Jesse Wellner has been part of the ground lease aggregation business for the past ten years, starting out his career in the space at Unison Site Management in early 2004. Subsequently, as principal and founder of the Well Street Group, he acted as lead adviser on the conveyance of more than $50 million in US and international towers. Jesse joined the TowerPoint Capital team (then Communications Capital Group) in 2009 when equity partner RBS Greenwich Capital recruited him help oversee the originations platform.
TowerXchange: What role does TowerPoint Capital play in the tower industry?
Jesse M. Wellner, Principal and Managing Director, TowerPoint Capital:
TowerPoint Capital is a portfolio company of Private Equity investor GTCR. We aggregate the ground leases under communication towers and rooftop base stations, exclusively in the US domestic market, but we are always keeping current on new opportunities to find valuable assets for our portfolio inclusive of international markets like Latin America, Europe and Asia. These opportunities are very exciting but also present unique challenges that our firm is yet to fully grasp. Our current understanding of risks in international markets places the prospects of any significant deployment of capital into the long-term category.
TowerXchange: What’s the scale of the TowerPoint Capital business?
Jesse M. Wellner, Principal and Managing Director, TowerPoint Capital:
The TowerPoint team includes fifty employees and independent contractors. Like most specialty finance businesses, we’re a blend of front and back office functions, weighted towards the front end which is tasked with consulting and partnering with landlords on their cell site locations.
The firm grows primarily through acquisition, deploying mid to high eight figures USD annually, and secondarily through future lease up activity at our cell site locations nationwide.
TowerXchange: It strikes me that the front end, origination part of your business is critical in dealing with a highly fragmented market.
Jesse M. Wellner, Principal and Managing Director, TowerPoint Capital:
Despite a substantial amount of consolidation over the past ten years, control of ground lease assets is indeed fragmented. The large majority of assets are still held by non-institutional stakeholders.
Ground lease aggregation is like building a meal out of grains of rice, one lease, a single US$150k deal at a time. The time and investment it takes to ramp up originations capacity represents a significant barrier to entry. This business requires a staff of knowledgeable originators consistently reaching out to land owners and making a credible case to partner with us.
Ground lease aggregation is like building a meal out of grains of rice, one lease, a single US$150k deal at a time
TowerXchange: What is your view of the current state of the ground lease aggregation business in the US?
Jesse M. Wellner, Principal and Managing Director, TowerPoint Capital:
We’ve seen significant increases in efficiency driven by tower company consolidation of Wireless Service Provider (WSP) owned assets and the entrance of more competition. While the increased demand has led to better execution for landlords it may be coming at some cost to quality interactions with landlords. My sense is that landlords are becoming increasingly frustrated by a lack of professionalism and overly aggressive canvassing by the lease aggregators. I suspect this dynamic serves as a real impediment to landlords motivation to transact.
Having said that there is no question that the near term bubble around these assets has created a great opportunity for sellers to take advantage of prices that are unlikely to go much higher – it’s a good time to sell. With the specter of further WSP consolidation, technological advancements resulting in more network flexibility for WSPs and interest rates moving higher there’s not a lot of argument for higher prices.
TowerXchange: Do ground lease aggregators have to be adversaries of towercos?
Jesse M. Wellner, Principal and Managing Director, TowerPoint Capital:
While some ground lease aggregators have taken a more aggressive approach in dealing with the industry captives (incumbent towercos and WSPs), TowerPoint has pioneered a strategy rooted in partnership. Our landlords, the WSPs and the towercos are TowerPoints customers and all are key to creating long term value. We have strong contracts with WSPs and strong relationships with the big towercos who have viewed us as a friendly aggregator with whom they have been more willing to trade with.
US towercos play an enormously important role in our industry and will continue to grow through acquisition. To the extent aggregators choose to exploit soft spots on tower company balance sheets, like near term expiration sites, they may achieve short term gains but it could be at the expense of the relationship. Our approach is not to bite the few hands that feed us, and to maintain symbiotic relationships with our customers.
The strategy of purchasing ground leases with near expirations can be viewed as a nuisance business by the towercos. Towercos are quite sensitive to this strategy because amongst other things investors track the average duration of their ground leases. Controlling the ground for a longer period mitigates the risk of higher rental rates, which allows for more predictable economic forecasting. Towercos have done a very good job over the last few years of defending ground leases under their captive tower sites.
TowerXchange: What are ground lease aggregator’s options for value creation and exit strategies?
Jesse M. Wellner, Principal and Managing Director, TowerPoint Capital:
At TowerPoint Capital, we’re sensitive to looking for value. We’re disciplined about what assets we acquire. We prefer assets with significant upside, such as rooftops with potential for extra assets, or towers on tight compounds where we can benefit from additional tenants needing more ground space. As an infrastructure investor, we’re structuring transactions for the next 50-100 years. As a result we’re less exposed to near term events like interest rate volatility. This enables us to take a more long term view of strategic sales or other exit opportunities.
Historically ground lease portfolios have been sold to towercos, but that doesn’t preclude other possibilities.
TowerXchange: Is there an opportunity for ground lease aggregators outside of the US?
Jesse M. Wellner, Principal and Managing Director, TowerPoint Capital:
I suspect there is growing interest in international markets on the part of US aggregators.
The limiting factor for US aggregators will likely be a lack of financial and operational capacity as well as limited expertise in international markets. It’s difficult to know what challenges, legal, operational financial and otherwise an aggregator might face in a new country particularly a developing one. However, the companies who can manage these risks effectively and execute internationally will likely be rewarded as first movers.
TowerXchange: You mentioned a personal interest in Brazil and Mexico – what’s your view of opportunities there, given that the independent tower industry is less mature in those markets than in the US?
Jesse M. Wellner, Principal and Managing Director, TowerPoint Capital:
My sense is that some international markets like Latin America bear comparison to the early days in the US 10-15 years ago when it was all about speed of deployment for the WSPs and towercos. There might be a lot less competition for land, but significantly more risk in terms of knowing what the landscape will look like. However, early participants like US towercos are likely to take the defensive lessons learned when building out the US market. They’ll close loopholes more quickly and be better positioned to anticipate more predatory aggregators.
