Seeking to take out loan against billboard income
36 Replies
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Paul Klei
I assume there is property this billboard is going on?
You may be able to get a loan from a bank against the property.
7e investments53 Reviews - Investor · TX · Member since 2023 · 57 posts · 5 votes3y
Interesting idea. Yes, I do own the land that the billboard will be built on. The land, however, has a rather low appraisal. Unless the billboard will cause the appraisal to grow exponentially, I would not have access to nearly as much capital (i.e., $1800 land appraisal vs $15M+ gross lease). I'm looking for a straight asset collateral lender. Does that exist for this type of asset class?
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Paul Klei
If you have the land with a long term lease this is no different then if a vendor came and put a Starbucks on it.
You absolutely could get financing for this once the lease is executed
7e investments53 Reviews - Member since 2018 · 433 posts · 208 votes3y
Quote from @Chris Seveney:
@Paul Klei
If you have the land with a long term lease this is no different then if a vendor came and put a Starbucks on it.
You absolutely could get financing for this once the lease is executed
Do Starbucks leases normally have a clause that allows them to cancel the lease with 30 days notice for profitability at their sole discretion?
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
Quote from @Shane H.:
Quote from @Chris Seveney:
@Paul Klei
If you have the land with a long term lease this is no different then if a vendor came and put a Starbucks on it.
You absolutely could get financing for this once the lease is executed
Do Starbucks leases normally have a clause that allows them to cancel the lease with 30 days notice for profitability at their sole discretion?
NO. But starbucks lease is one of the most complex leases on the planet. You need an attorney that can review this for you. This sounds like a month to month lease is what they want - that will change the game and would not be in your best interest as banks will want to see a long term lease.
you want an attorney who has dealt with billboard leases in the past, not sure where to find one but google is a good start.
7e investments53 Reviews - Member since 2018 · 433 posts · 208 votes3yOkay. So I’m not sure what company you’re working with, but they’re normally not super negotiable. Obviously anything can be negotiated, but they have a pretty strict model and they follow it.
Quote from @Paul Klei:
Yes it is. I want to structure the lease very carefully to give myself monetization options.
Was that a made up number for conversations sake? The 15 million. Or did they actually offer that to you? Because if you have a $2,000 property that is going to pay you 200k for a sign, that’s like winning the lottery. Traffic count must be super high. If it’s an actual offer congratulations. And they are offering yearly payment in that amount? That’s usually in the monthly payment range.
I have never received pushback when valuing mine at a reasonable cap rate. But listing them on my financial statement, not directly borrowing against them as collateral. So if you are buying another property that’s serving as collateral and listing this property at its new value with an income based appraisal I don’t see why it would be an issue. But if you borrow direct against the lease I think that you will receive pushback as you don’t own the structure, they can cancel it and take the structure with them and the bank is back to taking a 2k property if you default. I’ll be following to see if anyone else has worked this out. - Investor · TX · Member since 2023 · 57 posts · 5 votes3y
Quote from @Shane H.:
Okay. So I’m not sure what company you’re working with, but they’re normally not super negotiable. Obviously anything can be negotiated, but they have a pretty strict model and they follow it.Quote from @Paul Klei:
Yes it is. I want to structure the lease very carefully to give myself monetization options.
Was that a made up number for conversations sake? The 15 million. Or did they actually offer that to you? Because if you have a $2,000 property that is going to pay you 200k for a sign, that’s like winning the lottery. Traffic count must be super high. If it’s an actual offer congratulations. And they are offering yearly payment in that amount? That’s usually in the monthly payment range.
I have never received pushback when valuing mine at a reasonable cap rate. But listing them on my financial statement, not directly borrowing against them as collateral. So if you are buying another property that’s serving as collateral and listing this property at its new value with an income based appraisal I don’t see why it would be an issue. But if you borrow direct against the lease I think that you will receive pushback as you don’t own the structure, they can cancel it and take the structure with them and the bank is back to taking a 2k property if you default. I’ll be following to see if anyone else has worked this out.Negotiating was their idea. The exact numbers have yet to be hammered out but traffic count/views, the company's rate card, and a 15-20% base ground rent gives us a decent annual payment. No, it is not 200k, but when escalation and/or revenue-sharing provisions are included, over the span of a 75-year lease the math adds up to quite a bit. A single percentage point could make the difference between a 4M, 8M, or 15M gross lease. And obviously that is an accumulative number. Hence my desire to structure the lease to be as long/large as possible to then sell/borrow against it, rather than take the annual payments. However, if I was able to borrow against the land itself by claiming the advertising company as a tenant, I would do that instead. You said you have received never received pushback when valuing yours at a reasonable cap rate - what was that cap rate?
