How Public Storage essentially killed a proposed competitor in its own backyard

January 30, 2014 1
How Public Storage essentially killed a proposed competitor in its own backyardHorse stables sit empty at the Fairplex in Los Angeles County.

When faced with competition, many self-storage operators beef up marketing or maybe offer new discounts. Public Storage Inc. took a different approach when a competing facility was proposed less than a quarter of a mile from one of its locations in Pomona, CA. The self-storage REIT took the rival to court.

More than three years ago, the Los Angeles County Fair Association set out to convert 11 old horse stables into a 94,000-square-foot storage facility. But a lawsuit filed by the country’s largest self-storage operator stopped the project in its tracks.

We are not going to be in the business of self-storage.
— Dwight Richards, vice president, Fairplex

“What we were looking for was a potential conversion of existing structures into what I would call a temporary solution, sort of an island to get to the next step,” said Dwight Richards, vice president of Fairplex operations.

The stables had fallen out of use amid the decline of the horseracing business. Richards said the Fairplex sought to outfit the stables to serve as storage units and rent them out for five to 10 years until a better use could be found for the property. The Fairplex, home of the L.A. County Fair, planned to convert additional buildings into a business center.

Public Storage, which operates a storage facility across the street from the Fairplex in Pomona, did not take kindly to the intrusion onto its turf. Public Storage’s headquarters is in nearby Glendale.

The company appealed the Pomona Planning Commission’s decision to support the project and mounted a legal battle after the Pomona City Council gave final approval.

fairplex

A business center would have been part of the Fairplex makeover.

A Modest Proposal
The project was approved on the basis that it would pose minimal harm to the environment. Such projects are excluded from detailed environmental studies that otherwise are required under the stringent California Environmental Quality Act.

After the Fair Association got the city’s OK to proceed with the project, Public Storage recruited nearby mom-and-pop facilities to form the Coalition to Make the Fairplex Play Fair.

“They hid behind that grassroots organization. Long story short, they fought us and were able to overturn our Planning Commission decision,” Richards said.

A judge ruled in favor of the coalition in November, forcing the City Council to revoke the permit on Jan. 6.

The coalition sued the Fairplex and the City of Pomona on various grounds, most notably that an environmental impact report should have been required for the storage facility. The coalition’s suit claimed the project, and the attached business center, would have hurt traffic, land-use compatibility and air quality. The suit also claimed the project would have threatened existing self-storage businesses.

“The development of additional office and storage uses in an area that already has a high concentration of such uses could result in vacant or significantly under-occupied space sitting empty waiting for tenants,” the suit said.

Public Storage Pomona

Public Storage operates this facility near the Fairplex.

Supply and Demand
According to the suit, the Public Storage facility adjacent to the Fairplex and other nearby facilities were operating at higher-than-average vacancy rates, and those rates would rise if the Fairplex facility opened. Five facilities already operate within one mile of the Fairplex, and 13 facilities within 2½ miles.

Richards said the Fairplex ordered a feasibility study that found significant demand for more storage in the area, with an overall occupancy rate in the high 80s to low 90s.

“I’m not saying we couldn’t impact them,” Richards said. “There wasn’t a glut of storage space. We would possibly absorb [customers] from others, but eventually I think we would stabilize.”

The judge ruled that the Fairplex would have to conduct an environmental impact study—costing more than $200,000—or start the permitting process from scratch. The judge’s ruling effectively killed the project.

“We are not going to be in the business of self-storage,” Richards told The Storage Facilitator.

EZ Storage Pomona

EZ Storage in Pomona opposed the Fairplex project.

Aligning the Opposition
At least three area storage operators joined with Public Storage to challenge the proposed Pomona self-storage facility: AA U-Stor-M, A-American Storage and EZ Storage.

Michael Greenhut, a partner at EZ Storage in Pomona, said he opposed the Fairplex facility because he thought the Fair Association was interfering with private enterprise.

“It was something that annoyed me–the government was going into competition with private enterprise. From a standpoint of ethics, it was an abuse of their mandate,” Greenhut told The Storage Facilitator.

The Los Angeles County Fair Association is a nonprofit organization that doesn’t fall under the control of any governmental body. However, the self-storage project would have been funded partly by “recovery zone bonds,” a component of the federal economic stimulus package that was passed during the recession.

LA County Fair

The Fairplex hosts the L.A. County Fair.

Fairplex Not Playing Fair?
Greenhut said he was approached by Public Storage to join the coalition set up to oppose the project. While Greenhut’s facility is a couple of miles from the Fairplex, he said the Fairplex project wouldn’t have had much of an effect on EZ Storage.

“It would have affected Public Storage,” Greenhut said. “They were concerned about the effect this facility would have.”

In a letter submitted as part of the court case, Greenhut said the overall self-storage vacancy rate in the vicinity was close to 50 percent. Furthermore, he said, area lenders wouldn’t have made a loan to a private developer to build a self-storage facility in the area because the market is greatly overbuilt.

Southern California land-use attorney Douglas Carstens represented the coalition. He couldn’t be reached for comment. Public Storage executives declined to elaborate on the case.

“The record in this matter speaks for itself. We have no further comments,” said Steven Glick, the REIT’s chief legal officer.

CEQA

The California Environmental Quality Act played a key role in the Fairplex case.

Environmental Entanglements
Self-storage facilities often can gain exemptions from performing costly environmental impact reports under the California Environmental Quality Act. However, this exemption—referred to as a negative declaration—easily can be challenged by opponents, according to environmental attorney Jim Moose.

“People who oppose a project can hire an expert to say that it can have a significant affect on the environment. That is the act that makes an [environmental impact report] necessary,” said Moose, senior partner at Sacramento, CA, law firm Remy Moose Manley LLP.

Soon after its passage more than 40 years ago, the California Environmental Quality Act has been misused by private businesses to stifle competition, according to Moose.

“What legislators had in mind was the noble sincere environmentalist fighting pollution,” Moose said. “Now, business interests are running amok with this statute that was meant for the Sierra Club.”

Moose said the Public Storage case is one example of many where businesses have used the California Environmental Quality Act to try to stop a competitor from setting up shop in their backyards. In a similar case a few years ago, Moose represented a truck stop developer who was sued by a truck stop operator across from the proposed site.

“It is a very common phenomenon,” Moose said. “These environmental laws are wielded by people who pretend to care about the environment, but they are really fighting over money.”

self-storage future

Looking ahead, what effect will the Fairplex case have on self-storage development?

What Does the Future Hold?
Moose said the court’s decision in the Public Storage case doesn’t set any new precedents that self-storage developers in California should fret about. However, he said, it might make them think twice about developing near a Public Storage location in California.

“Like in my truck stop case, I’m sure the word is out to look out for that company because it is litigious,” Moose said.

Richards, the Fairplex executive, said the Public Storage case could serve as a warning to others seeking to oppose plans for a storage facility in the neighborhood, as the REIT employed the environmental law “to effectively prevent competition.”

Now, the door is open for the law to be used against Public Storage and other self-storage operators, Richards said.

As for the Fairplex horse stables, Richards said they’re still sitting empty.

“In the end, it wasn’t critical to us,” Richards said of the proposed facility. “We may make moves in the next two to three years to repurpose that land. If we do get into [the storage business], it will just be storage for our people who do business on our grounds.”

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