A Billboard Insider reader asks:

Hi Dave. One quick question. When you get ready to sell your plant is it more of and advantage to sell your land under your structures and get a perpetual easement, before selling. Or keep the land and sell it as a whole.

Yesterday valuation expert Paul Wright said billboard easements increase buyer interest in a billboard and increase sale multiples.  Out of home investment banker Jim Johnsen of Johnsen Fretty says billboard easements trade at a higher multiple than billboards:

Dave, in my opinion it is (almost) ALWAYS better to sell a perpetual easement than to sell deeded property.  Buyers for outdoor “product” are in the outdoor business.  Rarely are they also in the real estate business.  As such, they love owning perpetual easements that require no active management going forward (other than cutting grass and shrub which they also do under leased property) and they love not paying real estate tax.  Most do not have an appetite to spend time searching for a secondary use for the property.   So if the choice is between selling deeded property or selling easements, I would definitely lean in the direction of selling easements.  Also note that anytime an operator develops a new location on owned property, it’s generally good practice to create a billboard easement on that property and to drop the ownership of that easement into a separate legal entity so that down the line the property can be sold with the billboard carved out and the billboard can be sold with the property carved out.

If the actual question was “should I keep an easement and create a lease between me (the seller) and the buyer, or should I sell an easement?” then I revert to the two handed lawyer, i.e. “it depends”.  Is the location conforming or nonconforming?  Does it fit within an estate plan or not (aka do you have a way to pass it to your kids tax free or not)?  What is your alternative use for your cash (aka can it earn a better return somewhere else or not)? Have you thought through capital gains tax rates versus ordinary income tax rates?  And of course…do you want the cash now or later?

Generally speaking, easements trade at 2 to 3 multiple turns higher than outdoor assets, so much of it comes down to whether you believe you are being adequately compensated for the easement if you are selling it as part of the “package”.  On the buyer side, usually they view buying easements as more attractive than buying leases from the seller.  With that said, buying easements may put them outside of the absolute dollar budget for the acquisition so they may, in select cases, prefer leases.  If the seller and buyer both agree to transact on a “leased” basis, it goes without saying the buyer is going to seek a very long term on those leases and for each additional dollar of annual proforma expense these leases create, a high multiple of that will come off the purchase price.

Clear as mud right?  And just to throw another wrinkle in, there is a third option, which is to sell easements to the buyer under an installment sale which captures cap gains rates but stretches out the tax hit.  JFC is happy to run “best outcome” models for anyone who is trying to think this through.

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