What’s up with Tarragon?
“Tarragon Corp. said Monday that it and certain of its subsidiaries have filed for Chapter 11 in New Jersey. The residential real estate developer said it intends to reorganize and seek new financing. It is not expected that there will be any distribution to Tarragon equity holders in conjunction with the bankruptcy cases. Tarragon’s operations are concentrated in the Northeast, Florida, Texas and Tennessee.”
Tarragon may file Chapter 11
The outlook just got even more bleak for major Hoboken developer Tarragon Corp. This week it announced it reached an agreement with debt holders over a restructuring that may include a Chapter 11 bankruptcy filing. Stockholders now holding the near-worthless Tarragon shares would get little or nothing while debt holders would get new equity in the reorganized company, assuming it would ever emerge from bankruptcy.
Tarragon continues to burn through cash. Third-quarter earnings that showed a decline in third quarter revenue to $49 million, from $70 million in the same quarter last year, with losses from continuing operations of $58 million.
Upper Grand Condo Owners suing Tarragon
Tarragon’s quarterly SEC filing under Commitments and Contingencies outlines numerous lawsuits brought against them, including here in Hoboken:
“We have received statutory notices from the homeowners’ associations at fourteen of the properties that we developed or converted into condominiums in Florida for construction related claims. One of these claims is now the subject of pending litigation in Florida.
A lawsuit has also been brought by the homeowner’s association of a property we developed in New Jersey, alleging construction and design defect claims. Individual purchasers at the New Jersey property have also brought suits against us and the City of Hoboken alleging misrepresentations as to future property taxes in connection with the purchase of the units.
Residents of two of our condominium conversion projects in Florida and South Carolina have filed lawsuits claiming personal injury and/or property damages caused by construction defects, water intrusion, and mold. Multiple lawsuits have been filed by purchasers of condominiums at one of our Florida developments, claiming damages arising from the alleged misrepresentation of the square footage of their units.”
Read more coverage of Tarragon’s troubles after the jump. You can’t say Hoboken411 didn’t warn you!
Tarragon bankruptcy may be near
Financial experts we know say it looks more and more like Tarragon is toast. For more than 14 months now Hoboken411 has been telling you how one of Hoboken’s biggest developers has been teetering on the edge of financial disaster. Now the world credit crisis looks like it could be the final nail in the bankruptcy coffin.
On Tuesday, Tarragon shares closed an all-time low of 16 cents a share. That’s down from $2.68 in March, and an all-time high of $26.90 back in July 2005. Among the Top Tarragon topics in the past two weeks:
- Default notice from a major lender
- A lawsuit seeking $1 billion in damages
- Threat of stock delisting from Nasdaq
- Margin calls for the CEO
- Yet another Hoboken property on the market
Everywhere you look Tarragon is having problems. In Hoboken with their joint venture partner Ursa Development, they’ve failed to get City Council approval for their plan to build 16-, 14- and 12-story buildings on the Western Edge. Dave Roberts made the deal for his major campaign contributors in 2005, but the Mayor doesn’t have the votes on the council to deliver in 2008. The value of Tarragon/Ursa’s properties will skyrocket if the redevelopment variances are granted, making the delay costly at a time when Tarragon has leveraged its survival on the up-zoning potential for its Hoboken properties.
Read more about Tarragon’s troubles below
(Tarragon 10/8/2008 Update, continued…)
Tarragon in default for $42.9 million loans
Among its many debts, Tarragon owes National City Bank approximately $42.9 million. On September 29th National City sent a notice of default and acceleration to Tarragon. After Tarragon reportedly failed to make a payment, the bank made an immediate demand for about $300,000 in accrued and unpaid interest. A year ago Tarragon was in a similar situation and managed to negotiate its way out of it. With the current cash squeeze and credit crisis, the outlook appears much more bleak, sending Tarragon stock plunging to the new low. The big boss at Tarragon commented about his predicament to The Day newspaper of New London, Connecticut:
”We are developing a strategy to respond to this terrible economy in a way that will permit the company to survive in a condition to expand when times change,” William Friedman, Tarragon’s chief executive officer, said in a phone interview Thursday.
”We’ll have some announcements in the next few weeks,” he said.
”Right now, it’s unfortunately true that you really can’t start any new projects or developments, and even if you have the money in hand to do it, it’s not a sensible thing to commit in the midst of such uncertainty,” he said.
Tarragon/Ursa shopping Hoboken property
Friedman told The Day the “principal element” of the strategy is to convert debt to equity – which often means selling off properties, as Tarragon spent much of 2007 doing. Among those properties was 1000 Jefferson Street in the Northwest Redevelopment Zone, sold to a unit of ING for $116 million in February. Now the Hoboken-based trade publication Real Estate Alert is reporting they’ve listed the nearly identical 800 Madison Street building for sale. With the state of the market the price for this 217 unit building is going to be a lot lower.