- Investor · TX · Member since 2023 · 57 posts · 5 votes3y
Quote from @Chris Seveney:
Quote from @Shane H.:
Quote from @Chris Seveney:
@Paul Klei
If you have the land with a long term lease this is no different then if a vendor came and put a Starbucks on it.
You absolutely could get financing for this once the lease is executed
Do Starbucks leases normally have a clause that allows them to cancel the lease with 30 days notice for profitability at their sole discretion?
NO. But starbucks lease is one of the most complex leases on the planet. You need an attorney that can review this for you. This sounds like a month to month lease is what they want - that will change the game and would not be in your best interest as banks will want to see a long term lease.
you want an attorney who has dealt with billboard leases in the past, not sure where to find one but google is a good start.
They want at least a 25-50 year lease. Their boilerplate lease is an initial 15-year term, followed by two 30-year terms, followed by a year-to-year option not to exceed an additional 30 years.
- Investor · TX · Member since 2023 · 57 posts · 5 votes3y
Quote from @Shane H.:
Quote from @Chris Seveney:
@Paul Klei
If you have the land with a long term lease this is no different then if a vendor came and put a Starbucks on it.
You absolutely could get financing for this once the lease is executed
Do Starbucks leases normally have a clause that allows them to cancel the lease with 30 days notice for profitability at their sole discretion?
That brings up a concern of mine. There is language in the boilerplate lease that allows them to stop/lower rent payments or remove the billboard if they determine profitability has become diminished. If this cannot be removed entirely, this can perhaps be mitigated with a minimum base ground rent. But there is also a clause that allows the termination of the lease. I am unsure how to mitigate this or if it is even possible to have it removed or altered. What's your experience with these clauses?
- Investor · TX · Member since 2023 · 57 posts · 5 votes3y
Quote from @Chris Seveney:
@Paul Klei
If you have the land with a long term lease this is no different then if a vendor came and put a Starbucks on it.
You absolutely could get financing for this once the lease is executed
Interesting. I had never looked at it that way. Should I approach the lease like a commercial lease? An escalation provision with an annual set percentage increase, for example.
- Investor · TX · Member since 2023 · 57 posts · 5 votes3y
Quote from @Shane H.:
So they never mentioned a number at all yet? Have you seen any other leases to know what they generally bring in?
They asked what it would take to make it worth it to me. I did the market research, got their rate cards and ran the numbers. I'm less concerned with the firm numbers than the structure of the lease that allows me to monetize it.
- Member since 2018 · 433 posts · 208 votes3y
Quote from @Paul Klei:
Quote from @Shane H.:
So they never mentioned a number at all yet? Have you seen any other leases to know what they generally bring in?
They asked what it would take to make it worth it to me. I did the market research, got their rate cards and ran the numbers. I'm less concerned with the firm numbers than the structure of the lease that allows me to monetize it.
I only asked because the only place I’ve ever seen numbers even in the realm of what you’re talking are major thoroughfares in major cities. I was just trying to help ground you if you have visions of grandeur. If you’re an experienced investor and/or have done your research don’t mind me.
