Job Growth in the Southwest Since 1990

Here's a look at cumulative job growth in selected Southwest US markets since 1990. As you can see, Las Vegas' job growth has been phenomenal in that period, almost twice that of Phoenix, which has substantially outpaced that of the three other markets analyzed here.



Now, it's true that it's easier to rack up eye-popping growth rates when you're a fairly small city, but the fact is that Vegas is rapidly becoming a big town. In 1990, Phoenix had about 7% more jobs than Las Vegas has now. And it's not as if Phoenix has been standing still; in 1990 it had four times the jobs of Tucson; today it's almost five times as many. Of course, all these cities have been doing well compared to most of the cities in the Northeast and Midwest.

 
Yield Maintenance Clause Ruled Illegal?

Here's a press release on a case where the yield maintenance prepayment penalty was ruled illegal:

The Variable Annuity Life Insurance Company (VALIC), a Houston, Tx. based unit of American International Group, Inc. (AIG), has been ordered by a federal court to refund more than $3.7 million to a Chicago real estate development firm for unjust loan prepayment penalty fees it had previously paid, it was announced here today.

Arthur Holtzman, a partner of Pedersen & Houpt, L.L.C. which represented River East Plaza, L.L.C. here, said the real estate development company will receive $3.7 million plus interest as a result of the ruling by Judge John W. Darrah in US District Court, Northern District, Eastern Division. Judge Darrah ruled that River East Plaza should only have to pay 1% on the prepaid balance of $12,301,215 or $123,012.15.

Judge Darrah, following the bench proceedings, said certain prepayment fee provisions in a commercial loan are "unenforceable" penalties.

"Because the yield-maintenance clause of the prepayment provision is an unenforceable penalty, the prepayment provision’s second clause . . . . providing a prepayment charge of 1% of the remaining principal of the loan, determines the prepayment fee. To determine a prepayment fee based on some other basis formula would require the Court to rewrite the contract to impose a prepayment rate not based on an agreement between the parties," wrote Judge Darrah.

VALIC initially demanded the prepayment penalty following the sale of the property at 2700 N. Clybourn here to COSTCO by MCL Clybourn South, L.L.C., the name by which River East Plaza was known at the time of the transaction in 2003. Despite challenges made by River East Plaza, management complied with the prepayment request, paying VALIC a prepayment premium fee of more than $4.7 million.

VALIC, according to Holtzman, had previously refunded more than $825,000 of the $4.7 million prepayment penalty when the borrower recognized that VALIC had miscalculated the amount due, leaving the remaining prepayment penalty at $3,808,505.

"This is a tremendous victory for River East Plaza and for owners of commercial real estate," said Holtzman. "Borrowers should retain the flexibility to buy, sell or refinance properties without fear of onerous prepayment penalties."

It's liable to be a Pyrrhic victory, however, because lenders will either change the clause to require defeasance instead of yield maintenance, or they will be forced to increase their spreads.

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