You've no doubt heard of COVID-19-induced eviction moratoriums on rental property. This edict protects tenants at the expense of landlords, since landlords can't evict a tenant during the coronavirus pandemic.
Some locales, in a similar manner, are banning self-storage facilities from conducting unit auctions or charging late fees. These ordinances, like eviction moratoriums, protect renters at the expense of owners and might exceed the authority of the government since this action encroaches on the dealings of private businesses. If you invest or are thinking of investing in self-storage facilities, you should know what's going on.
Certain jurisdictions, such as Los Angeles, El Monte, Pasadena, and Livermore -- all in California -- and New York City either passed laws or are considering passing laws that ban self-storage lien sales during the pandemic. Cities that favor these bans are doing so as a response to self-storage tenant complaints about their belongings being sold during the coronavirus pandemic.
Eviction moratoriums vs. self-storage bans on auctions
The reasoning for eviction moratoriums is, according to the CDC, a health one, namely to allow people ill with the virus to self-isolate, make it easier to enforce stay-at-home and social distancing directives, and prevent homeless people from congregating.
This reasoning at least makes sense (although landlords shouldn't have to foot the bill for the policy). But the self-storage ban on auctions doesn't appear to make as much sense; rather, it sounds more like a feel-good edict for politicians.
The reasoning for the self-storage ban goes something like this one, published in The City (a publication for New Yorkers): "Self-storage is a lucrative business that is booming at a time when many New Yorkers' living arrangements are in flux."
The "lucrative business" language makes this business a target, but the real fallacy of the argument is this one: If eviction moratoriums are in place, how are people's living arrangements in "flux"?
Self-storage associations object
Just as landlords would much prefer tenants to pay rent over having to evict, self-storage operators want the same -- they're in business to collect rent, not to sell or dispose of people's belongings, acts made necessary when people don't pay for their storage unit. Plus, just as landlords have been working with tenants on payment plans or other options during the coronavirus, so too have many self-storage operators. But a government mandate would likely change that.
A ban on self-storage facilities from holding auctions puts a burden on self-storage operators who must now hold people's stuff in storage for free. Requiring self-storage facility owners to operate their business and not be paid is not a well-thought out plan, and it has the potential to put these businesses out of business (and where would that leave people's stuff)?
Attorney Jeffrey Greenberger, who focuses on commercial real estate, including self-storage issues, calls what's happening with this self-storage ban "a frightening turn of events." He told Inside Self-Storage: "Let's be frank about self-storage: Storage is a place you put your extra stuff. The reality is people who cannot pay for storage are complaining because they cannot or choose not to pay rent for a place for their extra property."
Plus, once tenants realize they don't have to pay, many won't.
Self-storage facilities are already heavily regulated, and owners must go through a process before auctioning off a person's belongings. Self-storage tenants first receive notice and then typically have the right of redemption as well.
The Millionacres bottom line
COVID-19 has caused financial hardships for a great many Americans. Many of these hardships are a result of lockdown policies. New policies like eviction moratoriums and self-storage eviction bans make one group foot the bill for another. If cities want self-storage operators to hold people's belongings for free, those cities should pay the self-storage operator.
Investing in a self-storage facility has traditionally been a good investment for people, both in the form of a self-storage real estate investment trust (REIT) or buying a facility to collect rent. Watch out for heavy-handed regulations, though, and consider joining your industry resource group to find out what's happening and to possibly fight against unfair government overreach.