You mentioned 1% being 4 million difference. Even over 75 years 4 million is 53k a year. So if that’s 1% you’re talking about $5 million a year… is this property on time square? I’m assuming based on the $2,000 property valuation it’s not. I have one that receives $750 a year, and that land has a higher valuation that $2,000. The highest I’ve ever seen was less than the numbers you mentioned and it was in a major tourist city. So when I say I value them at a cap rate appraisal, let’s say 10% I’m only increasing the value of that particular property $7,500. I’m confident adding a million dollar valuation based on a 100k lease would receive greater scrutiny. I would probably get an offer from one of the REITs that purchase these types of leases and use that as the valuation. I think they’re up in the range of 20% cap. More to the point, the lender is certainly going to want to review your lease to accept a million dollar valuation of the lease itself. That’s where I think the clauses are going to be a hinderance. Generally the base rent is low in the initial term as the company is paying for the structure and the site hasn’t been tested yet. Otherwise on established structures, I have yet to receive a revenue share check. The base rent is set at essentially the same as the revenue share on mine, and it’s just a clause for the sake of rapid inflation or some other reason that they begin making far more off of it in the future.
I hope I’m wrong and you make a killing off of this. It’s just not been my experience. These are generally slow and steady properties.
If you’re trying to get capital for something else and not worried about the slow steady income, there are some other options if you can’t get the financing you desire. you can sell the property with the sign on it for probably 15% cap. You can sell an easement to the company or another investor. Occasionally the sign company will prepay multiple years rent at a discount so you’d maintain the property, the rights to it etc. but get some cash in hand quickly. (I’ve never heard of this on a new lease, only preexisting where the land owner had financial troubles.) - Investor · TX · Member since 2023 · 57 posts · 5 votes3y
I do appreciate your advice. I am trying to structure it correctly because I know once I sign it I can't change it for 15+ years.
In rural areas (outside of Times Square, Chicago, Vegas Strip), advertising companies keep the amount they pay landlords between 15-20% of their revenue, because they are making less. In Times Square where they are making insane amounts of money, they can afford to pay landlords 50% of revenue. So, given traffic count, the company's own view rate for the location, and their rate card, 20% of their projected revenue would be over $18k annually. If a set percentage escalation is added, the numbers begin to add up over 75 years. This is a calculator for cell tower leases but it helps to see the math: https://www.steelintheair.com/. You can play with the Escalation Rate and see how a single percentage point makes a very big difference over that length of time.
Your lease that receives $750/year - what is the traffic count?
The highest you've ever seen was less than the numbers I mentioned - Which numbers and what were the highest you've seen, out of curiosity?
I wasn't aware that the lease acquisition companies are REITs. Do you know of a resource that lists a number of these companies?
The clauses would be a hinderance with lenders, but not as much with buyout companies. If I read that correctly, why would that be the case?
This advertising company will make annual payments in advance each year, beginning as soon as construction is completed. They have signs very near to where this will be so they know how it will perform. And the first term is 15 years and that is a long time to test a site, so I wouldn't agree to that.
You said the base rent is set the same as the revenue share on yours. Do you mind me asking what percentage that is? It makes sense that it's a set percentage instead of tied to CPI to avoid spikes in inflation. Do you have an escalation clause?You have yet to receive a revenue check because it hasn't reached a certain benchmark? What is preventing it?
If the annual income was sufficient I would consider keeping the lease. However I would like to have the option to monetize the lease/income stream beyond the annual payments. Borrowing against the lease/land would be ideal. I'll consider selling the lease/land/easement but I have to make sure the language is included for it. Which would be most profitable?
- Member since 2018 · 433 posts · 208 votes3y
Quote from @Paul Klei:
I do appreciate your advice. I am trying to structure it correctly because I know once I sign it I can't change it for 15+ years.
In rural areas (outside of Times Square, Chicago, Vegas Strip), advertising companies keep the amount they pay landlords between 15-20% of their revenue, because they are making less. In Times Square where they are making insane amounts of money, they can afford to pay landlords 50% of revenue. So, given traffic count, the company's own view rate for the location, and their rate card, 20% of their projected revenue would be over $18k annually. If a set percentage escalation is added, the numbers begin to add up over 75 years. This is a calculator for cell tower leases but it helps to see the math: https://www.steelintheair.com/. You can play with the Escalation Rate and see how a single percentage point makes a very big difference over that length of time.
Your lease that receives $750/year - what is the traffic count?
The highest you've ever seen was less than the numbers I mentioned - Which numbers and what were the highest you've seen, out of curiosity?
I wasn't aware that the lease acquisition companies are REITs. Do you know of a resource that lists a number of these companies?
The clauses would be a hinderance with lenders, but not as much with buyout companies. If I read that correctly, why would that be the case?
