Ron Borree & Todd Wojciuk – WisDOT September 29-30, 2015 Chula Vista Resort.

Outdoor Advertising The Appraisal of Properties with Billboards Impacted by WisDOT

Ron Borree & Todd Wojciuk – WisDOT September 29-30, 2015

Chula Vista Resort

Chapter 10 – Billboards (REPM) Appraisal of Real Estate that includes Outdoor

Advertising (OA) Money Trail Case Law/Statutes/Regulations Outdoor Advertising Terms/Descriptions

Overview

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Here are some confusing billboard assets that have been valued in various appraisals from around the country:

“Sign Interests” “The Sign” “The Billboard” “The Billboard Location” “EBITDA” “The Billboard Business” “The Real Property”

Some food for thought for this presentation.What are we valuing when we value a “billboard”?

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The Extraterrestrial World of Outdoor Advertising

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Purpose

The purpose of this chapter is to guide decision-making and describe the procedures for relocating or acquiring off-premise signs affected by WisDOT highway projects. The goal of the appraiser in this process is to determine what compensation, if any, is owed by WisDOT to the landowner and/or the sign owner due to the impact of a project on the sign, and successfully clear right of way for highway projects. The rules and statues referenced throughout this chapter are in effect as of December 2013.

Chapter 10 – Billboards (REPM)

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Sign Category and StatusThe sign’s category and status will be identified by WisDOT. This information will be shared with the appraiser. WisDOT will work with the appraiser to fully understand the significance of the category and status classifications.


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Appraisal of Real Estate that Includes OA

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When appraising a property that includes an off-premise sign site, the appraiser needs to start by looking for comparable sales of properties that can be used for a standard comparable sales appraisal of the subject property.

Under Wisconsin law, comparable real estate sales are considered the best evidence of value.

Other mechanisms for appraising real property such as a rental income analysis are used only when comparable sales are not available. Adams Outdoor v. City of Madison, 717 N.W.2d 803, 2006 W.I. 104, 294 Wis. 2d 441 (2006).

Sales of properties that include a business value component as part of the sale, such as the sale of a business are not comparable real estate sales. Vivid v. Fiedler 219 Wis.2d 765; 580 N.W. 2d 644 (1998)


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Chapter 2 of WisDOT’s Real Estate Program Manual (REPM) sets forth the process used for appraising real estate for a condemnation purpose, including the appraisers determination of the larger parcel and scope of work.

The Unit Rule applies to all real estate appraisals in eminent domain including those with billboard sign site uses, even if there are divided interests between a landowner and an OA business. Country Side Restaurant v. The Lamar Company, 2010AP2023

The appraiser needs to keep in mind that the presence of an off-premise sign can be beneficial or detrimental to a property and a thorough highest and best use analysis is important when developing the scope of work.

The appraiser must determine whether the off-premise sign’s presence affects the subject site’s highest and best use as vacant and as improved, in both the before and after condition.


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Unit Rule (Undivided Fee Rule)Unit rule: Sometimes called the “undivided fee rule,” is a method for valuing property in eminent domain proceedings where the property being acquired is subject to multiple ownership interests. Compensation is determined based on the fair market value of the property as a whole as if there were only one owner. See REPM Chapter 10 for a full definition.

Principle of Contribution (Contributory Value)“The concept that the value of a particular component is measured in terms of its contribution to the value of the whole property, or as the amount that its absence would detract from the value of the whole.”The Dictionary of Real Estate Appraisal, 5th ed., 2010, 44


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Legal OA Site The fundamental component of billboard land use is a “legal” location. The majority of all legal OA sites are leased by a landlord “simply” as a legal site for the location of a billboard business operation. With a lease agreement in hand, the OA tenant is responsible for obtaining a permit(s) and erecting a structure, or maintaining an existing structure on the legal site.

NOTE: A legal location is a specific placement on a parcel of land that meets the jurisdiction’s spacing requirement. (Both state and local jurisdictions)

Permitted/Allowed OA SiteA Permitted Billboard Site is a sign site that is properly permitted and used as a legal billboard location. In Wisconsin a conforming location typically has a permit from WisDOT. (state and local jurisdictions may vary)

An Allowed Billboard Site is a sign site that is non-conforming and used as a legal billboard location. Non-conforming locations in Wisconsin typically do not have a permit from WisDOT. (state and local jurisdictions may vary)


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Spatial Monopoly

“Spatial Monopoly is a market within certain spatial boundaries where a single seller supplies a product or service.”*

Billboard spacing is a regulatory factor affecting spatial monopoly. However, it’s important to remember that spatial monopoly may, or may not, add value to the sign site location. *The Dictionary of Real Estate Appraisal, 5th ed. (2010), pp 183.

