Unlocking Hidden Value: The $1M Billboard Deal

By signing a piece of paper, we added 800,000 to a million dollars of value with no investment from the owner.

Hi, I'm Andrew Wright, principal of Professional Southport, and this is the Andrew Wright Property podcast. I've built a multimillion dollar property portfolio delivering a seven figure annual rental income. And led my real estate team through thousands of sale and lease transactions. In each episode, I share real deals and strategies that will help you find, fund and operate profitable property deals.

The aim of this show is to provide education and build a community of like-minded investors who can collaborate, share insights, and help each other in each other's journeys. You can make excuses or you can make money, but you can't do both. So come and join us.

Adam:: Hello, and welcome to another episode of the Andrew Wright Property podcast. Today we're unpacking a simple but powerful play. Add a billboard, add value on a busy upper mount Gravatt site. Andrew negotiated a 10 year plus 10 year rooftop billboard lease at roughly 50 grand a year index to CPI and lifted the building's value by about 800k with zero owner investment.

I can't wait to break this one down. Andrew, welcome to the podcast.

Andrew:: Thanks mate. Long time no see.

Adam:: Yeah man. Alright, this is another one. It's got me interested already. It's all about a billboard, isn't it? So you are always looking, you're always being innovative with what you're looking at. So talk me through where this one all started.

Andrew:: Well, this one wasn't actually mine. So this one was a client's. I don't own this site. It was an owner who appointed me to sell the property in 2017. And we had a price on the property of $10 million, offer over 10 million. And I actually had that one under contract, that 10 mil cash offer, wasn't under contract, but a contract was agreed to. And unfortunately for me, another agent went to the seller at the time and said, oh, I can get you 11 million for that, so don't sign it. And I lost that deal because another agent told the seller that he could get more money for him, and I lost the deal.

Adam:: Wow. So that's how you started with that owner. Unfortunately you got him a great price and another agent killed the deal.

Andrew:: Right. So is that the property with the billboard? It didn't have a billboard at that time, but that's the site. Yes, that's the site.

Adam:: So talk me through, so he went with another agent?

Andrew:: Yeah. He sacked me after my exclusive had expired, taking the advice of the other agent. He gave that other agent the job to sell it because the other agent told him he'd get him 11.

Adam:: Right. And of course he never did. That was my next question. What did he get him?

Andrew:: Nothing. So he didn't sell it. No, he didn't sell it.

Adam:: Okay. So his exclusivity period ends. We're now looking at sort of something that's a little stale.

Andrew:: Well, he took it off the market. And we're not gonna do a podcast on real estate agent ethics here, because that's something I don't want to cover, but I could probably do a fairly lengthy one.

But anyway, what happened was a couple of years later, that owner came back to me and said, look, Andrew, I should have trusted you. I should have trusted your judgment. I'm also having problems with my property managers. We've got three empty offices out of 10 in this building. Will you take over the management for me?

And I said, sure, I'd be delighted to. And that's how I rekindled that relationship with that client.

Adam:: Okay. So what happens from there? You take over the property management. You've got three spaces to lease.

Andrew:: Yeah. So I was blown away. I actually couldn't even find that they'd been advertised online. There was no For Lease signs on the property. The overseas owner obviously wasn't aware of that. But I saw an opportunity to add value and very quickly, over about six months, I ended up leasing those three empty offices and added about another $150,000 of rent for the owner just by renting those three empty offices.

Adam:: Right. And so you feel as though just beforehand, whoever had that in place earlier just wasn't doing the work?

Andrew:: I don't know the history, I don't know whether maybe they had some staff turnover and someone dropped the ball there, but the owner came to me because he wasn't getting much communication about it. And maybe they were having some staff problems. I'm not here to sledge any other firm.

Adam:: Of course not. Tell me a bit more about the asset there. What sort of a building was it? Where was it located?

Andrew:: Yeah, it's obviously on a main road in Mount Gravatt. About 2000 square meter site. On a really, really busy corner opposite the Mount Gravatt, I think it used to be called the Garden City Shopping Center. Westfield or whatever it is.

