Tarragon's Practices Leave Sour Taste

In the first quarter, Tarragon's homebuilding and apartment businesses each lost money, largely because of failed Florida condo-conversion projects.

Tarragon continues to be cash flow negative. In an investor presentation in late March, the company said it hopes to increase Sage Residential's cash flow through the expansion of revenue from management services.

In particular, Sage hopes to increase the number of condominium properties under management. In order to do that, Tarragon put it in charge of numerous communities that it is developing, even though Sage had little experience managing condos.

Tarragon created its condo-management division last year. In its March investor presentation, the company listed 12 condo properties currently under management. All are either new condo developments or condo conversion projects under development by the company.

For some of these contracts, Tarragon used its power as a developer to pull third-party condo management companies at several properties and replace them with Sage.

Last fall, Sage replaced Continental Group Inc., a division of FirstService(FSRV Quote), as the management company at seven Tarragon condo-conversion properties in Florida, including Montreux.

A similar process happened at the Lofts on Post Oak condo development in Houston, with a different management company being replaced by Sage, according to a resident there.

The switch left some owners fuming. Chris Dobbins, a board member and resident at Montreux in Jacksonville, threatened to file a lawsuit against Tarragon over the Sage contract. He and his attorney claim Tarragon forcefully implemented Sage as the management provider, in violation of the bylaws of the community's homeowners association.