WS889: How To Avoid A $1,000,000 Mistake with Hugh Odom

0:00:01.5 ANNOUNCER: Welcome to The Real Estate Syndication Show. Whether you are a seasoned investor or building a new real estate business, this is the show for you. Whitney Sewell talks to top experts in the business. Our goal is to help you master real estate syndication. And now, your host, Whitney Sewell.

0:00:20.00 WHITNEY SEWELL: This is your daily real estate syndication show. I’m your host, Whitney Sewell. Today, our guest is Hugh Odom. Thanks for being on the show, Hugh. 

0:00:32.00 HUGH ODOM: Thank you, Whitney. I appreciate the opportunity. 

0:00:33.00 WS: Hugh is a former AT&T attorney for over 11 years and the founder and president of Vertical Consultants, telecom consulting firm that has provided consulting advice for companies like Walmart and Disney and government institutions like the United States Postal Service, New York Housing Authority and Veterans Affairs. He has been a resource and newspapers, podcast radio shows and blogs for years. He has the ability to understand the true value of land to cell tower companies as they roll out hundreds of thousands of new towers using commercial buildings. Hugh, welcome to the show. I think this is just an interesting topic. We’ve not talked about this on the show. Hardly at all, if at all. I can’t remember the time we talked about cell phone towers, but I tell you one thing, we’re all looking for ways to add more value to our property, right? And I know people who have added cell towers in some form of fashion and vary a little, but I’ve heard of that, and it can add value, but then again, there’s a lot of things that it could trip you up with as well, just like you and I were talking about before, and so I’m looking forward to getting into that. And so Hugh, give us a little about your background, and let’s dive into this topic of cell towers and land and the value of each of those, and maybe that’s an option for us at least… Help us to know that we’re doing it correctly.

0:01:46.3 HO: My background or the people that make up our companies background, we were in the telecom ministry for 10, 15 years respectively, and I was an attorney at AT&T for over a decade. When I was on the other side of the table, let’s say I was the guy negotiating instructure and grievance to lease or acquire land for infrastructure for AT&T to build out our cell tower and other types of equipment. And then 10 years ago, we started Vertical Consultants. 

We basically just think of us going on the other side of the table, because saw… we saw this huge difference in ability between the cell tower companies, the wireless carriers, and the landowners. The land owners were not getting valued, but as you mentioned, they are entering into agreements that have a negative impact on their land. So we started working with individuals, churches, schools, small business, from very large businesses as well, to assist them in evaluating these opportunities, but also structuring them in a way to give some value today and throughout the term, but also protects their land as well, and their building.

0:02:42.2 WS: Nice. Well, I have consultants for all kinds of things, or have had coaches and people on our team, because there’s so many different aspects of business in general, especially the commercial real estate business that you can’t know everything, right? That’s why your team is so important, and I can see why someone would hire somebody like yourself for something like this, ’cause it seems so kind of out in the field a little bit for most of us, but it could be a great way, like I said, to add some value potentially. And so help us to think about who in commercial real estate are those prime candidates for something like a cell tower?

0:03:11.0 HO: Well, with the…we’re all at a 5G. I mean,  everybody’s gonna be a candidate to some extent with a commercial property, but the bill at is gonna be mostly in urban areas and then also areas that are in a kind of mixed area. Well, we call that mixed area. It’s a commercial residential mix, or… We do a lot of work with self-storage and hotels and things of that nature, because they’re in that mixed area to some extent, but what’s gonna happen and what has happened is that if you have a building and you got property, there’s going to be… And continue to be a need to build out more and more cell sites, just think of it, I tell people besides air, water and food, what is the thing you relying most every day? That’s cellphone – to communicate, to get information, etcetera. It’s not getting less valuable in your everyday life. It’s coming more valuable, and there’s two types of… people think of technology, they look at 5G and or do all this technology on their phone, that’s kind of like looking at the car, and we’re getting about the road that it has to drive on the technology is one part of it, but without the infrastructure, without the ability to be on those buildings, to be on that land, there’s no ability to use that technology. So our job is to work with those property or to understand the value of their land, and to get that right agreement in place, so there’s gonna be a lot of opportunity now with regards to existing property or property of an existing agreements, but also a lot more build out in the future years because the 5Gs gonna need a lot more sites.

0:04:27.9 WS: How do we know if our property would be something that we should consider adding something like a cell tower to?

