10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 2007

Commission File Number 0-22999

Tarragon Corporation

(Exact name of registrant as specified in its charter)

Nevada	94-2432628
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
423 West 55th Street, 12th Floor, New York, NY	10019
(Address of principal executive offices)	(Zip Code)

(212) 949-5000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $.01 par value	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12 (g) of the Act:
10% Cumulative Preferred Stock, $.01 par value
(Title of class)

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

      Large accelerated filer o           Accelerated filer þ                    Non-accelerated filer o                     Smaller reporting company o

                                    (Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes þ No

     The aggregate market value of the shares of voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the price of the last trade as reported by the National Association of Securities Dealers Automated Quotation System as of June 30, 2007 (the last business day of registrant’s most recently completed second fiscal quarter) was an aggregate value of $129,963,891 based upon a total of 15,362,162 shares held as of June 30, 2007, by persons believed to be non-affiliates of the Registrant.  The basis of this calculation does not constitute a determination by the Registrant that any persons or entities are affiliates of the Registrant as defined in Rule 405 of the Securities Act of 1933, as amended. 

     As of March 26, 2008, there were 28,990,293 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Part III — Proxy statement for the fiscal year ended December 31, 2007

INDEX TO
ANNUAL REPORT ON FORM 10-K

		Page
PART I
Forward-Looking Statements			3
Item 1.	Business		5
Item 1A.	Risk Factors		13
Item 1B.	Unresolved Staff Comments		22
Item 2.	Properties		24
Item 3.	Legal Proceedings		31
Item 4.	Submission of Matters to a Vote of Security Holders		31
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities		32
Item 6.	Selected Financial Data		33
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		34
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		81
Item 8.	Financial Statements and Supplementary Data		83
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		144
Item 9A.	Controls and Procedures		145
Item 9B.	Other Information		145
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance		147
Item 11.	Executive Compensation		147
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		147
Item 13.	Certain Relationships and Related Transactions, and Director Independence		148
Item 14.	Principal Accounting Fees and Services		148
PART IV
Item 15.	Exhibits and Financial Statement Schedules		149
	Signature Page		153
Purchase and Sale Agreement
Membership Interest Purchase and Sale Agreement
Settlement Agreement
Subsidiaries
Consent of Grant Thornton LLP
Rule 13a-14(a) Certification - William S. Friedman, CEO
Rule 13a-14(a) Certification - Erin D. Pickens, Executive Vice President and CFO
Section 1350 Certifications

2

 Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements are based on our current expectations, estimates, forecasts, and projections about the industries in which we operate, our beliefs, and assumptions that we have made based on our current knowledge. In addition, other written or oral statements that constitute forward-looking statements may be made by or on behalf of us. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and/or variations of such words and similar expressions are intended to identify our forward-looking statements. These statements are not guarantees of future performance and involve many risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may be materially different from what is expressed or forecast in our forward-looking statements. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission (the “SEC”), we do not have any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

The risks, uncertainties, and assumptions that are involved in our forward-looking statements include:

• our ability to continue as a going concern and raise additional funds to implement our business plan;

• our ability to complete our planned sales of properties to generate cash proceeds and reduce debt;

• our ability to generate sufficient cash flow to meet our debt service and other obligations;

• our ability to continue to satisfy the listing requirements of The Nasdaq Global Select Market;

• our substantial indebtedness and high leverage ratio, which have adversely affected our financial health and our ability to fulfill our debt service obligations or otherwise comply with the financial and other covenants in the related debt instruments;

• our ability to meet covenants, or remedy, modify, or obtain waivers of existing and future noncompliance, under our existing credit facilities and other agreements evidencing our outstanding indebtedness;

• the extent of adverse effects of fluctuations in real estate values on the book value of our real estate assets;

• continued deterioration in the homebuilding industry causing increases in competition for, and decrease in demand by, homebuyers;

• the pricing and availability of construction and mortgage financing;

• construction delays or cost overruns, either of which may increase project development costs;

• our ability to obtain zoning, occupancy, and other required governmental permits and authorizations;

• opposition from local community or political groups with respect to development or construction at a particular site;

3

• the adoption, on the national, state, or local level, of more restrictive laws and governmental regulations, including more restrictive zoning, land use, or environmental regulations and increased real estate taxes; and

• general industry, economic, and market conditions particularly with regard to new home construction, apartment property occupancy, rental growth rates, prevailing rental rates, and competition in the markets where our development properties and rental properties are concentrated.

These factors are representative of the risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from what is expressed or forecast in our forward-looking statements. In addition, these statements could be affected by local, national, and world economic conditions and political events, including global economic slowdowns and fluctuations in interest and currency exchange rates. For additional information regarding factors that may affect our actual financial condition and results of operations, see the information in ITEM 1A. “RISK FACTORS.”

4

PART I

ITEM 1. BUSINESS

We are a real estate developer, owner, and manager with over 30 years of experience in the real estate industry. During 2007, we delivered 2,343 homes with an average price of $210,000 per home. At December 31, 2007, we had:

• 16 residential for-sale communities with 1,432 homes or home sites in inventory or under development in five states;

• a backlog of signed contracts for 201 homes valued at more than $70 million;

• eight rental communities with 1,969 units under development; and

• 13 communities with 2,398 units in our development pipeline.

Also at December 31, 2007, we owned and operated over 9,000 apartments in 12 states, including more than 8,400 in our rental communities and over 900 in our condominium conversion communities. In addition, we provided property management services to 2,798 apartments in three states.

Throughout 2007, market conditions in the homebuilding industry continued to deteriorate. This market deterioration was driven primarily by a decline in consumer confidence and increased volatility in the mortgage market and resulted in a decline in home prices and sales volume, increases in cancellations, increased use of sales discounts, higher brokerage fees and other sales incentives, and increased interest and other carrying costs. The decline in home prices and increase in discounts and incentives decreased our cash flows as closings required additional cash to satisfy lender release prices. We also incurred additional lease-up and interest costs associated with apartment properties that we had targeted for conversion into condominiums and subsequently decided to operate as rental properties. Current market conditions remain difficult, and these conditions may continue to adversely impact our operations.

The sudden and rapid deterioration in the real estate credit markets in the summer of 2007 prevented us from completing financing transactions that had been under negotiation, materially affecting our liquidity, including our ability to repay existing indebtedness as it became due and meet other current obligations, and our ability to comply with financial covenants contained in our existing debt agreements. See NOTE 5. “NOTES PAYABLE” in the accompanying Notes to Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for additional information regarding debt defaults, reinstatements, and maturities and failure to meet certain financial covenants. In response to these events, we began a program to sell non-core assets, including all of the multi-family properties that had been targeted for condominium conversion. Nine of these properties were sold between September 2007 and January 2008, and two more properties are currently under contract of sale. In general, these newer, high quality assets were in different stages of lease-up or renovation in connection with being repositioned as rental properties. Moreover, most of these properties had been financed with significant amounts of short-term, floating rate debt. Accordingly, the sale of these assets improved our liquidity by reducing negative cash flow, reducing debt, and generating sales proceeds. In addition, in an effort to reduce overhead, we implemented a workforce reduction in August 2007. However, due to severance costs, the workforce reduction had very little impact on expenses for 2007.

5

Our plan to improve our liquidity contemplates additional property sales and, more importantly, continued reduction in our condominium inventory. In addition, we continue to negotiate extensions of maturing debt obligations. Some of our efforts to reduce costs were offset by fees totaling $4.6 million through December 31, 2007, paid to financial advisors and other consultants we engaged in the third quarter of 2007 to assist with the evaluation of strategic and financial alternatives.

During 2007, we recorded impairment charges of $368.8 million, $101.3 million of which was recorded in cost of sales, $223.8 million of which was recorded in impairment charges, and $43.7 million of which was reported in discontinued operations in the Consolidated Statements of Operations. We also recorded an impairment charge of approximately $6 million during 2007 to write down our investment in an unconsolidated joint venture. In addition, we wrote off $7.8 million in pursuit costs (contract deposits) in 2007 which were included in general and administrative expenses – corporate in the Consolidated Statement of Operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Overview” for additional information regarding impairment charges.

Our consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of December 31, 2007, we had $1,111.6 million in consolidated debt, and had guaranteed additional debt of our unconsolidated joint ventures totaling $31.6 million. For the year ended December 31, 2007, we incurred a net loss of ($388.4 million). As of December 31, 2007, we had stockholders’ deficit of ($112.8 million), which was a significant decrease compared to stockholders’ equity of $279.5 million as of December 31, 2006. These factors raise substantial doubt about our ability to continue as a going concern; however, management believes that our current initiatives will continue to generate sufficient liquidity to adequately fund operations and enable us to continue as a going concern. Nonetheless, there can be no assurance that we will be able to successfully implement our plan on favorable terms, or at all. The success of this plan will depend on our ability to complete our planned sales of properties, to modify or obtain waivers of financial covenants in our debt agreements, to extend or refinance our maturing debt obligations and to continue to sell completed homes in our inventory. If we are unable to generate sufficient liquidity to fund our operations or are unable to modify or obtain waivers of financial covenants and extend or refinance our maturing debt, it may be necessary for us to undertake other actions as may be appropriate at such time. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets.

Corporate History

We were incorporated in Nevada in 1997. We are the successor by merger to Vinland Property Trust, a public real estate investment trust formed in 1973, and National Income Realty Trust, a public real estate investment trust that began operations in 1978. In 1995, we began to develop new rental apartment communities in Texas and later in Florida, Georgia, Tennessee, South Carolina, Alabama, and Connecticut. In 1998, we began our first conversion of an apartment property to condominiums and, two years later, acquired the land for our first high-rise residential condominium development in Fort Lauderdale, Florida. From 2001 through 2006, we devoted significant capital and efforts to expanding our development activities, especially in Florida and the northeast. In 2007, we reduced both our investment portfolio of rental real estate and our active development projects and development pipeline through asset sales in response to market conditions and in connection with our efforts to improve liquidity and reduce debt.

Business Operations

We operate two distinct divisions, a real estate development division (the “Development Division”) and an investment division (the “Investment Division”). Our Development Division focuses on developing, renovating, building and marketing homes in high-density, urban locations and in master-planned communities. Our Investment Division owns and operates a portfolio of stabilized rental apartment communities located in

6

Alabama, Connecticut, Florida, New Jersey, Texas, Rhode Island, Tennessee, Maryland, Oklahoma, Michigan, and Georgia.

Each of our divisions is an operating segment. Financial information about these two segments can be found in NOTE 10. “SEGMENT REPORTING” in the Notes to Consolidated Financial Statements.

Development Division

Our Development Division concentrates on the following distinct property types.

Development of Low- and Mid-Rise Rental Apartment Communities. We build luxury and affordable rental properties to sell on completion and lease-up. These developments are sometimes part of larger development projects and, in the case of affordable or subsidized projects, our ability and willingness to undertake them may be instrumental in obtaining approval for related market-rate, for sale developments.

High- and Mid-Rise Condominiums. These large, multi-year high- and mid-rise projects are designed for luxury and urban living. Development, construction, and sale of homes in these types of projects typically have taken two to five years. We believe our ability to obtain sites and development approvals in areas of proven desirability with water views or coveted downtown locations and our ability to design homes with appeal to specific targeted markets are keys to success in developing high- and mid-rise condominiums.

Townhomes, Traditional New Developments and Low-Rise Condominiums. Projects in this category target several highly defined market segments, including first-time, move-up, retirement, empty-nester and affluent second-home buyers. Active adult communities featuring spacious homes with distinctive designs that are located in affluent, suburban communities attract adults seeking a carefree housing choice near where they presently live. These developments also produce positive local tax revenues and are often welcomed by municipalities that otherwise oppose high-density residential developments.

Conversion of Existing Rental Apartment Communities to Condominiums. In the past, we have acquired rental apartment communities in order to sell the individual apartments as condominiums. Where appropriate, we renovate the homes and add amenities to make them more attractive to homebuyers. Prices of homes in condominium conversion projects in Florida, Texas and South Carolina may range from $70,000 to $540,000, depending largely on size, location and view. A majority of these homes are targeted at first-time homebuyers and priced considerably below nearby townhomes and single-family residences under construction. As of December 31, 2007, we had 694 units in this property type and have no current plans to acquire additional properties for immediate conversion.

In February 2007, our developments at 1100 Adams, a mid-rise development, and 1118 Adams, a rental development, in Hoboken, New Jersey, received a Best American Building Award from the National Association of Homebuilders as the best smart growth development of 2006.

Strategy

Recent Developments. The marked slowdown in sales, the decline in home prices in the markets where we operate together with the increasingly more restricted credit market and the financial constraints affecting us have led us to deemphasize for sale housing in our future project planning in favor of rental housing, hospitality developments and mixed-use projects. These factors have also led us to seek financially strong partners to join in future developments. As a result, we expect the level of home sales to continue to decline and the volume of sales of rental properties we have developed to increase. This change may make our earnings and revenue even more volatile. In view of market conditions, we anticipate that, over the next several years, new developments undertaken by the Development Division will be primarily traditional, rental apartment properties with a greater

7

emphasis on suburban garden apartment developments than in the recent past. We believe this approach will enable us to maintain a sufficient development infrastructure to undertake additional developments as appropriate opportunities arise.

In an effort to address existing covenant violations under $125 million of subordinated unsecured notes, or the subordinated notes, in March 2008, we entered into an agreement with William S. Friedman, chairman of the board and chief executive officer, and Robert P. Rothenberg, president and chief operating officer, and the note holders pursuant to which the aggregate of $36 million in notes payable to Mr. Friedman and Mr. Rothenberg, or the affiliate notes, is subordinated to the subordinated notes. In exchange for this subordination, the subordinated note holders have agreed to (1) waive our compliance with the financial covenants applicable to the subordinated notes through September 2009 and (2) grant a 270-day option (or the option) to Mr. Friedman and Mr. Rothenberg to purchase the subordinated notes from the note holders at a discount.

With the approval of the non-management members of our board, in consideration for entering into the subordination agreement and option and agreeing to assign the option to us, we issued to Mr. Friedman and Mr. Rothenberg five-year warrants to purchase 3.5 million shares of our common stock at an exercise price of $2.35, which was the closing price of our common stock on The NASDAQ Global Select Market on the date of issuance. In addition, we entered into amendments to the affiliate notes and related documents which (1) increased the annual rate of interest paid on the affiliate notes to 12.5%, (2) extended the term of the affiliate notes to the later of March 2013 and the second anniversary of the repayment in full of the subordinated unsecured notes and (3) requires mandatory prepayments, after repayment in full of the subordinated unsecured notes, out of excess cash receipts. Payments of cash interest on the affiliate notes may not exceed 5% for as long as the affiliate notes remain subject to the subordination agreement, although interest on the affiliate notes is payable in kind at any time.

Focus on High-density, Urban Markets. We believe our previous focus on development of urban and high-density housing designed for non-traditional households will present us with fewer opportunities for a number of reasons, including:

• scarcity of urban land for development in established communities and increased restrictions and controls on growth in many areas is channeling a larger share of new construction into areas where high- density housing predominates;

• cost increases affecting concrete, high-rise and mid-rise construction more than stick built garden apartments;

• greater difficulty financing higher cost developments; and

• the continuing decline in prices and demand for luxury condominiums.

We believe we have several competitive advantages in the urban markets in which we operate. Urban development requires close cooperation with municipalities and community groups throughout the often complex approval process. Our senior management is familiar with the greater complexity of doing business in these markets and is personally involved in these large urban developments from the outset, which we believe increases our effectiveness in dealing with sellers and governmental decision makers. Our development activities grew out of the experience of our executives in commercial and residential development, real estate finance and property management. The expertise and industry contacts developed through these activities is particularly relevant to the development of high-density, urban residential communities, which often require a complex blend of design, construction, financial, political and marketing skills. Moreover, the direct involvement of our senior executives permits us to act promptly, which we believe is often a factor in closing a purchase. Our experienced planners and architects and our ability to fund the extensive environmental, traffic, fiscal impact and other studies required are important advantages in obtaining opportunities for urban development.

Increasingly, most large projects in urban areas involve a combination of uses and tenancies. The experience of our management in owning and developing retail and office properties as well as both for sale and rental housing is valuable in evaluating opportunities to develop mixed-use projects and gives more credibility to our proposals.

Site Selection, Design, and Construction of New Developments. We acquire land for development subject to or after receiving zoning and other approvals to reduce development-related risk and preserve capital. Prior to closing the purchase, we will take our design through the approval process, or we will assist the owner in the process. In markets where the supply of land and housing is constrained, such as Hoboken or Edgewater, New Jersey, our primary focus is to obtain sites at a cost that makes development economically feasible. Sites in such locations often require environmental remediation, demolition and removal of hazardous wastes, which we typically require the seller to accomplish to our satisfaction prior to closing.

Our land purchase agreements are typically subject to a number of conditions, including our ability to obtain necessary governmental approvals. If all governmental approvals are not obtained prior to a pre-determined contractual deadline, we may extend the deadline or cancel the contract, upon which our initial deposit will be

8

returned to us. In addition, we retain the right to cancel any of our agreements and forfeit our deposit. In such instances, we generally are not able to recover any pre-development costs.

For high- and mid-rise buildings, we generally retain a contractor during the early stages of design to assist in value engineering and estimation of construction costs alongside our own construction personnel. We generally retain bonded general contractors under fixed-price contracts and assign full-time, on-site project supervisors to monitor construction progress and quality.

