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Investing in Billboards and Display Advertising: A Real Estate Investor's Guide

[Updated: Jun 22, 2020 ] Apr 08, 2020 by Matthew DiLallo
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Billboards and other display advertising formats are valuable pieces of real estate to companies that want to get the word out about their business. A well-located billboard on a highway can let travelers know that they can refuel their bodies and vehicles at an upcoming exit. Meanwhile, a display ad on a well-trafficked city street can alert walkers and drivers of a tasty treat or sale just around the corner.

Because these displays are important to advertisers, real estate investors have an opportunity to make money by leasing space on these vertical landscapes to companies that want to get the word out on their products and services. Here's a closer look at this more unusual way to invest in real estate.

Leasing space to advertisers

There are many ways to transform a physical space, structure, or another piece of real property into an advertisement display. These include:

  1. Erecting a billboard or display poster in a well-trafficked location.
  2. Turning an empty wall on a building into a large display.
  3. Adding an advertisement to a bus shelter or putting posters on the walls of transit stations or airports.
  4. Transforming city busses or subway cars into "moving billboards" by installing display ads on the sides.

A real estate investor interested in display advertising will typically secure a long-term ground lease for the site location or the right to rent space on a structure to advertisers. On top of that, they'll need a permit from the local authorities to erect an ad. They'll then lease the vertical space to advertisers -- usually for shorter terms of four weeks up to a year -- and then have the ad installed. While there is some legwork involved in getting the leases, permits, and advertisers, the upfront costs of setting up a display ad are much less compared to other real estate investment opportunities.

Advertisers, meanwhile, are willing to pay for this vertical real estate because it cost-effectively builds their brands and grows their audiences. Further, they capture captive viewers since those who pass by are often caught in traffic, stopped at a light, or waiting for the bus/subway to arrive; thus, they can't skip these ads as they would those on TV, print, or online.

An even easier way to invest in display advertising

Investing in display advertising takes some hustle and know-how, especially if a real estate investor isn't buying an existing billboard or display location. If they choose the wrong spot, their vertical real estate business might not generate the desired returns. That's why they might want to consider an easier way to invest in this opportunity, by purchasing shares in a specialty real estate investment trust (REIT) that focuses on billboards and display advertising.

OUTFRONT Media (NYSE: OUT) is one REIT focused on display ads. The company operates more than 47,000 billboards and other vertical displays like posters and walls as well as another 463,000 transit displays in 25 markets across the U.S. and Canada. It leases these locations to a variety of tenants, including many well-known food service, media, and technology brands. The company focuses on operating displays in prime, iconic places in large cities since those assets would drive the best returns.

Another REIT focused on leasing displays to advertisers is Lamar Advertising Company (NASDAQ: LAMR). It's one of the largest outdoor advertising companies in the world, with more than 360,000 displays across the U.S. and Canada, including billboards, interstate logos, transit, and airport advertising formats. In addition to traditional displays, Lamar operates the largest network of digital billboards in the U.S. at more than 3,500. This digital real estate rotates a slideshow of ads every six to eight seconds in high-trafficked areas like highways and busy city streets.

While REITs like OUTFRONT Media and Lamar Advertising Company are easier ways for investors to participate in the leasing of vertical real estate to advertisers, they're not without risk. That's evident by the recent COVID-19 outbreak. Many of their advertisers have curtailed their campaigns because businesses have closed and potential customers are stuck in their homes. Because of that, both have taken steps to boost their liquidity so they can continue paying their bills. Meanwhile, Lamar is also re-evaluating its dividend policy.

These actions show that an economic downturn can have a significant impact on the display advertising business, which is a risk that real estate investors need to keep in mind before jumping into this sector.

An off-the-beaten-path way to invest in real estate

Billboards and display advertising likely aren't the first thing people think of when it comes to investing in real estate. However, this vertical real estate can be in high demand if well-located and economic conditions are healthy. It can also be a higher risk alternative, especially if an investor picks the wrong location or the economy goes into a tailspin since advertisers usually sign short-term leases. Because of that, even though it's a lower-cost way to invest in real estate, it might not be the best option for a beginner.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.