PREP TIME: A food vendor prepares his mobile restaurant as commissary owner Saleh Hegazy watches.

When Sharif leaves his home in Flushing, Queens, it's too early to say goodbye to his wife and three kids. Long before sunrise, he drives 15 minutes to a cold, brightly lit garage in Long Island City that smells of spent fuel, cleaning fluid and food that's about to turn.

There, Sharif, an Afghan native in his mid-40s, stocks the front window of his food cart with muffins and bagels from a wholesale bakery in Queens, sold to him at a markup by the garage's owners. Like the five dozen food-cart vendors busy alongside him, Sharif has brought his own perishables; for most, it's the seasoned chicken, rice and vegetables that will become halal dishes by lunchtime. Western Beef and two Costco stores— favorites for bulk provisioning—are a short drive away.

Sharif double-checks the propane tanks and grill, hangs his food-seller's permit around his neck, hitches the rig to his car and heads for the Queens-Midtown Tunnel. (To protect cart owners and vendors from being prosecuted for illegally renting out or selling permits, Crain's has declined to identify them by their full names or exact locations.)

An hour later, on a corner in midtown, Sharif has already sold the first of the day's 125 coffees. At 6 a.m., he's joined by Zamir, a younger Afghan immigrant. For the next few hours, with Zamir standing over the hot griddle, they sell egg-and-cheese sandwiches to a steady stream of regulars and early rising out-of-towners.

Sharif has been working on the same corner for 17 years. "It's hard work, six, seven days a week," he said, "but I have bills to pay. I have a family."

Working nine hours a day, food-cart vendors like Zamir take home as little as $400 to $500 for a six-day week. Many are new immigrants hoping to start new lives. During a brief lull in lunch service, Zamir, 22, told me he served as a translator for U.S. troops in Afghanistan before he was wounded and then awarded a visa to settle here. A generation ago, after a few years of hard work and saving, Zamir could have become his own boss. Sidewalk vending was long an option for immigrants eager to improve their lives.

That's no longer the case. Today's mobile food vending business is one of day laborers and shift workers who, despite hustling all week long, may not earn minimum wage.

Even for bosses like Sharif, financial autonomy is not guaranteed. Though Sharif owns the actual food cart—"I built it three years ago," he said—a portion of his earnings is sent to "a guy in New Jersey."

According to records obtained by Crain's through a Freedom of Information Law request, that guy is in all likelihood "Mr. Q." While Sharif owns the food cart and his own vendor's license, it's Mr. Q who controls the mobile food vending permit—a tiny piece of adhesive plastic that makes this cart more than just a griddle on wheels. Without it, Sharif has no business.

On a nearby block, it's a similar story. In a smaller cart equipped to sell just coffee and baked goods, another Afghan, a 54-year-old man who asked to be identified only as Steve, has been fighting for market share with Starbucks, Dunkin' Donuts and their predecessors for 27 years. He supports a wife and five children on the $600 to $700 he earns every week—about $35,000 a year.

At least, like Sharif, Steve is the boss—almost.

"I own 35% of the cart," Steve said proudly. "When I started 20 years ago, they paid me a salary." It was unclear if Steve bought or earned a share in the cart; it was also unclear who "they" are. Like most of the vendors interviewed for this article, Steve wasn't keen to elaborate on his business.

One thing is certain: The name on the permit is not his. Either like Sharif, Steve leases his permit from the legitimate owner—for upward of $10,000 a year—or that's why he's ceded nearly two-thirds of his business to silent partners.

Photo: Buck Ennis HOT & COLD: Once a way to make a good living, the standard-issue mobile hot dog carts barely help owners break minimum wage.

The city's administrative code is clear that permits can't be sold or transferred. Section 17-314.1 (b) of the code reads: "No vehicle or pushcart used to vend food in a public place shall be assignable or transferable with a license, permit or plate that has been issued under this subchapter attached thereto."

Sharif and Steve are just two of the thousands of unwitting lawbreakers in a black market for cart permits that operates in plain sight of the city's enforcement agencies. That black market is worth an estimated $15 million to $20 million  a year, costing the city millions of dollars in potential fees while making it harder for immigrant entrepreneurs to build equity and take the first step up the economic ladder.