Target Marketing and Sale Strategy. Our urban projects are usually targeted at highly defined market segments, such as first-time, move-up, retirement, empty-nester, and affluent second-home buyers. We expect that future urban projects will continue to be targeted toward specific markets in keeping with the more varied lifestyles often associated with the urban areas in which our development activities are concentrated.

We use a variety of techniques to sell our homes. We employ marketing professionals who supervise and coordinate the design and development of multimedia marketing plans for each of our communities. We typically attract a significant number of our homebuyers through the use of property-specific web sites that offer detailed information about our communities.

We typically begin sales after we begin but before completion of construction. Home purchase contracts require a deposit of 3% to 20% of the purchase price. After the expiration of any statutory rescission period, the deposit becomes non-refundable. However, purchasers generally have no obligation beyond the deposit in the event of a default in their obligation to purchase the home. In July 2007, we began experiencing increased buyer defaults at One Hudson Park, located in Edgewater, New Jersey, where buyers were required to make deposits of up to 10% of the purchase price. The increase in defaults was the result of recent changes in the credit markets that have made it more difficult for buyers to obtain suitable financing.

Financing. We finance our development activities through acquisition, development or construction loans and corporate borrowings, with the required equity investment coming principally from internally generated funds. We are usually required to guarantee payment on these loans. Mortgage financing proceeds and proceeds from the sale of properties generated by our rental real estate portfolio have historically also been significant sources of funding for our development activities.

Joint Ventures. We often undertake development projects in partnership with third parties when our partner has either site control or a particular expertise in the proposed project, or both. In addition, we anticipate expanding our use of operating and financial joint ventures with third parties with access to capital to facilitate obtaining construction financing and to fund a portion of the required equity of our future development projects. We believe this approach will enable us to maintain a sufficient development infrastructure to undertake additional developments should appropriate opportunities arise.

Our partners in our development projects in Hoboken, New Jersey, were selected because of their local market expertise and control of a number of attractive sites in a market with significant barriers to entry and limited sites available for development. We and our partners have completed three mid-rise condominium developments with 353 units and two rental apartment communities with 90 affordable units and 217 market rate units (this 217 unit property was sold in February 2008) and presently have two additional rental apartment communities, one with 217 units and one with 113 units, under development in Hoboken.

Management of the Development Division

The Development Division is currently managed by Mr. Friedman, Mr. Rothenberg, and William J. Rosato, president of Tarragon Development Corporation, a wholly-owned subsidiary of Tarragon. These three executives

9

collectively have over 75 years of experience in the residential development business. The Development Division has a team of developers, engineers and architects, project managers, attorneys and marketing professionals.

Investment Division

Property Management. We manage our apartment communities with a focus on adding value. We have implemented programs to optimize revenue generated by the properties under our management, including daily value pricing and lease inventory management, as well as programs to enhance ancillary income from cable television, telephone and high-speed internet services, laundry facilities, and vending machines. We assign a high priority to the development and maintenance of our budget and cost-control systems and procedures and have an integrated accounting, financial and operational management information system, connecting our regional offices and management sites with our corporate headquarters. We also provide property management services to our Development Division’s rental properties that are under conversion to condominiums or under construction and in the initial lease-up stage.

Strategic Joint Venture. We are seeking a strong financial and business partner with whom we can form a residential property joint venture capable of expanding our residential property management platform and committed to financing acquisitions of both value-added and investment quality residential properties. We believe this strategy will leverage the strengths of our property management platform and allow us to expand its operations and achieve economies of scale. Through this joint venture, we expect to capitalize on our experience in supervising apartment renovations and repositioning through selective and opportunistic acquisitions of older or underperforming apartment properties in markets where we presently operate. Our acquisitions of properties have historically been, and are expected to continue to be, financed with mortgage financing.

Opportunistic Acquisitions. We intend to seek opportunities to acquire unsold condominium and/or apartment communities in bulk to operate as rentals or to hold pending recovery of the condominium sales market. These acquisitions may be effectuated through the purchase, at a discount, of mortgages in default or through purchase from lenders or others willing to sell at substantial discounts to recent values. We expect transactions in this area to be conducted in joint ventures with partners who have greater access to capital.

Sales of Apartment Communities and Commercial Properties. In 2005, we divested many of our non-core commercial properties and apartment communities to generate capital to employ in expanding the Development Division, to reduce debt, to repurchase stock and to take advantage of favorable prices for rental real estate properties. In 2007, we sold 16 apartment communities and commercial properties in connection with our efforts to improve liquidity and reduce debt. Please see the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Results of Operations” for information about sales of properties during the past three years.

Funds generated by the operation, sale, and refinancing of our rental real estate portfolio have primarily been used to finance the expansion of our development operations and, in 2007, to repay debt and other obligations. To a lesser extent, such funds have been used to enhance the value of our investment portfolio through consistent capital improvements.

Complementary Financial Services. In 2005, we formed a joint venture, Choice Home Financing, LLC, with Wells Fargo Ventures, LLC to conduct a residential mortgage lending business. Our residential mortgage lending services are marketed to our home buyers, as well as unrelated borrowers. The mortgage lending services are intended to attract quality tenants by offering them competitive pricing. Revenues from these activities consist of sales of mortgage loans and origination and premium fee income. The sale of the mortgage loans is non-recourse.

10

Management of the Investment Division

Mr. Rothenberg and Eileen Swenson, president of Tarragon Management, Inc. (“TMI”), a wholly-owned subsidiary of Tarragon, share management of the Investment Division. Ms. Swenson, a certified property manager, has been in the northeast multi-family property management industry for over 25 years. Functional management, including property management, training and marketing, and environmental compliance, reports to her. In addition, we use independent management firms to manage our rental apartment properties located in Texas and Oklahoma and our commercial properties.

Competition

The real estate development industry is highly competitive. We compete against numerous public and private homebuilders, developers and others where our communities are located. Therefore, we may be competing for investment opportunities, financing, available land, and potential buyers with entities that may possess greater financial, marketing, or other resources.

The real estate investment industry is highly fragmented among individuals, partnerships and public and private entities. No single company or person dominates the market for investment opportunities. Although we may compete against large sophisticated owners and operators for opportunities and prospective residents, owners and operators of any size can provide effective competition for potential tenants. We compete for tenants in our markets primarily on the basis of property location, amenities offered, rent charged, services provided and the design and condition of improvements. Other forms of multifamily residential communities, and “for sale” housing, also provide housing alternatives to potential residents of our apartment communities.

Our management believes that there is and will continue to be a strong demand for rental housing in the markets where we will seek additional business and that opportunities will continue to be available.

Compliance with Environmental Regulations

We are subject to various federal, state, and local laws, ordinances, rules and regulations concerning protection of public health and the environment. These laws may impose liability on property owners or operators for the costs of removal or remediation of hazardous or toxic substances on real property, without regard to whether the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances. The presence of, or the failure to properly remediate, these substances may adversely affect the value of a property, as well as our ability to lease-up or sell the property or individual condominium units or apartments, or to borrow funds using that property as collateral. Environmental claims are generally not covered by our insurance programs.

The particular environmental laws that apply to a specific development site vary according to the site’s location, its environmental condition and the present and former uses of the site, as well as adjoining properties. Environmental laws and conditions may result in delays, may cause us to incur substantial compliance and other costs and can prohibit or severely restrict development activity in environmentally sensitive regions or areas, which could negatively affect our results of operations.

The laws, ordinances, rules and regulations governing the removal, encapsulation and disturbance of asbestos containing materials (“ACMs”) may impose liability on owners or operators for the release of ACMs when such materials are disturbed in connection with the renovation or demolition of existing buildings or apartment communities. We have operations and maintenance plans in place to maintain and monitor ACMs in those apartment communities where ACMs are present.

11

In April 2003, in connection with renovations at Pine Crest Village at Victoria Park, our contractor disturbed asbestos-containing materials. These actions were subsequently investigated by the Environmental Protection Agency and the United States Attorney for the Southern District of Florida for possible violations of federal criminal laws. On April 25, 2006, the United States Attorney filed a criminal information charging TMI with one felony count for failure to comply with Clean Air Act Work Practice Standards for Asbestos in the United States District Court for the Southern District of Florida. Pursuant to an agreement with the United States Attorney, TMI entered a plea of guilty to such charge on June 19, 2006 and agreed to pay fines and community service payments totaling $1 million for the offense. TMI also agreed to institute an environmental compliance program and was placed on five years probation with the right to seek an early termination after three years of documented compliance with the program. The United States Attorney filed separate but identical charges against the contractor, and one current and one former employee of Tarragon with oversight responsibility for the Pine Crest condominium conversion, each of whom also subsequently entered a plea of guilty to the charges against them.

TMI has established a comprehensive environmental compliance program, under the supervision of the court and the EPA, which is and will continue to be applicable to all properties under its management.

In recent years, there has been a widely-publicized proliferation of mold-related claims by tenants, employees, and other building occupants against the owners of those buildings. When we identify any measurable presence of mold, whether or not a claim is made, we undertake remediation we believe to be appropriate for the circumstances encountered. There is little in the way of government standards, insurance industry specifications, or otherwise generally accepted guidelines dealing with mold propagation. Although considerable research into mold toxicity and exposure levels is underway, there are currently no definitive standards available to property owners and managers against which to evaluate risk and design remediation practices.

Policy With Respect to Certain Activities

We may offer debt or shares of our common or preferred stock to the public to raise capital for general corporate purposes, including, without limitation, repayment of debt or acquisition of additional properties or lines of service business, or in private transactions in exchange for property or investment businesses. We issued subordinated unsecured notes of $65 million in 2005 and $60 million in 2006. See NOTE 5. “NOTES PAYABLE” in the Notes to Consolidated Financial Statements for more information regarding the subordinated unsecured notes.

We may invest in interests in other persons and securities of other issuers engaged in real estate related activities. Although we do not currently have any plans to invest in the securities of other issuers for the purpose of exercising control, we may in the future acquire all or substantially all of the securities or assets of other entities if that investment would be consistent with our growth strategy. We do not intend to underwrite securities of other issuers. We do not expect that our investment activity will require us to register as an “investment company” under the Investment Company Act of 1940, and we would divest securities before any such registration would be required.

We have in the past, and may in the future, repurchase or otherwise acquire our own common stock on the open market or through private transactions. See ITEM 5. “MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES” and NOTE 7. “COMMON STOCK REPURCHASE PROGRAM” in the Notes to Consolidated Financial Statements for a discussion of our share repurchase program.

We do not presently intend to make investments other than as described above, although we may do so in the future. Our investment policies may be reviewed and modified from time to time by our officers and directors

12

without the vote of stockholders. There are no limitations on the amounts we may invest in any single property or development, or on the amounts we can borrow for such purposes.

Employees

As of December 31, 2007, we employed 511 people of whom 499 were full-time employees and 12 were part-time employees. This includes 299 site-level property employees and 212 corporate staff. All of our site-level property employees and approximately 60% of our corporate staff are devoted to the Investment Division. Our Development Division employs 84 people. We do not have any union employees. We believe we have a good relationship with our employees.

Other Information

Our common stock is currently traded on The Nasdaq Global Select Market under the symbol “TARR.” Our principal executive offices are located at 423 West 55^th Street, 12^th Floor, New York, New York 10019, and our telephone number is 212-949-5000.

We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other information with the SEC. In addition, our directors, executive officers and certain stockholders file reports with the SEC pursuant to Section 16 of the Securities Exchange Act of 1934. Information regarding these filings are made available, free of charge, on our website at http://www.tarragoncorp.com. These SEC filings are also available to the public over the Internet at the SEC’s web site at http://www.sec.gov.

You may also read and copy any document we file at the SEC’s public reference room at 100 F. Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. In addition, we have posted the charters for our Audit Committee, Executive Compensation Committee, Corporate Governance and Nominating Committee, as well as our Code of Business Conduct and Ethics on our website under the heading “Governance Documents” under “Investor Relations.” These charters and the code are not incorporated by reference in this report. We will also provide a copy of these documents free of charge to stockholders upon written request to our secretary at 3100 Monticello Avenue, Suite 200, Dallas, Texas 75205. We issue annual reports containing audited financial statements to our common stockholders.

ITEM 1A. RISK FACTORS

The following risks could have a material adverse affect on our business, financial condition, results of operations, cash flows, strategies and prospects.

Risks Related to Our Financial Condition

Our consolidated financial statements are presented on a going concern basis. Our current financial condition raises substantial doubt regarding our ability to continue as a going concern.

Our consolidated financial statements are presented in this report on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. In 2007, we experienced a liquidity crisis caused by the sudden and rapid deterioration of the real estate credit markets and the significant deterioration of the homebuilding industry in the markets in which we operate, which impacted our ability to repay existing indebtedness as it became due and to meet other current obligations. We have a significant amount of debt maturing over the next 12 months. We are not currently in compliance with financial and other covenants contained in certain of our existing debt agreements, and we may not be able to maintain our compliance with other covenants in the future. Our inability to restructure, refinance or extend our maturing

13

debt, comply with our loan covenants, or obtain waivers of non-compliance could give lenders the right to declare a default and accelerate the payment of the outstanding indebtedness. We may not be able to repay those amounts without selling additional assets, which we might have to do at prices below the fair values and the carrying values of those assets.

These matters raise substantial doubt regarding our ability to continue as a going concern. For the year ended December 31, 2007, we incurred a net loss of ($388.4 million). As of December 31, 2007, we had stockholder’s deficit of ($112.8 million). Our ability to continue as a going concern will be dependent upon our ability to complete asset sales, restructure or refinance existing debt, obtain modifications or waivers of our loan covenants, and continue to sell completed homes in inventory. There can be no assurance of our success in these efforts. The consolidated financial statements included elsewhere in this Form 10-K do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets.

We have a significant amount of debt maturing in the near term and are currently not in compliance with covenants in certain of our loan agreements.

We have loans with an aggregate December 31, 2007 balance of $213.5 million that are maturing during 2008. The deterioration in the real estate credit markets during 2007 and our recent liquidity challenges that resulted in defaults on most of our existing indebtedness may negatively impact our ability to refinance this indebtedness as it matures. Our ability to repay this debt as it matures or obtain loan extensions or refinancing will depend on our future performance and successful execution of our business strategy. If we are unable to repay this debt as it matures, or obtain loan extensions or refinancings, we may lose our investment in the properties secured by the related debt.

Further, at December 31, 2007, we were not in compliance with financial covenants contained in debt agreements with an aggregate principal balance of $9 million for which we have not obtained waivers of noncompliance from our lenders. If we are unable to obtain modifications of these covenants or waivers of noncompliance, these lenders could give us notices of default and accelerate payment of this outstanding indebtedness. We may not be able to repay these amounts without selling additional assets, which we might have to do at prices below the fair value or carrying value of those assets.

We have had to take significant impairment charges against certain of our real estate assets, and a continuing decline in the homebuilding industry or other changed circumstances could result in additional write-downs.

As a result of deteriorating market conditions in the homebuilding industry during 2006 and 2007, we have adjusted our strategy with respect to many of the apartment communities we had acquired or targeted for conversion to condominiums, necessitating significant write downs of the carrying values of those and other assets. For the year ended December 31, 2007, we recorded impairment charges on real estate inventory and rental real estate of $368.8 million. If conditions in the homebuilding industry worsen, or our strategy or estimates of cash flows related to certain projects change, some of our assets may be subject to further write-downs in the future, further decreasing the value of the assets reflected on our consolidated balance sheets and increasing stockholders’ deficit.

Our ability to grow our businesses depends on our ability to access capital on favorable terms.

We have historically relied on project financing to fund growth opportunities in our Development Division, and non-recourse mortgage financing for our Investment Division. The sudden and rapid deterioration of the real estate credit markets in 2007 prevented us from completing almost $50 million in financing transactions that had been under negotiation at that time. Under current market conditions, we cannot predict whether additional sources of financing will be available on terms acceptable to us in the future or the cost of this financing. Our

14

access to debt or equity financing depends on lenders’ willingness to lend, conditions in the capital markets, restrictions and covenants contained in our existing debt arrangements and our own financial condition, and we may not be able to secure additional sources of financing on commercially reasonable terms, if at all. A failure to obtain needed additional financing may require us to limit our development activities, abandon projects in the pipeline, or dispose of properties.

Our substantial indebtedness limits our flexibility in adverse market conditions.

As of December 31, 2007, we had $1,111.6 million in consolidated borrowings and additional guaranteed debt of our unconsolidated joint ventures totaling $31.6 million. As a result of this substantial indebtedness:

• we must dedicate a substantial portion of our cash flow from operations to interest and principal payments on our indebtedness, thereby reducing available cash flow to fund working capital, capital expenditures, acquisitions of property and other general corporate purposes;

• our flexibility in planning for and reacting to changes in our business and the industry in which we operate is limited;

• we are more vulnerable to adverse economic, industry and competitive conditions;

• we are at a competitive disadvantage compared to our competitors that have less debt; and

• we are limited in our ability to borrow additional funds.

Risks Related to Market Conditions and Our Development Business

We may experience a continuing decline in demand for new homes in the markets in which we operate.

The homebuilding industry is in the midst of a significant downturn. In 2007, we experienced a decline in demand for our condominium homes in most of our markets, and particularly in Florida. As a result, we had to decrease prices, and increase the use of sales discounts and other incentives, resulting in significant reductions in cash flows and our profit margins. A further decline in the demand for our condominium homes, or an increase in the inventory of new homes and alternatives to new homes, in the markets in which we operate could adversely affect our sales volume and pricing even further. We believe that housing market conditions will continue to be challenging and may deteriorate further. We cannot predict the duration or ultimate severity of these challenging conditions.

