Clear Channel Offers Me a Haircut


#1

I was wondering if other lessors had received a proposed lease revision from Clear Channel Outdoor asking for a rent reduction due to “economic conditions.” I get a monthly rent of $245 for a location with about 17,500 views per day. I have thought that this might be over market, however the display sign is mounted on a flat roof and over the years, I have had many leaking problems. I finally put in a foam roof at a substantial cost, so I am not about to sign off on this 3-year haircut deal.

In looking further into the situation, I see that the parent company, Clear Channel Communications underwent an ill-advised leveraged buyout and one analyst predicted there might be a bankruptcy at the parent. I have never had a tenant go BK, so I was wondering what would happen in the event that there was default at CCO. As I understand it, the sign is the personal property of Clear Channel, so that would seem to make it a bit complicated as to how I would obtain title to the billboard in the event of a default. Do I evict them? It would probably cost $10k to remove the sign and patch the roof.


#2

This may not be popular with other outdoor companies, but since they came to you for a revision, i’d make them change some terms of the lease so you will see some benefit for yourself. Sounds as if its a one sided deal as they presented it. First and foremost i’d have them remove “The sign is their property clause” from the lease and then give them their terms. Or you can let them default (which i doubt they will) let some time pass and then as far as i’m concerned the sign is abandoned property. Check with a lawyer for your local laws on that position. Frankly though, I don’t see them going BK and leaving the property owners out to dry, most of the time when something like this happens, another company will come in and buy out their assets.


#3

We have a service for landowners at the site called “Ground Rent Review” where, for a small charge, we review your rent and see if it is fair and how you might improve on it. We believe strictly in “win/win” bargaining – the ground rent must tie back to the sign’s true economics. The letter you received may be a form letter sent to many owners without even detailed knowledge of their actual economics. It is important to know if it is a bluff or not, and what your options might be. While we do not give out legal advice, we can tell you many actual stories of leases and what happened with them based on different scenarios. I would urge you to sign up for this service if you want to know your actual negotiating strength. You can go on line, or call (800) 950-1364. I’m the one you’ll talk to direct.


#4

Bruce, Thanks for the thoughtful reply. I agree, the chances of a rent default are probably slim. The problem lies with the parent company and the loss of radio revenues in the face of massive debt. Some of the Clear Channel debt is trading for 14% of face value. There is a pro-rata share of the debt borne by Clear Channel Outdoor, however the S&P Equity analysis projects a nominal positive free cash flow for CCO this year. If the parent goes Chapter 11, it will be interesting for holders of the publicly traded CCO shares. Another big mess promoted by financial engineers! I agree that I would probably do well to get a rent review so I could understand my position in the market place.

How bad is it out for outdoor display advertising revenues? Are rates down 50%???


#5

Billboard rates are down 50% or more in some markets and with operators that focused on huge national accounts, rather than smaller local businesses. For example, the ads in Times Square in New York City are down about 50% – but they are about $1,000,000 per year and up, so clearly there are very few players who can afford it, and the rates are extremely elastic. But the owner of a small 30 sheet poster operation in Illinois may show little or no decline, but his rents may be $200 per month. It is really a function of rents, percentage of national accounts (they cancel faster and pay more in boom times), and market (Michigan, for example).


#6

When you speak with your CCO representative, clarify that if you participate in the downside (hair cut) you must have the opportunity to participate in the upside…


#7

That’s an excellent point, although often the upside offered is difficult to achieve, while the reduction is immediately tangible. For example, if you reduce the base rent on the sign, you will immediately reduce your income. If you are offered a higher percentage of revenue in the future, you may never receive that based on occupancy and market rents. Remember that 100% of -0- = -0-. If you must give a concession, make sure that the guaranteed minimum ground rent goes back up to the normal rate, or higher, after a period of, say, 2 years. Don’t leave it reduced forever. If their argument is that the recession is tough, then only time it for the recession. If they want to give you a “trim”, then make sure that the hair grows back out down the road.


#8

Frank and Bruce
One idea popped in my mind.
I know of a situation where one of the Big Outdoor companies has a billboard which is disputed over with the land owner.
Land owner does not want the billboard on their property, billboard has been vacant for probably two years now if not more.
I am not sure if land owner has been receiving any payments but if they did not would this be considered abandoned property? What is the time frame to be considered an abandoned property? I know it probably varies from state to state, but in general what would be the time frame?
What I have in mind is that this particular city allows to move the billboard to another location, (but does not allow new ones) and I was thinking of buying it from land owner if it would be legally abandoned and erecting one on other site within the city.

What do you think?