Signs of the Times

Theresa Racht thought she had hit a home run. In 1999, she brokered her first deal between an East Village condominium and a billboard marketing company to lease space on the condo's east façade. And for awhile everything seemed to be going along smoothly.

"They did a very attractive billboard agreement," recalls Racht, an attorney with Rosen & Livingston, who represented First Village Condominium at 130 East 12th Street in its negotiations with a Pennsylvania-based marketing company. "The company basically gave us everything we wanted."

As part of the agreement, Racht says the company agreed to keep the billboard in good repair, make sure the content was inoffensive, and avoid shining lights into any of the owners' apartments. In exchange for leasing their façade, the condo owners anticipated a yearly revenue of $40,000, a percentage based on the company's expected profits. With the building within viewing distance of the Franklin Delano Roosevelt Highway, the marketing company believed it would be easy to draw advertising clients. But after a year of being unable to find any advertisers, the marketing company and the condo owners parted ways.

These days, as more and more boards look for ways to earn money to avoid raising common charges or assessments, more and more condos and co-ops are exploring the possibility of leasing their building exteriors to advertisers.

But it's hardly a get-rich-quick plan, as the residents of 130 East 12th Street learned the hard way. There are any number of pitfalls awaiting the condo or co-op board that looks to earn income from advertising, and one lesson learned by the East Village condo was to insist on a monthly revenue, whether or not an advertiser was found. Says Racht: "They learned from their experience."

Bob Carlsen, a cooperative operations manager for JRD Management, which manages the East 12th Street condo, advises condos or co-ops looking to lease sign space to proceed with caution. "I'd just be careful that they don't get into too long-term a lease and that they shop around with different media people out there and not just deal with one entity." Boards should also know whether their neighborhood is zoned for advertising and what kind, and whether the local community board supports the project.

"There is a move in the city to ban signage and many of the residential communities are up in arms through their community boards to ban signs being placed on buildings. The Upper East Side is a rather contentious area. That's why you don't see a lot of signage up there," observes Carlsen. If boards do go ahead with the advertising, Carlsen suggests that they make sure they are within the city's guidelines for advertising. Otherwise, "you might find yourself challenged by some way, either by suit or by city that mandates it be taken down."

Co-op and condo boards have several hurdles to clear before allowing their walls to be leased to advertisers. First, there's Section 216 of the Internal Revenue Service's tax code, also known as the "80/20 rule." The regulation stipulates that 80 percent of the income of a cooperative must come from the tenant-shareholders. It prohibits co-ops from earning more than 20 percent of their income from other sources, such as rental income from a store or from advertising.

Then there is the issue of zoning. Advertising on the sides of buildings is strictly prohibited in residential neighborhoods, according to Mike Weil, director of zoning and urban design at the Department of City Planning, which oversees zoning issues. The exceptions are business signs put up by the co-op or condo to advertise itself, or by medical offices leasing space in the building. Advertising is permitted, with restrictions, in commercial and manufacturing districts, but not within 200 feet of a public park that's larger than half an acre.

And after complaints about the preponderance of signage around the city reached critical mass last year, the City Planning Commission tightened the restrictions on advertising along arterial highways, limiting the height of the signs and their proximity to the highways reports Weil.

One of those people complaining was Edward Kirkland, a member of Community Board 4, which represents the Chelsea-Clinton neighborhoods. "It's one of these things that someone had a bright idea [about], and profited by it," says Kirkland, referring to the stretch banners that decorate hundreds of commercial buildings around the city, selling everything from mints to outdoor wear. "I was one of the people who complained the most about it at the board, and we talked to our council member, Tom Duane, and then [to] Chris Quinn, and other elected officials and we put pressure on city authorities" to look into the banners.

Many were discovered to be illegal because of zoning restrictions, says Kirkland, who adds that community board members "opposed them on aesthetic grounds. We felt they were a real detriment to the streetscape."

Kim Oliver, a former board member on a 34th Street co-op near Ninth Avenue, says her building looked into advertising when it was facing major capital improvements. The lobbies and hallways needed to be redone, and the building's board was reluctant to pass an assessment to raise the money.

But negotiating a lease with an advertiser was tough going. First, there were problems with the church next door, which refused to allow the co-op access to its roof to put up a sign. Then the billboard company refused to indemnify the building, insisting that any fines levied by the city if the billboard was found in violation of zoning regulations, would have to be paid by the building itself.

"We tried to do advertising for about four years. It took about a year to try and work it [a lease] out and then we just dropped it. We were getting nowhere," recalls Oliver. Then, she recalls, the board learned that the local community board was fighting back against the growing trend of ads on building walls "and it really put the kibosh on it. I can't say they were wrong," says Oliver about the local community board, "but it hurt the building financially."

There are companies to call if you are interested in doing outdoor advertising. Those include: Viacom Outdoor (212-297-6400), Clear Channel Outdoors (www.clearchannel.com, or 212-812-0000), Lamar Outdoors (www.lamaroutdoor.com, or 518-783-7784), Capital Media II (212-448-9646, Isaac Levy), and Outdoorworks (www.outdoorsworksinc.com, or 215-627-0609).

According to Racht, each of the signage deals is crafted a different way, depending on the needs/interests of the co-op or condo. They could agree to a flat monthly fee from the billboard advertisers, or a net percentage based on the billboard advertisement company yearly revenue from leasing the sign, also paid out monthly.

Zoning fines for illegal ads on buildings can run as high as $2,500, according to Elyse Fink, a spokeswoman for the Department of Buildings, with the average fine running about $800. In addition to ensuring the building is zoned for advertising, billboard companies have to obtain a permit to erect the sign. Fines for failure to have a permit also average about $800 per violation.

But not every effort to advertise ends in failure for condos and co-ops. At 200 West 54th Street, a 129-unit two-building co-op, the property earns $4,000 a month through a marketing company that leases space on a billboard on one of its buildings. Another $8,478 a month is earned from allowing Nextel and AT&T to put cellular equipment on the building rooftops. The extra revenue goes toward operations and capital projects, says the co-op's manager, Laura Krasner.

Despina Leandrou, a resident of the property, says that the board has had a lease with Nextel for the past three years and just recently signed a new lease with AT&T. "We decided if it did not affect quality of life or safety of tenant-shareholders that we would go ahead with these as revenue sources for the co-op to keep the maintenance low," she explains.

The co-op's experience has been a success story, which should give hope to others interested in advertising revenue. The revenue from their lease agreements pays for the co-op's electricity and has kept the maintenance at roughly 16 cents a square foot, as opposed to the $1 a square foot she says most people pay in Manhattan. And, in the 11 years of the co-op's life, it had never had an assessment. Now that's a sign worth watching.