This advertising company will make annual payments in advance each year, beginning as soon as construction is completed. They have signs very near to where this will be so they know how it will perform. And the first term is 15 years and that is a long time to test a site, so I wouldn't agree to that.
You said the base rent is set the same as the revenue share on yours. Do you mind me asking what percentage that is? It makes sense that it's a set percentage instead of tied to CPI to avoid spikes in inflation. Do you have an escalation clause?You have yet to receive a revenue check because it hasn't reached a certain benchmark? What is preventing it?
If the annual income was sufficient I would consider keeping the lease. However I would like to have the option to monetize the lease/income stream beyond the annual payments. Borrowing against the lease/land would be ideal. I'll consider selling the lease/land/easement but I have to make sure the language is included for it. Which would be most profitable?
I can’t tell you your most profitable route.
18k would be a fantastic number if I’m imagining correctly a $2,000 property. I’d have to check my traffic count, but it’s a “rural highway.” Are you on an interstate? If you are then those numbers are more realistic. Even so, I’ve seen (don’t own any interstate signs,) $1,000 interstate signs as well. 18k on an interstate though is more than realistic depending on traffic count. Anywhere with the right count. I have reviewed many sign leases and have never seen an annual set percentage increase. Ever. Which does not mean it doesn’t exist. After that being stated though I see where you got to these millions and millions and billions and billions.
As for why Ive never received a revenue share check, it’s quite simple. The revenue share has never breached the base rent… that’s the point I was making. If you set the rent at 20% of predicted revenue your revenue share should be quite low if any… unless they grossly underestimate what they can sell it for. Doubtful. They know their jobs.
They’re not all reits. I refer to the big dogs as such because some are. Personally I own an acquisition company so obviously I’m not an reit. But I’m a small fry. I have to pay more than they do. But the reason they don’t care and the lender does is because it’s their business model. They know that’s how the leases are written. There’s nothing marketable to collect against for the bank. They have a revocable lease on a $2,000 property…I am far from the foremost authority here. Just what I’ve learned in the few years I’ve been doing it. There are a small handful of guys on here with far more in depth knowledge. And one who sells a boot camp on the subject.
- Investor · TX · Member since 2023 · 57 posts · 5 votes3y
The sign will be a double-faced static bulletin.
The site is on a highway, not an interstate. 256,802 vehicles weekly. 420,000 impressions weekly according to the company. DOT is expanding the highway 30 miles away from 4 lanes to 6 lanes, which will increase capacity from 37,000 to 55,000. They predict traffic flow will increase by 42% in 18 years, but it only takes 3-5 years for traffic to adapt to expanded roads. The point is, I want the rent to keep up with rising traffic count. The company has now offered me a pure 20% revenue deal, so that my "revenue grows with theirs", but I want a base rent as well. The metrics I provided ($18,252/yr) were based on their own rates ($1.95/1000 views when I contacted them as an advertiser, which they claimed was already a discount) and 100% occupancy. They predict 65% occupancy - low relative to industry standards (75% in recession, 80-85% during expansion). $1.95/1000 views at 65% should put my revenue at $11,863/yr. The numbers they are predicting implies they will charging about $0.65/1000 views, 1/3 the rate they quoted me, which would give me $4056/yr. I stated upfront that I want an escalation provision and a revenue-sharing provision. They may be 'assuming' a low occupancy rate and long-term advertising contracts ($0.65/1000 views) for the entire 75-year term because they want to keep the base rent low. My idea is to agree to set the base rent at their 65% occupancy rate, perhaps at lower than 20% revenue, assume a RANGE of advertising rates ($0.65-$1.95), and use a revenue-sharing provision to bridge the gap they're attempting to avoid. It sounds like you have a hybrid lease that is structured similarly. How is the language articulated?
The industry expects 5% annual growth based on average occupancy rates - it has seen 7-9% annually before. In tough times ad spending only drops 1-2%. Inflation occurs every year, not every five years, or only at the end of a lease. For the best valuation of the lease, I think it's important to try to negotiate an annual escalation.
