Billboard Valuation

[Scott.A]

I didn't see much discussion of this topic in recent posts.

What are the typical capitalization rates or multipliers for billboard values out there? I have an office property on US Hwy 67 in Bettendorf, IA with a billboard on it. It is a major traffic artery in the area. The lease is for $2,250/year. Right now, I'm figuring 10% cap rate and around 8 multiplier, so likely value around $20,000. This is based on information we picked up from buyers in 2016. I've reached out to buyers, but haven't heard back yet.

Has anyone seen any changes in the billboard market over the past year or two? What numbers are you using?

 

[Stephen J. Vertin MAI]

I appraise a consistent number of bill boards and as with all capitalization rates the answer is "it depends on risk". A fortune 500 advertiser having a 10-year lease is obviously less risky than a local politician in an elections ending in 6 months. Further, surrounding competition is important along with local zoning laws allowing further market entry. Most municipalities limit the number of bill boards within specific locations. Understand the possibility of further construction along with existing competition is important to rents (as with any property). If zoning allows boards anywhere, eventually that is what will happen. Generally investors look for traffic exposure exceeding 20,000 DTC. Locations with lower counts have higher risk. Expressway location with +60,000 are most desirable. Do not compare LED systems to stationary (old fashion) systems. LED boards have significantly higher income potential. Most areas have significant investor competition pushing overall rates lower. About 10 to 15-years ago rates of 5 to 7 percent were fairly common but they have gone up since the Great Recession. Fewer back yard investors (understand there is not a lot of thought required for management). If you have a longer term lease of 3 to 6 years with a traffic count somewhere near 20,000 per day and average competition with low potential for increases 8 to 10 percent would be reasonable. If you have high exposure, strong advertisers with over 5-years remaining, little competition and no possibilities of increases you could be as low as 5 to 7 percent. These are simply general rules only and are some of the biggest considerations.

 

[Michael S]

The only purely billboard sale I've confirmed was along I-40 in Albuquerque with traffic counts of well over 100,000 vehicles per day. It was a small piece of land that would basically have no other use except to hold a billboard 50 feet up in the air.

It sold in August 2013 for $155,000. At the time of sale it was leased to Clear Channel for $11,616 per year, so a 7.5% cap rate. The 10-year lease had a 10% increase in year 6 but was scheduled to expire in 2015. It was below market for the area as there's a moratorium on new billboards in the city along the freeways and market rent was probably around $15,000 - maybe as high as $20,000 per year. So, based on proforma income the cap rate was closer to 10% and the 7.5% on trailing actuals reflected the below-market lease.

I saw an industrial property with a billboard generating over $15,000 per year and the buyer said that it had no effect on the purchase price (around a million dollars) even though it should have had a contributory value of over $100,000 at any reasonable cap rate. Buyer's don't always think like appraisers.

 

[Gobears81]

Buyer's don't always think like appraisers.

This is a good quote, though it shouldn't be that way since we spend all day analyzing market behavior. I have also encountered a couple sales of improved properties with billboards and they had no real effect on the value, while a third sale had an 8% cap rate on the billboard lease component (although the buyer paid too much for the property). Identifying cap rate comps for billboards as a standalone is good information to have, but more important is figuring out the most likely purchaser, which may yield insight on how the billboard lease contributes to the value of the property as a whole. For example, I just appraised a church that had a billboard lease. Church buyers often make decisions that do not make economic sense (nothing wrong with that), but would someone like that apply the same cap rate to the billboard lease as an investor buying a strip center that had a billboard lease? Probably not