Why looking up is looking good for CRE
As soon as people had something to sell, they knew they had to advertise in order to draw in customers—and a business was born. From the outside walls of barns painted with images of fresh corn to LED digital displays turning night to day in Times Square, billboards have evolved and always managed to find a place in the American landscape.
Outdoor off-premise advertising became so popular and numerous that billboards were eventually considered a blight—and many cities and jurisdictions created a list of rules and regulations to contain their spread. Despite the pushback, though, they have remained a way to generate additional income from a rooftop, wall, or empty plot of vacant land along a heavily traveled road.
The billboard does not belong to the property owner
When it comes to renting space, most commercial property owners are familiar with the traditional leasing agreement they have with tenants. Rent is paid for a piece of the overall building, while the landlord retains ownership.
That isn’t the case with billboards. The property owner owns just that and only that—the property, whether it’s the roof, an exterior wall, or a plot of land. Sign companies own the actual billboard and, as owners, they then lease that space to advertisers. Unlike tenant rents, which are calculated by square footage, billboard leases are usually a fixed price that’s tied to the consumer price index and/or revenue generated by the billboard. In other words, property owners can expect a 10%–18% return. Digital billboards are even more profitable.
Things to consider before entering the billboard arena
Before exploring options to have billboard structures placed on the roof or exterior wall of your building, or on some land along I-95, there are a few things to consider.
- Not every location is perfect for a billboard. Sign companies need to look at some data, such as traffic count, lines of sight, and demand and audience profiles. In addition, they also need to protect the visibility of their sign for their clients. This is done through a kick-out clause in the lease agreement. Simply stated, visibility that becomes obstructed through the owner’s alteration of the building, a third-party construction project, or road relocation are grounds for lease termination.
- Many billboard lease agreements also contain hands-off provisions. The building owner cannot dictate the content on the billboard. About the only way content is controlled is if it violates any sort of law or local codes.
- The sign company retains rights to not only assign leases, but to also sell the billboard to another company.
- Since the sign company is responsible for billboard maintenance, property owners must grant “reasonable access.” When on top of a building, for example, this means allowing access to the roof. For a billboard placed along a major thoroughfare, things can become more complicated, since access is usually achieved by driving from the street (rather than from the highway) and then through the property. In addition, the sign company must also have access to electricity sources for lighting, though it would be responsible for utility payments.
- As stated earlier, local governments have made it more and more difficult for billboards to find a place. As a result, existing locations are even more valuable for sign companies.
Generating CRE income outside and in
When it comes to commercial property generating income, most investors are well aware of primary sources—but secondary and tertiary sources, such as billboards, open up a whole new stream. At the same time, digital technology advances are expanding profit opportunities to interiors like the advertising possibilities in elevators and lobbies. At Morris Southeast Group, our professionals are uniquely qualified to help you make the most of your investment. To learn more about property investment opportunities, property management, and/or other services, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
Tags: billboard arena, commercial property, CRE, Leasing Billboard Space, traditional leasing agreement
