Billboard lease proposal...how much for a lease? $1000? $2000?

Question

We own some commercial property on a very busy highway. 250,000 cars pass by everyday. We recevied a proposal from a billboard company to build a full sized billboard. the research has been conducted and a written lease has been written and presented to us for 1k/mo, 20 years + 20 yr option, with 10% rate increases every 5 yrs. We are very interested, but what is a fair rate? I think that billboards here run $5000-10000 (maybe more?) a month here because it's so busy, but I'm not really sure.

From what I'm told and from what I've researched, you can expect to recevie about 15% to 20% of the gross monthly revenue that the billboard company gets. I am also going to required annual increases in rent based on the CPI index, among a few other things.

Does anyone have experience with this? I don't want to have any regrets.

Thanks in advance for your responses!

Oscar Toledo · Answer

Yes of course. I am traveling right now otherwise I would take a look at my contract. For now I'll try to go off memory.1. Ensure you specify exactly where they will be allowed to erect the sign. One property owner said he didn't do that, which gave them free reign to move the sign anywhere on the property. He couldn't sell the property because no bank would give a loan on it with that in the contract.2. You may want to mention that you will not permit any adult content or advertisements for a competitor (we will be operating our business next door). You can also ask for 2 months of free advertising, if you pay for the skins.3. Ensure they have an insurance policy and put you on it as an additional insured.4. Most companies want a twenty year lease. We are going for ten with one option to extend for ten years. Gives us more flexibility.5. Mention operating hours and specific easements or service procedures so there aren't guys putting up signs during you or you tenant's business hours. 6. It seems as though the going lease rate is 15%-20% of the monthly revenue that the sign generates. Some property owners were able to add a portion of the sign company's revenue (say, 10%) as a bonus, but sign companies are getting away from that model because there are just too many billboards any too much number crunching. They would rather just give an extra 2% per month.7. Ask for an artist's rendering of the sign so you can see how it will look on your property and ensure it does not interfere with your signage.8. Most importantly!!! Have an attorney review you contract and make changes. The contract they sent us was one page long, and our attorney added 3 more pages.8. I'm sure I forgot a few things,so I'll update when I get home.Good luck!

Oscar Toledo · Answer

it was difficult. I spoke with a couple of property owners who were willing to disclose that information. I also hired a consultant who worked for Clear Channel advertising at one time. The attorney who reviewed my contract was also able to confirm the typical lease rates.Oh, one thing I forgot to mention is be sure to include how and when the lease rates will increase. We based ours off the annual CPI which is a gauge for inflation.

Oscar Toledo · Answer

I would say only if you plan to use the property for another purpose or if the property is really cheap and fits within the building guidelines. However, in austin, you are at the mercy of the permitting process, so there's no way to guaranty that your sign company will be able to procure a permit for the billboard.Also, austin is NOT allowing any new billboards inside city limits. Same for cedar park, round rock, and other suburbs. A sign company will have to tear down an existing sign to put a new one up. Also, any new signs can be no larger than the one they tore down. This always applies UNLESS the city tears one down to expand a highway (ie, 290). And in that case, they have more flexibility. A sign company gets one credit for a sign that is torn down and have up to 3 years or so to erect another or they lose that credit. Lastly, no sign can be within I think 1000 feet of another sign or I think 500 feet of a residence. I think they can build within 500 feet of another sign if they use the credit described above. They are trying to change these rules now, proposition is up for a vote in May.Note that some signs in austin violate some of these laws. In those cases, they were built and grandfathered in before the laws were in place.Hope this helps!

Kareem Abes · Answer

Afternoon,This is my first post. Been a long time listener and own 2 rentals (6 units). Last year my mother purchased her brother's and sister's share of a building they co-owned. We had an attorney draw up a seller financing deal. I manage the property for her and planned/executed a rehab of 3 out of the 4 units in this building doing most of the work myself (that's just some background info on the building). Recently I noticed the billboard on the building and contacted them. They sent me their "current lease" which still was executed in 2003 and was for 10yrs. I saw no language regarding rolling the lease over after 10yrs. but the agent told me it doesn't expire until Feb. 2034 there was no additional lease signed and they are still paying my aunt the abysmal rate of $600/yr. The math was just not adding up. I believe we are entitled to a new lease with way stronger terms based on the expiration of this lease and the sale that happened last year. I read through the thread on here and saw standard rates but I don't know if they were specific to their state. This building is located in Cicero IL a township 15-20mins from Chicago. I did reach out to an advertising attorney and I'm waiting to hear back from But I wanted this forums insight. God Bless,

Jon Klaus · Answer

Oscar, with what you know now, would you consider buying land for billboards as primary purpose? Thanks for the contract tips.

Oscar Toledo · Answer

Yes, I spoke with other landowners about their leases and they gave me great insight and advice. I also spoke to an attorney who specializes in billboard lease contracts. I think we negotiated a pretty good deal!

Shane H. · Answer

Section 4. “And subsequent like terms.”

Jerry K. · Answer

@Joey Chan There is an investor here on Biggerpockets, Frank Rolfe, that made his first fortune in the billboard business. He sold all his billboards to one of the big billboard companies after a few decades and now invests in mobile home parks. I have some of Frank's materials from his billboard business days. He is a partner in a website called Outdoor Billboard University. You can see what they offer today in terms of teaching how to get a billboard permit and lease it out. Good luck!

Joey Chan · Answer

i have a small property that I would be interested to possibly add a billboard to, not sure where to start.

Brad Baker · Answer

Oscar, Could you refer the attorney name and give some idea of what it costs to negotiate the lease? Thanks.