Total Outdoor Advertising Real Property (TOARP) The fee simple real property interest of a “permitted” or “allowed”. Billboard site improved with a sign structure as a package or component of the underlying real estate, including all right, title & interests to the sign site at a location for outdoor advertising use.


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Determining Contributory Value When No Sales Exist

In the wake of the major court decisions in Vivid and Adams, WisDOT has focused on the appropriate package of property interests typically involved in sign site acquisitions – The TOARP. That is, the sign structure and the sign site including any leasehold or permit related interests.

WisDOT has found transactions where this package of assets (The TOARP) is leased from a fee owner to an outdoor advertising business entity.

It is possible to analyze these transactions to derive market rental information for the TOARP. This market data can then be used to value the TOARP for a specific location on a property by applying a standard income capitalization approach. This approach is premised on the concept that the value of property may be ascertained from the money that flows to that particular property.


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Money Trail

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Money Trail

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Money Trails Compared

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Business vs. TOARP Valuation Processes Compared


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Business vs. TOARP Valuation Processes Compared


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Country Side Restaurant v. The Lamar Company, 2010AP2023

¶28 When, as here, the property condemned is held by multiple owners, the condemner is generally required to value the property according to the "unit rule." See City of Milwaukee Post No. 2874, 319 Wis. 2d 553, ¶¶39-41; Spiegelberg v. State, 2006 WI 75, ¶15, 291 Wis. 2d 601, 717 N.W.2d 641.

Pursuant to the unit rule, the condemner "provides compensation by paying the value of an undivided interest in the property rather than by paying the value of each owner's partial interest.“ City of Milwaukee Post No. 2874, 319 Wis. 2d 553, ¶39. In other words, the condemner "determines the fair market value as if only one person owned the property.“ Id. When that value is determined, the condemner makes a single payment which is then apportioned among the multiple owners. Id.; see also Maxey, 94 Wis. 2d at 401 (“Condemnation awards should be based on the value of the property as a whole as if there were only one owner, and it is only after there is a determination of the taken property's total value that it is apportioned among the various interests in the property"). In Wisconsin, acceptance of the unit rule is "beyond question”. Green Bay Broad. Co. v. Redevelopment Auth. of Green Bay, 116 Wis. 2d 1, 11, 342 N.W.2d 27 (1983). The unit rule helps to ensure that compensation is just both to the owners of the property taken and to the public that must pay the bill:

The unit rule is designed to protect the interests of the condemner and not to protect the interests of a condemnee. The condemnees, irrespective of their interests, are indeed constitutionally entitled to just compensation, but contracts between the owners of different interests in the land should not be permitted to result in a total sum which is in excess of the whole value of the undivided fee.

Case Law – Unit Rule

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Under the unit rule there is no separate valuation of improvements or natural attributes of the land, and the manner in which the land is owned or the number of owners does not affect the value of the property. When property that is held in partial estates by multiple owners is condemned, the condemner provides compensation by paying the value of an undivided interest in the property rather than by paying the value of each owner's partial interest. Simply stated, the unit rule determines the fair market value as if only one person owned the property. When the value of the property is determined, the condemner makes a single payment for the property taken and the payment is then apportioned among the various owners.

Case Law – Unit Rule Continued

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Vivid v. Fiedler 219 Wis.2d 765; 580 N.W. 2d 644 (1998).

In Vivid the justices agreed that WisDOT was required to acquire all right, title and interest in the sign and the sign location, including any leasehold interest. Three justices thought that the Gross Income Multiplier (GIM) method was appropriate. A majority of the court had doubts about the GIM. Their concerns included non-compensable items such as business value, profits and expectancy of lease renewals.

“The initial calculation of the GIM is derived not from the sale of one billboard, an unlikely prospect […], but rather from the sale of an entire advertising concern. In such cases, it can be “virtually impossible to determine the amount of income that should be attributed to the billboard and which portion should be attributed to the marketing and other aspects of the business.” Id. at 798-799.

In eminent domain, fair market value of a billboard is the price “the aggregate asset-the lease, permit and sign-would bring in the marketplace[.]” Vivid, 219 Wis.2d at 780, 580 N.W.2d 644 (Bablitch, J., with two justices joining). Necessarily, this includes the value attributable to the location of the billboard. Id. at 803-04, 580 N.W.2d 644 (Bradley, J., with three justices joining) (noting the value of the location is included in the value of the leasehold).

