What is a long lasting lease and what are the added benefits? – Rating: 6

3 thoughts on “What is a long lasting lease and what are the added benefits? – Rating: 6”

  1. I haven’t heard of a permenant lease in the US but I have heard of them in europe. In places like the UK, when you rent a space you put up a considerable fee (not a deposit) and you pay rent what would be considered very reasonable rent. In exchange you can stay as long as you want as long as the rent is paid and the escalation schedule is adhered to (generally pretty reasonable too). It’s perpetual in a sense.

    I prefer the American style leases for a number of reasons, I would avoid a lump sum payment up front unless I really had a really good plan for the money.

  2. I think regular payments is likely the best option. I’m not familiar with telecom work as some on this sub are, but generally ground leases are great investments as the equipment is quite expensive to move, and thus the tenant is likely to renew. Assuming an escalation is worded into the lease, this can generate a substantial amount of income in a relatively passive manner. I’d assume that “up-front” offers such as outright sale is less advantageous for you and more advantageous for the buyer in the long run. But maybe run a simple compounding analysis in excel to verify this is the case.

  3. First, is this some form of a ground lease? If so it likely has some term – 99 years? My concern is the financial viability of the lessor, and if you own or control any surrounding land does it in anyway impede your use or longterm value. If it’s a license agreement for the tower or space on the tower or a hybrid than you also have to consider any landlord responsibilities, including if the site goes “dark”. In both cases you may be sacrificing upside with subtenants or expansion however this can be overstated in marketing material. The math to compare the lump-sum payment is straightforward – cashflow over time (number of payments X amount) with a discount rate applied vs the proposed one-time payment. Since you are being presented a long-term agreement I’d consider your intended hold period of the investment AND the likelihood of continued payment by the lessor. Future technologies, financial well-being of the lessor, and even market rates could render a good lease today into something else down the road.

Comments are closed.