Ground War: TriStar’s Pitched Battle with American Tower Ends Up in Court

March 11, 2012

Every quarter, the leading tower companies release the number of towers in which they have bought the underlying land. It seems innocuous, but it may increasingly be needed as a tactic to maintain ownership of the tower.

A case filed in the U.S. District Court of North Texas shines a light on the increasingly competitive market for the ground that lies beneath the cell towers and how buying up a tower’s ground lease can be used as a backdoor method of buying towers.

TriSar Investors is a firm of 40 employees, which is backed by Centennial Ventures, Columbia Capital, Highland Capital Partners and Wood Creek investment companies. TriStar has purchased the leases on land under 600 tower locations since its formation in 2005.

The firm targets land under strategically located cell towers, providing the land owners with a share of the revenue produced by the tower, which it says will result in a much bigger payout than the previous cell tower leases, had they been extended. It also reduces the rent carriers pay for the site.

After buying the ground lease, TriStar may not renew the tower lease with the tower company when it expires. It may opt, instead, to take over the operation of the tower site. So the land owner gets more rent, the carriers pay less rent and TriStar gets the tower. Everyone’s happy, except for the tower company, which is out one tower.

According to the lawsuit, TriStar Investors came into conflict with American Tower in Texas where it has 100 locations with a concentration in the Dallas/Fort Worth metroplex.

“American Tower is not at all happy that TriStar is increasing its costs of doing business and shifting dollars from its bottom line to the landowners’ bottom lines,” TriStar said.

The lawsuit accuses American Tower of unfair competition, false advertising and illegal negotiation tactics. TriStar alleged that the tower company misled land owners to get them drop the price of their land and reject its higher, competing offer.

“American Tower has systematically misinformed and deceived landowners to acquire sites under less favorable economic terms than those offered by TriStar, to the material detriment of TriStar and landowners nationwide,” according to the plaintiff.

TriStar accuses American Tower of telling landowners that it will tear down the tower if they sign a deal with TriStar instead of extending their leases. For example, TriStar cites a tower that it attempted to purchase, which is subject to an SBC sublease and may not be torn down by American Tower. However, American Tower allegedly still threatened to tear down the tower when the ground lease expired. Because of that threat, TriStar alleges, the landowner opted to extend his lease with American Tower.

“These statements [made by American Tower] are demonstrably false and misleading because American Tower knows that it does not, in the vast majority of cases, have any legal right to tear down towers at the expiration of its ground leases for several reasons,” TriStar said. “First, a number of the towers American Tower manages-including a significant number of its towers in Texas-are owned by AT&T, and American Tower’s rights with respect to these towers are defined and limited by a sublease agreement.”

How vulnerable is American Tower? It leases the land under 78 percent of its towers, according to its fourth quarter 2011 earnings report, American Tower is slowly increasing its capex on ground leases, spending $90 million to $100 million in 2012. Previously, it spent $90.1 million in 2011 and $83.4 million in 2010. TriStar says, because it is small, it only plans to cherry pick the most strategic sites. However, that may not be enough to ease the tension at American Tower. And, besides, it remains to be seen who else may pick up this business model.