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Cost of Self-Storage Likely to Rise

John Stewart John Stewart, a member of the real estate department, construction services group, Cole Schotz P.C.

NEW YORK CITY—In a 47-3 vote yesterday, the New York City Council approved legislation requiring special use permits to build or operate self-storage facilities in designated industrial business zones in the Bronx, Brooklyn, Queens and Staten Island. The permits would allow community boards to get involved, and the permits would ultimately require City Council approval.

Mayor Bill de Blasio is expected to sign the zoning amendment into law, as it is part of his 10-point Industrial Action Plan, announced in Nov. 2015. The plan seeks to boost industrial and manufacturing businesses and jobs. The city characterizes self-storage facilities as a low job-generating use of land that primarily serves households rather than business needs.

Acknowledging the need to foster industrial development and promote job growth, John Stewart, a member of the real estate department, construction services group, at the law firm Cole Schotz P.C., nonetheless questions how thoughtful the plan will be in its execution.

For example, he notes there are 50 different maps in the IBZs and questions whether all zones continue to be appropriate areas for industrial development. He points to neighborhoods which were once manufacturing areas but have become more residential with time. People living in those neighborhoods may not want industrial uses in the area.

“The market determines the highest and best use. We know based on market conditions and the increase in the self-storage industry that there is a need for public self-storage both for families as well as small businesses,” says Stewart. “For the city or a commission to make a determination that a specific piece of property is better suited for industrial use as opposed to self-storage puts an unnecessary restraint on the use of property.”

Stewart also says the requirement will drive up the costs of self-storage. Although existing facilities will not be affected, the law will curtail additional development. “When supply goes down, then the cost of public storage is going to go up.”

A GlobeSt.com article covering the legislation when it was before the City Planning Commission noted that the Self-Storage Valuation Group at CBRE Valuation & Advisory Services reported New York City is the number one under-supplied self-storage market in the country. The August 2016 report identified San Jose, Los Angeles, San Diego and Baltimore as cities right behind New York in this shortage.

Stewart further notes with discretionary approval of the special permits, there’s uncertainty in whether or not permits would be issued. Stewart represents clients in the self-storage industry but looks at this issue as a practitioner involved in real estate for almost two decades.

He says families, individuals and small businesses that can’t afford larger warehouse space will be affected by the restriction. “It’s important, if you’re looking at property for development for self-storage either currently or in the future, you have to be aware of the zoning and what the implications are with the change in the law,” says Stewart.

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