Historian Mark Kurlansky writes that in the 19th century, food carts peddled fresh oysters for 6 cents apiece. When the oyster beds died off and new waves of immigrants arrived, offerings diversified; it wasn't uncommon to find corn, pickles and sausages for sale on city sidewalks. In 1890, Jacob Riis wrote, "There is scarcely anything else that can be hawked from a wagon that is not to be found, and at ridiculously low prices."

It was these "ridiculously low prices" that drove the first wedge between mobile food-sellers and restaurateurs. The latter, burdened by rent, insurance, payroll, equipment and other overhead, struggled to compete with 6-cent oysters and their successors.

The relationship between vendors and retailers hardly improved over the next century. Embarrassed by the lower-class food carts, Mayor Fiorello La Guardia decreed that sellers had to stand behind their carts, and eventually formed a network of covered markets to get the peddlers off the sidewalks.

Four decades and six mayors later, Ed Koch inherited this mess. The irascible Koch had little sympathy for the vendors. Of midtown's crowded sidewalks, the mayor told The New York Times, "This is not supposed to look like a souk."

Under pressure from brick-and-mortar retailers, in 1981 Koch set a limit of 3,000 citywide permits for mobile food carts and trucks. The mayor's move turned pushcarts into the new taxis, whose medallions—not the cars themselves—are the valuable asset.

For $50, just about anyone can get a license to sell food on a city sidewalk. The application process is cumbersome, but as bureaucratic chores go, it sits somewhere between the drudgery of renewing a driver's license and the complexity of filling out a tax return.

The problems come with registering the food carts themselves, and with the plastic inspection sticker known as the mobile food vending permit, or MFVP, for which the Department of Health and Mental Hygiene charges $200, and which is usually valid for two years. But many permit holders, having put in their time slinging souvlakis and moved on to more lucrative businesses, such as driving a cab, keep renewing their permits and renting them out, often with the cart attached, on a lucrative black market.

Illicitly renting a two-year permit from its legitimate holder can cost as much as $20,000 for a cart that serves hot food and can bring in far more revenue than a simple coffee-and-doughnut cart, or as much as $30,000 for a food truck—a fully mobile kitchen. Because they're so valuable but not legally transferable, these permits never officially change hands. Instead, brokers help permit seekers find permit holders who no longer want to man a cart. The vendor who needs a permit—and a cart—might pay a flat fee every two years, upon renewal, or work out a profit-sharing arrangement.

In this manner, an estimated 70% to 80% of permits are illegally in use by someone other than the permit holder. Some have been legally owned by the same person for two decades, even if he or she hasn't touched a shawarma since the administration of Mayor Rudolph Giuliani. (The health department, which distributes the permits, couldn't produce back records of permit ownership.)

At the center of this underground economy sits a loose network of garages known as licensed commissaries where, by law, every food cart must be cleaned and stored each night. While these garages serve as a meeting point for the food cart world, there is a decentralized network of owners, brokers and would-be vendors that has evaded the haphazard efforts of law enforcement.

On a cold, rainy morning earlier this year, I visited nearly a dozen of these garages to figure out how, exactly, this illicit system operates.

In Manhattan, the commissaries are clustered in Hell's Kitchen. Most are no wider than a single-car garage, deep as a typical railroad apartment, and hidden in plain sight behind hanging strips of thick clear plastic. Often, a broken food cart sits along a back wall, awaiting repairs.

The licensed commissaries are largely modest operations, garages that store and service just 10 to 15 carts whose operators pay upward of $600 per month. The commissary owners often require vendors to buy their provisions from the garage. Commissary owners make most of their money from a 5% to 10% markup on supplies.

Manhattan's largest commissary doesn't even store or clean food carts. From their headquarters on West 37th Street, Tom and George Makkos have run M&T Pretzel for more than three decades. Born in Athens, the Makkos brothers immigrated to New York in their teens with their parents; like many Greek immigrants of the time, their father supported his family with a food cart.

