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Business Observer Friday, Jun. 26, 2015 3 years ago

Ring it up

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Money, lots of it, swirls around the cell phone tower industry. Armed with a new tactic, a Gulf Coast business targets a substantial market share.
by: Mark Gordon Managing Editor

Executive Summary
Company. Tarpon Towers II Industry. Cell phone towers, commercial real estate Key. The industry is capital-intensive, but returns are ample.

With dim memories of baling hay from a wagon on sweltering summer days, Ron Bizick, son of a Pennsylvania coal miner and grandson of a farmer, dreamed of a business career after college.

He found it in Pittsburgh entrepreneur Steve Bernstein's basement.

That's where Bernstein, in 1989, founded SBA Communications Corp. Bizick was one of the first employees of SBA, now a $1.5 billion publicly traded firm, based in Boca Raton, that owns and leases cell phone towers.

Bizick helped lead SBA from $150,000 in annual sales to $60 million in six years. He also found his passion in the cell tower industry, which is really commercial real estate, where firms own and lease tower space to a variety of tenants. Bizick eventually was named chief operating officer at SBA, and he later held the same position at Global Signal, a Sarasota-based company that owned 12,000 towers nationwide at its peak in the 2000s. Houston-based wireless infrastructure firm Crown Castle acquired Global Signal for $5.7 billion in 2006 — a record price for a Sarasota-based business. Bizick and several other Global Signal executives left the firm with sizable paydays after the deal.

A quarter-century later, Bizick is hot on an ambitious new cell phone tower business strategy, in conjunction with former Global Signal Executive Vice President and CFO Bill Freeman. The timing could be spot-on: Cell tower industry consultant Ken Schmidt, president of Fort Myers-based Steel in the Air, is one of many who predict the next year will be a boom for the sector.

“There has certainly been a reduction in towers built over the last five or six years,” says Schmidt, mostly courtesy of the recession. “That will be restored over the next year. It's a rare time.”

Freeman and Bizick's first post-Global Signal venture was Bradenton-based Tarpon Towers. The duo launched that cell tower investment firm in 2008, backed by $80 million in private equity. Within six years the firm had about 250 towers in its portfolio worth more than $250 million.

Tarpon Towers did so well that in 2014 the equity partners cashed out with a 25% internal rate of return, says Freeman, roughly triple their initial investment. While Bizick and Freeman made a lucrative personal return in the first go of Tarpon Towers, they had one regret: They exited earlier than they wanted to satisfy the equity investors.

Now Bizick and Freeman are back, with Tarpon Towers II, which officially launched late last year. The risks, and potential rewards, are greater in this version of Tarpon.

But Bizick and Freeman, like Schmidt and others in the industry, are confident, not daunted. Their ally: The amount of smartphone users continues to rapidly multiple, and all those users need a tower. “There's nothing better than towers,” Bizick says. “All signs point to a long life for the industry.”

The core of the Tarpon Towers II approach is to match employees who invest their own money with equity partners who have the patience to wait out market cycles. The firm will then buy towers or build towers through build-to-suit contracts with cell phone carriers. The plan is to concentrate mostly on markets in the Southeast, where population growth begets a need for more towers and connectivity.

Tarpon will next target clients, from broadcast firms to cell phone companies to government agencies, to lease space in the towers. Specific tenants it will go after include Verizon, AT&T, Sprint and U.S. Cellular.

An advantage in the hunt for clients: Cell tower leases, which mostly range from $200 a month to $3,000 a month, are traditionally long-term contracts, sometimes up to 20 years. Says Freeman: “It's really sticky revenue.”

Abundance of capital
On the own money side, all five lead partners in Tarpon Towers II were required to invest at least 10% of their total net worth in the business. That's more than $10 million, the bulk of which comes from Bizick and Freeman.

“We only wanted to have people who believe in this, not people who want this to be something where they only use other people's money,” says Bizick, CEO of Tarpon Towers II. “On the net worth we wanted it to be just enough where people think about the decisions before they go to sleep.”

For the equity side, Tarpon Towers II received $60 million from Baltimore-based Redwood Capital Investments in a deal announced in late April. Redwood is the family investment arm of prominent Baltimore businessman Jim Davis, who co-founded the Allegis Group, one of the largest privately held staffing firms in the country. Davis launched Allegis with his cousin Steve Bisciotti, who now owns the Baltimore Ravens of the NFL.

The $60 million investment, which Bizick says can quickly move into the hundreds of millions if a tower deal calls for it, is complemented by a $40 million loan from a regional bank. Tarpon officials decline to identify the bank that provided the loan, though they say multiple lenders aggressively courted them for business.

The capital, all together, puts Tarpon in a position to attack the cell tower market with vigor. Firm officials hope to acquire or build at least 500 towers over the next five years. One tower can typically provide enough space for up to six carriers or entities, says Bizick, and some carriers will rent more than one spot on a tower if the demand is there. The cost of building a tower varies, but on average it's about $150,000. Buying a tower, depending on the location and other factors, could cost more.

“We decided if we were going to be in the wireless wars,” says Bizick, “then we needed a war chest.”

'Cost-effective'
Money is obviously important, being cell towers is a cash-intensive business.

But it's not the only priority in building a successful cell tower firm, says Schmidt, the industry consultant. Schmidt says good cell tower firms must have the ability to build and maintain long-term relationships with the decision makers who work for the Big Four cell carriers: AT&T, Sprint, T-Mobile and Verizon.

Schmidt says the big carriers, in general, don't want to get into the tower business. Those billion-dollar businesses, instead, look to partner with industry experts. That ranges from big players, like SBC and others that formed real estate investment trusts, such as Crown Castle, to smaller mid-size firms, like Tarpon. “Rather than put money into sticks, they put money into the backend and operations,” says Schmidt. “It's more cost-effective that way.”

Schmidt says if connections to win business are in place, there are few threats and hurdles that will block a well-capitalized firm with knowledgeable and experienced executives from industry success. One worry, for any cell tower firm, is the mobile industry will shrink for some reason and scale back investment in infrastructure. That could be the result of regulations, or possibly a big merger.

Another challenge is the big returns, combined with predictions of an industry boom, will naturally bring more competition. And more players could eventually drive up prices to both build and buy towers, and squeeze lease rates. Says Bizick: “Everyone sees this as a great business and wants to be in it.”

One question Freeman and Bizick have been asked is why they remain in it, given their past spectacular successes. Each has made more than enough money to live comfortably, or try something else. Both executives say it's the thrill of the competition, of finding the right space and closing the best deal, that keeps them coming back.

That, and fear of onset boredom brought on by early retirement.

“I'm an avid fisherman,” Bizick says. “But there's only so much fish out there.”

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