BIG PICTURE: Underwriting Is Key to Sound Wireless Rooftop Leases

ORLANDO-Wireless rooftop leases often can shore up revenue for an office building operating at less than full capacity. Telecom companies make ideal tenants because there isn’t the daily wear and tear to the rooftop as there is from humans working in a suite of leased offices below.

For that reason, some property owners are less thorough in checking out a rooftop tenant’s creditworthiness than they are with interior tenants according to brokers, lawyers and developers contacted by GlobeSt.com. Owners need to use the same due diligence as they practice with conventional leases, knowledgeable brokers say.

For example, the proliferation of cell phones and pagers has resulted in a land rush of sorts on rooftops from the central business district of Chicago to the suburbs, reports GlobeSt.com Midwest bureau chief Mark Ruda.

But some property owners are overlooking a tenant’s credentials, a move that could come back to bite the owner later in his pocketbook, Jay A. Gitles, a partner at Seyfarth Shaw’s real estate practice group in Chicago, tells Ruda.

“A lot of times, a landlord doesn’t spend a lot of time looking at financials,” Gitles says. That’s a mistake because frequent corporate mergers could leave the responsibility for the balance of a lease in doubt unless a provision for a merger is spelled out in the lease.

“We usually cover it with assignment and sublease clauses,” Gitles says. The successor company should have a net worth and credit that is at least equal to the original lessee.

Although rooftop telecom equipment today generally is unobtrusive and compact, determining who is responsible for removing it when a tenant exits without a notice sometimes presents a problem if it isn’t clarified in a lease.

Gitles likens the situation to a phantom tenant scenario. “Have you ever tried to get a ghost to do something?” he asks. “It goes to the security deposit issue and letters of credit to make sure you can recover the costs” of removing the equipment.

Jason Kaiser, a senior office broker in the Orlando office of Trammell Crow Co., agrees. “The majority of the time the property owner will remove the equipment and those costs become part of the default,” Kaiser tells GlobeSt.com. “It should not be this way, but typically it is the way it ends up.”

He says “there are a few cases in which independent contractors will install the equipment for the tenant, and if receipt of services is owed after the tenant defaults, then the contractors will file a lien against the building” to make sure they are paid.

In checking out a tenant’s creditworthiness, property owners should ask the tenant for audited financial statements of his business. “Then, based upon the financials, you may need a letter of credit or a significant security deposit,” Kaiser says.

As for rooftop clutter that might be seen from ground level, the Crow broker says that situation can be eliminated by having the property manager or owner approve the location of the original equipment and any new equipment that might be added later. If the equipment is installed without prior approval, that could be a lease violation.

In Texas, unsightly equipment from rooftops normally presents no problem. “It’s almost totally unobtrusive,” Roland Garcia, account executive, Harwood Technologies, Dallas, tells GlobeSt.com Southwest bureau chief Connie Gore. “It’s not massive equipment. It’s a small satellite or small box.”

But equipment-removing from rooftops isn’t Garcia’s main concern these days. Finding new rooftop tenants are. He tells Gore he hasn’t had a call in six months from prospective tenants compared to a steady stream in 2000.