0:04:34.2 HO: Every week, we probably get 300 contacts from people around the country and saying, I have a great location, I have a great building, a great place for a cell site. The easiest answer is, you’ll know when they knock on your door or they sent you a letter. We work with some very large companies that have a 1000, 2000, 4, 5000 commercial properties. And in that instance, if you have a large portfolio, you can go to some of the carriers and kinda work on a master agreement between the two parties. but if you own three or four properties, I tell people you don’t have to chase that cell site agreement. Gonna be a long road, and you’ll probably end up nowhere, but you really need to make sure the biggest thing is understand what the opportunity that not comes the door, that phone ring, that email come to drops, is that you can understand exactly not in what you’re being offered, but understand what you’re giving up in exchange… 

0:05:19.00 WS: Okay, so let’s think through that a little bit. So we’re prepared when we get that phone call or email, like you said. If we receive that, a lot of us would know what to do with that, or maybe it may sound good, or maybe the cellphone provider, whoever that is, who’s contacting us may make it sound very good, right? But what do we need to know? I know you’ve alluded to some mistakes obviously, that people can make and just say how it can affect the entire deal in such a big way, whether it’s throughout the life of the deal or the sale and financing, help us to think through that and what we should know.

0:05:46.6 HO: Sure. The first thing is, when you’re being approached, towards something on your property, you’re being sold something. It sounds like you’re getting something but you’re having sold something. You’re being sold the idea, “Hey, I’m gonna give you money for free. You’re not using that space on your rooftop. You’re not using that proportion or property”. So it’s kind of like you’re getting money for nothing. You’re not… You’re getting money for your use of your property, number one. Second of all, they try to minimize the impact on your property. When you’re in a cell site agreement, you’re not giving them a right to a certain portion of property, but you’re putting restrictions on the rest of the property and they’re all using 4, 500 square feet. They’re putting certain restrictions in their agreement that it impacts your overall property, so what you need to think about when you’ve been approached… What we tell people all the time, ask for two basic things upfront. Ask for a copy of the agreement. Just to look at that, ’cause sometimes they’ll send you a proposal over their term sheet and they’ll try to get you to focus on that, and get you to narrow your focus on the financial term for some basic terms.

0:06:42.0 HO: Get a copy of the agreement. Second, get a very simple site plan, not only where the equipment is gonna be, but also any areas of your property you’re gonna need for utilities or fiber optic lines or things of that nature, so you know exactly what you’re probably gonna be encumbered by and the biggest thing we tell people with regards to this is, “Don’t worry about what they’re offering, you understand what you’re offering them. If you understand that, that’s the key of the game, they want you to focus on what they’re offering you, what that number is. If you understand what you’re offering them, then you can negotiate based upon knowing, getting the correct value, but also putting certain protections that you mentioned that don’t have a negative impact on your property with regard to future developing your property. A lot of these agreements are in there that you’re committing for 20, 30, 40 years, and they can walk away at any time, but I’ll just use the example, and this works in about 99% of the leases out there. If I walked up to a property owner, I said, All of you have 10 times the market value of your property, but I have one condition, just one…

0:07:39.0 HO: And I have the money right here, I need… Let’s say Verizon, I need Verizon to move their equipment 10 feet and I’ll give you 10 times market value. 99% of the people out there have cell site agreements, couldn’t do that deal because they have no pathway to deal with the relocation of that equipment, and now they’ve got into a situation by the use of their overall property is subordinate to Verizons or AT&Ts or whoever use that small piece of the property, so that’s a lot to know about understanding value, but it’s also a lot to know about how this impacts your overall property.

0:08:08.3 WS: Some great set of thinking about right there, it may seem like a great opportunity, but you’d have to think about the restrictions they’re putting on your property, no doubt about it. To make that work, to make it a win-win. What have you seen in the past work… So we don’t really chain our leg to a ball and chain, so we can’t sell or get financing or whatever, maybe you share with some examples of issues that people have had, and then what we should be doing about it.

0:08:32.0 HO: Well, we use two words over and over when we talk to our class about these agreements. We use structure, and that helps you financially and also helps you with the protection, but the big word is flexibility. Flexibility, because none of us out there know exactly what’s gonna happen tomorrow, more or less 10 years from now. So what you need to do is think of this way. You need to think about having certain protections and certain pathways in those agreements. For example, like I mentioned, if you wanna re-develop your property, let’s say somewhere down the road, you need to have the ability for them to work around you give that being the wireless carrier to work around you, and if not, then you’re gonna be, again, restricted by that. A lot of people are in these agreements and they forget to have had that flexibility put in there, and they often say when they’re negotiating that agreement, say, “Well, you know, we don’t have any plans ever to redevelop this property. It’s never gonna change”. And I’m gonna say, “How can you predict 20, 30 years down the road? Nobody can’t… And if you don’t wanna re-develop it, half the guy you wanna sell it to wants to buy it, wants to do something with it and can’t do it, and that hinders your ability to sell or get a higher price for your property”.

