NYC Has it Out for Self Storage

Extra Space has agreed to pay $1.7 million to settle a lawsuit filed by the NYC Department of Consumer and Worker Protection. The city initiated the case on behalf of residents who claimed their storage units were infested with rats and that rents were raised without prior notice. The allegation was that the rental agreement did not permit rate increases. Extra Space has been in business for a long time, and they didn’t become the biggest by offering bad rental contracts. It’s hard to believe their contracts didn’t allow for price increases. But whether the executed agreement matters to Mamdani is another question. Extra Space is a large corporation, and in his view, large corporations are bad, and they hurt people.

One of the most striking parts of the lawsuit is the claim that customers’ “belongings…are held hostage.”

Really? That conveniently ignores the fact that these customers stopped paying their bills.

Could this be the beginning of a new era of rules and regulations for the self-storage industry in NYC?

The City has enacted new licensing requirements for the self storage industry that won’t allow an ECRI (Existing Customer Rate Increase) pricing structure. Essentially, these are move-in discounts that, after a couple of months, allow the rent to increase to market rate. As a result, operators will stop offering discounted rates for the first month(s) and instead advertise market rates upfront, which will lead to higher costs, especially for short-term customers.

I wouldn’t be surprised if the city passed new permitting fees or requirements for annual inspections. The city could extend the timeframe operators are required to hold belongings when a customer defaults on payments.

What Mamdani and the city don’t realize is that operators don’t want to keep people’s belongings. They just want the unit back so they can re-rent it.

There will be less new development because all these rules and regulations will reduce NOI for self storage investors. The added rules and regulations will reduce the profitability for self storage investors, which will make new development less financially viable. Capital will think twice about coming to NYC now that Mamdani has self storage in the crosshairs and new regulations could be around the corner.

Ultimately, it’s the consumers who will bear the costs—just as they always do.