For over two decades, Stark Capital Solutions has been a reliable provider of cell tower loans. Through our involvement in the industry, we have heard the frustrations from many developers who struggle to find the most flexible and cost-effective capital source to fund expensive tower builds. After spending over a year developing our own innovative solution, we can now offer a broader range of financial solutions to meet the needs of all cell tower developers.
The demand for new cell towers is growing, but developers are finding themselves running into similar obstacles when it comes to financing these new builds.
On average, cell towers with one anchor tenant have enough free-cash flow to support the debt-service payments on only 25-50% of the total capex required to construct the new cell tower. Therefore, developers are struck trying to come up with alternative solutions to fund the remaining construction costs. These alternatives are often very costly to the developers.
#1: The cell tower developer obtains financing for part of the project, and contributes their own cash to fully cover the construction costs.
Downside: Not many active developers have enough cash to cover the gap that can’t be financed, along with funding additional operating expenses while a portfolio is being built out. See the common example below with a 10-tower development pipeline:
|Example:||10-Tower Development Pipeline|
|Total Construction Costs:||$3.5mm ($350k per tower)|
|Sr Debt Limit:||$1mm ($100k per tower)|
|Addtl. Capital Required:||$2.5mm ($250k per tower)|
While this may be a viable solution for some developers, it leaves most developers searching for other solutions.
#2: The cell tower developer partners with a private equity investor.
Downside: This method commonly forces the developer to give up majority ownership of their company, along with a large share of the financial upside. This solution solves the immediate capital need, but is typically the most expensive solution, as this significantly reduces the capital gains a developer can realize whenever the portfolio is sold. In addition, bringing in an equity partner also means losing a certain degree of control and decision making.
#3: The cell tower developer partners with a tower consolidator to have them provide the capital in return for the right to purchase the towers at a pre-determined time and price.
Downside: The price is normally a discount to what the tower would sell for in the open market, and the timing might mean the tower is purchased before the developer can add co-location tenants. Similar to bringing on an equity-partner, this solution alleviates the initial capital need; however, the developer loses flexibility on when to sell, and is typically more expensive than the developer realizes.
New Option: Stark Capital’s Two-Tiered Financing Program
With our new solution, cell tower developers can maintain ownership of the asset, have full discretion on when to exit the tower asset, and retain more profit when the tower is sold. Stark’s Two-Tiered Financing option covers 100% of the development cost of the tower in the form of two separate loans.
Loan #1: “Senior Note”
The first loan is a traditional Sr. Debt loan that is calculated based on what the current tower cash flow can comfortably service.
Loan #2: “Subordinated Note”
The second loan covers the remaining funds needed to complete the tower, but the cell tower developer does not have any loan payments due until the tower is sold or refinanced. The interest on this loan accrues until the loan is paid off. In return for the flexibility of this no payment loan, Stark Capital shares in a small portion of the profit when the tower is ultimately sold.
Whenever a second or third tenant is located on the tower, the subordinated note can be refinanced by a larger senior note with no further accruing interest or profit-sharing participation!
Unlike other existing solutions, Stark’s Two-Tiered Financing program ensures that the tower developer maintains control and full-ownership of their project. This model also allows the developer more freedom and flexibility on choosing the ideal time for a sale.
Not only does this program give the developer maximum flexibility, but it is also a less expensive option compared to bringing on private equity or partnering with a tower aggregator.
Financing Solutions You Can Trust
Our trusted reputation and depth of experience has allowed us to create relationships built on honesty and integrity with many independent operators. Regardless if you have a development pipeline of 2 towers or 50 towers, if you need help with financing, let’s talk about how Stark Capital Solutions can help you succeed.