Self-Storage Possibilities, Nassau County, New York

Also known as “The Island of Possibilities”, Nassau County in New York is one of the self-storage markets that continues to be strong. Within Nassau County there are two cities, three towns, 64 incorporated villages and over 100 unincorporated areas. The entire county is physically divided amongst the three towns (Hempstead, North Hempstead, and Oyster Bay) and the two cities (Long Beach and Glen Cove). Within the three towns reside the 64 incorporated villages.

Nassau County is located immediately east of New York City, within the New York-Newark-Bridgeport, NY-NJ-CT-PA Metropolitan Statistical Area. The county is one of the four counties that occupy Long Island, together with Suffolk County to its immediate east and Queens and Kings counties to the west, which correspond, respectively, to the New York City boroughs of Queens and Brooklyn. Two cities, three towns, 64 incorporated villages, and more than 60 unincorporated hamlets are located within the county.

In 2012, Forbes magazine, in an article based on the U.S. Census Bureau’s American Community Survey, reported that Nassau County was one of the highest income counties in the United States and the most affluent in the state of New York, comprising four of the nation’s top 10 towns by median income. It also ranks as the most expensive county in America.

Storage Market Rates

Vacancy rates continue to fall below 10 percent with rent growth running close to three percent. Climate controlled units are still in high demand and command a premium of 10 percent to 15 percent over non-climate-controlled units. This trend is occasionally bucked with larger exterior drive-up units. Contractors, landscapers, etc., are typically willing to pay a premium over comparable interior climate-controlled units to secure the ease of access.

Taking into consideration how well this asset class is performing in Nassau County, few operators are eager to put their facilities up for sale, choosing instead to reap the rewards of a steady growing income stream, which is confirmed by the lack of transactions in this market over the last several quarters. This leads us to our next quandary. What are capitalization rates for this market? Are capitalization rates trending down based on decreasing vacancy rates, increasing rents, and increasing demand, or are they stabilizing/trending up due to the risk that we are at the top of the market with the ongoing threat of rising interest rates?

To better understand this market, it is necessary to look at the national and surrounding regional/local markets. The national average capitalization rate according to our Colliers Survey was 5.85 percent as of the second quarter 2017, an increase of approximately 10 points from the second half 2016. Based on Colliers rating system, capitalization rates in the Northeast range from 4.5 percent to six percent for class-A properties, 5.75 percent to 7.25 percent for class-B properties, and seven percent to 8.5 percent for class-C properties, noting that these rates ranges have held steady over the past year. Finally, some regional/local sales which show a capitalization rate range from 4.5 percent to 7.21 percent include: Briarcliff Self-Storage, which sold on Jan. 1, 2016, for $11.9 million at a five percent cap rate; GoodFriend Self-Storage Hawthorne, which sold on Dec. 22, 2016, for $14.1 million at a 4.5 percent cap rate; and Waverly Self-Storage in Holtsville, which sold on Aug. 19, 2016, for approximately $11.74 million at a 7.21 percent cap rate.

It is also important to point out that, due to the lack of supply, market participants attempting to gain access or a stronger presence in this market have turned to re-purposing existing industrial/commercial structures or the development of new facilities. As these new facilities hit the market and competition grows, it is anticipated that we will start to see more family-owned facilities and smaller operators look to put their assets up for sale before they are pushed out of the market by the larger, more sophisticated operators. For now, most participants still feel the self-storage market favors the sellers; thus, we anticipate capitalization rates in Nassau County and the surrounding trade area will remain stable in the near term. In addition, ground-up development and redevelopment of existing buildings will begin to come to market throughout the next 12 to 18 months.

However, with current real estate taxes at $4 to $5 per square foot and Mayor DiBlasio’s real estate tax initiative to limit the number of new self-storage properties from qualifying for the real estate tax abatement program in the neighboring boroughs of Queens and Brooklyn, the number of new facilities coming on line in the next two years could be minimal. Thus, we don’t see the need for rental rates being compromised/discounted in Nassau County with the little new product coming to market in this market.

Union Realtime has informed us that there are only 64 existing facilities within Nassau County, with a total of 3,500,000 net rentable square feet and 1,360,000 people, which that translates into 2.64 people per capita. There is development pipeline of an additional 11.4 percent of new supply in the process (not under construction) that could possibly bring on 385,000 net rentable square feet of new space. However, that would only increase the number of square foot per capita by 0.35 percent—an inconsequential amount.

Perhaps Mayor DiBlasio would be more apt to qualify self-storage for the real estate tax abatement program if the proposed projects were beautifying the county by converting eye sores into gems. Conversions of outdated commercial properties in this county into eye-catching and innovative self-storage facilities may be an avenue worth exploring.

Nevertheless, given the stable occupancies and rates, as well as higher barriers to entry in the real estate tax realm, it’s safe to say that there is a mass of possibilities for self-storage to thrive in Nassau County.

Nick Malagisi, SIOR, serves as National Director of self-storage and Senior Advisor for Sperry Van Ness Commercial Realty, specializing in the purchase and disposition of self-storage properties, primarily in the Northeast United States. Malagisi began his self-storage career with industry leader, Public Storage, where he was responsible for site acquisition and development of new properties as well as acquisition of existing storage properties. Since then, Malagisi has participated in the disposition of hundreds of properties from single assets to portfolio sales as a specialist in this asset class. In addition, he works as a consultant in preparing feasibility studies for new developments, testifying in court as an expert witness for condemnation cases, and preparing BOV reports for clients. Malagisi is a 30-plus year veteran of the self-storage industry, a member of SIOR, the Self Storage Association, the Canadian Self Storage Association, NYS Commercial Association of Realtors, and is a board member of the NYS Self Storage Association. Malagisi is a graduate of the Whitman School of Management at Syracuse University and resides with his family in Buffalo, N.Y.

Hans W. Hardisty serves as a managing director with SVN Deegan-Collins Commercial Realty (SVN-DCCR), located in Poughkeepsie and Kingston, N.Y., and specializes in the purchase and sale of self-storage facilities across the tri-state area. Hardisty is a member of the New York State Self-Storage Association (NYSSA), the national Self-Storage Association (SSA), a CCIM Candidate, and holds an MBA. He also has extensive development and management experience.

Other contributing authors include Tom Sapontzis of Colliers International and Cory Silvester of Union Realtime.

Nick Malagisi, SIOR, serves as National Director of self-storage and Senior Advisor