After college, Tom and George returned to the family business. Seeing opportunity in Koch's permit cap, they amassed a fleet of food carts—and, crucially, the permits that made them legal. It's not known exactly how many permits the Makkoses held at their peak, but a current employee (who insisted on anonymity) told Crain's it was "thousands."

By 1995, the brothers, dubbed the Hot Dog Kings by The New York Times, were in a position to pay the city a $288,200 franchise fee for the right to vend for one year from a single hot dog cart in front of the Metropolitan Museum of Art. That same year, they paid $480,400 for the rights to Central Park's 60 concessions, making them the Parks Department's second-largest revenue driver, after Tavern on the Green.

Soon enough, the high-flying Makkos brothers—and at least one other mini-empire of hot dog carts—attracted the unwanted attention of Mayor Giuliani. In February 1995, the City Council passed a law limiting mobile food vending permits to one per person or company, effective Jan. 1, 1996. The idea was to once again make the food-cart business a path for aspiring entrepreneurs. With the end nigh, the Makkoses diversified (Tom is a longtime co-owner of the upscale Italian restaurant Nello), relinquishing the pushcarts as their permits expired and becoming suppliers instead.

Twenty years later, by all appearances, M&T Pretzel is nothing but a wholesaling business, and has nothing to do with amassing—or renting—food cart permits. Along the back wall of the large, well-lit space, a row of humming commercial refrigerators holds enough hot dogs to feed a stadium. Stacks of soft drinks fill more of the remaining floor space.

The Makkoses still appreciate the power of a monopoly. Said one older man at a nearby garage, "If you buy a bottle of Poland Spring in the city, you go through them. Period."

That's barely exaggeration: The lot next to M&T is filled with shrink-wrapped pallets of beverages—many with the familiar Poland Spring logo, stacked two-high and packed Tetris-tight by two busy men on forklifts.

Tom Makkos—charming, funny, recreationally vulgar and good with a handshake—declined to speak on the record with Crain's when I met him that morning. Reached by phone several weeks later, he told me he's no longer involved in the retail end of the business.

"I do not own any permits," he said. "I don't own any carts. I have nothing to do with that."

Just one block away, I met Hell's Kitchen's other commissary king, Zizo—"No last name, please"—who came to the U.S. from Egypt in the early '80s. He's been in food carts ever since, clawing his way up from vendor to garage owner. Today he has the second-largest commissary in Manhattan.

Like M&T Pretzel, Zizo's garage (whose trade name was never made clear, and defied research efforts) is also enormous by industry standards. I found Zizo sitting at a cluttered desk in the back. He looks to be in his 50s, fit and solid in that manner of men who don't actually sit for a living, and he was eager to talk about how the business has changed over the years.

Not that food vending was ever easy, he made clear, but it's harder than ever. When he arrived, "everybody got a permit," he said. "Everybody could work." The barrier to entry was low enough to encourage entrepreneurship. In the 1980s, Zizo said, a classic hot dog pushcart cost $3,000 to $4,000 to buy; today's carts, equipped to prepare halal lunches with griddles and coolers, can easily run $35,000.

When asked about permits, Zizo sighed, stood up and pointed to my notebook. "The price of permit going up, up, up," he said, jabbing his finger to make sure I got his point. Today, he said, a permit costs $20,000 for a two-year black-market rental. He expects that number to rise to $22,000 next year.

New rules by the city have only made it more expensive to rent a permit illicitly. In 2015, the health department began requiring permit holders to show up in person to contest tickets for violating the myriad rules of where and when carts can operate. (Previously, the licensed food seller was held responsible.) To account for this greater risk, owners are pricing permits higher still. Some even require a security deposit in addition to the biennial fee.

"Where are these permits changing hands?" I asked.

"Go to Astoria," Zizo said. "That's where the brokers are."

When Giuliani instituted the one-person, one-permit rule in 1996, the food cart business was dominated by Greeks. "Then," Zizo said, "the Egyptians took over. Now it's Bangladeshis and Iranians and Turks." Astoria has been home to all these groups, and that's why Zizo sent me to Queens to find the permit brokers.

