Yesterday Billboard Insider described how easements increase the value of a billboard structure.  Out of home appraisal and valuation expert Paul Wright agrees…

Happy to weigh in on the value of easements in a billboard transaction.

As you mentioned, the lack of a lease expense, which is often a billboard owner’s biggest operating expense, increases cash flow and results in a higher value. In addition, the lower risk of termination and fewer conflicts with landowners is more attractive to billboard buyers, so they will usually pay a higher price for billboards with a perpetual easement. The value of a billboard easement can also be isolated and valued separately from the structure and permits.

There are investors who are only interested in the rights to future billboard lease income. These investors buy and record perpetual easements on a billboard property in exchange for the rights to future billboard lease income. These kinds of investments have created a discrete market for billboard easements that is directly related to the annual billboard lease rate. Like other commercial real estate interests, investors can value future billboard lease income based on capitalization rates. Real estate investors think of billboard easements like a “net leased” income property, so we track changes in net leased cap rates for our brokerage and valuation clients.

Since billboard owners have a vested interest in the properties where they operate their signs, they also buy these perpetual easements. However, billboard owners will usually talk with landowners in terms of multiples of annual lease income rather than in terms of capitalization rates. Multiples are just the reciprocal of capitalization rates. For example, a 9% cap rate is the equivalent of a 11.11x multiple (1 ÷ .09 = 11.11).

Bottom line, having a perpetual easement is usually better than having a billboard lease under a sign and adds value.  We’re always happy to talk to your readers about the value of billboard easements.  We can be reached at info@signvalue.com or (480) 657-8400