I'm considering investing in a Billboard, but have never done this before and don't know very much about the Billboard industry. The Billboard is highly visible (can be seen from the highway as well as the local city that it is in). The entire area surrounding the Billboard is being redeveloped (there will be a total of ~700,000 SF of new development consisting of ~700 units and ~20,000 SF of retail. They are not allowed to block the billboard per agreements/development plans) The Billboard generates ~$190k/year and the asking is ~$3mm (~6.3% cap). The lease has 10 years remaining. The way I see it, this is like acquiring a NNN retail/office property at a 6.3% cap rate, right? I would finance at 80% LTV, ~3.5% rate, 5 year I/O period and generate ~18% CoC. After the I/O period is up, I would either continue holding the Billboard and generate 10% CoC (not bad), sell it, or refinance into another I/O loan. Am I missing something about investing in this Billboard? Thoughts?
edit Might be important info in the analysis, but the Billboard sits on an 8 unit property as well. The total going in cap rate is still 6.3% (inclusive of the rents from the property). I initially left out this info because I didn't want to give too much info to a bunch of random people online lol (no offense monkeys), but also I know how to analyze the risks of the residential portion
edit Ended up getting a hold of the billboard lease and understand the property much better and actually feel a lot more confident in the investment. Turns out, the property is very similar to just owning a mixed-use property (retail with apartments above, except reversed. Apartments at the bottom with billboard commercial space on the roof). The property is zoned for billboards, but the billboard company owns the billboard and bears all responsibility for it. I would just be leasing them the space. I'm very interested in the deal and have a 5-10 year strategy for it and if I end up winning it, I will update you guys (if you want)
Don’t have any advice to offer, but do you mind sharing how you sourced this opp?
Loopnet lol...didn't think i'd actually find a potential deal from there
Do you have a lender and term sheet in hand? 80% LTV seems ambitious. Who is asset managing the billboard? Like who’s selling ads, putting them up, and taking them down?
I think billboards are a good and unique opportunity. Unlike TV/online ads, people can’t unsee or skip over a billboard. Plus, it’s rare to have them taken down once constructed. There are companies out there who buy out the ground lease under billboards, and that would be the exit opp for you. Or billboard companies like Lamar, Outfront Media, or ClearChannel.
I have a lender, but either way I would slap on a financing contingency... but the rents/cash flows are all true and current (if I were to make an offer, I would also make it contingent on them sending me the last 3 months worth of rent payments, leases, and all expenses (utility bills, contracts in place, etc). I edited my initial post and there is 8 units that the billboard sits on. The 8 units are also at a 6.3% cap (the total deal is a 6.3% cap rate). The billboard accounts for about half the NOI of the total deal. This wouldn't be a ground lease as I would own the building and the billboard. The current advertiser is a cannabis company and I'm not too concerned about taking the ads down and putting it up since there is a 10 year lease remaining, but still something to consider in the future
I can't speak to the cap rate, but as far as risks, I would just make sure there are no structural issues and that there's clear division of responsibilities between you and the billboard operator w/r/t R&M and access. When they have to change the ad, make sure they're not disruptive to the tenants.
I'd also look into the advertising guidelines in the lease. Some billboard leases have rules around political ads, sexually explicit ads, etc. You might not want to be the guy who owns the building with the strip club billboard, you know? Or maybe you do! Either way, just some good info to have.
EDIT: Forgot to add that if I recall correctly, billboard leases tend to be long term with automatic renewal terms. Like with any commercial lease, make sure the tenant is in good financial standing. The risk is this operator folds, and you'll have to find a replacement.
If you don’t mind me asking, who is the lender? I was thinking you were going to have some difficulty financing with the cannabis company paying ~50% the income. Pretty sure no FDIC lender can lend on cannabis rental income (hemp based stuff is fine / CBD etc.)