So the sole discretion language that allows them to decrease/stop rent or remove the sign needs to be mitigated or removed so that it's attractive to a lender. Otherwise, the lease can be sold to an acquisition company, even if that language is in place. Is that correct?
- Member since 2018 · 433 posts · 208 votes3y
Quote from @Paul Klei:
The sign will be a double-faced static bulletin.
The site is on a highway, not an interstate. 256,802 vehicles weekly. 420,000 impressions weekly according to the company. DOT is expanding the highway 30 miles away from 4 lanes to 6 lanes, which will increase capacity from 37,000 to 55,000. They predict traffic flow will increase by 42% in 18 years, but it only takes 3-5 years for traffic to adapt to expanded roads. The point is, I want the rent to keep up with rising traffic count. The company has now offered me a pure 20% revenue deal, so that my "revenue grows with theirs", but I want a base rent as well. The metrics I provided ($18,252/yr) were based on their own rates ($1.95/1000 views when I contacted them as an advertiser, which they claimed was already a discount) and 100% occupancy. They predict 65% occupancy - low relative to industry standards (75% in recession, 80-85% during expansion). $1.95/1000 views at 65% should put my revenue at $11,863/yr. The numbers they are predicting implies they will charging about $0.65/1000 views, 1/3 the rate they quoted me, which would give me $4056/yr. I stated upfront that I want an escalation provision and a revenue-sharing provision. They may be 'assuming' a low occupancy rate and long-term advertising contracts ($0.65/1000 views) for the entire 75-year term because they want to keep the base rent low. My idea is to agree to set the base rent at their 65% occupancy rate, perhaps at lower than 20% revenue, assume a RANGE of advertising rates ($0.65-$1.95), and use a revenue-sharing provision to bridge the gap they're attempting to avoid. It sounds like you have a hybrid lease that is structured similarly. How is the language articulated?
The industry expects 5% annual growth based on average occupancy rates - it has seen 7-9% annually before. In tough times ad spending only drops 1-2%. Inflation occurs every year, not every five years, or only at the end of a lease. For the best valuation of the lease, I think it's important to try to negotiate an annual escalation.
So the sole discretion language that allows them to decrease/stop rent or remove the sign needs to be mitigated or removed so that it's attractive to a lender. Otherwise, the lease can be sold to an acquisition company, even if that language is in place. Is that correct?
Obviously annual increases are best for you. I would be shocked to see you get it.
I don’t know with certainty on the lender questions. I just know what I’ve done and what I would do as a lender. Again I don’t think they’ll go for it. I’ve found that the companies are only interested on their terms. I watched them take a sign down because we would only agree to cut the trees on the lot down and not to brush hog the 1/2 acre lot on a regular basis.
I don’t think I have or have seen any leases similar to what you’re describing. I think you’re over thinking it in my opinion. The revenue share is the answer to all of the complicated math you are doing. They do all the leg work. And share revenue with you. If their revenue goes up, they give you more. If it goes down you still get your base rent. You can try to get that share up a bit, but how could they agree to yearly increases of base rent regardless of whether they make more money?I’m not sure where you got a lot of your numbers on losses during recession etc. I saw a sign drop to near zero during the pandemic. From around 12k to a few hundred. You’re asking them to pay an annual increase in base rent even if they begin losing money, AND you want them to take out the provision that allows them to cancel it if it’s no longer profitable. Maybe your location is desirable enough that they risk that and pay you out of the profits from other signs if yours becomes a loser but I doubt it.
The revenue share is your edge against inflation. That will be paid yearly if warranted. If they are increasing yearly revenue you’ll get it from that check.
The numbers you are talking now sound much more reasonable by the way. $4,000/yr is essentially a sign they are selling each side at $750. I’m not in advertising so I’m not getting into the impressions. That’s not an abnormal price. And that’s at 100% occupancy. At 65% that’s $1200 per side. I don’t think they’re trying to get over on you. I would try to get a base rent. If they offer $4,000 that’s probably a fair number based on the numbers you are giving. Then if they manage to bill 60k for the year you’ll get an 8k check at the end of the year. Again I’ve found their calculations to be quite accurate.