Our customers may not be able to obtain suitable mortgage financing.

Sales of our condominium homes are directly impacted by the inability of our potential buyers to obtain mortgage financing for their purchase. During 2007, the mortgage lending industry experienced significant instability. The uncertainties created by events in the sub-prime mortgage market and their impact on the overall real estate credit markets have adversely affected the ability of our buyers to obtain affordable home mortgages. Also, because many potential buyers must first sell their existing homes in order to purchase a condominium from us, the lack of availability of suitable financing for their purchasers also impacts our sales. As a result of increased default rates, particularly in the sub-prime mortgage market, many lenders are no longer offering certain types of residential mortgages loans, or have significantly tightened their loan qualifications for mortgage loans. The lack of availability of these loan products, together with the imposition of more stringent underwriting standards and increased cost of financing have reduced the pool of qualified home buyers and made purchases more difficult for first time and second home homebuyers. These reductions in demand have adversely affected our sales volume and revenues in 2007. Continued unavailability of affordable mortgage

15

financing could further reduce demand for our condominium homes. If the buyers in our backlog of units to be delivered cannot obtain suitable financing in order to purchase our condominiums, it could cause them to cancel the contracts they have signed, or default under these contracts, further reducing our sales and profitability.

Future cash flows from our development projects may be lower than expected.

We use the percentage-of-completion method of revenue recognition to report revenue and profit from high- and mid-rise residential projects. Under this method of accounting, we may recognize revenue from sales of homes before those sales have closed. Due to various contingencies, including delayed construction, cost overruns or buyer defaults, we may receive less cash than the amount of revenue already recognized or the cash may be received at a later date than we expected. These circumstances could affect our profitability and ability to pay our debts. In addition, our revenue may fluctuate significantly as a result of the timing of the completion of development projects and closings of sales, seasonality of housing demand, the timing and seasonality of construction activity, the condition of the real estate market and the economy in general, material and labor costs and the availability and cost of mortgage financing.

We may continue to experience high buyer default rates.

Our backlog reflects the number and value of condominiums for which we have entered into sales contracts with home buyers, but have not yet delivered the condominium. In each case, we have received a deposit from the buyer, and generally have the right to retain the deposit if the buyer does not complete their purchase. In 2007, we experienced an increase in purchaser defaults in our new development projects. We also experienced an increase in the number of buyers contesting our right to retain their deposits upon default. Although we do not believe the defenses asserted by these buyers are valid, and intend to vigorously pursue our rights, there can be no assurance that we will prevail in each claim or be entitled to keep the buyers deposit. Also, there can be no assurance that our rate of defaults will not increase in the future if the current industry downturn continues, or if mortgage financing becomes less available. Future defaults may limit our ability to deliver units from backlog and collect contracts receivable upon the completion of high- and mid-rise residential projects.

Our future operations may be adversely affected by high inflation.

In a period of high inflation, increasing costs of land, materials and labor require us to attempt to increase our sale prices in order to maintain satisfactory margins. However, an excess of supply over demand for new homes, such as the one that we are currently experiencing, requires that we reduce prices, rather than increase them. If the current challenging and highly competitive conditions in the homebuilding market persist, we may be required to further decrease prices in an attempt to stimulate sales volume. Under these circumstances, the effect of cost increases is to reduce the margins on the homes we sell, and sustained increases in those costs could have a material adverse effect on our business.

We may not be able to complete planned development projects or those projects may not be profitable.

As a result of changing conditions in our target markets due to competitive, economic, demographic and other factors, we were unable to achieve desired sales levels at our development projects in 2007, and experienced lower than expected returns from these projects. Because of the long-term nature of most development projects, it can be difficult for us to adjust our business strategies quickly to compensate for changes in market conditions. This long lead-time may also result in delayed revenue recognition and difficulty in predicting whether there will be sufficient demand for our homes. Other factors that may affect our ability to complete planned projects or the profitability of those projects include the availability and cost of project financing, shortages of lumber or other construction materials, shortages of labor, labor disputes, unforeseen environmental or engineering problems, work stoppages or natural disasters, all of which could delay

16

construction and result in substantial cost overruns. Sustained increases in construction costs may, over time, further erode our margins and make development projects in our pipeline economically unfeasible.

We may have to hold our condominium conversion inventory longer than we anticipated.

In 2005 and 2006, we acquired many newer, high quality apartment communities for conversion to condominiums at premium prices. In addition, we targeted a number of properties from our Investment Division portfolio for conversion to condominiums. We generally financed these purchases and conversions with short-term floating rate debt. As demand for condominium homes declined, we were forced to reduce prices and increase sales discounts and other incentives, decreasing our cash flows and requiring additional cash from us to satisfy lender release prices. We repositioned some of these assets as rental properties, incurring additional lease-up and interest costs. Nine of these properties were sold between September 2007 and January 2008, improving our liquidity by reducing negative cash flow, and additional sales are contemplated. However, we may be left with unsold units in “fractured condominiums” that we cannot sell, which may result in additional losses due to write downs in inventory, additional costs associated with carrying inventory, such as insurance and interest expense, costs and inefficiencies associated with conversion of unsold inventory into rental units or sales of units for a significantly lower price than projected. In addition, we may not be able to generate sufficient rental revenue from these assets to cover these carrying costs.

Our development business is subject to warranty and liability claims in the ordinary course of business that can be significant.

As a developer of condominium homes, we are subject to warranty and construction defect claims arising in the ordinary course of business. We record warranty reserves for the homes we sell based upon historical experience, taking into consideration the types and locations of our projects. Although we believe these reserves are adequate, there can be no assurance that our liabilities to condominium purchasers for warranty claims and latent defects will not exceed our estimates and available insurance.

Risks Related to our Businesses Generally

Increases in interest rates could materially increase our interest expense or could reduce our revenues.

As of December 31, 2007, we had approximately $546.5 million of consolidated variable rate debt. On that date, our unconsolidated partnerships and joint ventures had an additional $116.3 million of variable rate debt. We may incur additional variable rate indebtedness in the future. Accordingly, increases in interest rates could materially increase our interest expense.

Further, most purchasers of our condominium homes obtain mortgage loans to finance their purchases. In general, housing demand is adversely affected by increases in interest rates, housing costs and unemployment and by decreases in the availability of mortgage financing. This general tendency is intensified by the fact that prospective buyers of our homes may need to sell a home prior to purchasing, and buyers for those homes also require mortgage financing. In addition, there have been discussions of possible changes in the federal income tax laws that would remove or limit the deduction for home mortgage interest. An increase in effective mortgage interest rates, or an adverse change in tax laws, would negatively impact the ability or willingness of prospective buyers to finance home purchases, further reducing demand for our homes.

The regional concentration of our assets may increase the effects of adverse trends in those markets.

A substantial number of our assets are located in Connecticut, New Jersey, Florida, Tennessee and Texas. In 2006 and 2007, deterioration of the homebuilding industry in the markets in which we operate, and in Florida in particular, led to a decline in new home prices, increased use of sales discounts and other incentives and

17

increased interest and other carrying costs in 2007. The decline in home prices and increase in discounts and incentives decreased our cash flows as closings required additional cash from us to satisfy lender release prices. We also incurred additional lease-up and interest costs associated with apartment properties that we targeted for conversion into condominiums but subsequently decided to operate as rental properties. Nine of these properties were sold between September 2007 and January 2008, and the last two properties are under contract of sale. However, current market conditions in the markets in which we operate remain difficult, and there can be no assurance that these conditions will not continue to adversely impact our operations and cash flows.

In addition, deterioration in economic conditions in any of our primary markets, including business layoffs and downsizing, industry slowdowns, relocations or closings of businesses, geopolitical factors, changing demographics and oversupply of or reduced demand for homes, could also adversely affect occupancy levels and rental rates in our investment portfolio, and our ability to attract new tenants and collect rent from existing tenants.

Our growth strategy for our Investment Division is dependent on our ability to identify a suitable joint venture partner.

Our ability to execute our growth strategy for the Investment Division depends in large part on our ability to identify and enter into a joint venture with a complementary real estate investment company capable of executing our plan to expand our residential property management platform and financing the acquisition of additional value-added and investment quality residential properties. There can be no assurance that we will finalize and close any such transaction or, if so, that it will be on terms and conditions favorable to us. Our failure to implement this strategy successfully could limit the growth of our Investment Division, or necessitate the sale of additional properties.

We may not be able to sell our apartment communities at the desired time or price.

Because of the lack of liquidity of real estate investments generally, our ability to respond to changing circumstances may be impaired. Real estate assets generally cannot be sold quickly. We cannot predict whether there will be a market for our real estate assets, or whether we will be able to sell them at a price equal to our estimates of their value or at a price that will allow us to fully recoup our investment. We may not be able to realize the full potential value of our real estate assets, and in some cases we will incur costs related to the early pay-off of the debt secured by such assets.

Property ownership through partnerships and joint ventures generally limits control of those investments and entails other risks.

We hold properties, and may hold more properties in the future, in a number of consolidated and unconsolidated partnerships and joint ventures in which outside partners may have significant decision-making authority and voting rights. These partnerships and joint ventures involve risks not otherwise present when a property is owned wholly and directly by us. Our partners might become bankrupt or might have or develop different interests or goals, or might take action contrary to our instructions, requests, policies or investment objectives. Another risk of ownership through a partnership investment is the possibility of an impasse on decisions, such as a sale or refinancing, or disputes with partners over the appropriate pricing and timing of any sale or refinancing. In addition, joint venture and partnership agreements typically contain provisions restricting the ability of partners to transfer interests in the joint venture or partnership and may contain “buy-sell” provisions, which, under certain circumstances, permit a partner to initiate an offer to buy the other partner’s interests or to sell its interests to the other partner, at the other partner’s option. Buy-sell provisions may result in us buying or selling interests in a project at a different time or at a different valuation than we otherwise would have chosen, and we may not have sufficient available funds to make a purchase pursuant to these provisions. There is no

18

limitation under our organizational documents or loan agreements as to the amount of funds that may be invested in partnerships or joint ventures.

Increased insurance costs and reduced insurance coverage may affect our results of operations and increase our potential exposure to liability.

In recent years, the cost of insurance has risen, deductibles and retentions have increased and the availability of insurance has diminished. In addition, there are some risks of loss for which we may be unable to purchase insurance coverage. For example, losses associated with landslides, earthquakes and other geologic events may not be economically insurable, and other losses, such as those arising from terrorism or from the presence of mold in rental properties or for-sale homes, may not be economically insurable. Significant increases in our cost of insurance coverage, significant limitations on coverage or a material uninsured loss could materially and adversely affect our businesses, financial condition and results of operations.

We have in the past, and will continue to, engage in transactions with related parties, which may cause a conflict of interest and negatively affect our business.

We have in the past, and will continue to, engage in transactions with related parties. These related-party transactions include ongoing financial arrangements with several members of our board and senior management, including a $36 million unsecured term loan extended to us by affiliates of Mr. and Mrs. Friedman and Robert Rothenberg with the unanimous approval of our board of directors, including all of the disinterested members of our board of directors. In addition, in October 2007, we sold a rental property under development for $4.3 million of cash and the assumption of a $1.2 million construction loan to an affiliate of Robert C. Rohdie, who served as president and chief executive officer of Tarragon Development Corporation, a wholly owned subsidiary of Tarragon, until March 31, 2007, and as a member of our board of directors until August 14, 2007. We believe that these related-party transactions are advantageous to us and in our best interest. However, there may be instances when the interests of these related parties are inconsistent with or adverse to our interests and our stockholders, and as a result, these transactions may cause a conflict of interest.

We are subject to environmental laws and regulations, and our properties may have environmental or other contamination.

Our properties are subject to various federal, state and local laws, ordinances, rules and regulations concerning protection of public health and the environment. These laws may impose liability on property owners for the costs of removal or remediation of hazardous or toxic substances on real property, without regard to whether the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. The presence of, or the failure to properly remediate, such substances may materially and adversely affect the value of a property, as well as our ability to sell the property or individual condominium units, lease apartments, or borrow funds using that property as collateral. Environmental claims will generally not be covered by our insurance programs.

The particular environmental laws that apply to any given development site vary according to the site’s location, its environmental condition and the present and former uses of the site, as well as adjoining properties. Environmental laws and conditions may result in delays, may cause us to incur substantial compliance and other costs and can prohibit or severely restrict development activity in environmentally sensitive regions or areas, which could materially and adversely affect our results of operations.

The laws, ordinances, rules and regulations governing the removal, encapsulation and disturbance of asbestos containing materials, or ACMs, may impose liability on owners or operators for the release of ACMs when such materials are disturbed in connection with the renovation of an existing building or apartment community. We have programs in place to maintain and monitor ACMs in the investment properties where ACMs are present. However, in 2006, pursuant to an agreement with the United States Attorney for the Southern District of Florida, Tarragon Management, Inc., or TMI, entered into a plea of guilty with respect to one felony count for failure to comply with the Clean Air Act Work Practice Standards for Asbestos in connection with the

19

renovation of an apartment community undergoing conversion to condominiums. TMI agreed to pay a $1 million fine and received a five-year probation period. It also agreed to institute a comprehensive environmental compliance program, under the supervision of the court and the EPA.

In recent years, there has been a widely publicized proliferation of mold-related claims by tenants, employees and other building occupants. When we identify any measurable presence of mold, whether or not a claim is made, we undertake remediation we believe to be appropriate for the circumstances encountered. There is little in the way of government standards, insurance industry specifications or other generally accepted guidelines dealing with mold propagation. Although considerable research into mold toxicity and exposure levels is underway, there are currently no definitive standards available to property owners against which to evaluate risk and design remediation practices.

Our business could be adversely affected by the loss of key personnel.

Our success depends on the efforts and abilities of our executive officers and other key employees, many of whom have significant experience in developing residential and commercial properties. In particular, we depend on the services of William S. Friedman, our chairman of the board of directors and chief executive officer, and Robert P. Rothenberg, a director and our president and chief operating officer. Although each of Messrs. Friedman and Rothenberg are subject to a three-year employment contract with the Company, the loss of the services of either of these executives, for any reason, could have a material adverse effect upon our business, financial condition and results of operations.

Risks Related to Our Capital Stock and the Securities Markets Generally

Failure to satisfy the listing requirements of The Nasdaq Global Select Market could result in our common stock being delisted.

On January 4, 2008, we received a staff determination letter from The Nasdaq Stock Market stating that our common stock is subject to delisting from The Nasdaq Global Select Market for our failure to solicit proxies and hold an annual meeting in 2007, in accordance with Nasdaq Marketplace Rules. We requested a hearing to appeal Nasdaq’s determination, which was held on February 21, 2008. Tarragon’s common stock will continue to be listed on The Nasdaq Global Select Market pending a decision on the appeal. There can be no assurance, however, that Nasdaq will grant our request to waive this requirement or that our common stock will not be delisted.

If our common stock is delisted from The Nasdaq Global Select Market, our common stock would be traded over-the-counter, more commonly known as OTC. OTC transactions involve risks in addition to those associated with transactions in securities traded on The Nasdaq Global Select Market. Many OTC stocks trade less frequently and in smaller volumes than securities traded on The Nasdaq Global Select Market. Accordingly, our common stock would be less liquid, and the value of our common stock could decline.

In addition, the delisting of our common stock could result in breaches of covenants prohibiting transfer of ownership contained in certain of our debt agreements. Under these circumstances, the lenders could give us a notice of default and accelerate payment of our outstanding indebtedness. The acceleration of our obligations under these debt agreements would have a material adverse effect on our liquidity and financial position.

The market price of our common stock has been highly volatile.

The market price of our common stock has been strongly affected by changes in public perception of the homebuilding industry, the significant deterioration of that industry in the markets in which we operate, and

20

adverse conditions in the real estate credit markets. A variety of factors may continue to have a significant impact on the market price of our common stock, including:

• our financial condition, results of operations and prospects;

• changes in our industry;

• further deterioration in our markets;

• future issuances of our common stock, which may include primary offerings for cash, issuances in connection with business acquisitions and the grant or exercise of stock options and restricted stock awards;

• speculation in the press or investment community; and

• general market and economic conditions.

In addition, The Nasdaq Global Select Market can experience significant price and volume fluctuations that can be unrelated or disproportionate to the operating performance of the companies listed on The Nasdaq Global Select Market. Broad market and industry factors may negatively affect the market price of our common stock regardless of our operating performance.

We are subject to class action securities litigation that could be costly to defend and distracting to management.

The Company and three of its officers, including William S. Friedman, chairman of the board of directors and chief executive officer, Robert P. Rothenberg, president and chief operating officer, and Erin D. Pickens, executive vice president and chief financial officer, are defendants in a securities class action lawsuit brought on behalf of persons who purchased our common stock between January 5, 2005 and August 9, 2007. In addition, members of our board of directors and Ms. Pickens are defendants in a related shareholder derivative action. The plaintiffs in both lawsuits allege generally that the Company issued materially false and misleading statements regarding our business and financial results during the relevant time period. We do not believe that there is any merit to the claims asserted in these lawsuits, and we intend to defend them vigorously. However, the cost of this defense may be high, and the necessary participation of these key individuals could detract from their ability to devote their full time and resources to improving our business and prospects.

Shares of common stock eligible for public sale could adversely affect the market price of our common stock.

