Buying Partner's Billboard Rights

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abyssdiver
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Buying Partner's Billboard Rights

Post by abyssdiver » Mon Sep 10, 2018 4:06 pm

Dear Bogleheads,

I co-own a property with a billboard on it. The billboard company owns the structure and pays rent to us for occupying our space. One of the two other owners wants to sell me her billboard rights and I am about to consult with an attorney about drawing up a document to transfer her rights. She currently receives $855/month for her share which I've offered to buy for $120,000, which would be a 8.5% return for me but our current lease, which ends in 2020, includes 3% yearly increases. I am going to give her a large down payment of $75,000 and continue to pay her the same $855/month until I've paid whole thing off. I also want to extend the billboard lease to definitively ensure that I will earn back the money I've put forth. I live in a large city with many billboards but we have had this one on our property since 1970. It is at least 50 feet high and has two faces. I wouldn't expect it to be removed in the near future.

I'm just wondering if anyone has had experience with this type of deal. Would this trigger an increase in our property taxes? We have a tenants-in-common arrangement. Would the document be just an assignment of rents? What do you think of the deal?

As always, thank you all for your help.

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dm200
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Re: Buying Partner's Billboard Rights

Post by dm200 » Mon Sep 10, 2018 5:59 pm

abyssdiver wrote:
Mon Sep 10, 2018 4:06 pm
Dear Bogleheads,

I co-own a property with a billboard on it. The billboard company owns the structure and pays rent to us for occupying our space. One of the two other owners wants to sell me her billboard rights and I am about to consult with an attorney about drawing up a document to transfer her rights. She currently receives $855/month for her share which I've offered to buy for $120,000, which would be a 8.5% return for me but our current lease, which ends in 2020, includes 3% yearly increases. I am going to give her a large down payment of $75,000 and continue to pay her the same $855/month until I've paid whole thing off. I also want to extend the billboard lease to definitively ensure that I will earn back the money I've put forth. I live in a large city with many billboards but we have had this one on our property since 1970. It is at least 50 feet high and has two faces. I wouldn't expect it to be removed in the near future.

I'm just wondering if anyone has had experience with this type of deal. Would this trigger an increase in our property taxes? We have a tenants-in-common arrangement. Would the document be just an assignment of rents? What do you think of the deal?

As always, thank you all for your help.
Seems like there are risks - the billboard company goes belly up for example.

123
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Re: Buying Partner's Billboard Rights

Post by 123 » Mon Sep 10, 2018 6:11 pm

There is competition for the advertising dollars that are going to the billboard. They call it the internet.

I think your initial offer of $120,000 and your terms were way too generous as a starting point, that can make it difficult to negoitiate further. Just based on what you've said I would have started the offer at a $50,000 - with $25,000 down and payments from there. There is a risk that the billboard business could significantly decline or legislation (local of state) could put the billboard location out of business with little notice. Many areas of the country has had billboards banned over the last 75 years. You start deals with low offers and see if they accept, they very well might (because they know more than you might).

The way you've structured the offer and payments leaves you in a "hole" for many years.

While we don't have info about your other investments plowing additional money into this one venture will not improve your diversity of risk.
The closest helping hand is at the end of your own arm.

riverguy
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Re: Buying Partner's Billboard Rights

Post by riverguy » Mon Sep 10, 2018 6:16 pm

Ditto the above. You offered wayyyyyy too much. 140 months cashflow is rich.

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abyssdiver
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Re: Buying Partner's Billboard Rights

Post by abyssdiver » Mon Sep 10, 2018 6:22 pm

The company is Outfront, which used to be CBS. There are only 3 companies in the entire city. It’s on a major thoroughfare that crosses one of the largest cities in the US. I think traffic flow is around 50-60,000/day with a captive audience at a stoplight where the larger board is. You may be right about the internet but there are many other boards in less desirable locations.

What would be a good amount?

riverguy
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Re: Buying Partner's Billboard Rights

Post by riverguy » Mon Sep 10, 2018 6:28 pm

Personally around 6 years on something like that would be my max. Ideally getting it for 4-5.

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abyssdiver
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Re: Buying Partner's Billboard Rights

Post by abyssdiver » Mon Sep 10, 2018 6:36 pm

What if the billboard company wants to extend the lease another 10 years?

