Mises Wire

There’s a Bubble in New York City Taxi Medallions

It’s as old as time: taking on debt to fund a sure thing. Be it houses, stocks, cryptocurrencies, tulip bulbs or taxi medallions. Winnie Hu tells the current tale of woe brilliantly for The New York Times. Big city taxi medallions were once considered to be good as gold. Ms. Hu writes,

Sohan Gill once saw his medallion as such a good investment — “better than a house” — that his wife bought two more in 2001. Now they cannot find enough drivers for the cabs because business is so bad. And Mr. Gill, 63, who had retired from driving, had to go back on the road. “How many more years am I going to drive to take care of these medallions?” he asked.

That sounds so much like Las Vegas 2005. Why own one house? Buy two more. Now retirement is put on hold.

A full blown medallion crash is unraveling in New York City as Ms. Hu explains.

Since 2015, a total of 85 medallions have been sold as part of foreclosure proceedings, according to city records. In August alone, 12 of the 21 medallion sales were part of foreclosures; the prices of all the sales ranged from $150,000 to $450,000 per medallion.

A medallion being essentially a license to drive a cab, $150,000 to $450,000 doesn’t seem like the bottom, however at the peak. 2014, a medallion went for $1.3 million. By the way, Uber was founded in 2009, but New York cab owners either didn’t get the memo, or didn’t understand the implications.

In 2014, those crafty devils at New York City Hall sold 350 new medallions at the height of the market, generating $359 million in revenue.

The city has capped the number of medallions at 13,587, but, “There are more than 63,000 black cars providing rides in the city through five major app services: Uber, Lyft, Via, Gett and Juno,” writes Hu.

Cabbies are fighting back the way they always have, in court. But so far, to no avail. “We are not against competition, we are not against technology, but we want to compete fair and square,” said Nino Hervias, 58, a taxi owner and spokesman for the Taxi Medallion Owner Driver Association.

A couple drivers have taken legal action, known as an Article 78 proceeding, to compel the city and its regulators to establish and enforce standards that will make sure that all licensed cars — including yellow cabs — “are and remain financially stable.” It sounds like subsidies are being sought. The State Supreme Court will hear the case in October.

Meanwhile, a guy like Uppkar Thind, 46, an immigrant from India, is driving 11 to 13 hours a day trying to pay off a medallion he bought for $357,000 in 2006 with money borrowed from his relatives and a credit union. “I worked hard,’’ he told the Times. “I achieved my American dream and it turned into a nightmare.”

The nightmare sounds like it will continue. Ms. Hu writes,

In an unprecedented fire sale of medallions, up to 46 of them are expected to go on the auction block later this month as part of bankruptcy proceedings against taxi companies affiliated with an embattled taxi mogul. While the city has previously held auctions to sell a limited number of new medallions — about 1,800 since 1996 — this is believed to be the first auction to dispose of foreclosed medallions, according to city officials.

“I see my future crashing down,” says Issa Isac, 46, an immigrant from Burkina Faso who borrowed $335,000 to buy a medallion but couldn’t keep up with the payments. “I worry every day. Sometimes, I can’t sleep thinking about it. Everything changed overnight.”

As you would expect, some financial institutions have been sucked into this vortex. Forbes reports, 

Three New York-based credit unions that specialized in loaning money against taxi cab medallions, the hard-to-get licenses that allow the city’s traditional cab fleet to operate, have been placed into conservatorship as the value of those medallions has plummeted.

However, while the over leveraged are hurting, big money is circling. Crain’s New York Business reports, that private equity firms are kicking the tires. “A lot of very smart people who run very successful firms feel the market may have bottomed out,” says Andrew Murstein, president of Medallion Financial. 

Gary Sernovitz writes for The New Yorker, “if you can buy medallions for ninety per cent less to operate in a business that’s down twenty per cent, the conditions may be ripe for a value investment — like buying real estate in 2009. Some institutional investors are tantalized.”

New Yorkers may be getting a ride from Blackstone in the near future. 

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