The market price of our common stock could decline as a result of sales or other issuances of a large number of shares in the market or market perception that these transactions could occur, including sales or distributions of shares by one or more of our large stockholders. Based on holdings of Tarragon common stock as of December 31, 2007, Mr. and Mrs. William S. Friedman and their family partnership and our other directors and executive officers beneficially own 28.8% of the outstanding shares of our common stock.

Our governing documents contain anti-takeover provisions that may make it more difficult for a third party to acquire control of us.

Our articles of incorporation contain provisions designed to discourage attempts to acquire control of the company by merger, tender offer, proxy contest or removal of incumbent management without the approval of our board of directors. As a result, a transaction that otherwise might appear to be in the best interests of our stockholders could be discouraged, delayed or prevented altogether, and our stockholders may be deprived of an

21

opportunity to receive a premium for their shares over prevailing market prices. The provisions contained in our articles of incorporation include:

• the requirement of a supermajority vote to make, adopt, alter, amend, change or repeal our bylaws or certain key provisions of the articles of incorporation that embody, among other things, the aforementioned anti-takeover provisions;

• the requirement of a supermajority vote for the removal of a director from our board of directors and certain extraordinary transactions; and

• the inability of stockholders to call a meeting of stockholders.

As of December 31, 2007, our directors and executive officers beneficially owned 28.8% of our outstanding common stock. In the light of these shareholdings, these anti-takeover provisions could help entrench our board of directors and may effectively give our management the power to block any attempted change in control.

Our principal stockholders have significant influence over corporate actions.

William S. Friedman, our chairman of the board and chief executive officer, his spouse, Lucy N. Friedman, and their family partnership, beneficially own 22.3% of our outstanding common stock at December 31, 2007. Accordingly, Mr. and Mrs. Friedman have substantial influence over our management and affairs, including the election of directors. In addition, they have significant influence over a broad range of corporate actions requiring a stockholder vote under our articles of incorporation, including, without limitation, mergers, business combinations, change-in-control transactions, substantial asset sales and other similar and extraordinary corporate transactions that can affect the value of our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

EXECUTIVE OFFICERS

The following table sets forth the name, age and position of each person currently serving as one of our executive officers. All of our executive officers are serving at the discretion of our board of directors. No family relationships exist among any of our executive officers.

Name	Title	Age
William S. Friedman	Chairman and Chief Executive Officer	64
Robert P. Rothenberg	President, Chief Operating Officer and Director	49
Kathryn Mansfield	Executive Vice President, Secretary and General Counsel	47
Todd C. Minor	Executive Vice President and Treasurer	49
Erin D. Pickens	Executive Vice President and Chief Financial Officer	46
Charles D. Rubenstein	Executive Vice President and Chief Real Estate Counsel	49
William M. Thompson	Executive Vice President	48
Eileen A. Swenson	President of Tarragon Management, Inc.	57
William J. Rosato	President of Tarragon Development Corp.	43

Information about each person serving as one of our executive officers is set forth below.

22

William S. Friedman has served as our chief executive officer and director since April 1997 and has served as chairman of our board of directors since December 2000. He previously served as Tarragon’s president from April 1997 through June 2004 and served as a trustee (from March 1988), chief executive officer (from December 1993), president (from December 1988), acting chief financial officer (from May 1990 to February 1991), treasurer (from August to September 1989) and acting principal financial and accounting officer (from December 1988 to August 1989) of Tarragon’s predecessors, Vinland Property Trust (until July 1997) and National Income Realty Trust (until November 1998). Mr. Friedman currently serves on the board of trustees of Brandeis University.

Robert P. Rothenberg has served as our chief operating officer and director since September 2000 and as our president since June 2004. Mr. Rothenberg has been the managing member of APA Management L.L.C., a real estate investment and management company, since 1994. He has also been a managing member of Ansonia L.L.C., which is our limited partner in Ansonia Apartments, L.P., since 1997. Mr. Rothenberg graduated from the Harvard Business School with a Masters of Business Administration in June 1984.

Kathryn Mansfield has served as our executive vice president since December 1998, secretary since May 1998 and general counsel since June 2004. She previously served as our vice president and our predecessor, National Income Realty Trust (from May 1998 to December 1998). Ms. Mansfield has been an attorney at law since 1984.

Todd C. Minor has served as our executive vice president since November 2001 and as our treasurer and our predecessors, Vinland Property Trust and National Income Realty Trust, since December 1996. He also served as our senior vice president (from March 1994 to December 1998) and vice president (from April 1991 to July 1993) of our predecessors. Mr. Minor has a Masters of Business Administration in Real Estate Analysis and is a Certified Treasury Professional.

Erin D. Pickens has served as our executive vice president and chief financial officer since December 1998. She previously served as our vice president and chief accounting officer (from September 1996 to November 1998) and accounting manager (from June 1995 to August 1996) of our predecessors, Vinland Property Trust and National Income Realty Trust. Ms. Pickens has been a certified public accountant since 1990.

Charles D. Rubenstein has served as our executive vice president and chief real estate counsel since December 1998. He served as our senior vice president of our predecessor, National Income Realty Trust, from September 1998 to December 1998. Mr. Rubenstein has been an attorney at law since 1984.

William M. Thompson, has served as our executive vice president of operations since March 2003. He previously served as our chief information officer (from September 2000 to March 2003). Mr. Thompson has been a certified public accountant since 1981.

Eileen A. Swenson has served as president of Tarragon Management, Inc., one of our wholly owned subsidiaries since September 2000. Ms. Swenson is a Certified Property Manager (CPM) and a member of the Institute of Real Estate Management.

William J. Rosato was named president of Tarragon Development Corporation in September 2007. He previously served as senior vice president (from February 2005 to September 2007) and director of construction (from October 2003 to February 2005) of Tarragon Development Corporation. Mr. Rosato received his BA and Master of Architecture degrees from the University of Pennsylvania. He is a member of the American Institute of Architects and a licensed architect in the state of New York.

23

ITEM 2. PROPERTIES

At December 31, 2007, we had 13 consolidated active for-sale communities and three unconsolidated active for-sale communities, including four high- or mid-rise condominium developments, three townhome or traditional new developments, and nine condominium conversions. Information about our active for-sale communities is presented in the table below entitled “Active Development Projects.” At December 31, 2007, we also had 2,398 units in 13 communities in our development pipeline.

Our rental apartment communities at December 31, 2007, included 38 consolidated properties with 8,451 units (including six properties with 1,419 units classified as held for sale). We also owned three consolidated commercial properties, all but one of which was classified as held for sale. Information about our rental apartment communities is presented in the table below entitled “Rental Apartment Communities.” We also had eight rental communities with 1,969 apartments under development. Information about our rental developments is presented in the table below entitled “Active Development Projects.”

Tarragon, or the consolidated or unconsolidated subsidiaries, partnerships, or joint ventures that own the properties, generally hold fee simple title to these properties. Most of these properties are pledged to secure debt. These mortgages are presented in the tables below entitled “Loans Secured by Real Estate Developments” and “Mortgage Loans Secured by Rental Apartment Communities.” We believe our properties are adequately covered by liability and casualty insurance, consistent with industry standards.

TARRAGON CORPORATION
DEVELOPMENT DIVISION
UNITS IN ACTIVE PROJECTS AND DEVELOPMENT PIPELINE
DECEMBER 31, 2007

	Northeast (1)		Southeast (2)		Total
High- and mid-rise developments		747		19		766
Mixed-use residential and commercial developments (3)		200		—		200
Rental communities in lease-up or under development (4)		2,005		1,516		3,521
Townhome and traditional new developments		195		423		618
Condominium conversions		—		694		694
Total		3,147		2,652		5,799

(1)	Northeast includes the states of Connecticut, New Jersey and New York.
(2)	Southeast includes the states of Florida, South Carolina, Tennessee, and Texas.
(3)	These projects include 150,000 square feet of commercial space.
(4)	Includes two properties with 642 units under development held by our Investment Division.

24

TARRAGON CORPORATION
ACTIVE DEVELOPMENT PROJECTS
DECEMBER 31, 2007

		Ownership	Number of
		Interest If	Remaining Homes or		Costs to		Net Carrying
Community	Location	Joint Venture	Home Sites (1)		Complete(2)		Value
					(in thousands)
High- and Mid-rise Developments
Alta Mar	Fort Myers, FL			1	$	7	$	2,524
Las Olas River House	Fort Lauderdale, FL			18		1,569		26,429
One Hudson Park	Edgewater, NJ			61		2,956		30,388	(3)
Trio West	Palisades Park, NJ			112		5,232		36,638	(3)
				192		9,764		95,979
Townhome and Traditional New Developments
Orchid Grove	Pompano Beach, FL	50%		403		46,697		46,972	(6)
The Villas at Seven Dwarfs Lane	Orlando, FL			20		8		1,264
Warwick Grove	Warwick, NY	50%		123		33,069		14,101	(6)
				546		79,774		62,337
Condominium Conversions (7)
Bishop’s Court at Windsor Parke	Jacksonville, FL			25		721		376
Cobblestone at Eagle Harbor	Orange Park, FL			201		530		9,380
Cordoba Beach Park	Tampa, FL			1		—		348
The Hamptons	Orlando, FL	50%		—		—		25
Lofts on Post Oak	Houston, TX	50%		42		51		7,277
Mirabella	Jacksonville, FL			113		182		12,258
Oxford Place	Tampa, FL			67		169		3,403
The Tradition at Palm Aire	Sarasota, FL			178		1,019		14,754
Twelve Oaks at Fenwick Plantation	Charleston, SC			67		291		4,703
				694		2,963		52,524
Rental Developments
800 Madison (8)	Hoboken, NJ	70%		217		25,006		54,857
900 Monroe (8)	Hoboken, NJ	63%		113		38,414		10,941	(4)
1000 Jefferson (5)	Hoboken, NJ	70%		217		2,076		89,691
Aldridge (9)	Murfreesboro, TN			320		2,100		28,788
Central Square (8)	Lauderdale Lakes, FL			412		46,764		12,198	(4)
The Exchange (8)	Fort Lauderdale, FL			87		3,347		16,839
Stonecrest (8)	Murfreesboro, TN			281		28,976		5,859
Vintage at the Grove (9)	Manchester, CT			322		8,929		46,753
				1,969		155,612		265,926
				3,401	$	248,113	$	476,766

(1)	Number of remaining homes or home sites includes both backlog (homes or home sites sold, but not closed) and unsold homes under active development.
(2)	Costs to complete represent estimated construction costs to complete the project. In addition to these costs, we anticipate incurring marketing, advertising, selling commissions and closing costs, and interest.
(3)	This project has financing in place that is expected to fund costs to complete. For the loan balance at December 31, 2007, please see the table below entitled “Loans Secured by Real Estate Developments.”
(4)	We anticipate obtaining a commitment for financing for this project prior to commencing construction.
(5)	This project was sold in February 2008.
(6)	This project has a revolving construction loan that is expected to finance costs to complete.
(7)	Costs to complete for condominium conversions represent unit upgrades that will be incurred upon sale of the units.
(8)	These projects are held by our Development Division.
(9)	These projects are held by our Investment Division.

Our development program includes the construction of the communities presented above. Costs in excess of construction and other financing have been or are expected to be paid for with internally generated funds. For outstanding debt at December 31, 2007, see “LOANS SECURED BY REAL ESTATE DEVELOPMENTS” below.

25

TARRAGON CORPORATION
RENTAL APARTMENT COMMUNITIES
DECEMBER 31, 2007

									Year Ended December 31,						As of December 31,
									2007			2006			2007		2006		2007
		Ownership																	Net
		Interest If					Age		Average			Average			Average		Average		Carrying
		Joint			Number of		In		Physical			Physical			Monthly		Monthly		Value
Community	Location	Venture			Apartments		Years		Occupancy			Occupancy			Rent/Unit(1)		Rent/Unit(1)		(in thousands)
Same store apartment communities
200 Fountain	New Haven, CT		89	%		158		42		95.2	%		95.6	%	$	1,142	$	1,135	$	14,680
278 Main Street	West Haven, CT		89	%		99		19		94.0	%		97.0	%		921		860		6,014
Autumn Ridge	East Haven, CT		89	%		116		34		94.1	%		95.7	%		663		650		1,652
Aventerra Apartment Homes	Dallas, TX					296		33		95.5	%		93.9	%		523		515		5,567
Carlyle Towers (2)	Southfield, MI					172		37		89.5	%		93.6	%		935		921		5,290
Club at Danforth	Jacksonville, FL		89	%		288		10		91.7	%		92.7	%		947		918		13,161
Desert Winds/Silver Creek (2)	Jacksonville, FL					304		35		98.7	%		98.4	%		691		667		3,411
Dogwood Hills	Hamden, CT		89	%		46		35		90.8	%		89.1	%		1,149		1,109		2,166
Forest Park	Rocky Hill, CT		89	%		161		40		89.2	%		93.2	%		954		944		8,024
French Villa	Tulsa, OK					100		36		94.4	%		93.0	%		679		670		2,461
Groton Towers	Groton, CT		89	%		114		34		92.6	%		97.4	%		930		925		4,215
Gull Harbor	New London, CT		89	%		65		33		96.2	%		95.4	%		758		758		1,376
Hamden Centre	Hamden, CT		89	%		65		37		91.4	%		96.9	%		1,028		977		2,558
Harbour Green	Panama City Beach, FL					200		10		90.3	%		91.5	%		979		934		8,825
Lakeview	Waterbury, CT		89	%		88		19		92.4	%		89.8	%		848		834		2,663
Liberty Building	New Haven, CT		89	%		124		8		93.2	%		97.6	%		1,148		1,101		6,945
Links at Georgetown	Savannah, GA		89	%		360		8		89.1	%		90.6	%		900		880		19,258
Lofts at the Mills	Manchester, CT		89	%		409		18		91.8	%		87.6	%		987		950		35,171
Mustang Creek	Arlington, TX					120		33		93.2	%		90.8	%		842		857		2,997
Nutmeg Woods	New London, CT		89	%		382		37		92.3	%		91.1	%		845		859		14,570
Ocean Beach	New London, CT		89	%		455		35		94.7	%		94.3	%		710		715		12,573
Park Dale Gardens (2),(6)	Dallas, TX					224		32		94.5	%		97.3	%		557		539		1,977
Parkview	Naugatuck, CT		89	%		160		36		90.8	%		91.9	%		969		975		5,758
River City Landing	Jacksonville, FL		89	%		352		42		87.9	%		92.6	%		723		700		11,256
Sagamore Hills	Middletown, CT		89	%		212		39		92.4	%		94.3	%		826		812		7,261
Southern Elms	Tulsa, OK					78		39		93.6	%		98.7	%		587		579		1,245
Summit on the Lake	Fort Worth, TX					198		21		94.2	%		93.4	%		572		555		3,550
Vintage at Legacy	Frisco, TX		89	%		320		8		92.6	%		93.1	%		984		947		22,859

26

TARRAGON CORPORATION
RENTAL APARTMENT COMMUNITIES
DECEMBER 31, 2007

									Year Ended December 31,						As of December 31,
									2007			2006			2007		2006		2007
		Ownership																	Net
		Interest If					Age		Average			Average			Average		Average		Carrying
		Joint			Number of		In		Physical			Physical			Monthly		Monthly		Value
Community	Location	Venture			Apartments		Years		Occupancy			Occupancy			Rent/Unit(1)		Rent/Unit(1)		(in thousands)
Same store apartment communities (continued)
Vintage at Madison Crossing	Huntsville, AL		89	%		178		5		97.2	%		95.5	%	$	819	$	784	$	9,628
Vintage at the Parke	Murfreesboro, TN		89	%		278		6		92.7	%		92.1	%		769		759		14,387
Vintage at Plantation Bay	Jacksonville, FL		89	%		240		6		90.6	%		95.0	%		985		962		12,904
Woodcreek, FL	Jacksonville, FL					260		32		90.0	%		92.3	%		735		713		3,238
Woodcliff Estates	East Hartford, CT		89	%		561		38		94.0	%		96.1	%		891		832		17,720
Subtotals/Averages						7,183		23		92.7	%		93.6	%		835		815		285,360
Apartment communities in lease-up during one or both periods
1118 Adams (3)	Hoboken, NJ		—			90		1		99.4	%		94.4	%		701		687		25,631
Bermuda Island (2),(5)	Naples, FL					360		9		68.9	%		57.8	%		1,113		1,154		40,693
Creekwood North (2),(4),(6)	Altamonte Springs, FL					180		34		67.9	%		46.7	%		818		779		2,879
Heather Hill (7)	Temple Hills, MD		89	%		459		41		75.8	%		87.2	%		1,076		1,033		10,589
Northgate (2)	Middletown, RI					179		37		94.0	%		88.8	%		1,004		1,009		19,089
Subtotals/Averages						1,268		16		77.0	%		73.8	%		1,013		1,003		98,881
Totals/Averages – All Rental Apartments						8,451		22		90.3	%		90.6	%	$	862	$	843	$	384,241

(1)	Average monthly rent is defined as total possible rent (actual rent for leased apartments and asking rent for vacant apartments) for the month of December divided by number of units.
(2)	This property was classified as held for sale at December 31, 2007.
(3)	We own 85% of the managing member, which owns .01% of the property-owning entity.
(4)	During 2006, leasing was discontinued at this property in connection with a redevelopment plan. Upon the decision to cancel the redevelopment plans, lease-up of the property resumed in late 2006.
(5)	During 2006 and the first half of 2007, this property was in reposition in the Development Division. When the reposition was completed, the property was reclassed to the Investment Division as held for sale.
(6)	This property was sold in January 2008.
(7)	In early 2007, the decision was made to begin a renovation of this property. In late August, the renovation was suspended as we focused on improving our liquidity, and the property began leasing again in the fourth quarter of 2007.

