The self-storage industry is under fresh scrutiny as a new lawsuit against one of its largest operators puts pricing practices under fire. What happens when assertive rate-increase strategies clash with consumer trust? The answer is unfolding now, as legal challenges and mounting regulations threaten to reshape the future of the sector, leaving operators of all sizes bracing for impact.
Last January, I wrote a blog detailing an article by online magazine “Slate,” which criticized controversial pricing practices within the self-storage industry, namely the use of low introductory rates to entice customers coupled with subsequent rate hikes. In that post, I cautioned that if the voices expressing displeasure from customers, media and other operators got louder, it could attract the attention of outside power brokers and change the way business is done for everyone; and that may be exactly what’s starting to happen.
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The most recent example is the lawsuit filed on Feb. 10 by The New York City Department of Consumer and Worker Protection against self-storage real estate investment trust Extra Space Storage Inc., accusing the company of predatory practices, including bait-and-switch pricing. A LinkedIn post by Patrick Gilroy, owner of Stor House Self Storage, which operates four facilities in Washington state, shared a link to a news story about the lawsuit.
“The ECRI [existing-customer rate increases] chickens have come home to roost for NYC storage operators,” he wrote, rekindling the industry conversation about the controversial nature of aggressive ECRIs and their potential impact on the industry.
“This lawsuit is very unfortunate for the self-storage industry. It leaves a black mark on our sector, and some self-restraint on the part of the market leaders could have prevented this,” said Jason Koonin, CEO of Sunbird Storage, which operates four facilities in North Carolina. “I’ve been telling anyone that would listen to me for the past three years that storage operators should treat tenants ethically and with the utmost respect. Aggressive pricing practices devalue the industry and erode consumer trust. Often customers show up at our sites under duress and in a hurry. Therefore, it’s incumbent upon us to treat them with integrity and empathy while they make their purchase. Fair and transparent pricing is an important part of that process.”
This division has been growing for a while as the self-storage industry evolves from one that’s mostly comprised of independent “mom and pop” operators to one involving larger corporations. This is leading to an escalating tug-of-war for market share between the major players and their smaller competitors.
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Responses to the LinkedIn post from many within the self-storage industry express a combination of pleasure that this pricing issue is being addressed, agreement about the short-term thinking behind this business practice, and concern that the lawsuit could bring more negative attention and lead to increased regulations.
“If these charges hold up, I think the impact could be significant: Other states and municipalities will feel emboldened to pursue similar enforcement actions, and we could see a new wave of legislation targeting ECRI practices,” Gilroy said. “With this possible wave of legislation, I fear that operators who already offer transparent, customer-first pricing strategies may find themselves caught up with others on the wrong side of regulators and public opinion.”
“I can’t help but believe there will be a negative impact on the industry as a whole,” added attorney Jeff Greenberger, partner at Greenberger & Brewer LLP. “However, I don’t believe many ‘smaller’ operators conduct business in the manner alleged in the lawsuit. That is, it appears to me that it is mostly the larger operators who have been moving people in and then increasing rates rapidly.”
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Greenberger points to California Senate Bill 709, which was signed into law on Oct. 10, as the beginning of state governments cracking down on the industry. This new law took effect on Jan. 1 and requires operators in California to conspicuously state on the first page of the rental agreement if the occupant received a special rate, if so, how long it runs, what the rate increases to after the special, and most notably, the maximum rate that can be charged in the first 12 months of the tenancy.
Extra Space CEO Joe Margolis said, “Several of the allegations in the complaint reflect practices that are expressly permitted under the New York State laws. Others are clearly outlined in the lease and agreed to by our customers.”
This is where the questioned pricing practice gets sticky. It’s reasonable to think no laws were broken, but perhaps ethics were living in a gray area by placing relevant information about future price increases deep in the agreement or in the small print. After all, who really reads the terms and conditions when we sign up for something online, or when an updated version is emailed to us? Either way, there’s no doubt influential eyes are taking a closer look at the self-storage industry.
“I’m not so sure that it wasn’t California’s legislative action that triggered the New York lawsuit,” Greenberger said. “Either way, it appears there will need to be changes to pricing and price increases in the self-storage industry going forward, everywhere.”
“Large operators are likely reconsidering their pricing strategies and disclosures at this time, but the reputational damage has been done,” Koonin added.
Attorney Scott Zucker noted in his latest “Legal Minute” monthly newsletter that another new issue about rates could impact the industry. He explained how New York recently became one of the first states to address a consumer-protection warning if the company they’re buying from is using personalized or “surveillance” pricing for their goods or services. This means companies charge each of their customers the maximum amount they might be willing to pay based on the personal information gathered on that particular customer.
“This is a topic that has garnered the attention of many states and will certainly impact not only self-storage operators in New York, but likely will carry across the country as well,” Zucker wrote in the newsletter.
As the self-storage industry comes under increased scrutiny, operators must embrace transparency and ethical practices to preserve consumer trust and safeguard their reputations. Regulatory concerns are shifting. What was once primarily focused on zoning laws has now expanded to include pricing practices and consumer protection. Regardless of the outcome of this lawsuit, it’s clear that the era of minimal oversight for the self-storage sector is drawing to a close.
Ron Matejko
Associate Editor, Inside Self-Storage
Ron Matejko is associate editor at Inside Self-Storage. To reach him, email [email protected].
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