Now you have a marketable lease. Worth let’s say 20-50k. A lender might give a loan on that at 30k /15 years which would allow you to make the payments out of the revenue from the sign. They will almost definitely allow you to value it that way on a balance sheet for purposes of borrowing against another property or whatever other loan you’re taking. And will absolutely use that income in your personal dti. We came a long way from your $4-12 million initial posts. Are we taking about two different things or were you just throwing example numbers out not intending them to reflect your actual position?
- Member since 2018 · 433 posts · 208 votes3y
if you are talking about something completely different please let me know if you work it out. I’m always open to learning. That’s a serious question at the end. I’ll often throw out made up numbers for examples for a conversation. If I’m just not understanding how you’re getting to the big numbers I’d love to understand. Other than the yearly percentage increase. If you manage to get that it’s just not applicable to me because my leases don’t have it.
- Investor · TX · Member since 2023 · 57 posts · 5 votes3y
Quote from @Shane H.:
if you are talking about something completely different please let me know if you work it out. I’m always open to learning. That’s a serious question at the end. I’ll often throw out made up numbers for examples for a conversation. If I’m just not understanding how you’re getting to the big numbers I’d love to understand. Other than the yearly percentage increase. If you manage to get that it’s just not applicable to me because my leases don’t have it.
That is what I was talking about. I like to learn as well, I'm happy to discuss it further. The numbers were based on the metrics and the clauses I am trying to negotiate into the lease. I'll respond to your previous post this evening if I am able. I'm working on an email to the billboard company today.
- Investor · TX · Member since 2023 · 57 posts · 5 votes3y
Perhaps I misunderstood. It sounded like you have a base rent and because a certain benchmark has never been breached, you have never received a revenue check above and beyond that base rent. That is the hybrid lease I am trying to describe.
Perhaps I am also not understanding revenue sharing vs base rent. If I have a pure revenue share lease, I would not receive a minimum base rent if their revenue went down. 20% of revenue might be a bigger piece of the pie on good times, but doesn't provide any predictability for valuation, nor does it provide any guarantee in case of their revenue dropping. If I agree to a minimum rent of 10% and 10% of revenue, I would have predictability, guarantee and a piece of the pie.
Apparently annual escalations are both common and recommended. Either a set percentage or tied to CPI. They would agree to it for the same reason that commercial tenants do. It's reasonable protection against inflation. Also, they know the same people I do in DOT that predict a significant increase in traffic count. That's why I don't want to be locked into today's rates.
Maybe you can clear something up for me. They want to pay annually in advance, beginning after construction. But how can they know in advance what 20% of revenue will be? If they are basing it on their own metrics, then that is a negotiable number as they cannot accurately predict that far into the future.
These are market-wide historical numbers. Typical occupancy rates for companies in the U.S. are 80-85% during economic expansions and 75% during recessions. Billboard revenue grew 7-9% each year from 1993 through 2000. Afterward ad spending only fell by 2% in 2001 and 1% in 2002. Typical occupancy rates for companies in the U.S. are 80-85% during economic expansions and 75% during recessions. The Billboard and Outdoor Advertising Global Report 2023 also states that in the short-term, the Russia-Ukraine War disrupted the chances of global economic recovery from the COVID-19 pandemic, hence the market-wide 3.6% CAGR for 2023 and the expected 2.9% in 2027. However from 2020 to 2021 the market was expected to grow at 10.6%, after recovering from the COVID-19 impact, and then by 7.8% by 2025. These are closer to the normal growth numbers.
Regarding the language that allows them to cancel. I've received advice to revise the language to take the one-sidedness out of it. For example, if it says "in their sole discretion" then make it a reasonableness standard instead.