Tarragon sued for $1 Billion
Last spring Tarragon announced a $2 billion joint venture with Northland Investment Corp. The deal never closed, and now the companies are trading lawsuits. Northland wants $1 billion from Tarragon. According to the Hartford Courant, the suit alleges Tarragon sabotaged a deal the companies announced in March so that its top executives could try to make a deal with a different partner that would be more lucrative for them personally. Tarragon called Northland’s suit “specious,” said the demand for $1 billion was “absurd,” and filed a countersuit.
Stock delisting notice and margin calls
With the stock trading at just 16% of the minimum price requirement, Nasdaq sent Tarragon the required deficiency notice warning their stock has fallen below listing standards for 30 straight days. They have until March 25, 2009 to regain compliance (rise above $1 a share) or be de-listed.
Meanwhile, Chairman and CEO Friedman has been selling stock to satisfy margin calls. Last week Friedman sold 99,207 shares, with 134,726 shares sold the week before. He still holds about two million Tarragon shares that were once worth nearly $54 million dollars. Today they are worth about $320,000, which would just about cover the interest payment Tarragon missed that caused the default notice from National City. (Read Forbes’ take on Mr. Friedman below).
The Bottom Line for Hoboken
Tarragon/Ursa is spending big bucks promoting a massive project on the Western Edge that promises a new pool and community center, plus additional open space between high-rise towers and the light rail tracks. With the state of the market in general, and Tarragon in particular, is it really wise for Hoboken to hand this developer the keys to the kingdom again?
Share your thoughts in the comments section, and read the history of Tarragon’s liquidity crisis below.
Update on one of our “grand” real estate developers.
Forbes takes aim at Tarragon
The financial machinations of one of Hoboken’s biggest developers is under the microscope of Forbes magazine. Under the headline Groundhog Day writers Helen Coster and Michael Maiello write It may be time for this fellow to get out of the real estate business. The fellow they are referring to is Tarragon Chairman and CEO William S. Friedman, who Forbes notes was banned from the thrift industry after being involved in a thrift that gave worthless loans.
Despite the collapse of Friedman’s Southmark real estate investment trust in the 1980′s, Forbes says “Friedman never left the real estate business — nor, it seems, lost his penchant for sketchy finance.” Meanwhile Tarragon and their partners at Ursa Development want the Hoboken city Council to hand them exclusive rights to develop in the Western Edge and NoHo redevelopment zones.
Read more of Forbes take on Tarragon here:
Tarragon gets $116 million for 1000 Jefferson Street
Tarragon continues to slowly climb out of the whole it dug itself into, thanks in part to Mayor David Roberts and a majority of the Hoboken City Council. The troubled real estate development company asked for and received a certificate of completion and Payment In Lieu Of Taxes (PILOT) agreement for a block of rental housing in the Northwest Redevelopment Zone. Today Tarragon trumpeted its victory in a press release:
Tarragon Corporation (NASDAQ: TARR) (“Tarragon”) today announced the sale by its majority owned affiliate of 1000 Jefferson, a 217 unit luxury rental apartment property in Hoboken, NJ, to a major institutional investor for $116.2 million. The 1000 Jefferson property is the fifth residential development completed by Tarragon in a formerly blighted 8-block redevelopment zone branded “Upper Grand.”
Two other projects, including Tarragon’s first high rise development in Hoboken, are now underway. Andrew J. Merin and Jose R. Cruz of Cushman & Wakefield represented Tarragon in the marketing of this property. This transaction and other property sales that Tarragon has completed within the past several months, as well as ongoing cost reduction efforts, have enabled Tarragon to boost its liquidity and working capital while reducing debt.
“With this successful transaction, Tarragon looks forward to continuing its role in the redevelopment of Hoboken where we and our partners control almost 20 acres of land proposed for development of rental and for sale housing, a public swimming pool and community center, parks, a multi-screen movie theatre and retail uses,” said William Rosato, President of Tarragon Development Corp.
Though Tarragon did not disclose the buyer of 1000 Jefferson, it’s widely rumored to be Dutch financial services company ING. The project referred to as “Tarragon’s first high rise development in Hoboken” will be built 13 stories tall at 9th and Monroe. The height is courtesy of Mayor Roberts’ variance-happy Zoning Board of Adjustment, with no community givebacks negotiated in exchange. This is part of the Western Edge Redevelopment Zone, and Tarragon/Ursa wants approvals for more high-rise buildings in the area, which will add to congestion, further tax infrastructure (in a flood zone), and cut off views of New York City from The Heights.
After dropping from $26.90 to .50 in two years, Tarragon shares have been trading at around a buck and a half this year.
Lenders Reinstate Tarragon Loans
Tarragon shares rose 11 percent yesterday after it announced an agreement with two lenders to reinstate $152.8 million in loans. Tarragon said Fannie Mae will reinstate $79.6 million in loans and another lender it didn’t name will reinstate another $73.2 million, along with five other loans totaling $56.6 million.
