Whether driving on the freeway, commuting through the city, or walking to your office, the abundance of advertising boards is overwhelming. Billboard ground leases are a unique real estate opportunity and generate millions of dollars in the U.S. There are more than 450,000 in the U.S. that produce revenue for landowners.
Billboard ground lease rates are subject to several factors, including location, traffic, exposure, lease term, and real estate size. These leases are great revenue opportunities for landowners but carry risks like property redevelopment complications.
Using signboards is one of the most popular advertising methods, and companies pay well to lease ground in prime locations. The billboard real estate business is simple but requires expert advice, especially regarding the rate negotiations and the contract. If you want to lease some land for an advertising board, it is vital that you know all the factors, and here are the key issues to consider.
Billboard Ground Lease Rates
Billboards are common, especially on high-traffic routes, and landowners can earn money from leasing them. These leases have several factors that affect the rates, and landowners must carefully consider every aspect.
Companies use a basic formula to calculate rates, but other factors may affect pricing. Standard rates are measured using the board’s net revenue times of 15% or 20% and require adjustment for urban areas with high traffic. For example, if a billboard’s net revenue is $20,000 per year, the rate should be 15%, which calculates to $3,000, and at 20% comes to $4,000.
As previously mentioned, several aspects affect these rates, and here are some of the main factors:
- Location
- Amount of traffic
- Lease period
- Billboard size
- Exposure
An advertising board’s location has a large effect on the rate. Due to traffic volume and other factors, a lease in Kansas is much cheaper than its equivalent in Los Angeles. The rates in L.A. are extremely high and can be up to 50% of the board’s net revenue. The same billboard in Dallas priced at $2,000 per month can cost $20,000 in Chicago.
Boards in high-traffic areas like Chicago, Los Angeles, and New York have higher rates due to the volume and exposure it gets. The size of the real estate also affects the price, and the bigger the signboard, the more you pay. Generally, these rates are calculated for 12 months, but some leases can extend over several years, giving companies some leverage to negotiate a lower rate.
Negotiating The Best Deal
Landowners who invest in billboard real estate must have good negotiating skills. Generally, these rates are estimated using similar real estate rates in the area, but companies will negotiate the price. When investing in this type of real estate, you must consider all the benefits and how to use them to negotiate the best rate.
Here are some of the factors to consider when negotiating the rate on a billboard real estate lease:
- Traffic – Traffic is divided into foot and vehicle traffic; the volume is essential when negotiating the rate. The more eyes that fall on the advertising boards, the higher the rate. You can use services to help you establish the traffic volume.
- Visibility – Good visibility is essential and affects the desirability. A board that can be viewed longer without obstructions pays a higher rate.
- Billboard demand – High-traffic areas are great for these boards. Before investing in billboard real estate, it is essential to canvas the area and determine how many of these boards there are. Unless your real estate is in a prime spot, it is a waste to invest where there is an abundance of advertising boards.
Understand The Redevelopment Risks
Every lease has its risks, and billboard real estate is no different. These leases often span several years, and companies carefully word the lease contract to protect them from financial loss. Before you consider getting into the billboard lease market, you must understand the risks, especially regarding redevelopment.
If you, as the landowner, want to develop the property, the lease may restrict your options or cause you some financial penalties. The lease contract must stipulate what happens in the event of redevelopment or removal conditions.
The landowner must seek a lawyer’s expertise to inspect the contract’s wording. The lawyer must ensure that all the conditions for removing the billboard, especially because of redevelopment, are thoroughly explained and understood by both parties.
To avoid needless legal disputes, it’s a good idea to include a redevelopment protection clause in the lease that lets you ask to take the board down without incurring any fees.
Suggestions On Lease Length
The lease period of a billboard is subject to several factors, and it is the prerogative of the landowner to determine its length. Here are some considerations when leasing ground for an advertising board:
- Future redevelopment opportunities – If you (landowner) are considering redeveloping the property, keeping the lease period short is wise to avoid legal battles.
- Renegotiating lease rates – Sometimes, the billboard real estate market improves, and a shorter lease will allow you to renegotiate the rate. Keep in mind that it can have a negative impact if the market collapses.
- Changing the tenant – Billboard leases have little maintenance and interaction between the lessor and the lessee. In the event of relations breaking down, it is wise to have a shorter lease to allow you to seek another tenant.
If you have negotiated a high lease rate, have a good tenant, and have no redevelopment options, a long lease period can secure revenue for many years. Most billboard real estate leases consider all the factors before agreeing on the length and continue with a month-to-month agreement after the lease concludes.
Conclusion
Billboard ground leases are a popular opportunity for landowners, with more than 450,000 found across the United States. Rates vary depending on the location, traffic, exposure, and board size, but generally, it is between 15% and 20% of its net revenue. Landowners must consider redevelopment options before agreeing to the lease period to avoid lengthy legal battles with tenants.