The COVID-19 pandemic has been tough on the real estate community. Retail tenants are filing for bankruptcy. Will any office tenant ever return in the new normal? Can other tenants continue to pay during the lockdowns and shutdowns?
There is one new tenant every building owner has an opportunity to secure, and this tenant will only need to occupy your rooftop! Who is this new tenant, you ask? Telecom. The Big Four include AT&T, Verizon, T-Mobile/Sprint and Dish. Why do they want to rent your roof? They need to lease your top floor to reach their 5G clients.
With the 5G explosion, national and regional telecom carriers are seeking rooftops nationwide to comply with their FCC licenses. Unlike 3G and 4G networks, which use large land antennas, 5G has a much higher frequency, and the frequency does not travel very far, thus the demand for rooftop leases. The 5G antennas are much smaller and work well on buildings where the roof has an unobstructed view of the sky and the ground.
Landlines Give Way to Lifelines
With real estate investors suffering the effects of the economic crisis, additional sources of rent can be a lifeline. Although investors don’t generally acquire buildings for leases associated with their rooftops, times are changing. Rooftop leases related to 5G cellular services have the potential to be a source of revenue for decades. Wireless carriers will be vying for many rooftops to make sure they provide the next generation of services to their members, and members are demanding them now as many people are upgrading their phones to 5G cell service.
Depending on the size and structure of your roof, it is possible to put four carriers on a roof, all paying the property owner rent with leases averaging between 10 to 30 years. The monthly rent per carrier per rooftop can range from $2,500 to $20,000 based on the population in the area of the building. Most leases also have annual escalations at 2% to 4% a year.
If you’re interested in leasing your roof as a potential revenue source, you’ll want to act quickly. Once your real estate neighbor secures 5G leases, it could knock out your chance at a lease revenue stream because carriers don’t need rooftops next to one another. Carriers seek to fill in holes in their coverage gaps, so, typically, they will not install duplicate antennas inside of that coverage radius. Instead, they will seek to expand coverage into currently uncovered areas. If a neighboring building is able to fill that need, then the ability to market your rooftop will decrease dramatically.
Don’t Try to Lease Your Roof Alone
As we approach Halloween, please understand that the lease can be a trick or a treat, and there are many tricks for optimizing the best leases. Carriers love to take advantage of building owners that have no understanding of the value of their roof. Go it alone, and you could be missing millions of dollars in lease revenue over a 30- to 50-year period. Rushing online to try and secure a lease without expertise is like giving to charity, and the beneficiaries of your charitable contribution would be the billionaire telecom companies.
Representation can help you get the highest and best leases in the market. It is extremely important to align yourself with a rooftop management company that specifically represents the building owner’s interests with the objective of securing the highest possible lease revenue for the client. This is similar to the type of relationship a real estate seller agent has with their client.
In addition to representation on the lease execution, representation is vital to elevate speed-to-market. The last one to stake their claim will be the loser in the race for revenue. If the carriers use your neighbor across the street, they likely will not need you. The time to expedite this opportunity is now. 5G will be the way America communicates for the next five decades. Your roof has value today, and you need to secure it or lose the value forever. Hopefully, this is the most influential article you read this year — the one that saves your building, improves your cash flows and secures your wealth for the long future. As with this generation’s new cellular system, there will be winners and losers. One winner is the property owner who can earn additional revenue by leasing their roof; the loser is the one that misses it.
Retail rents may be gone forever. Office leases will undoubtedly go down to historic lows. The roof is your best next generation lease. Urgency, expertise and positioning will determine whether your rooftop is selected.
Gonzalez is chief executive officer of Engineered Tax Services