I’m acting as go-between for an owner of a billboard (physical property) and the person who leases it and sells the advertising. The person who leases it may want to sell his right to lease it to another outdoor agency. He tells me that the right for the lease is worth 3/4 of the yearly income times one half of the remaining years on the lease. Can anyone tell me if this is reasonable? I’m assuming he means his portion of the yearly income (not the total). Is that right?
I am the owner of 4 billboards. I built the structures on land leased from farmers in each case. The valuation of these are just like any other income producing property. However, it’s EXTREMELY difficult to get any relevant market data because they are seldom sold. Assigning the lease is probably a much more common practice which is good for you. The “market” value is determined by the very limited market, AKA whatever the buyer and seller agree on to meet their investment requirements.
His formula of 3/4 of the yearly income times one half of the remaining years on the lease sounds like BS to me. You’d go about it just like any other commercial building or enterprise. Since I’m no expert on the subject, check this book out…
http://www.appraisalinstitute.org/ecom/publications/Item.asp?ID=247
Woah… what kinda sh*t formula is that?
DannyTheGreat is right. There is hardly any market data for this stuff.
IMO, i think you would value it as if it were a stand alone incoming producing property (which it is). So if the market cap rates in your area is 10 cap, multiply the annual net income that billboard generates times 10.
shrug
Here is a book that could help you. There are not many places that sell this book yet so you will just need to google it. I have read it and have found it to be very useful and on the money. Frank has a lot of experience with billboards.
Big Bucks From Big Signs
How to Find, Build, Rent and Sell Billboards For Big Profits
Written by Frank Rolfe
January 25, 2007
Hope this helps.