“How much is my billboard land lease worth?” I get asked that question by landowners wanting to sell their billboard leases and by investors and billboard companies who want to buy easements under billboards.
The answer: 6 to 10 times the annual cashflow associated with the lease. In other words a billboard land lease with rent of $1,000/month is worth $72,000-$120,000.
The price is at the high end of the range when:
- The lease is for a great sign location which is always occupied.
- The lease has a good tenant (e.g. Lamar, Clear Channel, Fairway, Outfront).
- The lease has price inflators.
- The lease has 15-20 years left.
- The sign is fully conforming to local regs and can be replaced if the original tenant walks.
The price will be on the low end of the range when:
- The sign is in a poor location and has high vacancy. Most land leases allow a tenant to walk if the sign becomes uneconomic to operate.
- The lease is above market and there are only a few years left. The land rent will probably decline when the lease is up for renewal.
- The sign is non-conforming so can’t be replaced if the original tenant walks. I’m aware of one investor who purchased a billboard lease on a non-conforming sign and then lost money when the original tenant took the board down due to unsatisfactory renewal negotiations. The investor was shocked to learn that the sign couldn’t be rebuilt.
- Landowners are pressed for money. I saw lots of easement purchases at 5-6 times lease cashflow during the 2009 recession when property owners were desperate for cash.
- The land rent is fixed for 15-20 years. A $1,000 lease payment has a present value of only $553 twenty years from now if you assume 3% inflation.