On a late Saturday afternoon in March, working with just a few cross streets and first names, I went looking for "Dmitri" and "Effie," both said to handle certain tasks on behalf of food vendors.


THE FIXER: Effie Tsatsaronis fixes tickets, legally, for vendors from this Astoria storefront. She was once arrested for selling permits.

I wasn't optimistic—one can't swing a souvlaki in Astoria without hitting a Dmitri—but an hour of cold-calling in local storefronts turned up a different lead. In the window of a tiny, unkempt real estate office under the elevated N and Q subway line, I found a flier. "FOOD VENDOR CART with 2 Year Citywide Permit + Spot [in] Very Busy Area in Queens," it said. The photo showed a typical halal cart, ready for business.

According to an older man inside the storefront, "some Indian guy" had asked him to put up the sign; he himself was not involved, he said. He did, however, know a Dmitri (or "Jimmy," in its Anglicized form) who was involved with food carts. Like Zizo, he offered me cross streets and a polite dismissal.

On the way to find Dmitri, I called the number on the flier. A man who gave his name as Mr. Singh picked up and, in a very thick Indian accent, explained that he was selling his truck. It's in Jamaica, near the subway, and it "includes everything," he said.

"The permit is included?" I asked.

"Yes, all five boroughs," Mr. Singh said. "I have a new job. I am selling everything."

"How much do you want?"

"No, no, please, come out, see the truck. We'll talk price." Street vendors often refer to the larger carts as trucks.

Eventually, I got an asking price of between $20,000 and $30,000, and I would be buying the truck and the permit from him directly. Mr. Singh refused to say more unless I met him.

"Buying" Mr. Singh's permit would be illegal—and, as a practical matter, impossible—as permits are not transferable on the city's ledger. I doubt that's what Mr. Singh actually meant. More likely, Mr. Singh would sell me his cart with the permit attached; together, we would go to the inspection center in Maspeth, and he would sign the renewal papers. I wouldn't see Mr. Singh again for two years, in time to renew the permit that would again bear his name.

On a nearby corner, I bought a $3 souvlaki from a man in his late 30s named Ioannis. I tipped him a few bucks and asked about Dmitri and Effie, about food carts, about getting a permit. He shot me the suspicious side-eye I had come to know.

"Effie, I don't work with her. Dmitri? This is Dmitri," he said, pointing to a young Greek guy sitting on a folding chair. It was not the right Dmitri. I thanked him and turned away, but Ioannis grabbed my arm lightly and asked, "You want a cart? I have a cart."

He whipped out his iPhone and pulled up photos of a classic pushcart, perfect for selling $2 hot dogs.

"How much?" I asked.

"No, I don't sell it," he said. "We work together. You pay me every month."

"How much? A thousand dollars a month?"

"No, no," he said, "we talk price later. You come see the cart. It has the sticker."

I pressed—$800? Finally, he relented. "The permit costs $18,000," he said.

While the real Dmitri proved elusive, Effie revealed herself without much effort. She runs a clearly marked business called Effie's Food Vendors out of a modest storefront on a quiet residential street in Astoria.

Every weekday from 6 p.m. to 9 p.m. and Saturdays from 10 a.m. to 1 p.m., Ifigenia "Effie" Tsatsaronis serves as an expediter, helping food vendors navigate the tangle of bureaucracy that defines their business."We renew people's licenses," she told me from behind the single desk that dominates her modest office.

"We get them a license for the first time, we renew their permits, we adjudicate their violations, we do their sales taxes."

Tsatsaronis charges $15 to contest a ticket, $50 to help get a new operator's license and, curiously, $90 to renew that license. For vendors earning subsistence wages, it's more cost-effective to hire Effie than to waste days hauling paperwork around town.

Years ago, Tsatsaronis was also known to broker deals between permit holders and buyers. In 2009, along with five others, she was arrested in a sting by the city's Department of Investigation and charged with criminal possession of a forged instrument in the second degree and falsifying business records in the second degree. The charges were dismissed and the records sealed.

