FEATURE ARTICLE, MARCH 2011

SHOULD YOU SELL YOUR GROUND LEASE?
Billboards and cell towers could earn more than monthly rent checks.
By Jaime Lackey

Money may not grow on trees, but is seems to be sprouting from cell towers and billboards.

El Segundo, California-based Landmark Dividend acquires the rights to ground leases and rooftop leases for existing cell towers and billboards across the nation. While cell tower lease acquisitions have been around for nearly a decade, Landmark also uses the model to acquire the rights to billboard ground leases.  

The company pays property owners a lump sum based on anticipated rents. The cash received by property owners typically qualifies for advantageous tax treatment. For example, the lump sum qualifies as capital gains, which is taxed at a lower rate than revenue from monthly lease payments. In addition, cell tower and billboard lease right assignments can be part of a 1031 exchange. In a 1031 exchange, the property owner can sell the rights to a cell tower ground lease and reinvest the proceeds into qualifying real estate while deferring taxes on the reinvested portion.

What are property owners doing with the money? Some are putting a down payment on a new investment, some are paying down debt, others are completing building renovations or shoring up cash reserves.

“Sure, monthly income from a ground lease is nice,” says Mitch Kogen, executive vice president of origination in Landmark's Fort Lee, New Jersey, office. “But many property owners would rather take the take all of the money now and invest it in retail or office space — where they know the business and they can maximize the investment.”

The Double Tree Hotel-JFK Airport in New York City is one of Landmark's clients. Landmark purchased the rights to three existing cell tower leases and then marketed the roof to telecom companies. Landmark secured an additional $2,500 per month lease with AT&T, which Landmark then purchased. The hotel company used the proceeds for property improvements.

In addition to maximizing the investment potential from ancillary income like cell tower leases, Kogen notes that selling the leases is a sure thing. "Most telecom leases have clauses that allow the tenant to terminate with 90 days' notice," he says. While this could be devastating to a property relying on the monthly revenue, Landmark's portfolio is large enough to absorb the occasional termination.

Landmark Dividend was founded by CEO Jeffrey Knyal, who co-founded Wireless Capital Partners, one of the first cell tower lease acquisition companies, in 2001. Knyal has pulled together a team that has experience acquiring more than 4,000 telecom and billboard leases. 

“No one is quicker or more efficient than we are,” Kogen says. “We understand these assets better than anyone.”

In all transactions, Landmark is buying leases that are already in effect. The company acquires leases with terms from 10 years to 99 years and occasionally works with property owners to market qualifying sites to attract billboard or telecom tenants.

The landlords retain ownership of the properties. Landmark values the leases based on location, lease terms, and tenant.

“Business did not slow down during the recession,” Kogen says. “The need for capital is consistent and will increase in 2011 as more real estate opportunities come to the market and investors are looking for capital to put in brick and mortar.”

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