The first yellow-taxi medallions were sold in New York City in 1937 for $10 each. Over the next several decades, the value of those medallions soared until they ultimately peaked at roughly $1.1 million in 2004, generating an annual return that far outpaced equity returns over the same period.
So when Dr. Amarpreet Singh received a 'tip' from a patient back in 2013 that NYC was expanding its taxi fleet by issuing thousands of permits for a new line of cabs, so-called green taxis that would pick up passengers in the outer boroughs and upper Manhattan, he jumped at the 'opportunity' to get in on the ground floor. Within a matter of months, Singh had purchased himself 5 green-cab permits for $75,000 plus 5 handicap accessible vehicles for another $325,000 and was ready to start raking in the dough.
Unfortunately, Singh missed one vital detail in his due diligence: a small up and coming company called Uber. Per Crain's
Singh liked the idea of helping disabled New Yorkers get around town, so he paid the broker $75,000 for five green-cab permits, plus another $325,000 for vehicles. Then he waited for drivers to rent his taxis. And waited some more. After nearly two years he got in touch with his patient to see what was up with the investment. Singh learned his cabs were lying fallow in Mill Basin, Brooklyn. He dashed over and found a parking lot filled with 600 cars, none with license plates and some not even outfitted as taxis.
"It was just a sea of green," said Singh. "I walked out telling myself, Oh my God, what have I done?"
The collapse of the taxi business has dramatically altered New York's streetscape. Spurred by the advent of Uber and other apps, the number of drivers looking for passengers has grown by 40%, but the surge has meant less business for cabbies, who are making 30% fewer trips than only three years ago. Those who invested in yellow or green cabs are seeing their investments wiped out as drivers flock to rivals or pursue other work and cars sit idle.
Since 2013 5,000 taxi drivers have thrown in the towel, and last month Queens-based Melrose Credit Union was seized by state regulators after delinquent cab loans soared tenfold in just 18 months. The stock price of the city's preeminent taxi lender, Medallion Financial Corp., has fallen so far that one share now costs less than a subway ride.
Moreover, as we recently noted, Capital One breaks out the details of its runoff commercial taxi medallion loan portfolio in its quarterly reports and they don't paint a nice picture. Just since March 2015, nonperforming Taxi Medallion loans have soared to over 50% from just over 1% less than two years prior.
But investors in New York City's green cab permits allege their losses are due to more than just market share losses to Uber. In fact, a group of green cab investors, including Singh, have sued in Brooklyn state court, alleging their green-cab broker and his partners cheated them out of $8 million by selling taxi permits "in the manner of a Ponzi scheme." They also allege the defendants funneled millions of dollars' worth of taxi money into Platinum Partners, a large hedge fund that federal prosecutors likened to a Ponzi scheme after it collapsed last year.
Ginsburg's investors further allege that, in an effort to hide money made from selling permits, he and Langer lent $7.2 million to Platinum Partners in June 2015 through their real estate company, White Rock Properties.
Manhattan-based Platinum was a $1.7 billion hedge fund that collapsed last year, and seven executives were charged with crimes, including the fund's founder and chief investment officer, two co-chief investment officers and its president.
Of course, medallion broker Alan Ginsburg who made a killing selling green cab permits at multiples of their true market value, denies any wrong doing and says the pending litigation is nothing more than a 'shakedown'.
The broker, 33-year-old serial entrepreneur Alan J. "A.J." Ginsburg, denies any wrongdoing and said investors are blaming him for the taxi industry's woes. "The accusations being made about me are absolute lies," he said. "This lawsuit against me is nothing but a shakedown."
It might seem like long ago, but as recently as 2013, taxis were a red-hot investment. The price for a medallion granting the right to drive a yellow cab and pick up street hails quadrupled after 2004, peaking at $1.1 million.
Yet cabs were often hard to find outside Manhattan, and lots of would-be drivers were priced out by the soaring value of medallions. To tackle both problems, in 2013 the city created green cabs, also known as Boro Taxis, and sold 6,000 permits, mostly for $1,500 apiece. Demand was so strong that by December of that year, a permit was resold for $7,000, according to Bloomberg News. The city sold a few thousand more permits the following year for $3,000 each, and still there was a waiting list of 6,300, according to the New York Post.
"People were looking at this as the next big taxi-medallion market," said Matthew Daus, a former chairman of the Taxi & Limousine Commission.
Today, a green-cab permit can be had on Craigslist for just $999, a small 93% discount to what Singh paid in 2013, and the city has declined to offer the last 6,000 permits it's authorized to sell. Meanwhile, Nancy Soria, the first person to buy a green-cab permit from the city, said she started driving at 8:30 one recent morning and didn't pick up a customer until 11.
Just another helpful reminder of how quickly bubbles pop...