I’ve found a billboard that I want to buy, but the seller isn’t being as cooperative as one would expect.
He advertised it for sale with an asking price and the net profit. I’ve checked it out and it’s all that he claimed it to be, and it would be perfect for upgrade to digital… in short, the numbers work.
I started preparing a prospectus for my lender… and hit a speed bump… the seller won’t release the financials until ‘after we’ve agreed on the terms of the deal’.
I told him it would be ‘cash at closing on a price we’ve yet to agree to’ - I need to complete my d/d and prospectus first… but apparently that isn’t sufficient… he acts like he wants it under contract before he’ll discuss it any further.
At this point I began to question if he was close enough to the deal to close it… further d/d revealed that it’s the same guy who is paying the property taxes.
This isn’t my first commercial property… so what’s with this guy? Even if he’s selling on proforma (a word he’s never mentioned)… I could live with it, if he’d just be upfront about it.
Sign up a purchase contract that allows you a 30 day due diligence period – that may be all that he is asking for. Base the price on the numbers he gave you, and then renegotiate before the end of the diligence period if those numbers were incorrect.
And make sure that the laws allow you to upgrade to digital, and that you have that cost in your overall budget.
The ‘numbers he gave me’ are skewered. The traffic count is off by several hundred thousand, and the DEC according follows. He’s charging $10k a month for both sides of a static monopole, and has priced it at a 10 cap.
He’s leaving thousands of dollars on the table every month and doesn’t even know it… this is most mis-managed property I’ve ever seen.
The only way I could write an offer, up front, would be to under-cut his asking price by $500,000… to have it fall in line with what I think the board is actually earning right now.
If the sign is grossing $10,000 per month, then it is probably netting $7,000. But then you need to take out deductions for vacancy and some mark-downs for periods when you can’t get your asking price, so let’s make it more like $5,000 tops. That’s $60,000 per year of net income. At a 10% cap rate, that’s would be $600,000. But you should not be paying a 10 cap rate – that’s far too high in today’s market. You should shoot more for a 20% cap rate = $300,000. But even then, you’re going to need a portfolio of signs to offset the possibilities of blockage or the landowner cancelling your lease. What are you going to do if they build an obstruction next door to your sign in week 1?
If this guy is asking so much that you can deduct $500,000 and still have a positive number left over, then you need to make sure you have a handle on this. Also, who is going to lend on this deal? The lender will have the same concerns on the numbers and collateral.
The most I’ve ever paid for a single sign is $100,000 – and I did it twice and, in both cases, I lost the signs to re-development within 12 months of closing. It nearly sank me. You have to make sure that you have all your bases covered when buying signs at these price levels.
To add to Franks point make sure the sign can go digital but you must also realize that the current foundation/structure may not support just adding heavier digital faces requiring you to replace the entire sign so consider that.