Ken Wingate of Wingate Outdoor asked Insider to discuss easement valuation.

A permanent billboard easement is worth 6-12 times the current billboard rent or projected billboard rent relating to the easement.  Insider saw lots of 6X transactions involving cash-strapped landlords during the last recession.  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.

If you have a billboard which has monthly rent of $500, then a fair price for a perpetual easement ought to be $48,000-60,000.  $48,000 is 8 times the annual rent of $6,000.  $60,000 is 10 times the annual rent of $6,000.

How much should you pay for an easement under a billboard which hasn’t yet been constructed.  Make an estimate of what you think the revenue would be and then assume rent of 20% of gross revenue and then apply an 6-10 times multiple to that.  If you want to buy an easement at a site which you think can generate $2,000 in total monthly revenue, you should be willing to pay $28,800-48,000.  Here’s the calculation:

Tomorrow Paul Wright of SignValue will provide his thoughts on easement valuation.

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