They are saying that they expect to make $1200/month per face. But this means that they will be charging $0.65/1000 views instead of their normal $1.95/1000 view rate. Presumably they are claiming to predict long-term contracts over the length of the lease. But a normal discount for long-term advertising contracts is 5-10%, not 67%. And again like I said, if they are going to pay in advance based on revenue before they even receive any revenue, they have to base my revenue check on some kind of math.Please clarify what you mean what marketable lease. A 30k loan based on a lease "valued at" 20-50k: How is that number reached? I was told that valuation of the lease is based on 8-10x annual revenue. To your knowledge, is that true for lenders and acquisition companies? Does the gross value of the lease factor in at all? (as you can see I'm trying to get this number up). Also, assuming value is based on a multiple of annual revenue, what would add value? (escalation clause, revenue sharing clause, etc)
I was using their stated rates ($1.95/1000 views) at 100% occupancy and their impression count of 60,000 views/day, plus an annual 3% escalation clause. At the rates they quoted me, even at 65% occupancy, they should be making $59,319 annually. 20% would be $11,863 x 3% escalation is still $3.2 million+ over 75 years. My job now is to determine why they're assuming $0.65/1000 views instead of $1.95/1000 views. But even at $0.65 ($4056 annually) with a 3% escalation the gross value is still $1.1 million.
- Member since 2018 · 433 posts · 208 votes3y
Okay let’s call it a hybrid lease. It’s so standard that I don’t think of it as anything but standard.
Revenue share kicks in of revenue is over the base price. I now see why you weren’t following that part. So if they properly predict their income the revenue share should be minimal. So it’s not 10% base and 10% revenue share it’s 20 and 20. The 20% revenue share is in case they are making more than they predicted…
I understand what you’re saying about national trends etc. the fact is they have data on actual signs, in your market, and in comparable markets. I have a sign that’s never been empty. I have one that dropped to near zero during the pandemic. Based on those 2 signs we would be at say 60% occupancy. But if they were striking a lease with someone near the 20% sign they’re not going to calculate base rent with the 60% average.
Probably good advice on the sole discretion language. My question is do you scrap the lease if they say no? I signed an unrelated to real estate contract recently. I sent it to my attorney. He advised. I sent it back with my alterations. They said no. I had 2 options. Give up the contract or accept their terms. I sat on it a few weeks and decided it was still worthwhile on their terms. I could have decided to scrap it. But there was no in between. I’ve gone the other direction and turned down a contract because their demands were unreasonable. But I’m the case at hand I’m willing to bet the property isn’t good for a whole lot of other things. (Based on your $2,000 valuation, and your attempt to put a sign on it instead of something else.) if that hunch is correct, and they know this, they’re probably not going to commit to 75 years without discretion to remove it if not profitable. Maybe shorter term. (I don’t have any that long.)
Marketable lease. Not a technical term. Take it for face value. A lease you can market to someone. If you get a lease for $4,000/year you could sell it to someone. 8-10 is a reasonable enough standard. I left a wide berth for the sake of conversation. There are always circumstances that affect the price. Then I just ran with 30k. I couldn’t possibly give you an appraisal via this thread On a proposed lease, on a property I know nothing about. But that’s in the ballpark compared to the millions you were discussing. (What would you pay for a $4,000 a year lease? Seems like a fair valuation…) If you’re trying to borrow based on the potential lifetime income of the property rather than the marketable value of the lease I have no information for you, I’ve never heard of it. Well… I guess I have… in a certain real estate developers golf course properties…
I can’t get over the 3% annual escalation. Does whoever told you this own signs, or is this based on like a large retail commercial lease? I own several properties, I have reviewed dozens of leases in various markets. I’ve never once seen this. Again my having never seen it doesn’t mean it does not exist. But to call it common sounds at minimum like an exaggeration. First off, is that on base rent or revenue share? I don’t even know how you calculate it on revenue share. That doesn’t make sense. So it must be on base rent. And then you’re essentially pushing them out of their profitable range. The revenue share renders the 75 year predictions irrelevant in my opinion. Presumably they quoted $4,000 because they have a similar sign to compare it to where that comes out to 20% of revenue. Then they are offering 20% revenue share in case they can sell it for more they’re offering to keep you in the loop. If they give you 3% annual escalation, they’re going to be paying you 6 figures. I’m imagining how much money would have to be printed for signs like yours to have half million dollar revenues. That’s 20k a month per side. I realize we are talking about 75 years from now but still… I may frame that comment and if it seems as outrageous down the rod. I don’t think I’ll make 75 years but I can check every decade until I can’t… but the 20% revenue share will in fact pay your 96k if they sell the ads for 500k and you only have 4,000 base rent. (Normally there’s a modest increase in base rent every 5 years.)
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