27

TARRAGON CORPORATION
LOANS SECURED BY REAL ESTATE DEVELOPMENTS
DECEMBER 31, 2007
(Dollars in Thousands)

	Balance		Stated Interest			Maturity		Balance Due at
	Dec. 31, 2007		Rate (3)			Date		Maturity
Consolidated Development Projects:
Construction in Progress — Rentals
800 Madison	$	35,543		6.85	% (1)	Dec-09	(5)	$	35,543
900 Monroe		3,900		6.85	% (1)	May-08			3,900
1000 Jefferson		76,262		6.35	% (1)	Jan-08	(13)		76,262
Aldridge		20,610		6.50	% (1)	Jan-09			20,610
The Exchange (7)		12,000		13.00	% (2)	Dec-08			12,000
Stonecrest		5,449		6.50	% (1)	Jul-08			5,449
Vintage at the Grove		30,547		6.60	% (1)	Mar-10			30,547
		184,311		6.95	% (4)				184,311
Condominium Conversions
Cobblestone at Eagle Harbor		10,571		7.10	% (1)	Aug-08	(5)		10,571
Mirabella		7,586		7.34	% (1)	Jul-09			7,586
The Tradition at Palm Aire		18,281		7.55	% (1)	Aug-09			18,281
		36,438		7.38	% (4)				36,438
Land for Development
20 North Water Street		7,410		8.00	% (2)	Jul-07	(14)		7,410
390 Capitol/Mariner’s Point/Merritt Stratford		5,300		13.00	% (2)	Dec-08			5,300
Block 103/104/114		9,000		7.10	% (1)	Dec-08	(6)		9,000
Block 106/111		6,000		6.60	% (1)	Jun-08			4,500
Block 144		2,400		6.60	% (1)	Jun-08			900
Central Square		11,250		6.70	% (1)	Jul-08			11,250
The Green at East Hanover		8,600		6.60	% (1)	Jun-08	(11)		8,600
River Oaks		7,419		7.10	% (1)	Mar-08			7,419
Trio East		3,600		6.75	% (1)	May-08			3,600
Uptown Village		2,223		6.70	% (1)	Jan-08	(10)		2,223
		63,202		7.46	% (4)				60,202
Residential Construction in Progress
Las Olas River House		12,102		6.75	% (1)	Jul-08			6,684
Las Olas River House		1,987		7.52	% (2)	Jul-12			1,827
One Hudson Park		14,190		7.10	% (1)	Jul-08			14,190
Trio West		32,081		7.60	% (1)	Jan-09	(5)		32,081
Warwick Grove		5,231		6.80	% (1)	Sep-08			5,231
Warwick Grove		3,298		6.80	% (1)	Sep-08			3,298
		68,889		7.25	% (4)				63,311
Unconsolidated Development Projects:
Choice Homes		675		6.25	% (2)	Jan-08	(12)		675
Keane Stud (8)		300		10.00	% (2)	Jan-08	(12)		300
Lincoln Pointe		79,402		9.60	% (1)	Jan-08	(9)		79,402
Lofts on Post Oak		5,328		6.60	% (1)	Nov-08			5,328
Orchid Grove		31,570		6.75	% (1)	Apr-08	(5)		31,570
		117,275		8.68	% (4)				117,275
TOTAL LOANS ON REAL ESTATE DEVELOPMENTS	$	470,115		7.53	% (4)			$	461,537

(1)	Variable rate loan.
(2)	Fixed rate loan.
(3)	For loans with variable interest rates, the rate in effect as of December 31, 2007, is presented.
(4)	Represents weighted average interest rate as of December 31, 2007, computed based upon the December 31, 2007, balances.
(5)	Loan has a six-month extension option.
(6)	Loan has a one year extension option.
(7)	This property is part of the collateral securing The Green at East Hanover loan.
(8)	This is a loan payable to our partner in this project and is prepayable.
(9)	During 2006, we sold a portion of our interest in this project and recovered our investment, retaining a 29% interest. This loan is non-recourse to Tarragon.
(10)	This loan was repaid in January 2008.
(11)	Loan was refinanced in February 2008.
(12)	This note is due on demand.
(13)	We repaid this note in February 2008 when the property was sold.
(14)	This loan is currently in default. The lender has initiated judicial foreclosure proceedings, which we intend to defend.

28

TARRAGON CORPORATION
MORTGAGE LOANS SECURED BY RENTAL APARTMENT COMMUNITIES
DECEMBER 31, 2007
(Dollars in Thousands)

	Balance		Stated Interest			Maturity	Balance Due at
	Dec. 31, 2007		Rate (3)			Date	Maturity
1118 Adams	$	3,570		5.67	% (2)	Jan-25	$	2,170
1118 Adams		2,145		—	(8)	Sep-26		2,145
1118 Adams		1,429		—	(8)	Mar-26		1,429
1118 Adams		2,025		1.00	% (2)	Sep-51		2,025
Aventerra Apartment Homes		8,160		5.75	% (2)	Mar-17		7,294
Bermuda Island (6)		41,458		6.95	% (1)	Apr-08		41,458
Carlyle Towers (6)		4,742		6.96	% (2)	Mar-08		4,724
Carlyle Towers – supplemental mortgage (6)		1,660		7.90	% (2)	Jan-11		1,572
Creekwood North (6) (10)		4,576		8.02	% (2)	Aug-10		4,400
Creekwood North – supplemental mortgage (6) (10)		1,153		5.62	% (2)	Dec-13		1,033
Desert Winds/Silver Creek (6)		6,390		5.03	% (2)	Jun-13		5,319
Desert Winds/Silver Creek – supplemental mortgage (6)		939		5.58	% (2)	Oct-14		766
French Villa		1,685		6.82	% (2)	Jan-09		1,648
French Villa – supplemental mortgage		1,145		7.23	% (2)	Mar-11		1,086
Harbour Green		17,288		6.06	% (2)	Sep-09		17,288
Mustang Creek		5,476		8.06	% (2)	Jul-10		5,274
Northgate (6)		17,019		7.10	% (1)	Apr-08		13,819
Park Dale Gardens (6) (10)		5,177		8.11	% (2)	Jul-10		4,989
Southern Elms		2,178		5.55	% (2)	Apr-17		2,018
Summit on the Lake		6,000		5.61	% (2)	Nov-16		5,350
Woodcreek, FL		14,600		5.44	% (2)	Dec-16		12,976
Gull Harbor		2,766		5.52	% (2)	Jul-09		2,699
Mortgages payable to General Electric Capital Corporation (5)		367,646		5.95	% (2) (4)	Nov-12		367,646
Mortgages payable to General Electric Capital Corporation (5)		31,862		11.71	% (1) (4)	Nov-12		30,044
		551,089		6.38	% (4)			539,172
Commercial (7)		10,055		6.19	% (4) (9)			9,563
TOTAL MORTGAGE LOANS ON RENTAL REAL ESTATE PROPERTIES	$	561,144		6.38	% (4)		$	548,735

(1)	Variable rate mortgage.
(2)	Fixed rate mortgage.
(3)	For loans with variable interest rates, the rate in effect as of December 31, 2007, is presented.
(4)	Represents weighted average interest rate as of December 31, 2007, computed based upon the December 31, 2007, balances.
(5)	Non-recourse financing secured by first and second lien mortgages on 23 properties owned by Ansonia Apartments, L.P. These mortgages are cross-collateralized with one other GE loan totaling $17.3 million.
(6)	These properties are classified as held for sale as of December 31, 2007, and accordingly the note balance is included in “Liabilities related to assets held for sale” in the accompanying Consolidated Balance Sheet.
(7)	Includes mortgages secured by two commercial properties. One property with a $5.5 million mortgage is classified as held for sale.
(8)	These are non-interest bearing loans with government agencies which will become grants upon maturity if 1118 Adams meets certain conditions.
(9)	Of the $10.1 million outstanding at December 31, 2007, $5.5 million bears interest at a variable rate and the remaining $4.6 million bears interest at fixed rates.
(10)	This loan was repaid in connection with the sale of the property in January 2008.

29

TARRAGON CORPORATION
SUMMARY OF LOANS
DECEMBER 31, 2007
(Dollars in Thousands)

	Balance		Stated Interest			Balance Due at
Name of Property	Dec. 31, 2007		Rate (1) (2)			Maturity
Summary by interest rate type:
Real Estate Developments:
Consolidated
Total variable rate mortgages	$	326,143		6.81	%	$	317,725
Total fixed rate mortgages		26,697		11.20	%		26,537
		352,840		7.14	%		344,262
Unconsolidated
Total variable rate mortgages		116,300		8.69	%		116,300
Total fixed rate mortgages		975		7.40	%		975
		117,275		8.68	%		117,275
Rental Apartment Communities:
Consolidated
Total variable rate mortgages		95,794		8.54	%		90,776
Total fixed rate mortgages		465,350		5.93	%		457,959
		561,144		6.38	%		548,735
Total all mortgages	$	1,031,259		6.90	%	$	1,010,272
Consolidated debt from above	$	913,984
Consolidated corporate debt		197,605
Total consolidated debt	$	1,111,589

(1)	For loans with variable interest rates, the rate in effect as of December 31, 2007, is presented.
(2)	Represents weighted average interest rate as of December 31, 2007, computed based upon the December 31, 2007, balances.

30

ITEM 3. LEGAL PROCEEDINGS

The Company and three of its officers (William S. Friedman, chairman of the board of directors and chief executive officer; Robert P. Rothenberg, president and chief operating officer; and Erin D. Pickens, executive vice president and chief financial officer), as well as Beachwold Partners, L.P. (a Texas limited partnership composed of William S. Friedman, as general partner, and members of his family, as limited partners), and the Company's independent registered public accounting firm, have been named as defendants in a consolidated securities class action lawsuit styled: In re Tarragon Corporation Securities Litigation, Civil Action No. 07-7972, originally filed in the United States District Court for the Southern District of New York on September 11, 2007 on behalf of persons who purchased the Company’s common stock between January 5, 2005 and August 9, 2007.

The Company was also named as a nominal defendant, and the members of the board of directors of the Company, Ms. Pickens, and one former member of the Company’s board of directors were named as defendants, in a shareholder derivative action styled: Gottdiener, v. Friedman, et al., Civil Action No. 07-9436, filed on October 22, 2007 in the United States District Court for the Southern District of New York. The plaintiff in this action voluntarily dismissed the case in March 2008 for the stated purpose of refiling the action in state court and purportedly adding additional defendants.

The plaintiffs in both of these lawsuits allege generally that the Company issued materially false and misleading statements regarding the Company’s business and financial results during the class period. The plaintiff in the class action lawsuit alleges violations of the federal securities laws, and seeks unspecified damages, attorneys’ fees and costs. The plaintiff in the shareholder derivative action alleged breach of fiduciary duty, and sought contribution and indemnification from the named Defendants. The Company believes that these claims are without merit and intends to defend the cases vigorously.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders.

31

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

Our common stock is listed on The Nasdaq Global Select Market under the symbol “TARR.” The following table sets forth the high and low sales prices of Tarragon common stock reported by The Nasdaq Global Select Market for the periods indicated.

	2007				2006
	High		Low		High		Low
First quarter	$	13.50	$	9.86	$	21.80	$	17.80
Second quarter		10.78		8.13		19.97		12.50
Third quarter		9.10		.50		14.45		8.81
Fourth quarter		3.54		1.26		12.89		9.00

According to our transfer agent’s records, at March 6, 2008, our common stock was held by approximately 5,500 holders of record.

On May 1, 2006, we paid a cash dividend of $0.10 per common share payable to stockholders of record on April 10, 2006. No dividends were paid in 2007. Our board of directors does not presently intend to pay cash dividends with respect to our common stock. In the third quarter of 2007, our board of directors suspended the payment of quarterly dividends on our 10% cumulative preferred stock, beginning with the dividend payable on September 30, 2007. As of December 31, 2007, the preferred stock dividend in arrears was $770,376 in the aggregate, or $.60 per share. Any future determination to pay cash dividends with respect to our common or preferred stock will be at the discretion of our board of directors and will be dependent on our earnings, financial condition, operating results and other factors that our board of directors deem relevant.

Securities Authorized for Issuance Under Equity Compensation Plans

We have three stock-based equity compensation plans that have been approved by our stockholders. See NOTE 6. “STOCK-BASED AWARDS” in the Notes to the Consolidated Financial Statements in ITEM 8. “FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” for descriptions of the plans, the number of shares of common stock to be issued upon the exercise of outstanding stock options and stock appreciation rights, the weighted-average exercise price of outstanding stock options and stock appreciation rights, and the number of shares of common stock remaining for future issuance under the plans. We have no equity compensation plans that have been adopted without the approval of our stockholders.

Purchases of Equity Securities

On March 6, 2006, our board of directors authorized the repurchase of up to an additional 1,000,000 shares of our common stock pursuant to our existing share repurchase program. With this additional authority, our board has approved the repurchase of an aggregate of up to 2,500,000 shares under the program implemented in September 2001. The share repurchase program has no expiration date. Through December 31, 2007, we had repurchased 2,427,712 shares of our common stock and had 72,288 shares remaining that could be repurchased pursuant to this repurchase program. There were no shares repurchased during the three months ended December 31, 2007. We do not expect to repurchase any additional shares for the foreseeable future.

32

ITEM 6. SELECTED FINANCIAL DATA

Please read the following information along with the Consolidated Financial Statements and Notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. Dollar amounts are in thousands, except per share amounts.

	For the Years Ended December 31,
	2007			2006			2005		2004			2003
OPERATING DATA
Sales revenue	$	358,911		$	444,274		$	504,722	$	220,465		$	56,279
Rental and other revenue		89,607			82,868			73,708		66,680			38,133
Total revenue		448,518			527,142			578,430		287,145			94,412
Cost of sales (1)		481,237			396,507			394,999		175,279			46,431
Impairment charges		223,756			2,721			—		733			—
Equity in income (loss) of partnerships and joint ventures		(8,356	)		17,166			29,603		15,193			22,476
Net gain on sale of real estate Presented in income from continuing operations		16,466			1,148			3,808		378			1,223
Income (loss) from continuing operations	$	(379,287	)	$	3,341		$	46,057	$	19,017		$	11,344
Discontinued operations, net of income tax benefit (expense)
Income (loss) from operations (2)		(36,129	)		(4,519	)		732		(448	)		(3,268	)
Gain on sale of real estate		26,975			12,331			41,709		10,950			23,118
Net income (loss)	$	(388,441	)	$	11,153		$	88,498	$	29,518		$	31,194
Earnings (loss) per common share — basic (3)
Income (loss) from continuing operations allocable to common stockholders	$	(13.20	)	$	.08		$	1.75	$	1.55		$	.48
Net income (loss) allocable to common stockholders	$	(13.52	)	$	.36		$	3.39	$	1.27		$	1.38
Earnings (loss) per common share — assuming dilution (3)
Income (loss) from continuing operations allocable to common stockholders	$	(13.20	)	$	.09		$	1.61	$	1.32		$	.42
Net income (loss) allocable to common stockholders	$	(13.52	)	$	.34		$	2.93	$	1.09		$	1.20

	As of December 31,
	2007			2006		2005		2004		2003
BALANCE SHEET DATA
Real estate inventory	$	605,093		$	1,030,623	$	1,074,281	$	297,148	$	99,457
Rental real estate		312,315			731,477		415,448		567,493		395,095
Rental real estate held for sale		81,519			32,698		60,713		21,358		—
Investments in and advances to partnerships and joint ventures		11,822			61,523		78,080		47,707		81,764
Cash and cash equivalents		44,156			23,476		39,044		22,377		21,626
Total assets		1,134,084			2,022,761		1,803,411		1,129,977		623,817
Mortgages and notes payable		892,270			1,387,731		1,248,238		875,353		471,262
Senior convertible notes		5,750			5,750		5,750		62,000		—
Subordinated unsecured notes		125,000			125,000		65,000		—		—
Notes payable presented in liabilities related to assets held for sale		88,569			24,663		52,446		20,479		—
Stockholders’ equity (deficit)		(112,817	)		279,514		278,015		136,493		103,328
Book value per common share (3)	$	(4.43	)	$	9.21	$	9.42	$	5.55	$	4.34

(1)	Cost of sales includes impairment charges of $101.3 million in 2007, $19 million in 2006, none in 2005 and 2004, and $1.6 million in 2003.
(2)	Income (loss) from operations includes impairment charges of $43.7 million in 2007, $810,000 in 2006, $1.4 million in 2005, $400,000 in 2004, and none in 2003.
(3)	Per share data have been restated to give effect to a three-for-two stock split in February 2005, and a five-for-four stock split in January 2004.

33

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Please read this discussion along with the audited Consolidated Financial Statements and accompanying Notes found at ITEM 8. “FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.” Dollar amounts in tables are in thousands.

Business Overview

General

We are a real estate developer, owner, and manager with over 30 years of experience in the real estate industry. We operate two distinct businesses: development and investment. Each of these two businesses is an operating segment.

Development Division. Our activities in the Development Division involve the development of new high-rise or mid-rise condominiums and town homes for sale to residents, development of new rental properties, primarily apartment communities, condominium conversions of existing apartment communities, and land development and sale. We measure the performance of the Development Division primarily by gross profit on sales. Beginning in late 2006 and accelerating in 2007, market conditions in the homebuilding industry deteriorated, resulting in declining sales revenue and gross margins. In addition, we have incurred significant losses related to asset impairment in 2007. Revenue and gross profit or loss for the past three years are presented below under the caption “Results of Operations — Development Division.”