Case Law – Business Exclusion & Use of Rental Income Valuation

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Off-premise outdoor advertising signs (billboards) are regulated in Wisconsin under a variety of statutes, regulations, case law, and policies at the federal, state and local levels. Some of these regulations include the federal Highway Beautification and Bonus Acts, relocation regulations under Wis. Stat. § 32.19, Wis. Admin. Code § Adm 92, the eminent domain statute Wis. Stat. § 32.05, state outdoor advertising control law in Wis. Stat. § 84.30 and Ch. Trans 201, Wis. Adm Code, agreements between Wisconsin and the U.S. DOT from 1961 and 1972, the Federal Uniform Relocation Assistance and Real Property Acquisition Policy Act, local ordinances, and the state and federal constitutions. In addition, provisions of a lease, easement or contract related to a sign site may also affect how WisDOT proceeds. This always complex and often confusing mix of regulations and requirements means that the Real Estate specialist must take extra time in analyzing each billboard encountered on a highway project. This requires close coordination with the regional sign coordinator and may require input from agency legal counsel.

The goal for the Real Estate specialist is to carefully analyze the situation so that compensation can be fairly estimated and provided to both the sign owner and sign site owner (in some cases these may be the same). It is important to understand that when a billboard is encountered on a highway project, there is more to consider than just the sign structure itself. There are two basic components to compensation for signs that are considered when acquiring or relocating a billboard under eminent domain. First, there is the physical sign structure itself; second, there may be a real estate interest in the underlying land due to the existence of the sign site. The sign site will often be appraised and compensated as part of the acquisition of the underlying fee interest in the real estate. The real estate interest includes leasehold or easement interest and permit-based interests.

WisDOT must follow one of two statutory programs that govern compensation for off-premise signs impacted by a project, depending on whether the sign conforms to Wis. Stat. § 84.30.

1. Wis. Stat. § 84.30, for nonconforming signs; or,

2. Wis. Stat. §§ 32.05, 32.19, 32.195(4) and Adm 92.64, Wis. Admin. Code for conforming signs.

Background of Billboard Regulation in Wisconsin

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AADT - Average Annual Daily Traffic is a measurement representing the total number of vehicles passing a given location, based upon 24-hour counts taken over an entire year. Mechanical counts are adjusted to an estimate of annual average daily traffic figures, taking into account seasonal variance, weekly changes and other variables.

Ambient Media - Refers to any non-traditional out-of-home medium, but specifically includes media designed to reach audiences close to the point of purchase. Ambient media ranges from street vision, mobile media, venue advertising, washroom advertising and small screen advertising such as ATM and CCTV.

Audited Circulation - The Traffic Audit Bureau for Media Measurement (TAB) independently audits records and circulation data for outdoor advertising according to established national procedures approved by the buyer and seller community.

Billboard - Large format advertising displays intended for viewing from extended distances, generally more than 50 feet. Billboard displays include, but not limited to: 30-sheet posters, 8-sheet posters, vinyl-wrapped posters, bulletins, wall murals and stadium/arena signage.

Bulletin - The largest standard format of outdoor media, the most common size is 14' high x 48' wide. Design copy is most commonly reproduced on vinyl, and then wrapped around the surface of a bulletin structure. Design copy can also be painted directly onto the surface of a bulletin or printed on paper and applied. Bulletins are sold either as permanent displays or in rotary packages.

Business Area: Business area means different things along interstate vs. non-interstate highways. Along non-interstate highways, "business area" means land within 660' of the right of way that is:

• zoned for business, industrial or commercial activities under the authority of the laws of this state; or

• not zoned, but constitutes an un-zoned commercial or industrial area as defined in Wis. Stat. § 84.30(2)(k).

Along the interstate system "business area" generally means lands that are within 660 feet of the interstate right-of-way that are currently zoned commercial or industrial AND that are within the September 1, 1959, boundaries of an incorporated municipality. Lands in commercial or industrial districts that were annexed by a municipality after 1959 do not qualify as "business areas." Wis. Stat. § 84.30(2)(b). Date of annexation can be found from annexation records available on the Secretary of State's website at http://www.sos.state.wi.us/record.htm.

Outdoor Advertising Terms / Descriptions

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http://www.sos.state.wi.us/record.htm

Circulation - Gross Daily - All the people including passengers in autos, public transportation, trucks, pedestrian, going in all directions, who pass given a point during a 12-hour daylight period or an 18-hour period in case of illuminated panels.

Commercial/Industrial Area - Those districts established by the zoning authorities as being most appropriate for commerce, industry, or trade, regardless of how labeled. They are commonly categorized as commercial, industrial, business, manufacturing, highway service or highway business (when these latter are intended for highway-oriented business), retail, trade, warehouse, and similar classifications.

