price-gouging by cities and other owners of government-controlled locations. Consultants interviewed by CoStar News said that could mean less demand and lower value for cell tower leases in many locations, including commercial sites.


Cities that were looking to cash in on the coming explosion of new towers placed on government-owned buildings, utility poles and other civic support systems may need to reduce their financial expectations.


Aiming to speed the buildout of 5G infrastructure, and following heavy lobbying from the telecommunications industry, the Federal Communications Commission earlier this year imposed lease rate caps for new towers placed on government-owned properties, and established limits on how long cities can take to approve new towers.


Government agencies can now charge no more than $270 in leasing fees annually, or $22.50 monthly, for each newly built tower. Also, government approvals for acceptable projects must be made within set time limits, typically 60 days after application for the addition of an antenna to an existing tower site, and 90 days for a tower that will require new construction.


Lease pricing limits have not been placed on commercial property owners. But those owners may be affected if the tower users including the major carriers, Verizon, AT&T, T-Mobile and Sprint, decide to focus their location planning on cheaper city-owned properties and try to bypass privately held locations.


That tactic, however, will only work if the cheaper sites can help carriers fill coverage gaps; in reality, the carriers aren't expected to be able to fully avoid commercial sites in most cities.


“The carriers are still going to need to use private properties,” said James Kennedy, chief executive of tower placement advisory firm SteepSteel in Houston. “We’re advising our clients who are property owners to hold their feet to the fire.”


He said the carriers and other technology entities will need more cell coverage as new 5G devices come on to the market and are adopted by consumers, and a rising number of technology providers seek consistent cell coverage between communities nationwide.

Prior to the FCC’s caps, Kennedy said it was not unusual for some government and private property owners in growing West Coast markets, such as San Diego and San


Francisco, to garner monthly per-tower lease revenues ranging from $3,500 to $6,500 in high-profile locations. Those paydays could be less frequent for all concerned under the new rules, at least in the short term.


Costs and Benefits

Ultimately, Kennedy said, commercial owners will be faced with weighing the costs against benefits when it comes to hosting cell sites. The revenue brought in from leasing must outweigh the potential future losses of revenue if current or prospective future tenants decide they don’t want to locate next to those towers because of design aesthetics or other factors, including concerns by some whether there could be any health issues from exposure to cell transmission waves.


At the same time, the lack of strong 5G cell reception could make a commercial property or neighborhood less desirable to tenants, he added.


Individual property owners aren’t the only ones that stand to cash in on the rise of 5G. Several tower-focused real estate investment trusts are poised to capitalize on demand by owning portfolios of properties that are leased to carriers and other users of wireless infrastructure.


According to the National Association of Real Estate investment Trusts, the six companies classified by the industry group as infrastructure REITs, collecting rents from operators of wireless towers, fiber cables and related systems collectively had a year-to-date total return on their shares of about 43% as of Aug. 31 -- up sharply from the 6.99% for full-year 2018.


The leader of that pack, American Tower Corp., had a one-year total return of 54% as of Sept. 27, and its stock price of $218.98 was 38% higher than a year earlier.


Foster, who previously handled cell tower leases for clients at brokerage Cassidy Turley, which is now part of Cushman & Wakefield, said individual commercial property owners could always be in a somewhat passive position when it comes to establishing significant revenue from cell carriers.


Actively wooing providers to properties really doesn’t work, the way it might for other types of tenants.


“It doesn’t help to approach" signal providers, Foster said. “They have to approach you. They have their coverage maps and they know where their weak spots are.”


Article by: Lou Hirsh, CoStar



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