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Tower Power: Dollars From the Sky

10/24/2008 08:00:00 PM Eastern



Author Information
Krasnow is a partner at Garvey Schubert Barer, and Solomon is a lawyer at the firm. They are co-authors of Broadcast Towers: A Step-by-Step Guide to Making Money on Vertical Real Estate.

When broadcasters think about sources of revenue, the list is usually pretty short: spot advertising, and perhaps a few lines of nontraditional revenue such as Website advertising and remotes.

But for many broadcasters, there's another source of potential income, often quite literally in their own backyards.

Towers, often called vertical real estate, are scarce commodities in today's world. However, many broadcasters look at their sites as necessary evils, not as an income-generating asset. That's a mistake.

When searching for new sources of revenue and ways of paying off debt, broadcasters should not overlook the money-making potential of leasing tower space. Tower leasing is a way to capitalize on a constant revenue stream from wireless communications, one of the nation's fastest-growing sectors of the telecom industry, without interfering or affecting the tower's original purpose.

Cellular carriers and other wireless service providers are paying premium rates for space on existing towers or desirable tower sites, particularly in areas where wireless facilities are needed to expand networks, increase capacity and improve the quality of service.

These companies generally pay between $1,000 and $4,000 per month. The leases (including renewals) often are for periods of 25 to 30 years and provide a significant source of continuing and escalating revenue.

Some broadcasters are reluctant to enter the tower rental marketplace because of a concern that leasing space would negatively affect their station's signal.

A medium-size broadcaster who operates radio and TV stations told us that he received over $700,000 a year from tower leasing activities, a line of business that the stations had not promoted. This broadcaster received no revenue from leasing space on his AM towers because he was unaware that existing technology allows co-locating wireless service providers on single and multiple AM towers without grounding and detuning difficulties and without impairing coverage or operating functions. Interference is seldom a factor and leases contain provisions requiring prompt corrective action should inter-service interference occur.

Not all broadcasters are ignoring the profit potential of their vertical real estate. For example, there are broadcasters who have formed separate business units to maximize revenue from leasing their towers. These units are responsible for identifying tenants, negotiating leases and maintaining sites.

In 2003, Clear Channel Communications created a Vertical Real Estate Division to lease space to the wireless industry on its 1,500 broadcast towers. In recognition of the profitability of tower leasing, certain profitable sites in its portfolio were not included when Clear Channel adopted its plan to divest its television stations and sell several hundred of its radio properties.

Other broadcasters have monetized their towers by entering into sale and leaseback arrangements. In March, Richland Towers purchased the towers of three NBC owned-and-operated television stations (WRC Washington, KNSD San Diego and KXAS Dallas) and leased back the space to NBC so they could continue operating the stations. Late last year, Richland entered into a sale/leaseback arrangement for NBC's WTVJ tower in Miami. Richland intends to acquire other broadcast towers (mainly in the top 50 markets) and then lease the antenna space to broadcasters and wireless companies.

Eddie Esserman, a broker with Media Services Group, told us about the experience of an AM station in southeastern Georgia. A large wireless carrier needed tower space but didn't want to build its own cell tower in a community where zoning was problematic. Instead, it leased space on the AM tower. Before installing its antennas, the carrier rebuilt the structure, reguyed the site, installed a new ground system, added lighting and built a fence because the site modifications resulted in an improved AM signal; at a cost of $100,000. The AM station received the first year's rent in advance and increased its broadcast revenues.

Broadcasters have made money by entering into cooperative arrangements with other market stations to construct and operate an antenna farm. For example, Sutro Tower in San Francisco is jointly owned and operated by four TV stations (KTVU, KRON, KPIX and KGO) that lease the space to local television and radio stations, wireless companies and other communications providers. Most major broadcast markets have at least one antenna farm.

Gary Hess of Tower Investment Trust observes that while towers in a large antenna farm cost millions to build, they make millions each year in rentals. He notes that some sites are generating over $2.5 million annually.

At a time when broadcast revenues are soft, credit is tight and traditional financing sources are drying up, broadcasters who own towers should focus on ways to maximize their real estate assets. It's a good way to fatten up the bottom line.



Author Information
Krasnow is a partner at Garvey Schubert Barer, and Solomon is a lawyer at the firm. They are co-authors of Broadcast Towers: A Step-by-Step Guide to Making Money on Vertical Real Estate.

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