Million-Dollar Taxi Medallions

Permits to operate New York City taxis fetch $1 million

The sale of two New York City taxi medallions for a record $1 million each in October is sparking investor interest and bolstering shares of Medallion Financial, a company that owns medallions and lends money to people who buy them. Investors see the medallions, which confer the right to operate yellow cabs in the city, as “a safe asset,” says Medallion Financial President Andrew M. Murstein. His company owns about 300 and plans to buy “several hundred more” in New York and other cities, he says. “These are little cash cows, constantly taking in fares and spitting out money to the owners.”

While it would take a lot of long rides to run up $1 million on the meter, the return on medallions compares favorably with other investments. Someone who leases a medallion to a driver or garage operator could expect to earn about $2,500 a month, according to Simon Greenbaum, a broker at NYC Medallion Brokers. That’s about a 3 percent return for a $1 million medallion, better than the 2.13 percent effective yield on U.S. AAA rated corporate bonds as of Nov. 7 and the 2.04 percent yield on 10-year Treasuries.

Medallion Financial’s shares—traded on the Nasdaq stock exchange under the ticker symbol TAXI—have been an even better investment. They are up 17 percent since the two $1 million medallions sold on Oct. 19 and 44 percent this year through Nov. 8, compared with a 6.6 percent drop in the Russell 2000 Financial Services Index, according to data compiled by Bloomberg. The shares yield 5.6 percent, after the company boosted its dividend for the fourth time this year on Nov. 2. Medallion Financial shares offer “a pretty nice yield in a low-interest-rate environment right now,” says Justin Akin, a fund manager at River Road Asset Management, in Louisville, which owns about 6 percent of Medallion Financial.

Because the supply is regulated by the state, the value of medallions has climbed faster than stocks, oil, and gold for the past two decades. The New York State assembly and senate have passed a bill that would boost the current pool of 13,237 licenses by 1,500 starting in July. Governor Andrew Cuomo is weighing the legislation. There’s still investment “upside” in New York because of potential fare increases, Murstein says.

There are two types of medallions: individual and corporate. An individual- medallion owner has to spend a minimum of about 200 nine-hour shifts behind the wheel each year, while a corporate owner can lease out the taxi around the clock. The million-dollar medallions were the corporate variety. Prices of individual medallions averaged $694,000 in October.

From 1990 through last month, the cost of corporate and individual medallions increased 637 percent and 440 percent, respectively. The Standard & Poor’s 500-stock index is up 255 percent in that span.

Nat Goldbetter of Queens Medallion Brokerage, who helped arrange the sale of the two $1 million medallions, says potential investors should realize that the price increases may be spurred in part by fleet owners borrowing against the rising value of the medallions they already own to finance new purchases. He has fielded about 15 calls in October—five more than usual—from investors looking to put money into the business. Most lose interest after hearing about the cost of financing and the time it takes to close a sale. “It’s not for everybody,” Goldbetter says. “It’s a good investment for the people in the industry, but to the outside investor it’s a crapshoot.”


    The bottom line: A purchaser who spends $1 million on a New York City taxi medallion could expect to earn about 3 percent annually on the investment.

    Before it's here, it's on the Bloomberg Terminal.