Digital Sign/Billboard

[Hoosier Country]

We're appraising a property with a two-sided digital billboard. On a main corridor through town. Reported rental rates are a little higher than what the local market reports. Replacement cost of the sign is $95000, sign is less than a year old. Reported life expectancy of the sign is 5-7 years from, 7-10 from others. Utilizing 7 years projection period, with 20 tenants/advertisers, the NPV of the reported income stream is over $400k. That is a contributory value to a $230,000 property. I know discounting the income stream is the right thing to do, and we're taking into account maintenance costs. But something just doesn't feel right about it.

Any tips or thoughts?

 

[TerryRohrer]

Where is the discount rate derived from?

 

[JTip]

$95k for replacement cost for a double sided digital billboard? Seems light unless it is a little one, a very little one.

We're appraising a property with a two-sided digital billboard.

So a commercial property that is generating income by advertising off premises businesses on their on premises sign? Or is it a bulletin board on a vacant lot? Or a combination of the two?

 

[Gobears81]

An electronic billboard typically has higher rates than the old-fashioned billboard, and most signs of this type are still standing/having value after 7 years.
That said, are you actually capitalizing income from a lease, or is it sign impressions that the owner is selling? If impressions, that could be regarded as business income vs real property income. There are some that contend that the billboard itself is not real property, but a lease to a billboard company would certainly be closer to real property than sign impression income.

 

[Fernando]

Can you appraise a property if you're CR appraiser? Sounds like property is on commercial zone.

 

[Tom D]

Most billboards are owned by a company, not the property owner. The owner gets income from it. My brother in law worked for one of the biggest. On a digital one you pay by the minute of showing your ad.

I don't see any one person owning it, maintaining it, operating it and finding that business. In which case it is just pure income. You gotta have a busy traffic lication for one, little gold mine.

 

[JTip]

The word 'billboard' is used loosely as there are multiple sizes and configurations.

When I hear billboard, I think of the traditional 'bulletin' sized, the big ones you see on the highway, but when the OP said replacement is $95k, that is not a price for a bulletin. Bulletin electronic are 100k per side, plus another 100k for the pole (depending on height, topography and incline) and installation.

Like Tom said too, if it is a bulletin, then its most likely owned by a corp who leased the land.

Not enough info to answer the income approach.

 

[Terrel L. Shields]

What is the net annual income to the OWNER OF THE PROPERTY? The landowner probably does not own the billboard.

So, if the rents are $1,000 per month, 12k annual income, then expenses zero? Or is the tax assessor adding a value to the site? This is a Business Enterprise Value and I'd be asking am I appraising real estate? Or am I appraising a BEV?

Unless the owner owns the sign, the cost of the billboard is not relevant. It's all about the net income to the owner. I'd argue as a RE value, it's going to assume the GRM of the dwelling or a capitalized rate for the annualized income. Otherwise, I might use a sinking fund like Hoskold. Say safe rate is T-bill for 5 years, plus risk rate of 3x Safe rate. 5 to 10 year holding period. And I would be inclined to value the RE separate from the BEV. Report both.

 

[JTip]

But something just doesn't feel right about it.

Is it even legal? You said a main corridor through town, I would assume a state route.

Outdoor advertising (OAD) is permitted by each state by code and national code.

OAD is advertising on private property for off premises uses. In other words, the sign is NOT advertising for a business located on the property.

If there is a car lot and the sign says Bob's Used Cars, that is on premises and does NOT need a permit. If Bob's Used Cars has a sign advertising for Fern's Laser Hair Removal (static or electronic), then it would require a state permit if on a state road. This is national, overseen by FHWA.

There are a dozen plus prerequisites to secure a permit, including spacing requirements, zoning, and location, to name a few. When applied, there are only a limited few areas along controlled routes that would allow an OAD. Think of a map with layers of rules applied, and the final result would show highlighted areas where the OAD would be permitted. The BIG BILLBOARD CORPS know ALL these areas and are actively out trying to lease these legal points of land for expansion.

I will stop here until "and now you know.......the rest of the story."

 

[Fernando]

Years back I remembered a tall apartment building with an advertisement painted on the wall on a busy street in San Francisco. That was ingenious in getting extra rent.
I don't see it anymore. City must have told the building owner to unpaint it.