Investment Division. Our Investment Division includes rental properties under development, in lease-up, and with stabilized operations. We consider a property stabilized when development or renovation is substantially complete and recurring operating income exceeds operating expenses and debt service. During 2006 and 2007, we determined not to convert a number of properties we had previously targeted for conversion to condominium homes for sale. Instead, we decided to operate these properties as rental properties and transferred them from our Development Division to our Investment Division. In August 2007, we decided to sell these properties, resulting in significant losses related to asset impairment. Through December 31, 2007, we had sold eight of these properties, and, since the beginning of 2008, we have sold one additional property. Two other properties are under contract of sale. We measure the performance of the Investment Division primarily by net operating income, which is defined as rental revenue less property operating expenses of both consolidated and unconsolidated rental apartment communities and commercial properties. Net operating income for the past three years is presented below under the caption “Results of Operations — Investment Division.”

Revenue. Our revenue is principally derived from:

• Sales, net of a provision for uncollectible contracts receivable, which represent sales of condominium homes, townhomes, rental developments and developed land for which revenue is reported on either the completed contract or percentage-of-completion method, as appropriate;

• Rental revenue from apartment and commercial leases; and

• Management fee revenue for providing property management services to rental apartment communities and commercial properties.

34

Expenses. Our expenses principally consist of:

• Cost of sales, which include land, construction costs, development salaries, construction supervision, marketing, commissions and other selling costs, property taxes, insurance, interest (previously capitalized), developer fees, architectural and engineering fees, and impairment charges (for active development projects);

• Property operating expenses, which are costs associated with operating, leasing, and maintaining rental apartment communities and commercial properties, including payroll and benefit expenses of site-level employees, and property taxes and insurance of completed real estate inventory;

• Depreciation of rental apartment communities and commercial properties;

• Impairment charges on rental apartment communities, commercial properties, and real estate inventory (for other than active development projects); and

• General and administrative expenses, a significant portion of which consists of compensation and benefits and other personnel-related costs of personnel excluding site-level employees of rental apartment communities and commercial properties and employees directly related to development activities.

Other income and expenses. Other income and expenses include:

• Interest expense related to mortgages and other debt;

• Equity in income or losses of partnerships and joint ventures, which represents our share of the net income or net loss of unconsolidated partnerships and joint ventures and may include income from distributions received from those entities in excess of our share of their income when we have recorded our investment in them (the source of these distributions is generally proceeds from financing);

• Gain on sale of real estate, which generally results from sales of properties in the Investment Division and is generally reported in discontinued operations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”); and

• Minority interests in income from consolidated partnerships and joint ventures, which consists of our partners’ share of net income or net loss and through September 30, 2006, the return on a preferred interest in Tarragon Development Company, LLC, and may include losses representing distributions to outside partners from consolidated partnerships in excess of their investments in the partnerships (the source of such distributions is generally proceeds from financings of properties);

• Net gain or loss on extinguishments of debt, which consists of the write-off of deferred borrowing costs and prepayment penalties incurred upon the extinguishment of debt and debt forgiven by lenders; and

• Provision for litigation, settlements and other claims.

Proposed Spin-off of Development Division. Due to market conditions that developed in the summer of 2007 and the related impact on our financial condition, we decided not to proceed with the proposed spin-off of the Development Division.

35

Outlook

Throughout 2007, market conditions in the homebuilding industry continued to deteriorate. This market deterioration was driven primarily by a decline in consumer confidence and increased volatility in the mortgage market and resulted in a decline in home prices and sales volume, increases in cancellations, increased use of sales discounts, higher brokerage fees and other sales incentives, and increased interest and other carrying costs. The decline in home prices and increase in discounts and incentives decreased our cash flows as closings required additional cash to satisfy lender release prices. We also incurred additional lease-up and interest costs associated with apartment properties that we had targeted for conversion into condominiums and subsequently decided to operate as rental properties. Current market conditions remain difficult, and these conditions may continue to adversely impact our operations.

The sudden and rapid deterioration in the real estate credit markets in the summer of 2007 prevented us from completing financing transactions that had been under negotiation, materially affecting our liquidity, including our ability to repay existing indebtedness as it became due and meet other current obligations, and our ability to comply with financial covenants contained in our existing debt agreements. See NOTE 5. “NOTES PAYABLE” in the accompanying consolidated financial statements in this Form 10-K and below under “Liquidity and Capital Resources” for additional information regarding debt defaults, reinstatements, and maturities and failure to meet certain financial covenants. In response to these events, we began a program to sell non-core assets, including all of the multi-family properties that had been targeted for condominium conversion. Nine of these properties were sold between September 2007 and January 2008, and two more properties are under contract of sale. In general, these newer, high quality assets were in different stages of lease-up or renovation in connection with being repositioned as rental properties. Moreover, most of these properties had been financed with significant amounts of short-term, floating rate debt. Accordingly, the sale of these assets improved our liquidity by reducing negative cash flow, reducing debt, and generating sales proceeds. In addition, in an effort to reduce overhead, we implemented a workforce reduction in August 2007. However, due to severance costs, the workforce reduction had very little impact on expenses for 2007.

Our plan to improve our liquidity contemplates additional property sales and, more importantly, continued reduction in our condominium inventory. In addition, the Company continues to negotiate extensions of maturing debt obligations. Some of our efforts to reduce costs were offset by fees totaling $4.6 million through December 31, 2007, paid to financial advisors and other consultants engaged by Tarragon in the third quarter of 2007 to assist with the evaluation of strategic and financial alternatives.

During 2007, we recorded impairment charges of $368.8 million, $101.3 million of which was recorded in cost of sales, $223.8 million of which was recorded in impairment charges, and $43.7 million of which was reported in discontinued operations in the Consolidated Statements of Operations. We also recorded an impairment charge of approximately $6 million during 2007 to write down our investment in an unconsolidated joint venture. In addition, we wrote off $7.8 million in pursuit costs (contract deposits) in 2007 which are included in general and administrative expenses — corporate in the Consolidated Statement of Operations. See discussions below under Development Division and Investment Division.

Our consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of December 31, 2007, we had $1,111.6 million in consolidated debt, and had guaranteed additional debt of our unconsolidated joint ventures totaling $31.6 million. For the year ended December 31, 2007, we incurred a net loss of ($388.4 million). As of December 31, 2007, we had stockholders’ deficit of ($112.8 million), which was a significant decrease compared to stockholders’ equity of $279.5 million as of December 31, 2006. These factors raise substantial doubt about our ability to continue as a going concern; however, management believes that our current initiatives will continue to generate sufficient liquidity to adequately fund operations and enable us to continue as a going concern. Nonetheless, there can be no assurance that we will be able to successfully

36

implement our plan on favorable terms, or at all. The success of this plan will depend on our ability to complete our planned sales of properties, to modify or obtain waivers of financial covenants in our debt agreements, to extend or refinance our maturing debt obligations, and to continue to sell completed homes in our inventory. If we are unable to generate sufficient liquidity to fund our operations or are unable to modify or obtain waivers of financial covenants and extend or refinance our maturing debt, it may be necessary for us to undertake other actions as may be appropriate at such time. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets.

Development Division. The following table summarizes impairment charges related to real estate inventory recorded during the year ended December 31, 2007.

					Impairments		Write-offs
			Impairments		Included In		of		Total
	Number of		Included In		Impairment		Contract		Impairments/
Project Type	Projects		Cost of Sales		Charges		Deposits		Write-offs
Active condominium conversions		6	$	66,875	$	—	$	—	$	66,875
Active mid-rise developments		1		32,049		—		—		32,049
Active rental developments		3		—		27,513		—		27,513
Active land developments		5		2,357		9,679		—		12,036
Pipeline and pre-pipeline projects		6		—		56,434		—		56,434
Contract deposits		16		—		—		7,833		7,833
Total		37	$	101,281	$	93,626	$	7,833	$	202,740

For the year ended December 31, 2006, we recorded impairment charges presented in cost of sales of $19 million related to five condominium conversion communities and wrote off $10.7 million in contract deposits. In 2005, we wrote off $1.8 million in contract deposits and recorded no impairment charges.

If current estimates or expectations change in the future, or if market conditions continue to deteriorate, we may be required to recognize additional impairment charges related to current or future projects.

The marked slowdown in sales and the decline in home prices in the markets where we operate together with the increasingly more restricted credit market and the financial constraints affecting us have led us to deemphasize for sale housing in our future project planning in favor of rental housing, hospitality developments and mixed-use projects. These factors have also led us to seek financially strong partners to join in future developments. As a result, we expect the level of home sales to continue to decline and the volume of sales of rental properties we have developed to increase. This change may make our earnings and revenue even more volatile. In view of market conditions, we anticipate that, over the next several years, new developments undertaken by the Development Division will be primarily traditional, rental apartment properties with a greater emphasis on suburban garden apartment developments than in the recent past. We believe this approach will enable us to maintain a sufficient development infrastructure to undertake additional developments as appropriate opportunities arise.

Our current business plan contemplates completing and selling out our remaining nine condominium conversion projects and selling ten of our existing development properties. We anticipate expanding our use of operating and financial joint ventures with third parties with access to capital to facilitate obtaining construction financing and to fund a portion of the required equity of our future development projects.

We believe our previous focus on development of urban and high-density housing designed for non-traditional households will present us with fewer opportunities for a number of reasons, including:

37

• scarcity of urban land for development in established communities and increased restrictions and controls on growth in many areas is channeling a larger share of new construction into areas where high- density housing predominates;

• cost increases affecting concrete, high-rise and mid-rise construction more than stick built garden apartments;

• greater difficulty financing higher cost developments; and

• the continuing decline in prices and demand for luxury condominiums.

Investment Division. In 2007, we recorded impairment charges of $130.1 million (presented in continuing operations) and impairment charges of $43.7 million (presented in discontinued operations) to write down the carrying values of eight canceled condominium conversion projects and two commercial properties to their estimated fair values due to the decision to sell these properties.

Our current business plan contemplates the sale of eight additional rental properties and maintaining a portfolio of 33 core rental properties. We intend to seek a strong financial and business partner with whom we can form a residential property joint venture capable of expanding our residential property management platform and committed to financing acquisitions of both value-added and investment quality residential properties. We believe this strategy will leverage the strengths of our property management platform and allow us to expand its operations and achieve economies of scale.

Factors Affecting Comparability of Results of Operations

Segment Results. Segment results for our Development Division and Investment Division include revenue generated by both consolidated entities and unconsolidated entities. Therefore, the revenues reflected in the segment results are not fully comparable with our consolidated results. Reconciliations of segment revenue to consolidated revenue are presented in NOTE 10. “SEGMENT REPORTING” in the accompanying Notes to Consolidated Financial Statements.

Revenue Recognition. The percentage-of-completion method of revenue recognition requires us to recognize revenue from sales of homes prior to the closing of such sales. As a result, the timing of revenue generated by projects using the percentage-of-completion method will not be comparable to the timing of revenue generated by projects using the closing method. Additionally, the timing of meeting the requirements to begin recognizing revenue under the percentage of completion method can result in larger amounts of revenue being recognized in the first quarter of revenue recognition than in later quarters. Under the closing method of revenue recognition, minimal sales thresholds must be met before we can commence closings. As a result, the first quarter after closings begin may also have larger amounts of revenue than later quarters for these projects. See “Critical Accounting Policies and Estimates—Revenue Recognition.”

Rental Properties in “Lease-up.” Rental properties that have not yet been stabilized typically have lower rental revenues and net operating income (or operating losses) than rental properties that are stabilized. Trends in our results of operations from period to period may not be comparable when we have a number of properties in lease-up. However, once a property has been stabilized, the results for that property for a period in which it is stabilized will likely be markedly better than the results for that property during lease-up, which may also affect trends in our results of operations. Where possible, when we make comparisons between periods, we segregate the results of properties that were in lease-up in either or all of the periods to better illustrate the trends in our results of operations.

38

Consolidated Results of Operations

2007 Compared to 2006

Total consolidated revenue in 2007 was $448.5 million for the year ended December 31, 2007 and $527.1 million in 2006. Sales revenue declined $85.4 million principally due to a slowdown in sales activities at our condominium conversion projects for which consolidated revenue declined $67 million. Revenue from consolidated high- and mid-rise developments decreased $52.1 million in 2007. High-and mid-rise developments include two projects that commenced revenue recognition under the percentage of completion method in 2006, one of which was completed in early 2007. See further discussion of sales and gross profit below under the caption “Development Division.”

As discussed above under the caption “Factors Affecting Comparability of Results of Operations,” the timing of meeting the requirements to begin recognizing revenue under the percentage of completion method and the timing of meeting minimum sales thresholds to begin closings can result in larger amounts of revenue being recognized in the first quarter of revenue recognition than in later quarters. The table below presents sales revenue for 2007 by quarter and by product type:

	First		Second			Third		Fourth
Product type	Quarter		Quarter			Quarter		Quarter
High- and mid-rise developments	$	38,848	$	(6,674	)	$	5,951	$	21,551
Townhome and traditional new developments		11,115		10,658			3,569		5,605
Condominium conversions		42,900		44,242			38,364		73,511
Rental developments		30,250		—			—		32,892
Land development		712		464			3,204		1,749
Total	$	123,825	$	48,690		$	51,088	$	135,308

During the fourth quarter of 2007, we sold 423 units in three condominium conversion projects in bulk for $49.7 million. We sold two rental developments during 2007, one in the first quarter and the other in the fourth quarter of 2007. High- and mid-rise developments include two projects that commenced revenue recognition in 2006 using the percentage of completion method of revenue recognition. During the first quarter of 2007, we recognized revenue of $34.2 million for these two projects. One of these projects was nearing completion in the first quarter and, therefore, had a decreased impact on revenue recognized in the second, third, and fourth quarters. In addition, during the second quarter of 2007, we recorded a $17.9 million valuation allowance against contracts receivable for One Hudson Park in response to increasing buyer defaults and we increased this allowance by $2 million in the fourth quarter. We recorded $14 million of sales revenue at Trio West, a mid-rise development in New Jersey, as units began closing in the fourth quarter.

Rental and other revenue increased $6.7 million, or 8.1%, for the year ended December 31, 2007, compared to 2006. Of this increase, $11.9 million was attributable to six properties no longer targeted for conversion to condominium homes for sale and transferred to the Investment Division during 2007. Four of these properties were sold in 2007. Five properties currently in lease-up contributed an increase of $346,000. These increases were partially offset by a decrease of $3.3 million attributable to three properties currently being converted to condominium homes for sale. A decrease of $2.2 million was attributable to three properties sold in 2007.

Loss from continuing operations was ($379.3 million) for the year ended December 31, 2007, compared to income from continuing operations of $3.3 million for the year ended December 31, 2006 as a result of the following factors:

39

• Impairment charges increased $221 million for the year ended December 31, 2007, compared to 2006 resulting from the write down of carrying values of six rental developments, six pipeline projects, three active rental developments, and two active land developments.

• Cost of sales, including impairment charges for certain active development projects, increased $84.7 million from $396.5 million for the year ended December 31, 2006, to $481.2 million for the year ended December 31, 2007. See discussion of cost of sales under “Development Division” below.

• Allowance of $19.9 million for estimated potential customer defaults established during 2007 on contracts receivable related to one mid-rise development project. See discussion under “Development Division” below.

• Equity in income (loss) of partnerships and joint ventures decreased $25.5 million for the year ended December 31, 2007 compared to 2006, with the decline principally due to the distribution in excess of our investment of $9.6 million in 2006 from Tarragon/Shefaor LLLP and the sale of our interest in 801 Pennsylvania Avenue in 2006 for $4.2 million. Additionally, decreases in gross profit from sales in unconsolidated partnerships and joint ventures contributed to the decrease as two projects owned by these entities neared completion and close out.

• Interest expense increased $36.3 million to $72.6 million in 2007 compared to 2006. This increase was chiefly due to lower capitalized interest on projects completed or for which development activities ceased, as well as default interest and late fees.

• Income tax benefit was $55.5 million for the year ended December 31, 2007, compared to income tax expense of $3 million for the year ended December 31, 2006. During 2007, we recorded a valuation allowance of $122.3 million against our deferred tax assets. See NOTE 12. “INCOME TAXES” in the Notes to Consolidated Financial Statements for additional information.

Operating Results of Consolidated Rental Properties. At December 31, 2007, our consolidated rental properties presented in continuing operations included rental communities with 7,571 apartments (excluding 880 units held for sale and presented in discontinued operations) and one commercial property with 55,000 square feet (excluding 177,000 square feet in assets held for sale and presented in discontinued operations).

The following table summarizes aggregate property level revenue and expenses for our consolidated rental properties presented in continuing operations for the years ended December 31, 2007 and 2006. The revenue and expenses below exclude management fee and other revenue; property taxes, insurance, interest, and other carrying costs associated with development projects; and interest expense on corporate debt.

