To properly value your billboard lease, it’s important to consider several crucial factors:
1. Revenue Generated by Advertising Displays: The amount of money the tenant, which is the sign company, makes from the advertising displays on your property is the most significant factor in determining a fair market lease rate. This revenue is critical because it directly influences what you, as the landowner, can charge for the lease.
2. Characteristics of the Sign: The potential revenue from a sign is influenced by multiple aspects such as the number of displays it hosts, the size of these displays, their visibility to passersby, the amount of traffic that passes the sign, and the level of saturation in the market area. Each of these factors plays a role in determining how much attention the sign will draw and, consequently, its revenue potential.
3. Type of Display: It’s important to note that digital displays are more lucrative compared to traditional static signs. On average, digital displays can generate up to four times more revenue. This increased earning potential means that landowners can command higher lease rates for digital display signs.
4. Location and Market Differences: The geographic location of the sign greatly affects the lease rate. Prime locations in major media markets, such as New York City, can command much higher percentages of a sign’s revenue in lease payments compared to smaller markets. This variance is due to the differing levels of traffic and visibility, which directly impact the sign’s revenue-generating capacity.
5. Operational Expenses of the Sign Company: When considering lease rates, it’s also essential to understand that sign companies incur various expenses related to the operation of the sign. These expenses include utilities, maintenance, sales, and posting. These operational costs are significant as they cut into the profit margins that the sign company needs to maintain for the sign to be a profitable venture.
Billboard leases are typically calculated at 6-10 times annual cash flow. As revenue increases so does the multiple.
6. History of the Lease Rate: As a landowner, you should also review the history of your lease. If your lease is older than five years and there hasn’t been an increase in the base rate, it could be an indicator that the lease rate is due for renegotiation. The market changes over time, and lease rates should reflect current market conditions.
7. Revenue Generated by Advertising Displays: The amount of money the tenant, which is the sign company, makes from the advertising displays on your property is the most significant factor in determining a fair market lease rate. This revenue is critical because it directly influences what you, as the landowner, can charge for the lease.
8. Valuation of Billboard Leases for Sale or Purchase: When considering selling your billboard lease or purchasing easements under billboards, the valuation is typically calculated as 6 to 10 times the annual cash flow from the lease. For example, a lease that brings in $1,000 per month could be valued between $72,000 and $120,000.
9. Factors Affecting Lease Valuation: Several factors can impact where within this range the valuation falls. The valuation tends to be higher for leases in great locations with consistent occupancy, reputable tenants, presence of price inflators in the lease agreement, a long remaining lease duration, and compliance with local regulations. Conversely, factors like a poor location with high vacancy rates, lease terms above the current market rate with only a few years remaining, and non-conforming signs that can’t be replaced can lower the value of a lease.
10. Economic Conditions and Market Trends: Lastly, it’s important to keep an eye on broader economic conditions and market trends, as these can significantly impact the value of billboard leases. Changes in the economy, shifts in advertising trends, and developments in local regulations can all influence what constitutes a fair and profitable lease rate.