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Webinar: Cell Leases as Source of Capital for Water System, Other Municipal or School Projects

September 3, 2019
Cell Tower Insights

Water tower with cell tower antennasCell leases can provide funds for water system and other capital projects for units of government, such as projects too small to warrant a bond issue. We have helped several municipal clients on such projects and will provide several examples in our September 19 webinar on “Selling Your Cell Lease in the 5G Era”. As the title indicates, the program will also cover 5G cell phone service, what it is, when it may be available (and where) and its impact, if any, on the sale of cell tower leases. For the program and a 50% discount, register using this link: http://www.lorman.com/406155?discount_code=C1416579&p=13389 .

On cell leases funding capital projects, one typical example we’ll discuss is where a municipality or water system has a capital project it wants to pursue, such as adding water towers or well fields, but the project is too small for a bond issue given the significant costs of issuing a publicly offered bond, the need for a large enough amount (e.g., over $10 million) to attract national bidders and get a good interest rate, and the like. However, in this example, the municipality has several cell leases for antennas on its water towers.

To raise funds for the project, the municipality decides to sell the cell leases (and future cell leasing rights to the water towers) in exchange for a large, one-time payment. Currently sales prices after going out for bid are around 17.5 times annual revenues, less for Sprint or T-Mobile leases due to their potential merger and closure of duplicate sites. Some purchasers pay more by structuring the transaction as a municipal bond where they do not have to pay taxes on the lease revenues they acquire.

Key factors in these types of transactions include:

  1. Getting bids so as to get the best price (and comply with state and local bid laws, where applicable)
  2. Obtaining terms which protect the water system and public water supply
  3. Bond counsel input (usually there are water system bonds outstanding) to comply with bond covenants and related requirements, such as those relating to the sale of system assets and use of proceeds from such sales.

Generally, these points are obtained by the preparation of a detailed request for proposal (RFP), which includes all the information bidders need and sets forth the main points which will be in the final documents. These include detailed provisions about the primacy of the public water supply, engineering-related provisions to protect the water towers and the future use of the towers for water supply, SCADA and other municipal purposes, and provisions required by bond counsel.

The RFP typically is sent to approximately a dozen potential purchasers, with several rounds of bidding leading to the high bid. This satisfies state/local bid requirements, any trustee for the bondholders and elected officials that the municipality has gotten the best price. Sometimes the purchaser will reimburse a portion of the municipality’s legal costs but this is not assured.

Such sales are complicated and usually take six months or more to complete. This time is needed to get ready for the sale, comply with bond documents, satisfy the procedural requirements of municipal law and allow for the purchaser’s due diligence (including surveys, title insurance and Phase I environmental reviews).

There are also other examples of municipalities using cell leases to fund capital projects, such as to renovate municipal parks.

For over 20 years we have represented municipalities, schools and many private property owners on cell tower leases, including representing clients with municipal water systems on several cell lease sales, and have helped clients sell nearly 100 such leases. For more information, contact John Pestle at 616/336-6725 or jwpestle@varnumlaw.com .

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