HomeMy WebLinkAbout03. (Handout) Proposal for billboard on District property3,
0
October 15, 2012
Mr. Mike McCoy
Mesa Outdoor
582 Market Street, Suite 1508
San Francisco, CA 94104
Re: Static Billboard on City ofAntioch Property
Dear Mr. McCoy:
As you are aware, Donna Desmond Associates ( "DDA ") prepared an analysis for the City of
Antioch (the "City ") of a Mesa Outdoor proposal to erect a digital billboard on City owned
property. Mesa Outdoor ( "Mesa ") has determined that it is currently not economically feasible to
develop a digital billboard at the site. Mesa would now like to now propose erecting a double
faced static billboard at the location, with the option to upgrade the faces to LED technology if
warranted by the market. In conjunction with development of the billboard, Mesa would also
construct a "Welcome to Antioch" monument sign as a construction bonus.
You have asked that 1 opine on a fair market ground rent for the property assuming a static
structure. Static billboard ground rents vary considerably and are typically tied to factors related
to the quality of the location. These factors include traffic count, visibility and
demographics /economics of the target market. Other factors are also often considered in
determining an appropriate percentage such as size of advertising face(s), cost of building the
structure, cost of maintenance (if unusually high), market coverage in the surrounding area and
proposed term of the lease. Rents for leases with long terms, (ten years or greater) are typically
higher than rents for leases with shorter terms. Market sources, including real estate
representatives for Lamar, Regency Outdoor, Clear Channel Outdoor and CBS Outdoor indicate
that percentage ground rents for static billboards in California are typically within the range of
25% to 30% of sustainable net income. We have reviewed hundreds of ground leases throughout
California and the western United States for billboards located on both private property and
publicly owned right of way. Our review of these leases confirms this range, with most lease
rates approximating 25% of sustainable net advertising income. Ground leases can be set on a
percentage of annual net advertising income, with a monthly or annual base rent, or as a flat
monthly or annual rent.
Advertising rates for freeway proximate billboards of similar quality to the proposed board range
from $5,000 to $8,000 per four week period. There are few competing billboards along Highway
4. However, Clear Channel has a board immediately adjacent to the proposed site. According to
Mr. Mike McCoy
October 15, 2012
Page 2
market sources, this board is generating approximately $8,000 per month per face on a net basis.
This board has excellent visibility and read -time for both the right hand and left hand reads
(traffic traveling in both directions on Highway 4) due to its proximity to the right -of -way fence
line. It is my understanding that the Mesa board will be set back 145 feet from the right -of -way
fence line. If this is correct, the board's visibility will be less than ideal. Therefore, it is likely
that the proposed static faces will obtain sustainable rates closer to the midpoint of the range.
Assuming a sustainable net rate per face of $6,500 per four week period and an 85% occupancy
rate, the annual net income that a double faced static board could generate at the site would be
$143,650 ($6,500 x 2 faces x 13 periods x 85% occupancy). A ground lease rate equivalent to
25% of sustainable net advertising income would indicate a fair market annual ground rent of
$36,000.
If the rent were to be established as a base rate with a revenue share component, then a base
equivalent to 20% of sustainable annual net advertising income, or $29,000, would be
appropriate. The revenue share component would be included at 25% to be paid against the base
rate.
New ground leases for static signs do not typically include a signing bonus. If Mesa constructs a
city welcome sign, then the cost of the sign could be considered an offset of future rent. If the
welcome sign cost $40,000 to construct, then this cost could be amortized over the life of the
sign. A monument sign's life would probably not exceed fifteen years. Applying a straight -line
amortization of $40,000 over a fifteen -year period would indicate an annual rental offset for years
one through fifteen of $2,667. Deducting this from the annual fair market ground rent of $36,000
indicates a net market rent of $33,333. This deduction would only be taken during the first
fifteen years of the ground lease.
Please feel free to contact me with any questions you may have on the forgoing.
Respectfully submitted,
DONNA DESMOND ASSOCIATES
Donna Desmond, ASA
DONNA DESMOND ASSOCIATES