Adam:: What's the road?

Andrew:: Mount Gravatt Capalaba Road and Logan Road. Right on the corner on the junction.

Adam:: So, and still there now?

Andrew:: Still there now. Yeah.

Adam:: Anyone there? What, so you've come in, you've uplifted his rent by 150K just by filling. What sort of tenants were they?

Andrew:: I had a migration and education slash visa company take two of the tenancies. We combined two of the offices into one. And we had another, actually, another migration company take on level two, one of the empty offices.

During that time, that whole time, I was also liaising with the lawyers of the owner and trying to finalize an additional tenant on the roof. And this is what the podcast is about. As well as adding that 150 grand of rent with the empty offices that we leased, over the period of another 12 months or so, we ended up getting council approval to build a billboard on the roof, and that's what substantially increased the profit of the building for the owner.

Adam:: What gave you that idea? How do you come up with that? Obviously, no one... You know, what led you to thinking about that as being a potential?

Andrew:: Look, there's no real genius from my side of things. I actually inherited the opportunity. The previous property manager had started, instigated it, so they'd been approached by a billboard company.

Billboard companies know what sort of traffic counts passed sites. They know what time they'll Google, you know, how many cars go past here on a daily basis. And they know that busy sites like that where there's a set of traffic lights and cars stop, there's a long dwell time. There's a long dwell time where people can sit in their cars and actually look at the billboard.

So sites like that with traffic lights? They're hunted by the billboard companies. So I basically continued the negotiations. It wasn't my idea. I basically inherited it. Followed through with the lawyers and the council over a period of another 12 months and got the deal done.

Adam:: Wow. Okay. So what does that then mean? Talk me through numbers. So you get the approval.

Andrew:: Well the first thing is that there's no investment from the owner. So part of the deal is that the billboard company spend their own money jumping on the roof, paying whatever the council application fees are, actually building the thing. Zero investment from the owner.

Adam:: Okay. So the billboard company does all of that?

Andrew:: And they pay for the legal fees for the new lease. There's absolutely no investment from the owner whatsoever. So those air rights above the roof of the building that you'd never expect to make money from, that income from the digital billboard is straight to the profit of the building. So it's an extra 50 grand a year index for life, or for 20 years anyway. Straight to the profit.

Adam:: So it was a 20 year lease?

Andrew:: It's a 10 year lease and a 10 year option. So it is just money for jam.

Adam:: Money for jam. Wow. Yeah. Okay. And they didn't have to pay a cent?

Andrew:: Not a cent for it. Now, from a capital point of view, the cashflow wise, it's money for jam, extra 50 grand indexed to CPI profit, but when a valuer values the site...

Adam:: That was my next question.

Andrew:: I mean, at a 5% cap rate, if someone's looking for a 5% return from a prime blue chip commercial property, an extra 50 grand of rent is equal to a million dollars of value. At 6%, it's probably an extra 800,000 of value. So depending on what the market will pay, it's a fairly substantial capital appreciation, forced capital uplift from that extra 50 grand a year rent.

Adam:: You've gotta have a pretty happy client right now.

Andrew:: Very happy. Wow. Very happy.

Adam:: Did he know about the start with the previous property managers? And he did want you to continue that through?

Andrew:: Yes, that's right.

Adam:: Did he know the potential of what it could be?

Andrew:: He knew. Yeah. I mean, people who own a $10 million commercial property with no bank loans, they're sophisticated investors. They know what they're doing.

So one of the mistakes that I made on that one, because it was my first experience dealing with that type of value add, is there were long delays with the council actually approving that. So councils obviously don't want lots of digital billboards in built up areas because people might start looking off the road and it could cause accidents. So it's actually not that easy to get approvals for that type of thing. So it actually did draw out for quite a long time.