	For the Years Ended December 31,
	2007			2006			Change
Rental revenue	$	84,465		$	75,792		$	8,673
Property operating expenses		(43,867	)		(36,051	)		(7,816	)
Interest expense		(52,916	)		(31,613	)		(21,303	)
Depreciation expense		(15,012	)		(13,796	)		(1,216	)
	$	(27,330	)	$	(5,668	)	$	(21,662	)

40

The following table illustrates the changes between 2007 and 2006 resulting from properties targeted for conversion to condominium homes for sale, properties we decided not to convert to condominiums, and properties in lease-up on the revenues and expenses of our consolidated rental properties:

	Condominium			Canceled			Properties in
	Conversions (1)			Conversions (2)			Lease-up			Other			Total
Rental revenue	$	(3,483	)	$	11,908		$	346		$	(98	)	$	8,673
Property operating expenses		2,314			(7,239	)		(1,779	)		(1,112	)		(7,816	)
Interest expense		1,470			(19,214	)		(101	)		(3,458	)(3)		(21,303	)
Depreciation expense		—			(1,695	)		(451	)		930	(4)		(1,216	)
	$	301		$	(16,240	)	$	(1,985	)	$	(3,738	)	$	(21,662	)

(1)	Residual rental operations from properties in our owned portfolio.
(2)	This represents the activity of six canceled conversions transferred to the Investment Division during 2007, four of which were sold in 2007. See further discussion at NOTE 11. “ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS” in the Notes to Consolidated Financial Statements.
(3)	Default interest of $1.6 million and increased debt due to refinancing of 22 Ansonia properties in 2006.
(4)	Depreciation recorded on two properties reclassed from assets held for sale, including for the periods during which they were held for sale.

The following table summarizes aggregate property level revenue and expenses for the seven consolidated rental properties (five of which were sold in 2007 and two of which are included in assets held for sale as of December 31, 2007) presented in continuing operations for the year ended December 31, 2007. For further discussion, see NOTE 11. “ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS.”

	For the Year
	Ended
	December 31,
	2007
Rental revenue	$	17,411
Operating expenses		(8,893	)
Interest expense		(21,937	)
Depreciation expense		(2,706	)
	$	(16,125	)

Provision for Estimated Losses. We recorded a $3 million reserve in 2007 for the full amount of a note receivable in connection with the assignment of our interests in Towne Center, C.P., LLC, to the other member.

Corporate General and Administrative Expense. Corporate general and administrative expense increased $10.5 million for the year ended December 31, 2007 compared to the corresponding period in 2006 principally due to advisory expenses totaling $4.6 million related to our ongoing efforts to evaluate our strategic and financial alternatives and legal fees totaling $1.1 million paid to our lenders. The remaining increase is primarily related to increases in salary and benefit costs for 2007 compared to 2006. In an effort to reduce overhead, we implemented a workforce reduction in August 2007. However, due to severance costs, the workforce reduction had very little impact on expenses for 2007.

41

Equity in Income (Loss) of Unconsolidated Partnerships and Joint Ventures. The following table summarizes the components of equity in income of unconsolidated partnerships and joint ventures for 2007 and 2006:

	For the Years Ended December 31,
	2007			2006			Change
Sales revenue	$	71,867		$	63,909		$	7,958
Cost of sales (including interest of $5.0 million in 2007 and $3.4 million in 2006 and development salaries, marketing, and selling costs of $3.2 million in 2007 and $1.5 million in 2006)		(76,120	)		(58,754	)		(17,366	)
Gross profit (loss) from sales		(4,253	)		5,155			(9,408	)
Property taxes and insurance		(592	)		—			(592	)
Interest expense		(158	)		—			(158	)
General and administrative		(513	)		—			(513	)
Mortgage banking income		995			1,722			(727	)
Discontinued operations		—			4,316	(1)		(4,316	)
Elimination of management and other fees paid to Tarragon		338			193			145
Outside partners’ interests in (income) losses of unconsolidated joint ventures		1,650			(2,968	)		4,618
Overhead costs associated with investments in unconsolidated joint ventures		(323	)		(600	)		277
Performance-based compensation related to development projects of unconsolidated joint ventures		(7	)		(209	)		202
Cash distributions in excess of investment		405			9,625			(9,220	)
Impairment charges		(6,045	)		—			(6,045	)
Other		147			(68	)		215
Equity in income (loss) of partnerships and joint ventures	$	(8,356	)	$	17,166		$	(25,522	)

(1) Includes $4.1 million in proceeds received from the sale of our interest in 801 Pennsylvania Avenue.

Sales revenue of unconsolidated joint ventures increased $8 million in 2007 compared to 2006 primarily due to revenue of $34.3 million from closings at Orchid Grove which began in the second quarter of 2007, offset by a decrease in revenue from condominium conversion sales of $25.3 million.

Gross profit on unconsolidated sales revenue decreased $9.4 million in 2007 compared to 2006 primarily due to a decrease of $11.2 million in condominium conversion gross profit due to two projects completed in early 2007 and a margin reduction from 8.1% in 2006 to (5.9%) in 2007. This decrease was partially offset by an increase of $1.8 million related to Orchid Grove, which commenced closings in the second quarter of 2007.

When we compute equity in income of partnerships and joint ventures, we eliminate intercompany items, including management fees the joint ventures pay us and interest on advances we have made to joint ventures reaching or approaching closeout.

The decrease in outside partners’ share of income of joint ventures is primarily attributable to the reduction of gross profit from sales due to projects owned by unconsolidated joint ventures reaching or approaching closeout.

42

In June 2006, we sold 22% of our interest in Shefaor/Tarragon LLLP, a partnership that we consolidated until July 2006 and owns Lincoln Pointe Apartments in Aventura, Florida, to a third party. In July 2006, an additional third party acquired a 25% interest in the partnership, further decreasing our interest to a 29% non-controlling limited partner interest in the partnership. Upon this change in ownership, Tarragon recovered its investment in the partnership. In 2006, Tarragon recognized income of $9.6 million representing distributions received from the partnership in excess of its investment.

In 2007, we recorded an impairment charge of $6 million related to our investment in Orchid Grove, L.L.C., when we concluded it was unlikely we would recover our investment in this joint venture.

Other Interest. A $13.7 million increase in interest expense is related to discontinuing interest capitalization during 2007 for completed development projects and projects for which development activities have ceased. A $1 million increase in interest expense was the result of issuing the additional $60 million of subordinated unsecured notes in March 2006. Partially offsetting these increases was a decrease of $1.9 million related to increased interest capitalized for development projects.

Gain on Sale of Real Estate. During 2007, we recognized gains on sale of real estate of $43.4 million (net of income taxes of $16 million), including those presented in discontinued operations in accordance with SFAS No. 144. In 2006, we recognized $13.5 million (net of income taxes of $7.6 million) in gains on sale of real estate, including those presented in discontinued operations. See “Sales of Consolidated Properties” below.

2006 Compared to 2005

Total consolidated revenue in 2006 was $527.1 million for the year ended December 31, 2006 and $578.4 million in 2005. Sales revenue declined $60.4 million principally due to a slowdown in sales activities at our condominium conversion projects for which consolidated revenue declined $89.1 million offset by revenue from consolidated high- and mid-rise developments increased $31.5 million in 2006 as two projects commenced revenue recognition under the percentage of completion method in 2006. There were no high- and mid-rise developments that commenced revenue recognition in 2005. See further discussion of sales and gross profit below under the caption “Development Division.”

As discussed above under the caption “Factors Affecting Comparability of Results of Operations,” the timing of meeting the requirements to begin recognizing revenue under the percentage of completion method and the timing of meeting minimum sales thresholds to begin closings can result in larger amounts of revenue being recognized in the first quarter of revenue recognition than in later quarters. The table below presents sales revenue for 2006 by quarter and by product type:

	First		Second		Third		Fourth
Product type	Quarter		Quarter		Quarter		Quarter
High- and mid-rise developments	$	4,486	$	31,246	$	31,505	$	42,460
Townhome and traditional new developments		2,727		16,752		27,230		17,428
Condominium conversions		80,435		72,610		36,102		76,903
Land development		1,542		1,688		422		738
Total	$	89,190	$	122,296	$	95,259	$	137,529

We commenced recognizing revenue under the percentage of completion method in the second quarter for One Hudson Park, a high-rise development in Edgewater, New Jersey. Revenue for this project in the second quarter was $22.2 million. The slowdown in condominium conversion sales activity during 2006 accounts for

43

the decline in closings in the third quarter. The increase in the fourth quarter was attributable to our promotional marketing program in that quarter.

Rental and other revenue increased $9.2 million, or 12.4%, for the year ended December 31, 2006, compared to the same period in 2005. Of this increase, $1.3 million is attributable to two apartment communities acquired in 2005. An increase of $7.8 million resulted from the consolidation of three properties in November 2005. Three properties in lease-up contributed an increase of $2.1 million. Properties no longer targeted for conversion to condominium homes for sale contributed an increase of $2 million. An increase of $2.3 million was reported by 28 properties held in both years and resulted from rent increases, decreases in other rental losses, and increases in occupancy. These increases were partially offset by a decrease of $7.1 million attributable to six properties currently being converted to condominium homes for sale.

Income from continuing operations was $3.3 million in 2006 compared to income from continuing operations of $46.1 million in 2005 as a result of the following factors:

• Gross profit from consolidated sales decreased $62 million mostly due to a $67.9 million decrease in gross profit from consolidated condominium conversion sales. Approximately one-third of this decrease resulted from the decrease in revenue from condominium conversion sales, and $19 million of the decrease represents impairment charges recorded for condominium conversion projects. The remainder of the decrease relates to a decline in the expected margin from this product type from 24% in 2005 to 11.7% in 2006. See further discussion of sales and gross profit below under the caption “Development Division.”

• Equity in income of partnerships and joint ventures decreased $12.4 million as several of our development projects owned by unconsolidated joint ventures have reached or are approaching closeout. See further discussion of sales and gross profit below under the captions “Equity in Income of Unconsolidated Partnerships and Joint Ventures.”

• Interest expense increased $14.7 million. See discussion below under the caption “Operating Results of Consolidated Rental Properties.”

• Loss on extinguishment of debt was $30.8 million lower in 2006. In 2005, loss on extinguishment of debt included $17 million representing prepayment penalties and the write-off of deferred borrowing costs and $9.4 million related to repayment of a participating loan in connection with Ansonia’s refinancing of 23 properties in November 2005, and $7.2 million of interest and premium associated with the conversion of $56.25 million of senior convertible notes into shares of our common stock.

• Income tax expense was $3 million in 2006 compared to $28.3 million in 2005 primarily due to a decrease in income from continuing operations before income taxes.

44

Operating Results of Consolidated Rental Properties. At December 31, 2006, our consolidated rental properties presented in continuing operations included rental communities with 8,639 apartments (excluding 880 units in assets held for sale and presented in discontinued operations) and one commercial property with 55,000 square feet (excluding 177,000 square feet in assets held for sale and presented in discontinued operations). The following table summarizes aggregate property level revenue and expenses for our consolidated rental properties presented in continuing operations for the years ended December 31, 2006 and 2005. The revenue and expenses below exclude management fee and other revenue; property taxes, insurance, interest, and other carrying costs associated with development projects; and interest expense on corporate debt.

	For the Years Ended December 31,
	2006			2005			Change
Rental revenue	$	75,792		$	69,558		$	6,234
Property operating expenses		(36,051	)		(33,968	)		(2,083	)
Interest expense		(31,613	)		(22,747	)		(8,866	)
Depreciation expense		(13,796	)		(11,271	)		(2,525	)
	$	(5,668	)	$	1,572		$	(7,240	)

The following table illustrates the changes between 2006 and 2005 resulting from properties targeted for conversion to condominium homes for sale, properties consolidated during 2006 or 2005, properties we decided not to convert, properties in lease-up, and properties acquired on the revenues and expenses of our consolidated rental properties:

	Condominium			Consolidated			Canceled			Properties in
	Conversions (1)			Properties			Conversions			Lease-up			Acquisitions			Other			Total
Rental revenue	$	(7,133	)	$	7,756		$	2,029		$	276		$	1,295		$	2,011		$	6,234
Property operating expenses		1,999			(2,996	)		(321	)		(138	)		(330	)		(297	)		(2,083	)
Interest expense		4,024			(4,153	)		(1,855	)		50			(947	)		(5,985	) (2)		(8,866	)
Depreciation expense		916			(1,306	)		(819	)		(326	)		(315	)		(675	) (3)		(2,525	)
	$	(194	)	$	(699	)	$	(966	)	$	(138	)	$	(297	)	$	(4,946	)	$	(7,240	)

(1)	Residual rental operations from properties in our owned portfolio.
(2)	Increase primarily due to refinancings, including Ansonia’s refinancing of 23 properties in November 2005, which increased by $145.2 million.
(3)	Depreciation recorded on two properties reclassed from assets held for sale, including for the periods during which they were held for sale.

Provision for Estimated Losses. We recorded a $1.6 million reserve in 2005 for the full amount of a note receivable in connection with the 2002 sale of English Village Apartments in Memphis, Tennessee, when the borrower, a non-profit affordable housing developer, notified us he could no longer make note payments.

Corporate General and Administrative Expense. Corporate general and administrative expenses increased $12.3 million for the year ended December 31, 2006 compared to the corresponding period in 2005 and included write-off of pursuit costs of canceled development projects totaling $10.7 million in 2006 compared to $1.8 million in 2005.

45

Equity in Income of Unconsolidated Partnerships and Joint Ventures. The following table summarizes the components of equity in income of unconsolidated partnerships and joint ventures for 2006 and 2005:

	For the Years Ended December 31,
	2006			2005			Change
Sales revenue	$	63,909		$	230,806		$	(166,897	)
Cost of sales (including interest of $3.4 million in 2006, and $6.7 million in 2005 and development salaries, marketing, and selling costs of $1.5 million in 2006, and $2.4 million in 2005)		(58,754	)		(162,849	)		104,095
Gross profit from sales		5,155			67,957			(62,802	)
Rental revenue		—			11,570			(11,570	)
Property and other operating expenses		—			(5,097	)		5,097
Interest expense		—			(4,553	)		4,553
Depreciation expense		—			(1,906	)		1,906
Mortgage banking income		1,722			916			806
Discontinued operations		4,316			(613	)		4,929
Elimination of management and other fees paid to Tarragon		193			509			(316	)
Outside partners’ interests in income of joint ventures		(2,968	)		(35,546	)		32,578
Overhead costs associated with investments in joint ventures		(600	)		(1,410	)		810
Performance-based compensation related to projects of unconsolidated partnerships and joint ventures		(209	)		(2,662	)		2,453
Distributions in excess of investment		9,625			88			9,537
Impairment recovery		—			350			(350	)
Other		(68	)		—			(68	)
Equity in income of partnerships and joint ventures	$	17,166		$	29,603		$	(12,437	)

Sales revenue of unconsolidated joint ventures decreased $166.9 million in 2006 compared to 2005 primarily due to a decrease in revenue from condominium conversion sales of $130.2 million. Revenue from sales of high- and mid-rise developments was also lower by $36.7 million. These decreases were attributable to four unconsolidated projects, The Grande, The Hamptons, XII Hundred Grand, and XIII Hundred Grand, reaching or approaching close-out. The fifth unconsolidated project reporting revenue in 2006 and 2005 was Lofts at Post Oak.

Gross profit on unconsolidated sales revenue declined $62.8 million in 2006. Of this amount, $47.9 million was related to condominium conversions, and $14.9 million was related to high- and mid-rise developments. Approximately $35 million of the decrease for condominium conversions and all of the decrease for high- and mid-rise developments was the result of lower revenue in 2006. The remaining decrease for condominium conversions was due to a decline in the expected margin for this product type from 27% in 2005 to 11.7% in 2006. See discussion of sales and gross profit below under the caption “Development Division.”

Discontinued operations included income from operations and gain on sale of 801 Pennsylvania Avenue in 2006 and the loss from operations and sale of Arbor Glen, the sole property of Larchmont Associates in 2005. In the fourth quarter of 2004, we recorded a $1.2 million impairment charge to write down the carrying value of our investment in Larchmont to our share of the estimated net sale proceeds. In 2005, we recovered $350,000 of this impairment loss upon the closing of the sale.

46

The decrease in outside partners’ share of income of joint ventures is primarily attributable to the reduction of gross profit from sales due to projects owned by unconsolidated joint ventures reaching or approaching closeout.

In addition, our equity in income of unconsolidated partnerships and joint ventures was affected during the periods presented above by the consolidation of four rental properties in November 2005. This consolidation also caused a decrease in rental revenue, property and other operating expenses, interest expense and depreciation expense.

Other Interest. Interest capitalized in excess of interest on development project financing increased from $11.3 million in 2005 to $17.7 million in 2006. This increase was related to the increase in real estate inventory representing active development projects. We issued $40 million of subordinated unsecured notes in June 2005, $25 million in September 2005, and $60 million in March 2006, for a total of $125 million outstanding at December 31, 2006. Interest expense on subordinated unsecured notes increased from $2.6 million in 2005 to $10.5 million in 2006. Interest expense of substantially complete development projects or projects for which development activities ceased increased to $7.1 million in 2006 from $185,000 in 2005.

Gain on Sale of Real Estate. During 2006, we recognized gains on sale of real estate of $13.5 million (net of income taxes of $7.6 million), including those presented in discontinued operations in accordance with SFAS No. 144. In 2005, we recognized $45.5 million (net of income taxes of $25.6 million) in gains on sale of real estate, including those presented in discontinued operations. See “Sales of Consolidated Properties” below.

47

Sales of Consolidated Properties

The following table summarizes sales of consolidated properties during the last three years.

