Ilya Marritz covers business for WNYC.
In Good Times And Bad, Taxi Medallions Far Outpace Other Assets
Monday, October 31, 2011
The past few years have been a bumpy ride for the assets one believed to safe but have recently had wild swings in value: bonds, gold and real estate, among them. But through it all, one asset has performed consistently: New York City taxi medallions just keep getting more expensive.
Sushil Maggoo drives a yellow Lexus. And he’s proud of the vehicle. But the most valuable part of this cab is not the vehicle itself, but the little piece of molded tin affixed to the hood. Even if you’ve ridden in a lot of cabs, you may never have taken a good look.
Maggoo’s medallion is blue and white, about six inches across, with a motif inspired by the Statue of Liberty’s crown. And it entitles him to pick up rides for hire, anywhere in the five boroughs of New York.
When he bought the medallion in 2003, he paid around $215,000. Today, the asking price for an individual driver medallion has more than tripled, to nearly $700,000. Last month, fleet medallions (which are valid for a single driver working within a fleet) cracked $1 million.
“It’s unbelievable, kind of,” said Maggoo, who adds that he would not be able to afford a medallion today.
An analysis by Bloomberg News, repeated by WNYC, shows individual and fleet medallions have seen a 10-fold increase in price. In the same period, gold prices tripled.
Taking advantage of the rising cost of medallions is not so simple. To purchase a medallion, you need to become a driver or run a taxi fleet as a business.
There is one indirect way to invest, however: Medallion Financial, the only publicly traded company that makes medallion loans.
“Our company’s motto has been, ’In niches there are riches,’” said Andrew Murstein, company’s CEO.
The loans he makes are mainly to immigrants with no little or credit record, and no collateral. Though the business model could call to mind the recent boom in subprime home lending, which ended with nationwide economic meltdown, Murstein insists his business is different.
(Photo: Medallion Financial CEO Andrew Murstein. Ilya Marritz/WNYC)
“We have lent over $5 billion dollars to the taxi industry with zero losses,” he said. “I am not aware of a single bank in the United States that can make a claim like that.”
It’s not that drivers never default on their loans. But medallions are so valuable, it’s easy to repossess and re-sell a medallion from a delinquent borrower.
Explaining A Dizzying Rise
Similar to home lenders in the boom years, Medallion Financial’s business is based on the assumption that medallion values will never significantly decline in price. It’s a view supported by most drivers, and by Taxi and Limousine Commissioner David Yassky.
“I think people are buying these medallions because they know the city’s economy over the long run is a successful one,” he said.
Yassky added that the recent introduction of credit card readers may have contributed. With the option to pay using plastic, more people are likely to take a taxi, and they tend to tip more generously as well, he said.
But Ed Rogoff, a professor of management at Baruch College, said one factor alone really drives medallion prices: the fact that there are only 13,237 of them. Since the 1930s, the number has increased only slightly.
(Photo: Taxi and Limousine Commissioner David Yassky. Ilya Marritz/WNYC)
“There’s nothing like having a monopoly to keep you profitable,” Rogoff said. “When you limit competition, you get strong profits, and those profits get reflected in the value of the enterprise. And the value of the enterprise in the taxicab industry is the medallion price.”
Yet most drivers still make a modest wage. A typical driver may brings home about $50,000 a year, with no benefits.
Sushil Maggoo said he struggled to save enough to buy the medallion eight years ago. Now it’s his nest egg.
“I just want to keep up for my retirement to help me to pay my bill when I cannot work,” Maggoo said.
Until then, you’ll find him driving the streets of New York. Look for the yellow Lexus.