And during that time, market rents actually increased and had I had my time over again with a bit more experience in that asset class, I would've negotiated a much higher rent. And I've got a mate of mine who owns one on the Gold Coast here, and he's getting well over a hundred thousand dollars a year for a similar digital billboard on his property.

Adam:: Right, right. So a bit of hindsight there. Could have been worth a bit more.

Andrew:: It could have been worth a lot more. But look again, what a return for no outlay whatsoever.

Adam:: Absolutely. So is this something now, I mean, what did you learn as a property investor yourself having done this for a client in your role as a real estate agent? Is this now something that's, I mean, you wouldn't get that many sites with that particular uplift in value. But did that open your mind to thinking a bit more outside the square?

Andrew:: Absolutely. So look, I'm always looking for opportunities now. In fact, I've been searching to buy another site where I can do that for myself. Buy a site and maybe over a period of a couple of years, get approval for a digital billboard, increase the income, and try and value add for myself in my journey. I haven't done one yet. I've been looking, but it's very, very difficult now to find the right sort of site.

None of them... In general, I'm not sure if this is a hundred percent correct, but I don't believe that any residentially zoned properties will get council approval for a digital marketing billboard. So it has to be of some sort of commercial zoning.

Adam:: Is that something you could work with the billboard companies on?

Andrew:: Absolutely. Yeah. I've been on the phone to them saying, oh, you know, if you find any sites where you wanna put one, let me know. I'll buy the land for you.

Adam:: That was my first instinct.

Andrew:: I've been on the phone there already planting seeds.

Adam:: Very cool. So other than the delay, were there any issues with this entire process?

Andrew:: Oh, look, one minor issue. The tenancy below the billboard had a few water leaks from, you know, when they did the installation of the big billboard. It created a few holes in the old roof and there was a few ceiling tiles we had to replace and fix up a couple of holes in the roof from the billboard company. They arranged that at their expense, they fixed up those defects after we had a couple of water leak issues.

Adam:: Sure. So what are the takeaways for our listeners in this particular deal?

Andrew:: Always look to try and increase the net operating income of your commercial property because not only does it affect your bottom line from a profitability point of view, but it can massively affect the capital value of your asset.

Adam:: Absolutely. And this is just one example.

Andrew:: Just one example. Yeah. But there would be a lot of things out there.

Adam:: There's plenty of other opportunities out there to add value. So as we talked about in an earlier episode, it's the highest and best use, isn't it?

Andrew:: Exactly.

Adam:: And this is a great example of where that was found. Run me just through those numbers again to finish off.

Andrew:: Well, we don't know exactly because it hasn't sold, but you know, if someone valued $50,000 a year, if someone wanted a 5% return on their money, they'd be happy to pay a million dollars for that. If they're looking for 6%, 6% of 800 grand would be 48 grand a year. So it's gotta be worth 800 to a million dollars of value that we have created for that owner and it cost him nothing.

Adam:: Yep. So for the YouTube viewers, there have been pictures put up of this site. Look, there's probably a lot of listeners who drive past it every day and have a look at that billboard. So that was Andrew's doing and look a great example of where turning some space that was effectively air into potentially a million dollars worth of value.

Andrew:: Absolutely.

Adam:: And 50K a year. What a great story. Great story, Andrew. Thanks so much for sharing that with us. And again, just a reminder, if you are enjoying this podcast, please do hit follow. It's how we get brought up in other people's searches for property podcasts. Share it with a friend. Give us a rating, give us a like. It all helps.

And of course, Andrew's contact details are there in the show notes. This is about, we want to hear from you. We want to know who's out there. We want to know who wants to join this community, who wants to collaborate, who wants to talk, and who wants to share insights around property investments.

So please do reach out and Andrew, thanks once again. I look forward to catching on on the next episode.

Andrew:: Thanks, Adam. Appreciate it.

Thanks for listening to the Andrew Wright Property podcast. This is all about building a community of like-minded investors who can share real life stories, experiences, and collaborate with a view to helping each other.

Join us. Get in touch through the link in the show notes. I look forward to you joining me on the next episode.