Telephone Revenue

Telephone Revenue in Commercial Mortgages

Telephone Revenue refers to the ancillary income generated by a commercial property through telecommunications services provided to tenants, guests, or third-party service providers. In the context of commercial mortgage underwriting, this revenue is categorized as "Other Income" and contributes to the property's total Gross Potential Income (GPI), which ultimately influences the valuation and the loan amount for which a property qualifies.

While the prevalence of traditional landline usage has shifted, telephone revenue remains a critical component in the financial analysis of specific asset classes, particularly in the hospitality, healthcare (senior housing), and multi-family sectors. Lenders scrutinize this income stream to ensure it is recurring and supported by historical data or long-term contracts.

The primary sources of telephone-related revenue in commercial real estate include:

• Cellular Tower and Antenna Leases: This is often the most valuable form of telephone revenue. Property owners lease rooftop space or land to telecommunications carriers for the installation of cell towers or signal boosters. These leases are typically long-term (10–20 years) and provide highly stable cash flow.
• Guest and Resident Services: In hotels and assisted living facilities, revenue is generated from per-minute charges for local and long-distance calls, as well as flat-rate "connectivity fees" that may bundle phone and internet services.
• Service Provider Commissions: Building owners may receive commissions or "door fees" from telecommunications companies in exchange for exclusive or preferred access to provide services to the building's tenants.
• Infrastructure Access Fees: Fees charged to service providers for the right to utilize the building’s internal wiring, risers, or Distributed Antenna Systems (DAS).

From a commercial mortgage perspective, telephone revenue is treated with varying degrees of caution. Because technology shifts can render certain services obsolete, underwriters often apply a "haircut" (a percentage reduction) to this income when calculating the Net Operating Income (NOI). For example, income from a 20-year cell tower lease with a major carrier is weighted more heavily than fluctuating guest phone charges in a hotel.

Lenders will typically review the last two to three years of operating statements to determine the stability of this revenue. If the Telephone Revenue is consistent, it increases the NOI, which improves the Debt Service Coverage Ratio (DSCR). A stronger DSCR allows the borrower to access more competitive interest rates and higher leverage, as the property demonstrates a greater capacity to service its debt through diverse income streams.