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REVIEW SUMMARY
Company. Steel in the Air
Industry. Commercial real estate
Key. The air above your land may be worth more than you think.
What's the air above your land worth?
Most landowners probably have a pretty good idea of value when it comes to the dirt. But what if a property turns out to be a prime spot for a cell-phone tower?
Ken Schmidt's business is helping landowners determine the best terms for cell-phone tower and site leases that typically last 25 years. Fort Myers-based Steel in the Air has been growing revenues at a 20% annual clip as the growth in cell-phone services continues apace to handle the surge in data transmissions from devices such as the iPhone.
Schmidt has been on the other side of the table, building towers and later managing site acquisitions for Nextel. But here was the business opportunity he seized on in 2004: “I was constantly working with landowners who were unprepared,” he says.
Part of the challenge for landowners is the lack of information. “There's no MLS or comparable database. There are no sales because they're mostly leases.”
Which is where Schmidt comes in. He charges $500 an hour to advise clients about negotiating the best deal with cell-phone companies and the firms that build towers. On average, he spends about three to four hours researching a case. In the last six years, Schmidt has consulted with about 1,800 clients, which range from individual landowners to municipalities and corporations.
The tower business is booming, thanks to handheld devices such as the iPhone that tax the existing system. For example, the iPhone uses 50 times more bandwidth than the traditional cell phone. Schmidt estimates there are about 200,000 cell-phone towers in the U.S. and thousands more will have to be built to accommodate demand. Plus, many tower leases will be primed for renewal, providing more consulting opportunities.
Besides consulting services, Schmidt teamed up with New York City attorney Neil Levinbook to form a business called Cell Tower Attorney. Levinbook is also a veteran of the cell-phone industry and provides legal guidance for landowners. Combined with the consulting business, Schmidt says revenues will total $750,000 this year.
Another related business, Steel Tree Partners, assists owners in selling their cell-phone towers. So far, that company has assisted owners in the sale of 1,100 towers worth more than $650 million.
Schmidt, a University of Florida law school graduate, operates his business almost entirely via the Internet. He uses the Web for everything from finding and consulting with customers nationwide to evaluating sites on digital maps and investigating local ordinances.
Because he rarely meets clients in person, Schmidt doesn't need fancy office space. And the sophisticated mapping software and tools available today mean he doesn't have to travel as much. “Ten years ago, a business like this couldn't exist,” he says.
Building towers
When it comes to cell-phone towers, Schmidt knows his stuff. After he graduated from law school at the University of Florida in 1996, he helped build 120 towers with Acme Towers in Tampa and later worked for Nextel on site-acquisition contracts.
Following Nextel's merger with Sprint, Schmidt started Steel in the Air in 2004 because he figured landowners weren't always getting the best deal. “Sixty percent of the time they were getting less,” he says.
Getting the best deal matters because lease terms are surprisingly long. The typical lease lasts for 25 years and Schmidt says some tower companies are now angling for leases that last 75 years. “There's rarely any reason to agree to anything longer than 25 years,” Schmidt says.
Leases range from $300 to $10,000 a month for the most desirable sites around airports, but Schmidt is careful never to promise a landowner he can negotiate for more. “I don't like to pitch that way,” he says.
There are many variables that determine whether a site is the proper one for a cell-phone tower, but it mostly boils down to competition. “It's all about determining whether the carrier can move to another location,” Schmidt says.
Municipal zoning laws play a big part in pricing too. For example, Houston has liberal zoning laws while San Diego and Broward County are notoriously restrictive.
Naturally, cell-phone-tower operators rarely give the landowner the best deal up front, but landowners should be careful not to jeopardize a deal because tower and cell-phone companies often move to another site if the landowner is difficult. Having the highest building or land in town no longer confers an advantage because cell-phone companies are dotting the landscape with shorter towers that cover smaller radii but handle more data volume.
Schmidt uses Internet resources such as Google Earth, Bing mapping, online databases of building codes and assessor Web sites to do his research. “All of our consulting is desk-top,” he says. Two full-time and four part-time employees handle research and administrative tasks.
With the Internet resources at his disposal, Schmidt doesn't have to travel often. And he knows plenty of people from his cellular network. “There's rarely a city where I don't know someone who can visit the site,” he says.
The biggest challenge Schmidt faces has been finding customers. He's gathered 75% of his clients through the Internet and one of his Web sites, steelintheair.com, gets 20,000 hits a week.
Besides individual landowners, Schmidt also works for municipalities such as Clearwater and the city of Milwaukee that have large land holdings. Some municipalities have local preference ordinances that require tower operators to consider public land first.
In addition, Steel in the Air also has corporate clients such as Safeway and Waste Management, whose real estate assets can be home to cell towers. Churches, universities and condominium associations are clients too.
Diversification
Besides providing advice for landowners, Schmidt realized they also needed legal advice structuring contracts. While Schmidt is a lawyer, he teamed up with Levinbook who provides legal advice.
Schmidt and Levinbook met by chance when Levinbook stumbled on Schmidt's Web site. Levinbook had been an attorney for Nextel and, like Schmidt, moved on after the company's merger with Sprint.
“We both work remotely,” says Levinbook, who works from New York City and corresponds via email and the occasional phone call with Schmidt. “It's an interesting dynamic,” he says. “Our careers and professional lifestyles didn't exist 10 years ago.”
Like Schmidt, Levinbook rarely meets clients in person. “It's all done by phone and email,” Levinbook says. The key to building trust with clients that way is to over-deliver with information the landowner needs to make a decision. “The challenge with any Internet-based business is building your brand,” he says.
The only services that Schmidt offers tower owners is advising them on the sale of towers through Steel Tree Partners. Such “sell-side” advice has been growing too and the firm has done more than $650 million worth of transactions.
But Schmidt's loyalty is clearly with the landowners he advises. He won't take commissions from cell-phone companies or tower operators and he declines to provide a listing service for landowners because it's unlikely this will result in a lease.
“People want us to market their properties and I could get thousands a year,” Schmidt says. But cell-phone companies and tower operators don't seek out properties that way and it would be a waste of landowners' money.
Schmidt says there are opportunities in other technologies and countries. “Wind towers are next,” he says, and adds that he's about to launch a similar service with a business partner in Australia.
With all this growth, Schmidt recognizes he needs to hire more people. “The next step is bringing on a sales person,” he says. “I don't have enough time in the day anymore.”
Ken Schmidt knows all about leasing land for cell-phone towers because he built several hundred of them. Here's some of his advice to landowners who think they have the perfect site for a tower:
• Act quickly. If a tower operator or cell-phone company contacts you about leasing land, return the call immediately. Otherwise, the operator will contact your neighbor within a few days and you'll lose the deal.
• First offers from tower operators are rarely their best.
• Don't use listing or marketing services to promote your property. They're not worth the expense.
• Always get construction drawings and attach them to the lease agreement. Don't let tower operators use rough sketches that are open to interpretation and don't trust a verbal promise.
• Almost everything in the lease is negotiable.
• Just because you have the highest point in the area doesn't mean your property is more desirable.
• Don't assume the neighbors knew what they were doing when they were negotiating their own leases.
• Consider how your neighbors might react to a cell-phone tower before agreeing to a lease.
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