Conforming Sign - A conforming sign is one that meets provisions of the state highway beautification statute, Wis. Stat. § 84.30. That statute generally prohibits the erection and maintenance of off-premise outdoor advertising signs along the state highway system. However, the statute contains a number of exceptions. Signs that fall within an exception and which satisfy the applicable conditions set forth in the law are eligible for permits from WisDOT and are called conforming signs. For example, one major exception to the general prohibition in Wis. Stat. § 84.30 is for signs erected in “business areas” (see definition in Appendix C). Wis. Stat. § 84.30(3)(e). Signs may be legally erected in business areas if they comply with certain size, spacing and lighting limitations set forth in Wis. Stat. § 84.30(4) and Wis. Admin. Code ch. Trans 201.

Conspicuity - The capacity of a sign to stand out or be distinguished from its surroundings and thus be readily discovered by the eye. It is the noticeable contrast between a sign and its background, attributed to an exogenous (unplanned) or endogenous (planned) mindset, with the display having features that attract attention to the sign. Conspicuity is considered a subjective outcome.

CPM stands for Cost Per Thousand - the most common method for comparing media advertising costs. Expressed in dollars, the CPM is the media cost for generating one thousand exposures.

To calculate CPM for outdoor advertising, first multiply the daily effective circulation by the number of days in the showing period, then divide the result by 1,000 to determine the "number of thousands." Finally, divide the cost per board by this number.


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DEC - Daily Effective Circulation . It is a measurement of the audience (18 years old and over) that has the opportunity to view the advertising message each day. It is based on the annual average daily traffic (AADT) count of a location taking into account the average number of persons 18 and over in each vehicle, the visible traffic flow and the hours of illumination of the display. The resulting number is expressed in thousands to facilitate the calculation of the costs per thousand (CPM) impressions per month.

Double-Faced Sign - A sign with two parallel faces. Electronic Variable Message Sign (EVMS) - A sign depicting action, motion, light, or color changes through full motion

video, electrical or mechanical means. Although technologically similar to flashing signs, the animated sign emphasizes graphics and artistic display.

Fascia Sign - A building mounted sign. Grandfathered Sign (to the State of Wisconsin/DOT) - A sign that lawfully existed in a business area on March 18,

1972, and that does not conform to the size, spacing or lighting restrictions of Wis. Stat. § 84.30(4). GRP stand for Gross Rating Points. It refers to the total number of impressions delivered by a media schedule, expressed

as a percentage of the total market population. In outdoor advertising, GRP's refer to the total number of impressions made on a daily basis, and are synonymous with "showings".

Illegal Sign - A sign or billboard unlawfully erected or maintained. Lease - (license, permit, agreement, contract or easement). An agreement, oral or in writing, by which possession or use of

land or interests therein is given by the owner or other person to another person for a specified purpose. Leasehold Value - The leasehold value is the present worth of the difference between the contractual rent and the current

market rent at the time of the appraisal. Load Factor - The advertising industry uses the term "load factor" to represent the average number of people, 18 years or

older, riding in a vehicle. For example, using the 2010 NHTS data that indicates there are approximately 1.50 people per vehicle traveling on a highway, if a sign has two sides, each side is exposed to vehicles (and viewers) traveling in two different directions. Therefore, theoretically, the viewership of each vehicle is cut in half and there would be approximately


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0.75 people per vehicle traveling in each direction. The load factor is adjusted based one or more of the following 1) if the sign is illuminated and has 24 hour exposure; 2) is illuminated - but only until midnight or 3) if it has no lighting at all, and 4) for traffic volumes at certain times of the day.

Message Area - The area within the sign panel describing the limits of the message. Moving Cost Agreement for the Relocation of Outdoor Advertising Signs - An agreement between the Wisconsin

Department of Transportation and the Outdoor Advertising Association of Wisconsin (OAAW) that was originally negotiated in the mid-1990s for resolving sign removal compensation issues. It included a schedule that estimated reproduction costs for various types of signs, and has been updated from time to time. It is sometimes referred to as the "sign schedule.“

Net Advertising Revenue - Net Advertising Revenue is usually reported as an annual dollar amount and calculated by determining the gross advertising revenue from sales of advertising on a billboard at a location and then making adjustments as follows. From the gross advertising revenue figure, the following are subtracted: ad agency fees and production costs, such as printing·, vinyl production, and ad production. That net amount is then reduced for expected ad vacancy to arrive at Net Advertising Revenue for the sign.