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abyssdiver
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Re: Buying Partner's Billboard Rights

Post by abyssdiver » Mon Sep 10, 2018 9:57 pm

To answer 123’s question, outside of my billboard endeavor, I have about 1 mil in diversified vanguard funds (mostly whole stock market with value and small cap tilt) and real estate that brings in about 48/year.

Silver Bullet
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Re: Buying Partner's Billboard Rights

Post by Silver Bullet » Mon Sep 10, 2018 10:20 pm

With 3 partners, it sounds like you've valued the billboard at $360,000. Would you be willing to buy the other partner out?
I agree with others that the initial price seems high. It might be prudent to have the billboard valued by a professional.

123
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Re: Buying Partner's Billboard Rights

Post by 123 » Mon Sep 10, 2018 10:28 pm

Have your "shopped" your billboard rental location to other advertising organizations in the last 5 or 10 years? It's possible that an alternate leaser might pay you more money. Would there be issues if the present leaser removed their billboard and a new leaser installed their own? Some of the new billboards are very flashy and could likely be real moneymakers in the right location. I guess I'm concerned about if you and your co-owners have become too comfortable with the present leaser and might be leaving money on the table.
The closest helping hand is at the end of your own arm.

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abyssdiver
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Re: Buying Partner's Billboard Rights

Post by abyssdiver » Mon Sep 10, 2018 11:22 pm

I wish we could shop around. The billboard company owns the structure as they have for almost 50 years, although the company has been bought and sold a few times. We are limited in our negotiations.

I am going to ask for a 10-year extension tomorrow with 3% yearly increases.

tim1999
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Re: Buying Partner's Billboard Rights

Post by tim1999 » Tue Sep 11, 2018 12:08 am

123 wrote:
Mon Sep 10, 2018 10:28 pm
Have your "shopped" your billboard rental location to other advertising organizations in the last 5 or 10 years? It's possible that an alternate leaser might pay you more money. Would there be issues if the present leaser removed their billboard and a new leaser installed their own? Some of the new billboards are very flashy and could likely be real moneymakers in the right location. I guess I'm concerned about if you and your co-owners have become too comfortable with the present leaser and might be leaving money on the table.
Many older billboards are what's considered "non-conforming" in industry terminology, meaning they conformed to land use and billboard regulations at the time they were built, but not the current regulations. If they are removed they usually cannot be rebuilt in the same location, nor can they be upgraded or increased in size over what was originally permitted. OP's billboard may fall into that category. If it does, you do not have the ability to shop around with other billboard companies, though you could play game of chicken with Outfront and threaten to not renew at all. Billboard companies typically seek to pay an annual rental to the landlord of 15 to 20% of the annual revenue that the sign will generate on a non-conforming sign. On a conforming sign they will go higher and in big cities usually offer a minimum fixed amount or a percentage of revenue, whichever is greater, for a primo location. If you get too greedy and demand a land rental amount beyond market rate for that size of sign and location, and the sign's advertising revenues are weak, they will just remove the sign, cancel the lease (most standard billboard lease forms from the big 3 companies allow the billboard company to cancel basically for any reason), and you get nothing.

If the billboard was legal to upgrade to digital faces, CBS/Outfront probably would have done it already if it is in a major highway/high traffic location in a big city with good visibility. I think the big wave of digital billboard build-outs is mostly over.

Anyway, it would be helpful to know if the sign is considered conforming or not, when conducting negotiations with the billboard company. Most state DOT's have an office that manages their regulation of billboards. If you have the permit number (often a tag or other small lettering on the billboard structure itself) they can probably tell you whether it is or not.

If you have a conforming location in a primo spot you will probably receive relentless solicitations from other billboard companies interested in the location and promising to pay you more if you lease to them instead.

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abyssdiver
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Re: Buying Partner's Billboard Rights

Post by abyssdiver » Tue Sep 11, 2018 12:01 pm

Thanks to Tim and everyone else who has responded. There is currently a moratorium on sign construction and digital signs. From what I’ve read so far, the Outdoor Advertising Industry has held its own against declining ad revenue for print, tv and radio and ever increasing money spent on internet ads. But I know this is largely a local issue...the sign location and characteristics. Even if we ask for figures on revenue, billboard signs are rented by advertisers in groups and for different durations. Different signs in the same lease could have different values but when the billboard company gives me the figures, they probably just do the math without taking into account these variations.


I will keep digging and let you all know. Thanks again.

