Paul Wright on Valuing Easements

Yesterday Insider wrote about how to value a billboard easement.  Today valuation expert Paul Wright of SignValue gives his thoughts.  SignValue is the largest out of home appraisal firm in the US.  You can reach Paul at paul@signvalue.com, (480)657-8400.

Paul, how do landlords value billboard easements?

Landowner’s don’t use multiples of revenue or cash flow to estimate the value of billboard easements.  They typically use capitalization rates because that is the metric that they are used to using in their other property transactions.

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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