0:09:31.9 HO: So that’s one thing, a lot of other things out there with regards to financing, which is kind of an interesting issue. A lot of the bigger lenders are looking at these cell site agreements is not much pluses, but sometimes a little bit of a negative if they’re not structured in the right way, because the lender, if he ever has to step in the shoes of the owner because of some bad situation, he wants to have the ability to freely market the property and sell it, and sometimes these agreements, if they’re not structured, these cell site agreements if not structured correctly can hinder that, and then with regards to overall pricing, the additional revenue can be a great benefit you’re getting from the cell site agreement. But the problem is if you start putting restrictions and restrictions and restrictions on properties, anybody in real estate knows some of the most valuable properties, I wanna have the least amount of restriction, if you can do anything with, if you start hindering that, you start hindering your ability to do things with the property, and it also affects the net value of the property going forward.  

0:10:23.0 WS: No doubt about it, more restrictions are worse, right, for most buyers or sellers in all those instances, whether you’re trying to do a re-fi even, and I wonder too, if you entered into an agreement like this, how would it affect your loan or have you talked to your lender to even find out if it would affect your loan or if they would even allow that as part of the loan. Have you seen that be an issue?

0:10:41.3 HO: Yes, definitely. The issue is people… Is that… Again, as I mentioned, the restrictions are put in place, but also these lenders are familiar with these agreements as well, they kinda look at hold on, what exactly is it, why do we value it? Number one, how do we look at it with regards to what we, we can do with this if you have to take over the property, and they look at… That says it used to be, if you’re getting, let’s say, 2000 dollars a month from Verizon, they just use that as the same dollar you’d be getting from a commercial tenant or same pool of dollars. Now they’re looking at and say, “Hold on, this is gonna have the same value of that, and now it doesn’t have the same value of that”. It’s kind of pushing us to a negative, as I said, before we ever had to jump in here and move this property to a cell, so that’s why when you entered the agreements, I keep on saying this, but you need to look at this in perspective not in what you’re getting, but what you’re giving up. It can be a win-win situation.

0:11:33.2 HO: You just have to make sure you’ve structured it the right way.

0:11:35.6 WS: You mentioned the cell phone provider or the cell tower provider, they have one way to value the property or the space, and obviously the land owner should think about how they’re valuing their space, and we’re gonna take all those restrictions in mind. All those things, ’cause that definitely hinders the value of property in a big way if you’re adding more restrictions, but how do we think through what the value should be without maybe the restrictions in mind right now, how do we know what that space is worth and what should we expect? 

0:12:02.0 HO: Well… The two most evil words in negotiating a cell site lease is market value. There’s no such thing as market value. That’s a real estate term, and that’s what the cell tower company wants you to focus on. “Hey, what’s the market value, what are other people getting paid in this area for similar lease?” The problem is, first of all, there’s no such thing as a similar lease. Every cell site when you drive around today and you see a cell tower rooftop equipment, every one of those have a different value. They can buy it this way, if I said there are 10 whole wealth in a certain area, and I said because they’re within a five mile raise, all have the same value. Well, no. They’re based upon how much production those wells produce, how much all they get. The same thing with a cell site agreement, and the big thing when you’re talking about evaluation, you need to understand why they’ve chosen that site, what value they get, let’s say again, let’s use team o. What value team o would get from that site, but also what detriment it would be to operational capacity if they weren’t able to use that site. How much diminishment? Think of it like I use this example, if you’re old enough to remember the old rabbit ears on TV. If you moved it on far left the TV, you got a perfect picture, start moving toward the center, and so so.. moved to the far right, you couldn’t get a good picture at all.

0:13:15.1 HO: So the perfect location, maybe your location, but they had to go down the road, they’re gonna have diminishment operational capacity. So the big thing here is understanding what they’re getting out of the deal, and the second thing is, don’t look at this as a real estate group, I know that’s your leasing space, you’re giving up space. Structure it like a utility agreement. If you get the value right, today, if I said the value should be X down to the penny today, that’s today. What all a cell tower or wireless carrier company wants to do is get you to agree to three things, rent and escalator and term. Why? Because if they get you to agree that, let’s say a 30-year lease, they fix their costs over the 30 years. They’re paying it right, escalates every year, is 30 years. As they get more and more value from the use of your property, you’re not saying anything. So you have to understand we call them, gatekeeping devices in those agreements. So as they are able to uptick their value, you’re able to renegotiate based upon a lot of different doors that value can come through. So it’s really important to understand the value on day one, but it’s so much more important to understand how to structure agreement to make sure you get the value right.