The developer of several sites in Hoboken’s Northwest Redevelopment Zone said the loan agreements “are part of an overall plan designed to restore the company’s liquidity and improve its financial condition.” Tarragon said it “currently contemplates additional property sales, the proceeds of which would be used to repay or bring current obligations under other loan agreements and to provide Tarragon with additional liquidity.”
Tarragon suspended its dividend on preferred stock, and still hasn’t filed its overdue second quarter earnings report. TARR shares rose 0.29 to $2.91 Monday.
Tarragon Shows Signs of Life
The beaten-down shares of Tarragon surged 182 percent Friday after the Hoboken developer announced the sale of property and a deal with its largest lender to save it from default. The stock rose $1.86 to $2.88, but is still down 76 percent this year. Tarragon is trying to rescue itself from the credit crunch and default fears that sent shares to as low as 50 cents. The homebuilder sold two properties in Florida for $69.3 million and reached an agreement with GE Capital to reinstate more than $550 million in loans.
Tarragon says the proceeds from the sale of the two Florida properties will satisfy $50 million of outstanding indebtedness and bring current all debt service that had been owed to GE Capital. Tarragon also said it has accepted offers or entered into contracts to sell additional properties in Florida and Tennessee to bring in cash and reduce debt. Tarragon outlined other steps designed to help it emerge from the crisis, but left investors with this caveat at the end of its press release:
There can be no assurance, however, that the contemplated property sales will be completed on acceptable terms or in a timely manner, that Tarragon will complete its agreement with GE Capital or that it will be able to reach agreements with other lenders. If not, it may be necessary for Tarragon to undertake such other actions as may be appropriate in the light of its current liquidity situation.
Translation: it could still all fall through. There was no mention of Hoboken properties owned as part of the Tarragon/Ursa Development Partnership, which may be the strongest collateral Tarragon has to keep operating.
8/15/2007 “After-the-bell” Update :
Facing default, Tarragon may be delisted
Shares of Tarragon (TARR) may be delisted from the Nasdaq Stock Market because the troubled homebuilder failed to file its quarterly earnings report on time. Tarragon shares are down 92 percent this year. Today the homebuilder has a market value of $26 million, and outstanding debt of $1.6 billion.
The creditors owed that cash are bearing down on Tarragon. Barclays Capital Real Estate served a default notice related to promissory notes. General Electric Capital and Fannie Mae demanded immediate payment on other debt, according to Tarragon’s filing with the Securities and Exchange Commission today.
Creditors facing a $1.6 billion loss may force Tarragon into bankruptcy, which would lead to the sale of Tarragon’s assets including its share of properties involved in the Tarragon/Ursa development partnership in Hoboken. Tarragon also said former President and CEO Robert Rohdie resigned from the board of directors, a move seen as “jumping off a sinking ship”.
Tarragon near Bankruptcy?
Investors are bailing on one of Hoboken’s biggest developers, which is reportedly facing a liquidity crisis. Tarragon is the New York-based developer in partnership with Hoboken-based Ursa Development Group to form the “Tarragon/Ursa” partnership. Tarragon/Ursa controls most properties in the Northwest, Western Edge, and proposed NoHo redevelopment areas. Its projects include the “Upper Grand” blocks, as well as the 900 Monroe high rise no under construction.
Tarragon/Ursa was one of the largest campaign contributors to the re-election campaign of Mayor David Roberts, who has returned the favor by going to bat for the developer at every turn, even customizing redevelopment areas to suit their needs.
Shares halted, and then plunge
Today Tarragon shares (TARR) plunged to below a dollar after the company admitted it is unable to complete about 50 million dollars in financing and didn’t make its August debt payments. If it can’t raise money to pay its bills, Tarragon may be forced into bankruptcy. Trading in Tarragon shares was halted today before the company issued a statement saying Tarragon released a statement saying it would delay its latest quarterly filing because it is “currently experiencing liquidity issues caused by the sudden and rapid deterioration in the real estate credit markets.”
No Money to Pay Bills
Tarragon says it has being unable to complete approximately $50 million in financing transactions that had been under negotiation and were expected to close in August 2007. It also didn’t pay certain vendors. The developer has hired Lazard to consider its next step.
Tarragon shares traded as low as 80 cents today, well below the 52-week high of $13.50 in February, and the all-time high of $26.90 back in July of ’05. That same month Tarragon Chief Executive William Friedman said he has no concern about a housing bubble because he had just sold 120 Hoboken condos in less than a month.
Back then Friedman told Bloomberg News:
“Supply is not out of whack with demand. The attempt to make real estate fit into the financial world’s time horizons leads people to insist there must be a bubble. This religious belief is a zero-sum game.”
What a difference two years makes. Back then Tarragon was on top of the world with a stock price that doubled in a year, and now the stock is worth less than a dollar and the company may be headed for bankruptcy.
What does this mean for Tarragon’s properties in Hoboken? Will a lack of cash halt their construction activities in Hoboken, or will Ursa find the money to keep the buildings rising? We’ll have to wait and see what happens next.
Here’s a story from TheStreet.com that also notes that Toll Brothers did a little better than expected.