Nonconforming sign (to the State of Wisconsin/DOT): A sign that lawfully existed on March 18, 1972, and that is located outside of a business area, OR a sign that was lawfully erected after March 18, 1972, but subsequently did not conform to Wis. Stat. §84.30. Signs can also be nonconforming under local ordinances, but for purposes of this appraisal we are concerned with conformance to Wis. Stat. §84.30 unless otherwise indicated. See Chapter 10 of the REPM for greater detail.

OA - An acronym for outdoor advertising. OASIS (Outdoor Advertising Sign Information Sheet) - The record system used by the Wisconsin Department of

Transportation to identify outdoor advertising signs located adjacent to "controlled access" i.e., the interstate system, federal aid primary or national highway system, and the Great River Road. Records covered in this schedule include OASIS policies, standards, and administrative records; permits and attachments; compliance monitoring and enforcement records; annual permit fee billing summary records; and sign tracking data.


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Off Premise Sign - Off-premises” or “off-property sign” means a sign that is not an on-premises sign. On-premise Sign - "On-premise" or "on-property sign", for purposes of Wis. Stat. § 84.30 and Wis. Admin. Code ch. Trans

201, means a sign at a business location advertising a business that is conducted on the property and that is located in the immediate vicinity of the business. "Immediate vicinity" in this definition means the sign is within the area bounded by the buildings, driveways and parking areas in which the activity is conducted or within 50 feet of that area. "Immediate vicinity" does not include any area across a street or road from the area where the business is conducted or any area developed for the purpose of erecting a sign. Local laws may define the term differently so it is possible for a sign to be considered on-premise under a local -ordinance and off-premise under state law.

Permitted Sign Site - A Permitted Billboard Site is a sign site that is properly permitted and used as a legal billboard location.

Poster Signs - A type of sign that is a smaller size and are more of an urban neighborhood product located in commercial, industrial and. residential areas of the market. They are sometimes referred to as 30-sheet (typically 10'5" x 22'8") or 8-sheet because for many years paper was the main substrate used even though it would last only a short time.

Reach - Reach is an estimate of percentage of the total target audience's population, which will be potentially exposed to the advertising message one or more times during all advertising programs common to all media.

Sign Face - The surface area of a sign on which the advertising message is displayed. A sign may have more than one face.

Sign Facing - The cardinal direction that an outdoor unit faces. As an example, vehicles traveling south would view a north-facing bulletin.

Sign Site Ratio - This is the ratio of the real estate rent for the total off-premise sign package at a location divided by the Net Advertising Revenue for the sign. Sign site ratios for a market can be reconciled to a market sign site ratio.

Sign Site Location - This is· the specific physical location on the real estate where an outdoor advertising panel and advertisement is affixed to a sign structure. Typically this is the location where a sign structure is placed in the ground, but could be the side or top of a building connected to the ground.


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Snipe - Refers to a small, added strip along a poster design to announce special or revised messages. Spatial Monopoly - A market where a single seller supplies a product or service within certain spatial boundaries. Stacked Panels (Decked Panels) - Two advertising panels built vertically, one above the other, and facing the same

direction. Static Sign - A sign that is not digital or electronic. The graphics can be painted directly on to the panel face or printed on a

surface (such as vinyl or paper) and then attached to the frame. They typically are either "bulletins" or "posters". TAB is the Traffic Audit Bureau of Media Measurement; an independent firm that provides its members with audited

circulation figures for outdoor boards in accordance with nationally recognized standards. TAB covers more than 225,000 advertising billboards in over 1,000 U.S. markets. What Nielson is to TV and the Audit Bureau of Circulation is to newspapers, TAB is to the outdoor advertising industry.

TOARP (Total Outdoor Advertising Real Property) - The fee simple real property interest of a “permitted” or “allowed” in Billboard site improved with a sign structure as a package or component of the underlying real estate, including all right, title interests to the sign site at a location for outdoor advertising use.

"Transit" outdoor category is defined as: Advertising displays affixed to moving vehicles or positioned in the common areas of transit stations, terminals and airports. It may consist of the following: Airport Displays, Bus Displays (interior & exterior), Mobile Displays, Subway and Rail Displays (exterior graphics, interior posters & train cards),

Un-illuminated Unit - An outdoor unit that has not been equipped with lighting for nighttime illumination of an advertising message. The daily effective circulation for an un-illuminated unit is calculated using a 12-hour viewing period. Sometimes referred to as a regular unit.

Some of the sign descriptions & terms contained in this exhibit are from the Outdoor Advertising Association of America website and from The Signage Sourcebook published by the Signage Foundation for Communication Excellence, Inc., first edition, October, 2003 , WisDOT and from other sources.


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Ron Borree & Todd Wojciuk – WisDOT September 29-30, 2015 Chula Vista Resort.

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