5G: Revenue Through the Roof
Telecom carriers have deployed 5G networks—could that mean an additional revenue stream for building and land owners? And owners bode well to determine if leasing their land and rooftops will bring them additional income.
Every so often a technology comes along that revolutionizes society and the economy. The 5G wireless technology is one of those. And, after a year of what many refer to as the launching and relaunching of 5G wireless technology, we can finally believe the hype.
Verizon, T-Mobile and AT&T are just a few of the carriers working to ensure their 5G network preparation maximizes the revolutionary opportunity that exists.
What it Means for CRE
The owners of commercial real estate buildings and land are consistently looking for additional revenue streams. That’s even more true during the current COVID-19 pandemic.
Knowing that average leases range from $1,200-$3,300 monthly, or that an average 10-year advance payment ranges from $144,000 to almost $400,000 of additional revenue for qualified CRE buildings, there is certainly evidence that cell tower ground and rooftop leases will help owners send revenue through the roof.
What Exactly Is 5G?
5G is the fifth generation of wireless technology. Most of us are driven and fixated on the need for speed. Whether ordering at a drive-thru, navigating highway traffic or heating food in a microwave, the sooner we can reach our objective, the better.
The same is true when it comes to data. Once upon a time, many of us would log on to our computers and select options that would produce the familiar dial tone of a dial-up connection. Our patience would earn us the satisfaction of the dial tone coming to an epic ending as imagery and text crawled slowly down our screens.
Telecom providers like AT&T and Verizon have shown speeds past 1 gigabyte per second. That’s up to 100 times speedier than a typical cellular connection and faster than an actual fiber-optic cable going into a home.
Global Workplace Analytics recently provided their best estimate that 25%-30% of the workforce will be working from home multiple days a week by the end of 2021. The download capabilities of 5G at an employee’s home will easily outperform the speeds in the office if the employer chooses not to meet or exceed the offerings of 5G in the workplace. Downloading large files fast is certainly a common ground for both work and work-from-home needs. Resilience during the coronavirus pandemic and the ever-accelerating build-out of 5G network, make cell tower real-estate investment trusts an attractive investment too.
5G also differs from previous generations of cellular technology with network latency. Latency is the time it takes a set of data to move between two points. 5G shortens the amount of time it takes to travel. Gamers renting in properties that have 5G will be delighted to avoid high latency, which causes lag and inevitably reveals the delay between the action of the gamers and the real responses within the game.
The Benefits of 5G
The performance benefits of faster speeds and low latency are as obvious as the choice between a property with 5G connectivity versus one without, but at a comparable rental rate. The not-so-obvious benefits may be surprising.
Remote surgery is arguably the most exciting and surprising benefit. Imagine surgeons being able to use surgical robots to perform a procedure in a facility far away. The advanced imaging guides the surgeon. The lag time currently found in 4G would be too great. The ability to help specialists save lives and attend to more patients in critical conditions is what 5G brings to the operating table.
Consider the future of self-driving automobiles being developed alongside 5G, using sensors to ping the network and communicate with other vehicles. Ultimately, it helps with collision avoidance because it knows where every car is.
Manufacturers can develop more productive and efficient factories. Farmers can sustain ideal conditions for growing and raising food.
Smart Cities will use 5G to power the network infrastructure, from the grid to the water supply. Combining technology with services and infrastructure will simplify the lives of residents who are open to becoming early adopters of the “smart city” as a practice, and not just a theory.
The Ground Game on Cell Tower Leases
Although owners of commercial property generally think of leasing their rooftop with 5G apparatus, the broad reference also relates to ground leases. Cell tower lease rates vary greatly. The rent is derived from myriad factors, including construction limitations, location, network needs, population density, etc. The cell tower lease agreement between the carriers and the landowners allows the tower companies to use the land in exchange for rent in a long-term agreement. Negotiations will take place before the installation, at a renewal date or during a lease buyout discussion.
CRE property owners play a part in the solution of some of the challenges 5G is still facing. Pricing and designing systems to use 5G are both major concerns. The challenge of widespread coverage is critical. As networks develop, carriers’ need to lease the property owners’ site is an opportunity for owners to add income.
The era of “smart cities” is also the era of “smart leases.” A smart cell tower lease should maximize monthly revenue, and it should also minimize terms that will have a negative impact on future development, financing or disposition of your property in the long term. The time value of money is always a highly weighted consideration.
A lease can last 5, 10 or upwards of 30 years. A solid lease is provisioned for flexibility to adapt to changing conditions during the life of the lease.
For example, there may be a need to relocate the cell tower or relocate access or utility easements on the property. Or, the lease could address potential changes in the insurance, liability, environmental and other sections of the lease, particularly over 20 or 30 years. The language regarding the ability to assign, sell or transfer the lease is also important. Is the lease in breach of your current financing terms? Or, when you sell your property, does it limit your buyer and their ability to get certain financing?
Let the Revolution Begin
It is always intriguing when real estate and technology benefit from each other. Can’t you still hear the now historic 90s dial-up internet connection, just before a voice said, “You’ve got mail.” Now, with more than 25 years of telecom and real estate working together, 5G and cell tower leases are a perfect storm. Regardless of how many real estate transactions you may have completed, a new cell tower lease or an amendment to a current lease is basically a telecom transaction. Proceed with caution. Consult with an expert. If it turns out that you do have land or a rooftop that is viable for a lease, send your revenue through the roof. Let the 5G technology revolution begin!