Seems a bit too good to be true. Are they any capex requirements? How hard is it to sign up a new "tenant' for the billboard?
in todays environment, I feel like a 6.3% cap reflects decently high risk. I'm just not seeing where the risk is based on your description, which means you likely haven't identified it
I mean the billboard has been there for a long time (30+ years I'd imagine) and is still standing. I haven't gotten the chance to go up and inspect it yet, but I'm planning on bringing a structural engineer with me when I do. That's what I'm trying to figure out, not sure how hard it is to release the billboard and if I can get the same rents, but I'm in a major city and the city is not granting any more billboards. The company leasing the billboard has been leasing it for a while probably 10+ years (I think the agent told me they have a 30 year lease, but Idk for certain until I get the lease and read it). But if they agreed to pay $16k/month 10 years ago...how much is it worth today...or when the lease is up in 10 years? I can't imagine less...Well that's why I'm here. I'm trying to identify the risk, and I'm going to be honest...I can't. I edited my post to include that the billboard sits on an 8 unit building that I would also own (the total acquisition price is over $3mm...$3mm is just what i'm attributing to the billboard per the NOI and going in cap rate (cap rate for the entire deal is 6.3%)). Assuming the numbers are all true, which I think they are...I view buying this piece of real estate as putting my money into a 18% savings account (albeit illiquid)...I can't believe that the value of the real estate will go down in the future given the development happening
Honestly, it could just be that people don't want to deal with it because it's odd and not the normal real estate type of transaction. I'm sure there are lots of people who would be interested in the small apartment building, but decided to pass because they don't want to spend the time to learn the billboard part. This happens a lot in real estate, there is some weird quirk to the deal and no one wants to touch it because it deviates from the norm. It isn't a standalone billboard for the billboard people to look at, and not a standalone apartment for the MF people to look at, so there is opportunity for those who don't mind doing something unusual.
I suppose other risks/items to look at are;
1.) Not easy. The city is not granting anymore billboards.
2.) Not sure how many, but i read that there are a total of about 300 billboards in the greater area that I am in
3.) Not digital
4.) I'm not sure if it can be converted to digital, but my gut tells me it can't (or it'll be a long process). I imagine the city may have issues regarding safety and distracting drivers on the freeway, so I'm not analyzing this as if I can convert it. If i can, that would be a bonus
5.) I edited my post to include that the entire deal is 8 units with a billboard on top
Hey, for what it's worth, I find your numbers completely believable and not "too good to be true" like some others have inferred. We've looked at billboard investing (and putting some up on our own properties with high traffic visibility), and the risk / return were very attractive in each scenario.
I don't know what market you are in but high level it sounds like you have an interesting opportunity.
I agree with you, we have a bunch of development sites affected by billboards and deal with them frequently. As a standalone asset they appreciate in value because cities are generally reluctant to approve new ones...as time goes on there are less opportunities to lease them. The capex costs are super low and are just power/lights. Plus, a future developer is likely going to want to get rid of it so to the extent you can create some negotiating leverage to get bought out for better economics it helps for an exit strategy.
Billboard? Are we in the 2000's? Everything is digital NOW so what makes you think people will reverse that trend and demand physical ads in the future?
They also have some of the worst eye retention on them. Any marketing agency that still spends money on billboards is years behind.
So basically a bet on people continuing to be dumb? Sounds like a pretty good bet.
The numbers make me believe it. I called a couple billboard agents. One agent told me to expect to pay $30,000-$40,000/month to advertise on a billboard that faces the highway in my market. Another agent that works for a billboard company quoted me $35,000/month for a billboard that is very close to the one on this property I am interested in. The company leasing the billboard space has been leasing it for over 10 years now and hasn't missed a single payment. The original lease from 10 years ago was actually about half what it is today. Somehow the seller was able to find a loophole and get out of the previous lease and renegotiate a higher rent. If they are able to double their rent payments...they are doing pretty well. Also, do you know how much it costs to rent a billboard in Time Square? There are public companies in this space such as Clear Channel and Outfront Media...I can't imagine that they are continuing to operate a dying business
For your reference: https://www.landmarkdividend.com/1669-2/
fred,
I have a very similar situation to yours in regards to billboards. It is a 8 unit building with a billboard at a 6 percent cap rate. can I have a call with you?
Feel free to DM me
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