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Cell towers are seeing strong returns as a real estate investment


While major commercial real estate sectors, including industrial and multifamily, have captured the attention of many investors, smaller asset types, such as cellphone towers, have slipped under the radar despite recording a strong balance sheet in its own right. Fewer real estate investors are playing in this space, but sellers of cell towers and antenna arrays still have no shortage of buyers for these assets.

“They may only have five entities to buy instead of 10,” says Jason Lund, technology infrastructure manager for JLL, working out of the company’s offices in Charlotte, North Carolina. “There is still a lot of investor money for too few assets.”

The long list of potential buyers ranges from infrastructure REITs to private equity funds to telecom companies themselves. Committed investors have built strong relationship pools of dedicated capital to build portfolios. “Floating rate fluctuations in the United States and around the world won’t necessarily affect a wide range of telecom and infrastructure investors,” Lund said.

REITs focused on cellphone towers controlled nearly 75% of the wireless communications infrastructure in the United States in the third quarter of 2022, according to data from Hoya Capital. American Tower owned 35%, Crown Castle 30% and SBA 10%. Private investors and others owned only 22% of these assets.

These infrastructure REITs spent more than $557 million buying assets in the first half of 2022, according to Nareit. That’s a fraction of the huge total of over $10.2 billion purchased in the first half of 2021, including numerous portfolio transactions. But investment in the first half of 2022 was still about double the volume of transactions in the same period of 2019 and 2020.

The four infrastructure REITs posted total returns down 27.19% through September, a performance in line with the REIT sector as a whole. In 2021, infrastructure REITs posted total returns of 34.41%.

Private buyers, including infrastructure private equity funds, also continue to bid for assets. “Investors see tower advantage as the cornerstone of private market portfolios,” said Noi Spyratos, Managing Director and Head of Private Infrastructure Portfolio Management for CBRE Investment Management.

It helps that the three biggest telecommunications companies that use cell phone masts – Verizon, T-Mobile and AT&T – continue to build out their 5G networks. Also, other companies like Dish and Google are building new telecommunications networks.

“The telecommunications and technology ecosystems are always in a cycle of growth,” says Lund. “Demand for cell towers and antenna arrays is as strong as it was a year ago on the buyer side – with so few assets available, perceived prices are still relatively stable.”

As higher interest rates and rising investment returns spread through the global economy, fewer and fewer new investors feel the need to break into a complicated niche business to earn a bit of cash return. additional investment.

“The type of investors who might exit infrastructure markets are those who have capital that was not raised specifically to invest in this type of product,” Lund says.

Enough committed investors continue to bid on the limited number of assets and portfolios available for purchase to support the high prices. Cap rates are still near lows reached in early 2022, averaging around 5% according to dealmakers, although individual deals vary widely.

“We expect tower cap rates to remain relatively well insulated over the long term due to asset scarcity,” Spyratos says. “We believe investors will continue to have a strong appetite for long-term, stable and protected cash flow.”

Infrastructure investors build relationships to build portfolios

Purchase agreements for these infrastructure assets tend to be negotiated directly between buyers and sellers. “Great third-party enablers don’t exist,” says Lund. “Without facilitation, the market tends to be very opaque and difficult to penetrate.”

Some investors have brokered long-standing relationships with landowners and antenna operators. For example, CBRE Investment Management has partnered with CitySwitch, a developer and operator of custom cell towers, and CSX Transportation, Inc., a railroad company and landowner with sites across the country.

Over the past four years, CitySwitch has built and leased over 200 new cell towers and is actively developing a pipeline of 300 more, many of them along CSX rights-of-way. These projects provide consistent investment opportunities for CBRE Investment Management, a global real estate asset investment management firm with $146.9 billion in assets under management as of June 30, 2022.

“The challenge for investors now is to find the right team with a strong track record, an established operating portfolio, and an attractive pipeline to execute over time and grow at scale,” says CBRE’s Spyratos.

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