NYC Medallion Values Are Plummeting

NYC Medallion Values Are Plummeting

By Jordan Wathen
Motley Fool
December 3, 2015

Recent data from the Taxi and Limousine Commission show a medallion sold out of foreclosure for approximately $325,000.

Medallion Prices Plummeting

Editor’s Note: The article has been adjusted to note that HVM Capital first commented on price differences in an August 2015 report.

This week the New York City Taxi & Limousine Commission reported that an NYC taxi medallion sold out of foreclosure for just $325,545, significantly lower than the peak price of more than $1 million achieved in 2013.

Unfortunately, transfer data is incomplete. It shows all transfers and their respective prices, no matter the finer and more important details behind the sale. This may be one of a few true arm’s-length sales this year, making it indicative of the true market value for a medallion.

And this sale indicates that medallion prices are now 70% lower than the peak they reached just two years ago.

In some cases, banks are agreeing to finance their foreclosures to keep reported prices artificially high. Signature Bank(NASDAQ:SBNY) noted on a conference call that it has sold foreclosed Chicago taxi medallions to new owners by agreeing to pick up the tab. In effect, new buyers simply agree to take over the payments, committing very little of their own capital to take ownership of a foreclosed medallion.

This inflates reported prices, which is most evident in Chicago, where medallions have sold at prices in excess of $250,000, and as low as $150,000, this year. Chicago medallion brokersreport having several medallions for sale at $150,000, and four have been sold at that price in 2015.

Why are medallions selling for $250,000 despite their apparent availability for $150,000? It’s simple: Lenders will only finance their foreclosures, not someone else’s sale. In other words, the $150,000 transactions are real arm’s-length transactions. Those who transact at higher prices are likely taking over the payments on a foreclosure, perhaps with better-than-market loan terms. Prices above $150,000 are artificial.

HVM Capital first reported the price differences in cash and cashless transactions in an August 2015 report.

If a bank will lend you $250,000 to finance a medallion out of its problem loan pool but won’t give you $150,000 to buy a medallion from someone else, then there is a clear problem here. All else equal, a loan of $150,000 is much safer than a $250,000 loan collateralized by the same asset.

Some financiers and medallion owners, such as Medallion Financial(NASDAQ:TAXI), are using the inflated prices to calculate loan-to-value ratios and fair values for their medallion portfolios. Medallion Financial carries 159 Chicago medallions it owns outright at a value of $37.9 million, or approximately $238,000 per medallion.

To recap, Medallion Financial ascribes a $238,000 valuation to its Chicago medallions based on recent sales data, despite the fact the biggest broker in the city reportedly had 11 medallions for sale at $150,000 as of late September and the fact that four sales have been made at that price this year.

Thus, despite higher reported sales prices, the true market price for a medallion in New York City is likely much closer to the $325,545 price for a recent foreclosure than it is to the inflated prices for stock transfers or fleet medallions.

Here are all the reported prices for NYC medallions sold during November 2015.

Type of Medallion Percentage of Ownership Sold Price (implied value for 100% of a medallion)
Independent unrestricted (foreclosure sale) 100% $325,545
Independent unrestricted 50% $386,125.62 ($772,251.24)
Independent unrestricted 50% $340,000 ($680,000)
Corporate unrestricted 200% (two medallions) $1.75 million ($875,000)
Corporate unrestricted 200% (two medallions) $1.75 million ($875,000)
Corporate unrestricted 100% (50% of two medallions) $600,000
Corporate unrestricted 100% (50% of two medallions) $600,000

SOURCE: NOVEMBER 2015 TLC REPORT. TRANSACTIONS AT A PRICE OF $0 WERE EXCLUDED, AS THEY TYPICALLY REPRESENT THE TRANSFER OF OWNERSHIP FROM ONE ENTITY TO ANOTHER, RATHER THAN A TRUE SALE.

There are many blips in the data that make it difficult for investors to understand the true value of a medallion. However, a foreclosure sale at $325,545 suggests that this is closer to the true market price for a medallion than recently reported sales in excess of $600,000 in New York City. It also calls into question the usefulness of August 2015 data showing two foreclosure sales at prices of $725,000 and $715,000, respectively.

Without evidence of an arm’s-length sale at a higher price, I’m inclined to believe the most recent foreclosure sale at $325,545 is indicative of what a New York City medallion is truly worth on the open market. Medallion Financial and Signature Bank buyers beware. Medallion values are plummeting.

Jordan Wathen is short Medallion Financial.

 

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