Tsatsaronis is refreshingly frank about her arrest. "There is an industry, and there are things happening everywhere. We happened to be the subject of the raid, so we paid for everybody's sins at the time. We were the only ones who had to pay the consequences."

Tsatsaronis said the system is not broken—perhaps because she's built a cottage industry on its inefficiencies. "The city has a point in saying, Okay, you have a permit that is your property for as long as you use it." But if a vendor no longer wants to stand all day in a cart, she said, the permit should revert to the city. "Then more people get a chance for the $200 fee every two years, like it should be," she added.


EVERYONE COMES TO ZIZO'S: Each night, food carts park and restock at this Hell's Kitchen garage.

In my months reporting on this story, I got no sense of there being a criminal mastermind or an evil overlord running this black market. By and large, this trade is done face-to-face, through texts, and on Craigslist. Rightly or wrongly, most permit sellers are just taking advantage of a system that happens to be broken in their favor.

Sean Basinski, founder and director of the Urban Justice Center's Street Vendor Project, agreed. "It doesn't make it any better," he said of the permit owners, "but it's former vendors who are not rich people—because why would they have been vending in the first place? Now they're doing a little bit better. Maybe they're driving a taxi."

Indeed, Mr. Singh said he has a new job, which he wouldn't name; Ioannis has graduated to a larger truck. But they're holding on to their permits. "It's $20,000 every two years," Basinski said. "It's almost like a retirement fund, like a pension."

Why doesn't the city lift the cap on permits? Or, at least, relax the limit and charge more than just $200, putting money in the city's coffers?

For one, the city's business improvement districts, or BIDS, staunchly oppose any legislation that would increase the ranks of mobile vendors. They see sidewalks clogged with cheap meals. They see carpetbaggers occupying valuable real estate. They see ugliness, visual clutter, noise and fumes from diesel generators, unfair competition, litter and lines of customers blocking access to their own storefronts.

Basinski says vendors do not compete with local businesses. "The removal of vendors has led to a loss of foot traffic that harms brick-and-mortar small businesses," he has written.

Andrew Rigie, executive director of the New York City Hospitality Alliance, which advocates for the city's restaurants, bars and hotels, agrees. "Most brick-and-mortar business owners aren't anti-vending," he said. Rigie's organization wants a new permit program, though he can't say how it would work. "There are a lot of honest people who want to comply with the law who might be eligible for a permit under a different system," he said. "But until the various stakeholders come to the table, it's difficult to say what a new system would look like."

The City Council has spent more than a year looking for a compromise everyone can support, or at least can tolerate, and is no closer to a solution.

Finally, there's the issue of bureaucratic appetite. Officially, city agencies are concerned. "The health department has taken significant steps to increase enforcement and reduce the illegal transfer of mobile food vending permits," said a spokes-person for the Department of Health and Mental Hygiene. "This has increased compliance and reduced permits being illegally transferred or sold."

In fact, fewer than 70 permits have been removed, suspended or placed on probation since 2014, and the health department failed to provide any proof of "increased compliance." On the street, there doesn't seem to be any slowdown in permits changing hands.

The Department of Investigation has been running occasional stings to tamp down the black market, but appears to have little interest in making arrests. In 2014, for instance, the department confirmed that permits were being sold on Craigslist and referred those findings to the health department. The police are tasked with ticketing vendors.

The black market preys upon working-class immigrants, discourages entrepreneurship and has done nothing to foster financial security. The vendors who started under Giuliani are now well into middle age, and most have little to show for their decades of hard work.

"What else am I going to do," asked Steve, the 54-year old who has sold coffee and pastries in midtown for 27 years. "Who's going to hire me? I'm not an electrician."

With a resigned grin loaded with gallows humor, he noted, "Who knows what will happen? A few weeks ago, I know one guy who dropped dead in his cart."

With that, he shrugged, snapped a plastic lid on my coffee and turned back to his line of customers, $1.50 richer by my hand—but still a long way from being able to retire.

A version of this article appears in the June 13, 2016, print issue of Crain's New York Business as "License to grill".