For most people it takes longer to sell a cell lease and future leasing rights than they anticipate. That is particularly true if you want to go out to bid and get the best price. If you take an existing offer, that will reduce the time somewhat, but it still may take longer than you expect.
How long? Well as I write this, it is June 2018, so if you would like to sell your lease by year end 2018, you should start soon. Municipalities and schools should start immediately if they want to close by year end.
Why so long? Let’s go through a typical sales process, assuming that to get the best price, you are going to go out for bids. These time estimates are based on our experience in helping clients sell over 85 leases, and the fact that things usually take longer than one might expect in a perfect world. Here are eight steps in a typical sales process:
- Gather all the relevant documents — leases, lease amendments, surveys, engineering drawings — before you ask for bids. That’s to make sure you have all the key terms, which may have been changed from the initial lease. And to be able to provide them to all bidders, so they can make good bids and not have the chosen bid go south if later a lease amendment with harmful terms pops up. The gaps and time to fill them varies a lot, so there’s no hard and fast rule.
- Preparing the request for proposal, or RFP. The description of the lease, the length of time rights are being sold for, who the seller is and how to respond is easy. What takes time is setting forth the key business terms that will be in the final documents. It’s like building a house — the RFP is the blueprint for what it will finally look like. For a sale of a cell lease on a building, the RFP may be eight pages long, with half of it devoted to key terms — things like ability to relocate the antennas, Section 1031 like kind exchange, who pays for a bank to subordinate (if there is a mortgage), and on and on. This can take two weeks to work out.
- The bid process. By the time you go through two rounds of bidding, it will probably take a month to five weeks.
- Following the bid process, there is usually a letter of intent. Although generally non-binding, it still takes time, especially in commercial situations. And generally purchasers will not start the due diligence necessary to close until there is a letter of intent, or equivalent. Allow two weeks.
- If your lease has a right of first refusal, the purchaser will want it gone before they engage in serious negotiations or due diligence. Allow 30 days for a typical right of first refusal, unless the purchaser allows this to occur concurrent with other tasks.
- The negotiation of the final documents, typically an easement and a purchase agreement. This can take a month to two months.
- The purchaser has to do their due diligence. Some will do it concurrent with negotiating the final documents just mentioned, some will not. If they won’t, add a month to six weeks. Due diligence usually involves the following items occurring in parallel: a survey (hard to do if there is snow on the ground); a Phase I environmental review (can be time consuming on sites in older areas); title insurance; and a subordination agreement if there is a mortgage on the property.
For cities and schools, obtaining title insurance can easily take one to (for sales of multiple leases) three months. That is because often the underlying lands were acquired by the school district or city 50 to 100 years ago, so there has been no recent title work done. As a result, the title company has to go back by hand into microfilm, microfiche and dusty archives at government offices. That takes time, and a purchaser will not close without a title policy.
If there is a mortgage on the property, allow a month to get a signed subordination and non-disturbance agreement from the bank, indicating that it will honor the lease sale if it forecloses on the mortgage.
- Cities and schools have to add in the time for their approval process; usually two weeks or more to submit final documents to their legislative body and get approval.
So overall, assume that a sale will take at least four months from start to finish at the short end for a simple deal (private party, one tower on open land) and six to nine months at the long end, such as a city or school with multiple sites.