0:14:19.8 HO: A year from now, five years now, 15 years from now, based upon what they’re doing, not how much space are you using.

0:14:25.1 WS: What’s the transparency there between the cell phone provider and the landowner as the space becomes so much more valuable to them, more traffic, all those things you talked about, or how do we know that, or if your agreement is open to that? How do we know how much to raise a round and can you?

0:14:39.3 HO: Well, if you’re asking for transparency presented is darkness.

0:14:43.1 WS: That’s what I was afraid of.

0:14:44.3 HO: Here is transparency, the biggest advantage they have is that they have the information of what’s going on that side and the property are really doesn’t. Keeping information from the property or is their biggest advantage in negotiating and having these agreements out their long-term… The ability, what you have to do and to sell our services and what you have to, you have to get somebody to understand how to look at from that perspective, from that side of the equation. You need to understand what they’re doing out there, and again, what detriment that they couldn’t do it, and then how he deals with what they’re doing on day one, like we’re talking about 5G across the United States. They’re constantly being upgrade for right now to existing sites and the equipment being modified to enable 5G or just think about it, it’s basically upgrading what they’re able to do, is upgrading what they’re able to provide to their customers. Upgrading what they can get from their customers, but what’s the property are getting? Nothing. So if you understand that, and understands that transition continues over years and years and years. You need to be able to stop with that gate. Say, “Hold on, let’s re-evaluate and then be able to renegotiate based upon, again, not the space they’re using, but the value they’re deriving from that space”. 

0:15:49.3 WS: If they contact you, do they already know, but your space is the best for them, like this is the one they need if they went to the building next door, it would not be as good. Could we count on that? Like they’re contacting me because they’ve already done the research, and so maybe I can negotiate a little bit knowing that they wouldn’t have contacted me if my space wasn’t exactly what they were looking for.

0:16:08.8 HO: Right, well, what happens is they do a study, they do a propagation study, it’s called, and they look and they say in A B and C site, okay? They’re never gonna go to see first, and they’re not gonna be first because that’s the primary side. So you need to understand how to identify where else they can go, not only based upon their operational capacity, but also restrictions on those buildings for that land from permitting or the lay out of that property, etcetera. But when they come to you and they picked your site, the more they get invested, they start doing site surveys, they start doing studies, that’s a tip of the hat saying, “Hey, that’s the one we wanna go with”. Now you need to understand that what they’re gonna play… They have the same playbook, they all can go back to say, If you don’t do a deal, we can go down the road to Bob or Sue or whoever. The problem is, you need to understand what the difference is when your site and Bob and Sue site. And so that’s where there’s a big disparity with regards to understanding that distinction between size, but if you’ve been contacted, usually you’re the primary, they’re not gonna go to all three sites at the same time, they’re gonna go to A first. If A didn’t work, they’re gonna go to B…

0:17:10.7 HO: And so on, and so on

0:17:11.6 WS: How do we work with someone like yourself to ensure we’re doing this the best we can during that process.

0:17:16.6 HO: We get contact, as I mentioned, about property across the country, you can reach out to us either through our website or through our phone number or our 1-800 number, but the big thing I tell people, “We hope they were the right fit for everybody, but if we’re not the right fit for everybody, give someone to assist you with this because you’re not leaving money on the table, you mentioned a million dollar mistake on average, the property or leave more than 1 million dollars on the table on these agreements. That’s today, and I think that’s gonna keep on going up, and they get into a situation, but we say have a negative pack on a property. Go check us out at celltowerleaseexperts.com, as celltowerleaseexperts.com, and then we’re happy to talk to you about any situation you have.

0:17:55.7 WS: So what do you predict over the next, say, year to two years, I usually ask in the real estate market, and I welcome you to provide any insight there, or you can specifically speak to like the cell phone tower industry as 5G rolls out. How many towers are we gonna see, and what do you see happening there?

