THE ROAD AHEAD After the Northland joint venture was completed, Tarragon had divested itself of about three-fourths of its portfolio. “We completed a radical transformation of our balance sheet with a continued opportunity to work with our management company, which is merging with Northland’s management company,” Friedman says.
That leaves Tarragon’s balance sheet looking dramatically different than it did a year ago. “We will be smaller, better capitalized, and have much lower-leveraged debt based on the transactions that we’ve already embarked on,” Friedman says.
But there are still issues. The company incurred a net loss of $388.4 million during the year ending Dec. 31, 2007, and as of that date, total liabilities exceeded total assets by $93.6 million. That being said, the company’s interest expense fell significantly in the first quarter of 2008, despite holding on to debt figures that still seem high. What’s more, the company was in danger of losing its NASDAQ listing because it didn’t hold its annual meeting by Dec. 31, 2007. In early May, the firm found out that NASDAQ would continue listing its stock when it had its annual meeting on May 1, 2008.
The Tarragon tale points to a trend in finding alternative strategies for navigating the tough financial markets—especially when it comes to fractured condo deals. For companies that got tied up too heavily in condo conversions, leveraging their income-producing apartments may be a viable lifeline. But that also means that they’ll need financial partners to make things work. In fact, St. Juste says Tarragon may need to do a public offering or add a financial partner: “At some point, they’ll likely need an equity infusion.”
ACTION ITEMS
IMPROVE THE ODDS
Trapped under a lot of assets? Here are three ways to ease the pain.
- Manage lender relations. Lenders don’t want to take over large portions of real estate, and they’ll continue to work with developers that they can trust. To build that trust, it’s important to stay in contact with your lenders.
- Sell, sell, sell. Whether you decide to turn condos into apartments and sell them—or just auction them off—it’s important to generate capital any way you can.
- Take control of debt. Look for partners who can help you pay down or buy back your debt. Or, take the money you earned from sales and pay down your debt.
