If you own commercial land, its possible someone might have contacted you about ground leasing part of your property for some other use. These might include leases for billboards, cell towers, windmills, solar panels, underground fiber optic cables, driveway or other access, ice machine placement, or food truck or food vending parking. If you work out a deal, you might be lucky enough to collect a few hundred or even a few thousand dollars a month while at the same time keeping the vast majority of your land for your own development or use. However, what if you don’t want to collect monthly checks, but instead want one lump sump right now. Maybe you want to pay off the mortgage on your property or you want to invest in something else. Regardless, there is a way to monetize the lease by selling an easement.
What is an Easement?
An easement gives someone else the permanent right to use your land in some particular way for their benefit. For instance, if a billboard company wanted to have the permanent right to have a billboard on your property, they could buy a permanent billboard easement from you instead of paying monthly ground rent. Obviously they would have to pay far more money for this than a normal monthly rent payment because they get a right to use a portion of your land rent-free forever.
What if the Tenant doesn’t want to buy an Easement?
If the tenant doesn’t want to buy an easement, you can sell the easement to some other company. That company can then collect the rent payments forever. They take the risk of the tenant not paying the rent, the lease not being renewed or that type of easement not having value in the future (if, for instance, technology rendered cell phone towers obsolete). However, they get the upside if the lease does get renewed at a higher rate, and they get that stream of payments forever. The company that is most notably active in this space is called Landmark Dividend (NASDAQ: LMRK). They buy billboard, cell phone tower, solar/wind, and fiber optic easements.
How Much is an Easement Worth?
If the ground lease has a solid tenant and a number of years left on the lease, an easement usually sells in the 10-12% cap rate range. So a billboard lease at $1000 per month with a big company like Lamar Outdoor Advertising might sell for $120,000. At the end of the day, an easement is worth what ever the buyer is willing to pay. If the billboard is in a grandfathered location, does not have a permit, cannot be moved and is likely to be obstructed, it may not have any value to another buyer. Likewise, someone might be willing to pay you more money to gain an easement so that the billboard will be taken down and won’t be replaced when the lease is finished.