Tarragon's Practices Leave Sour Taste

Tarragon Corp.(TARR Quote) is hoping to expand its recently formed condo-management business, but the division has already lost one management contract and more could follow because of unhappy residents in Florida.

Last week, the Montreux at Deerwood Lake condo community in Jacksonville, Fla., voted on a new property management company to replace Sage Residential, a division of Tarragon, TheStreet.com has learned.

A resident and board member at the community had threatened legal action against Tarragon over alleged self-dealing. Rather than face a lawsuit, Tarragon agreed to terminate Sage's management contract at Montreux, according to documents obtained by TheStreet.com.

While for most companies, losing a single community contract would be of little importance, for Tarragon it represents a relatively big piece of a small, newly formed business that the company hopes will become its focus. But right now, the condo management division would have no business were it not for Tarragon's development arm rewarding it no-bid contracts.

Tarragon is planning to split itself into two companies later this year in an effort to create value. One company will focus on homebuilding. The other, Sage Residential, will own apartment properties, while also providing management services to third-party apartment communities and homeowners associations at condo properties.

Tarragon's stock has been under pressure in recent months from short-sellers who say the company is facing a liquidity crunch. The company disclosed in a Securities and Exchange Commission filing last week that it was not in compliance with a debt-service coverage ratio covenant pertaining to its $125 million of outstanding unsecured bonds.