ArmchairArchitect
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Re: Buying Partner's Billboard Rights

Post by ArmchairArchitect » Tue Sep 11, 2018 7:46 pm

Get rid of that billboard; you're making money at the expense of blight on the public.

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abyssdiver
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Re: Buying Partner's Billboard Rights

Post by abyssdiver » Sun Sep 16, 2018 1:15 pm

Hi everyone,

I've found a couple of articles on valuing billboards that I'll list below. It would appear that 10-12 times annual rent is not far off for a mature billboard in an urban area:

http://billboardinsider.com/what-are-easements-worth/

http://billboardinsider.com/paul-wright ... easements/

Thanks again for your help.

bluebirdy
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Re: Buying Partner's Billboard Rights

Post by bluebirdy » Sun Sep 16, 2018 1:47 pm

The $120K price sounds too high with the risks assumed. One long-term risk I didn't see mentioned is the growth of self-driving vehicles. It stands to reason that billboard revenue will decrease as self-driving vehicles increase. People that aren't required to look out the window to drive, instead look down to their phones/devices while in vehicles...

bsteiner
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Re: Buying Partner's Billboard Rights

Post by bsteiner » Sun Sep 16, 2018 8:49 pm

There's a largely empty building on Times Square that brought in $23 million of revenue from billboards in 2012: http://www.thejournal.ie/new-york-times ... 6-Dec2014/.

There are "pay phones" in Manhattan that offer free phone calls. They generate revenue from advertising: https://www.nytimes.com/2018/01/11/nyre ... -york.html.

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abyssdiver
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Re: Buying Partner's Billboard Rights

Post by abyssdiver » Fri Jan 04, 2019 11:41 pm

You could also reason that anyone in a self-driving car would have more time to look at billboards since he or she is no longer looking at traffic lights, the car behind or in front, or the dashboard of one's own car. In any case, the final price was about $101,000. Before it was finalized, we extended the current lease with the billboard company for 10 years with 2.25% increases after next year's 3% increase. I have searched online for a time when any billboard with a legal permit in this large metropolis was ever removed and I can't find a single instance. If anything, the rent might not be increased as often in the future, and it might be a long time before I get this money back...so for now I'd just prefer to see this as an annuity that will be earning over 10%/year.

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White Coat Investor
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Re: Buying Partner's Billboard Rights

Post by White Coat Investor » Fri Jan 04, 2019 11:57 pm

riverguy wrote:
Mon Sep 10, 2018 6:16 pm
Ditto the above. You offered wayyyyyy too much. 140 months cashflow is rich.
You’re only buying billboards to make money (at least that’s the only reason you should be doing it). So the most important piece of information the sign holds is how much money it makes and, as a result, how much money it’s worth at a certain return on investment level. A good deal should have around a 20% cap rate of return (and a much higher cash-on-cash return level). There are billboard owners in Las Vegas that will try and tell you that their billboards are a great deal at a 1% cap rate because the economy is in a temporary slump. Don’t listen to anything other than the current performance – period.
https://www.obuniversity.com/articles/h ... lboard.php
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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abyssdiver
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Re: Buying Partner's Billboard Rights

Post by abyssdiver » Sat Jan 05, 2019 10:49 am

20% sounds great, but then Mr. Rolfe is talking about buying billboards outright, not rental rights to one that isn't yours...and he's hocking his wares as well.

https://billboardinsider.com/what-are-easements-worth/

A 6X multiple is reasonable for an easement relating to an unconstructed billboard due to uncertainty about performance. The average for an easement under a mature billboard is more like 8-10X annual billboard rent in today’s market. 10-12X may be the multiple in an urban market with growing billboard rents and a moratorium on new billboards.

https://billboardinsider.com/paul-wrigh ... easements/

Landmark’s recent listing had easements priced at cap rates of 5% – 6% for excellent sign locations in Los Angeles. Cap rates vary by a wide range depending on market and location with the market. However, cap rates are usually below 10% (or 10x) because they are truly “net leased investments.” Landowner’s have very little expenses (management, accounting, legal and sometimes taxes), so investors think of them as a relatively low risk investment.

Nationwide investor surveys have shown net leased cap rates in the 7% – 7.5% range for the last 10 years. However, those capitalization rates will inevitably creep up as interest rates rise. Those cap rates actually translate into multiples above 10x, but discussions generally start at 6x in an offer and 14x in a counter offer.

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