How To Price A Ground Lease And Permit Assignment

So you’ve obtained the ground lease and permit to build a billboard, and you’ve decided to sell it to another billboard company rather than to go forward and build it yourself. It’s not an uncommon concept and one that I’ve done many times. But how do you come up with the price you’re asking?

Question #1: What do similar signs rent for?

The value of a billboard begins with an assumption of the market rents. To get those figures, you’ll have to contact all the available billboards for rent on the same street or highway in the immediate market. Some may be owned by big companies and others by individuals. Call them up and say that you have a client (which is you) looking at their billboard and want to know what the rate is.

Question #2: What’s the potential net income?

The typical expense ratio on a billboard’s gross rent is roughly 40%. So a proposed billboard with two faces that rent for an estimated $1,000 per month would have a net income of $1,000 x 2 x 12 x .6 = $14,400. This is, of course, not set in stone, as the ground lease is the largest amount of the expenses and a 40% expense ratio is based on a 20% ground lease percentage.

Question #3: What’s the value when a cap rate is applied?

Now comes a really difficult estimate, and that’s what the value would be at a specific “cap rate”. A “cap rate” means the rate of return that the billboard company would normally invest in a sign. In this example, a 10% cap rate would yield a value of $144,000 and a 20% cap rate would yield $72,000 – that’s a pretty big spread. It’s been my experience that the cap rate will fall somewhere between these two rates of return, and is contingent on how strong the market is and how rare the sign is.

Question #4: What’s left when you subtract the construction cost of the sign?

To wrap up the valuation process you’ll need to now estimate the cost to physically build the sign to completion. And then you subtract this number from the value estimate in #3. For example, if you assume a 15% rate of return target for the purchaser, that’s a value of $96,000. If the sign that needs to be built is anticipated to cost $50,000, then there’s a potential $46,000 of value that you might be able to harvest from the sale of the lease and permit.

That gives you a target

Based on the fact that you are dealing with a whole bunch of assumptions – and don’t even know the buyer’s actual financial performance threshold – then this final number is merely a target. It’s a ballpark. It’s not your bottom line. But it gives you at least a rough idea going into the next step.

But never give a price – let the potential buyers create the market price

Despite all the above work, you should never divulge a target price for the lease and permit when you contact potential buyers. Let them make the first offer. That’s because you don’t know what they plan on renting the sign for, or what they think it will cost to build, or what their financial target is. Sometimes you will be pleasantly surprised at what they’ll pay – it could be far more than you were going to ask. I once sold a lease and permit for $100,000 to a buyer who wanted it badly for their portfolio, and I was only going to ask $25,000 – so the moral is to let the buyer throw out a price first.

Play them off against each other

Even if you only get one offer, the bidder will not know that. Pretend that there is more than one offer on the table and urge them to sharpen their pencil and come up a little to get into the #1 position. This is a sales tactic that many industries use and takes advantage of the basic competitive instinct of the buyer. If you really do have multiple bidders, then that’s all the better.

But remember that you have to take one offer no matter what

All this haggling may make you think you have a highly valuable asset, but sometimes the interest is lukewarm. The bottom line is that you have to take the best offer, even if that’s lower than you hoped for. If you hoped to get $30,000 and the best offer is $20,000, then you don’t take it off the market – you take the best offer and go with it. Your lease and permit is not something you can stick on a shelf and pull back out a year from now.


A huge amount of money has been made selling billboard leases and permits. But to get the most profit you have to use the above methodology. I’ve done it many times and learned these steps through actual practice.

Frank Rolfe started his billboard company off of his coffee table, immediately after graduating from college. Although he had no formal training on the industry, he learned as he went, and developed his own unique systems to accomplish things, such as renting advertising space. Frank was formerly the largest private owner of billboards in Dallas/Ft. Worth, as well as a major player in the Los Angeles market.