0:18:12.4 HO: Well, covid is kind of… Put a little bumper.. kinda hard on the plan a little bit, but pre-covid, and I think that’s gonna tick back up with 5G, you’re gonna have to build out somewhere between 500-800,000 new sites and by 2025-2026, just because of how 5G works… So what that means more particularly, is you’re gonna see a lot… That doesn’t mean a lot of traditional cell towers, that’s gonna be some… But the predominant amount is gonna be rooftop and structured science that’s gonna be attachment to structures or on rooftops or things of that nature. So if you own a building or commercial property, the odds are going up for you. Now, what you need to understand again, what that actually means when you get approached… So the cell tower industry and their infrastructure is growing exponentially, tell people, If you wanna invest anything, invest and wireless infrastructure, because we’re going to enter into a digital economy where everything is gonna be done, if we can Intel for covid health services, education, business. It’s gonna be done more over the wireless networks. So while infrastructure is going to… continued to be built… And that relates to commercial and just general property owners, because until they invent something that you don’t need a space on the ground to build that infrastructure, until they build flying cars, you’re gonna need roads, until they build something that you don’t need space on the ground, they’re gonna be cell sites on the ground or on a building…

0:19:28.7 WS: Wow. A lot to think about there. And no doubt about it, your cell phones right up there, right? I mean, we all operate so much I mean of our business off of our cell phone and you’re just way too connected, but as far as having to have that cell phone in your hand all the time, I’m as guilty as anyone. But anything else you wanna leave us with as far as the cell phone tower, there’s numerous questions I could ask you there, you know what asset classes are best for this, I know you mentioned self-storage and maybe some mixed-use type things, but is this something you can do with multi-family and other asset classes as well…

0:19:58.3 HO: Yes, definitely across the board. What you’re gonna see right now, especially with going back to 5G, is a lot of urban built out first and foremost, and then I’ll kinda go out of the Oscars a little bit, but you’re gonna see all types of commercial properties being used because the easiest way to get a 5G side or any side up and running isn’t for them to have to go build out the actual cell tower themselves, use an existing building or structure,  multi-family, hotel, self-storage, whatever, industrial, whatever, as actually the cell tower attached that equipment on top of that roof from that building. And they don’t have to build out the infrastructure. Also, it’s already zoned in a way that allows for that kind of use, so that’s gonna continue to grow and what you’re gonna see is more and more gross, so you’re gonna see a wide spread use of commercial properties across the board, and you’re gonna see that exponentially speed up.

0:20:44.2 WS: Alright Hugh, moving on to ask you a few final questions, any daily habits that you were disciplined about that have helped you at your success?

0:20:50.9 HO: Well, I think the biggest thing is you never rely on yesterday, you rely on what you need to do today, so all you started the day off fresh and I start off the first day, I look at what we need to do today, I don’t worry about what happened yesterday. I work about what we need to do today, I don’t worry about tomorrow, you gotta focus on today, and so my thing is I look at every day fresh and they start off there and try to make the most out of it and maximize the value of those 24 hours I have right there in front of me.

0:21:14.7 WS: What’s the number one thing that’s contributed to your success? 

0:21:18.5 HO: Persistence by far, I mean, it have to persistent. Bad things happen. Good things happen. You get hit. You get moved forward. You get hit, you move forward. Just keep on moving forward. That’s my advice to anybody out there.

0:21:29.2 WS: That’s some good advice, it’s not always easy, but it says that when… And they keep getting up and keep moving forward, once you lay on and stay there, you’ve lost… That’s when you’ve lost. Right? So how do you like to give back? Well.

0:21:40.6 HO: We do a lot of things…  personally, we do things… One of my biggest charities, the Saint Jude Hospital, I was born in, Memphis Tennessee , where Saint Jude say.. as we do that. We contribute there. I grew up playing golf and everything for a little kid, I played a college Cosi now a lot back for first key program and get kids in the game. The biggest thing we try to do is if we try to get a message out to people, because we see this huge disparity, it’s not just with property or… But we see a lot of small individuals, rural areas, small churches, you could take an advantage of in this history and our jobs to try to get them to understand, and if it’s not us, get someone to assist you with this. And one of our missions is to get more information out there for people to make it better, not just get more money for protecting themselves as well.

0:22:19.0 WS: Nice, Hugh, pleasure to meet you and have you on the show is definitely something in the commercial real estate business that we all need to be aware of, another one of those tools that we need to have in our tool belt that or just something to be knowledgeable about, so when we get that email or that phone call, it’s not just a brand new to us and we don’t know where to turn, at least we can think about you in reaching out to somebody like yourself that can help us, but you let out many things that we need to think about just knowing that they’re gonna try to sell us something and then our space is valuable, and we didn’t understand how to value that personally, even the no such thing is market value, I like that, and just why they choose our side is so important and understanding why the next person’s side is not going to be as good, the lack of transparency, but even having the gatekeeping devices, that’s such a good thought that just have in mind when entering in any contract, depending on the length, I guess. But thank you again for your time, tell the listeners how they can get in touch with you and learn more value…

0:23:12.6 HO: Well, the best way to learn about this is our website again that’s celltowerleaseexperts.com again, celltowerleaseexperts.com… 

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