				Net Cash		Gain
Date of Sale	Property	Sale Price		Proceeds		on Sale
2007
January	Lots 1 and 2 Vintage at the Parke	$	1,000	$	659	$	398
May	Merritt 8 Office Building		24,500		5,592		1,362
July	194 Fountain		285		—		153
September	210 Watermark (3)		24,000		—	—
September	Knightsbridge at Stoneybrook (3)		45,250		1,000		5,457
September	Lakeview Mall		750		727	—
October	100 East Las Olas		14,925		5,329	—
October	Kennesaw Farms		5,427		2,547	—
October	Vintage at Abacoa		71,000		7,944		26,182
November	Vista Grande (1)		45,000		7,854	—
November	Midway Mills		6,000		—		2,447
November	290 Veterans Boulevard		4,000		3,820		346
December	Gables Floresta		60,246		—	—
December	Villa Tuscany (1)		40,000		16,023		15,503
December	Cason Estates		27,000		6,844		7,575
December	Ballantrae (1)		36,974		—	—
December	Monterra at Bonita Springs (1)		29,395		—	—
December	Promenade at Reflection Lake (1)		39,959		—	—
			475,711		58,339		59,423
2006
January	Fountainhead Apartments		16,350		8,181		8,125
February	1505 Highway 6 Office Building		4,650		4,282		365
March	Northwest O’Hare Office Park		5,733		2,446		3,250
June	Park 20 West Office Park		3,022		2,933	—
June	Meadowbrook Apartments		4,840		576		2,898
July	The Brooks Apartments		4,100		827		1,337
July	Bayfront Apartments		5,575		1,379		2,673
September	Northside Mall		6,400		2,441		1,321
September	Vistas at Lake Worth		13,800		3,275	—
September	Vistas Observatory Land		1,700		1,567		817
October	240 Fountain Drive (2)		225		—		92
October	250 Fountain Drive (2)		305		—		102
November	1267 Forest Road (2)		200		—		28
November	1269 Forest Road (2)		204		—		46
November	1275 Forest Road (2)		236		—		62
			67,340		27,907		21,116
2005
January	Woodcreek Garden Apartments		38,750		16,009		14,762
February	Fort Worth, Texas, Land		2,225		624	—
March	Sarasota, Florida, Land		40,000		20,703		2,229
June	Orlando Central Park — Two Bldgs.		1,641		698		342
August	Courtyard at the Park Apartments		11,100		5,665		5,989
August	Martin’s Landing Apartments		12,750		5,125		6,852
August	Paramus 17 North Shopping Center		15,000		6,814		7,806
August	Stewart Square		7,950		3,624		5,322
September	Charlotte, North Carolina, Land		76		74		50
September	Jackson Square Shopping Center		875		782	—

48

				Net Cash		Gain
Date of Sale	Property	Sale Price		Proceeds		on Sale
2005 (continued)
September	Morningside Apartments	$	4,693		$1,893	$	1,932
September	Palm Court Apartments		11,150		4,619		7,460
September	Times Square		1,250		1,161		763
October	Somerset Park Apartments		8,250		7,697	—
November	Acadian Place Apartments		3,101		31	—
December	The Regents Apartments		15,500		6,094		8,658
December	Emerson Center — Office and Retail		10,125		2,624		5,812
December	Mission Trace Apartments		4,800		783		1,970
December	Orlando Central Park — One Bldg.		2,900		1,633		1,187
			192,136		86,653		71,134
		$	735,187	$	172,899	$	151,673

(1)	These sales are presented in continuing operations.
(2)	These sales represent land parcels with a total of 10 rental units that were part of 200 Fountain. All proceeds from these sales were used to reduce the outstanding mortgage debt on the property.
(3)	The 210 Watermark and Knightsbridge sales enabled us to satisfy approximately $50 million of outstanding indebtedness, bring current all debt service then owed to GECC, and establish certain cash and other reserves. See NOTE 17 “SUBSEQUENT EVENTS” for asset sales completed after December 31, 2007.

In 2007, we recorded impairment charges of $173.8 million, $130.1 million of which was recorded to reduce the carrying values of six rental properties to their estimated fair value less estimated cost of sale and are presented in income from continuing operations. The remaining $43.7 million was recorded to reduce the carrying value of two rental properties and two commercial properties to their estimated fair value less estimated cost of sale and is presented in discontinued operations. In 2006, we recorded impairment charges of $810,000 to reduce the carrying values of two properties in our rental real estate portfolio to their estimated fair values less estimated cost of sale. In 2005, we recorded a total of $1.4 million in impairment charges after entering into contracts to sell four properties, reducing their carrying values to the sale price less estimated cost of sale.

49

Development Division

Revenue, Cost of Sales, and Gross Profit (Loss) from Sales. As stated previously, results for our segments do not distinguish between revenues of consolidated and unconsolidated properties. Therefore, revenue and gross profit or loss from sales presented below include both consolidated and unconsolidated for-sale communities. As stated previously, cost of sales includes, among other costs, development salaries, marketing, and selling costs.

	For the Years Ended December 31,
	2007				2006				2005
	Units		Dollars		Units		Dollars		Units		Dollars
Revenue recognized on the closing method
Consolidated communities
Condominium conversions		1,352	$	199,017		1,459	$	266,050		1,567	$	355,191
Townhome and traditional new developments		76		30,947		235		64,137		301		62,332
Mid-rise developments		28		13,985		—		—		—		—
Rental developments		508		63,142		—		—		—		—
Land developments		127		6,129		74		4,390		93		9,001
		2,091		313,220		1,768		334,577		1,961		426,524
Unconsolidated communities
Condominium conversions		143		36,721		234		62,039		936		192,239
Townhome and traditional new developments		78		34,334		—		—		—		—
Total revenue recognized on the closing method		2,312		384,275		2,002		396,616		2,897		618,763
Revenue recognized on the percentage-of-completion method (1)
Consolidated communities
High- and mid-rise developments		32		45,691		182		109,697		65		78,198
Unconsolidated communities
High- and mid-rise developments		—		812		—		1,870		25		38,567
Total revenue recognized on the percentage-of-completion method		32		46,503		182		111,567		90		116,765
Total sales revenue		2,344	$	430,778		2,184	$	508,183		2,987	$	735,528

(1) Number of units represents units sold net of defaults for which revenue recognition began during the year. Revenue includes revenue on units sold in the current year as well as additional revenue from units sold in prior years as construction progresses and additional revenue is recognized, net of allowance for potential defaults.

	For the Years Ended December 31,
	2007		2006		2005
Cost of sales recognized on the closing method
Consolidated communities
Condominium conversions	$	267,989	$	247,936	$	269,209
Townhome and traditional new developments		33,935		53,663		53,314
Mid-rise developments		46,034		—		—
Rental developments		56,775		—		—
Land developments		8,398		3,823		7,392
		413,131		305,422		329,915
Unconsolidated communities
Condominium conversions		43,161		57,269		139,602
Townhome and traditional new developments		32,541		—		—
		75,702		57,269		139,602
Total cost of sales recognized on the closing method		488,833		362,691		469,517
Cost of sales recognized on the percentage-of-completion method
Consolidated communities
High-and mid-rise developments		68,106		91,085		65,084
Unconsolidated communities
High-and mid-rise developments		418		1,485		23,247
Total cost of sales recognized on the percentage-of-completion method		68,524		92,570		88,331
Total cost of sales	$	557,357	$	455,261	$	557,848

50

	For the Years Ended December 31,
	2007			2006		2005
Gross profit (loss) on sales revenue recognized on the closing method
Consolidated communities
Condominium conversions	$	(68,972	)	$	18,114	$	85,982
Townhome and traditional new developments		(2,988	)		10,474		9,018
Mid-rise developments		(32,049	)		—		—
Rental developments		6,367			—		—
Land developments		(2,269	)		567		1,609
		(99,911	)		29,155		96,609
Unconsolidated communities
Condominium conversions		(6,440	)		4,770		52,637
Townhome and traditional new developments		1,793			—		—
		(4,647	)		4,770		52,637
Total gross profit (loss) on sales recognized on the closing method		(104,558	)		33,925		149,246
Gross profit (loss) on sales revenue recognized on the percentage-of-completion method
Consolidated communities
High-and mid-rise developments		(22,415	)		18,612		13,114
Unconsolidated communities
High-and mid-rise developments		394			385		15,320
Total gross profit (loss) on sales revenue recognized on the percentage-of-completion method		(22,021	)		18,997		28,434
Total gross profit (loss) on sales	$	(126,579	)	$	52,922	$	177,680

The following table presents sales revenue for both consolidated and unconsolidated communities by product type.

	For the Years Ended December 31,
	2007		2006		2005
High- and mid-rise developments	$	60,488	$	111,567	$	116,765
Townhome and traditional new developments		65,281		64,137		62,332
Condominium conversions		235,738		328,089		547,430
Rental developments		63,142		—		—
Land developments		6,129		4,390		9,001
Total	$	430,778	$	508,183	$	735,528

Total revenue decreased $77.4 million, or 15.3%, to $430.8 million for the year ended December 31, 2007, compared to 2006. Events in 2007 affecting the sub-prime mortgage market, including tightening of credit standards, have impacted the ability of our buyers to sell their existing homes and to obtain suitable financing to purchase a new home. This has negatively impacted our sales revenue in 2007.

The overall decrease in revenue for the year ended December 31, 2007, compared to 2006 is principally comprised of:

• $92.3 million decrease in revenue from condominium conversion and townhome projects primarily due to a slowdown of sales and lower sales prices in the Florida market of which $78 million is from three projects closed out or nearly closed out in 2006;

• $51.1 million decrease in revenue from high- and mid-rise developments, of which $44 million related to One Hudson Park in Edgewater, New Jersey. This project commenced revenue recognition in the third quarter of 2006, and we recorded a provision for uncollectible contracts receivable of $19.9 million during 2007;

51

• $63 million increase in revenue due to the sale of two rental development projects in 2007.

The overall decrease in revenue for the year ended December 31, 2006, compared to 2005 primarily resulted from a $219.3 million decrease in condominium conversion projects resulting from decreased sales and lower sales prices primarily in the Florida condominium market.

Total cost of sales was $557.4 million for the year ended December 31, 2007, compared to $455.3 million in 2006. Overall, our gross profit margins for our projects are lower in 2007. The overall increase in cost of sales for the year ended December 31, 2007, compared to 2006 is comprised of:

• $56.8 million increase related to the sale of two rental developments in 2007; and

• $82.3 million increase related to impairment charges on six condominium conversion projects, one mid-rise development and three land developments during 2007.

Total cost of sales was $455.3 million for the year ended December 31, 2006, a decrease of $102.5 million over 2005. The overall decrease in cost of sales for the year ended December 31, 2006, compared to 2005 is principally related to a decrease in condominium conversion project sales as discussed above.

Gross loss from home sales was ($126.6 million) for the year ended December 31, 2007 compared to gross profit from home sales of $52.9 million for same period of 2006. As discussed above, the overall decrease in gross profit in 2007 is principally due to decreased revenue from high- and mid-rise developments and condominium conversion projects, an allowance for estimated losses due to potential customer defaults, write-downs of real estate inventory, and gross margin reductions in 2007 compared to 2006.

In July 2007, we realized increased buyer defaults at One Hudson Park. Deposits required for projects in this product-type were generally 5% to 20% of the purchase price, which we concluded were sufficient to motivate buyers to comply with their contractual obligations. At One Hudson Park, where buyers were required to make deposits of up to 10% of the purchase price, revenue has been recognized on the percentage of completion method on firm contracts that meet the requirements established in SFAS No. 66, “Accounting For Sales of Real Estate” (“SFAS No. 66”), including the conclusion that sale prices are collectible. Deterioration in the mortgage market has made it more difficult for buyers to obtain suitable financing resulting in buyer defaults during 2007 despite significant nonrefundable deposits ranging from $32,000 to $163,000. The allowance for estimated losses due to potential customer defaults takes into consideration these defaults, as well as an estimate of expected future defaults under firm contracts existing at December 31, 2007. A $19.9 million allowance for customer defaults was recorded as a reduction to sales revenue during 2007. The balance of the allowance was $5 million at December 31, 2007.

Gross profit from home sales was $52.9 million in 2006, down $124.8 million, or 70.2%, from $177.7 million in 2005. This decrease was principally the result of a $115.7 million decline in gross profit from condominium conversion sales. Approximately $50 million of the decrease was due to the decline in revenue from this product type. Gross profit from condominium conversion sales reflects $19 million of impairments recorded as cost of sales in 2006. The remainder of the decrease related to a decline in the expected margin for condominium conversions from 25% in 2005 to 11.7% in 2006. Additionally, gross profit from high- and mid-rise development sales fell $9.4 million in 2006 as the expected margin for this product type fell from 24% in 2005 to 18.8% in 2006.

For the year ended December 31, 2007, gross profit (loss) as a percentage of consolidated and unconsolidated sales revenue was (29.4%) compared to 10.4% in 2006 and 24.2% in 2005. Gross profit on sales is based on estimates of total project sales value and total project costs. When estimates of sales value or project costs are revised, gross profit is adjusted in the period of change so that cumulative project earnings reflect the revised profit estimate. During 2007 and 2006, our revised estimates of the pace of remaining sales, based on current

52

market conditions, resulted in price reductions and increases in projected marketing costs and sales incentives and, therefore, lower expected gross profit margins at most of our projects from those used in 2006 and 2005. Margin reductions resulted in additional cost of sales and lower gross profit of $52.4 million during 2007, $23.6 million during 2006, and $2 million in 2005.

Regional Analysis of Sales Revenue and Gross Profit (Loss)

The Development Division operates in seven states. For the purposes of this discussion, we have established regional groupings as follows. Central Florida is comprised primarily of projects in Orlando and surrounding cities. West Florida includes projects located in Tampa, Sarasota, and Fort Meyers. Projects in South Florida are located in Miami Beach, Fort Lauderdale, Boynton Beach, Hypoluxo, and Pompano Beach. The North Florida and South Carolina region include projects located in the Jacksonville, Florida, and Charleston, South Carolina, metropolitan areas. The Northeast region includes our operations in Hoboken, Edgewater, and Palisades Park, New Jersey; Warwick, New York; and Meriden, Connecticut.

As of December 31, 2007, the number of remaining units in our active projects within each of these regions was as follows.

	Remaining units
	as of December 31, 2007
Central Florida		20
West Florida		244
South Florida		360
North Florida and South Carolina		363
Northeast		236
Other (1)		8
		1,231

(1) Includes projects in Belle Meade, Tennessee, and Houston, Texas.

The following table presents sales revenue for our development properties for the periods presented by each region described above, with the remaining projects included in the Other category.

	For the Year Ended December 31,
	2007					2006
	Percentage of					Percentage of
	Segment Sales					Segment Sales					Increase
	Revenue			Sales Revenue		Revenue			Sales Revenue		(Decrease)
Central Florida		10	%	$	44,796		24	%	$	123,691	$	(78,895	)
West Florida		11	%		47,690		16	%		80,558		(32,868	)
South Florida		21	%		88,887		7	%		36,516		52,371
North Florida and South Carolina		26	%		110,093		22	%		112,984		(2,891	)
Northeast		23	%		99,853		23	%		115,098		(15,245	)
Other (1)		9	%		39,459		8	%		39,336		123
		100	%	$	430,778		100	%	$	508,183	$	(77,405	)

(2) Includes projects in Belle Meade, Tennessee, and Houston, Texas.

53

The decrease in sales revenue for Central Florida was driven mostly by condominium conversions. Two projects in Orlando that have been completed and closed out reported a $61.3 million decrease. Also, a $17.3 million decrease came from one project in Ocoee that has been completed and closed out. In addition, a town home development in Kissimmee that is nearing close-out reported a $31.9 million decrease. These decreases were partially offset by an increase of $32.9 million resulting from the sale of a rental development located in Ocala in December 2007.

The decrease in sales revenue for West Florida was also driven by condominium conversions. One project in Tampa that has been completed and closed out reported a decrease of $11.3 million. Two projects reported decreases as sales activity continued to slow: $14.6 million from a project in Tampa and $2.3 million from a project in Sarasota. A $7.7 million decrease came from one Tampa project in of which the remaining units were sold in bulk in December 2007. A $3 million increase came from one mid-rise development and one land development, both of which are in Fort Meyers and completed and closed out.

The increase in sales revenue for South Florida is primarily due to a $29.8 million increase related to a Boynton Beach condominium conversion project of which the remaining units were sold in bulk in December 2007 and a $34.3 million increase contributed by a townhome development in Pompano Beach that began closing sales in the second quarter of 2007. We experienced significant defaults in 2007 at this townhome development, and sales are progressing slowly. These increases were partially offset by a decrease of $8.8 million in sales for a high-rise development in Fort Lauderdale resulting from a slowdown in sales activity. We began sales at this high-rise development in 2001 and began closings in December 2005, and there were 19 units remaining at December 31, 2007. The remaining decrease resulted from the completion and close-out of two condominium conversion projects, one in Miami Beach with a $1.9 million decrease and one in Hypoluxo with a $1 million decrease.

Projects in North Florida and South Carolina are comprised of condominium conversions. A $14.7 million decrease came from two projects that have been completed and closed out: $7.3 million from a project in Jacksonville, Florida, and $7.4 million from a project in Mt. Pleasant, South Carolina. A $30.8 million decrease for two projects in Jacksonville was the result of slower sales activity. Partially offsetting these decreases was an increase of $17.6 million for a Mt. Pleasant project of which the remaining units were sold in bulk in December 2007. In addition, two projects contributed an increase of $25.1 million as sales began in mid-2006: one project in Orange Park, Florida with a $16.1 million increase and one project in Charleston, North Carolina, with an $8.9 million increase.

In the Northeast, a $43.9 million decrease came from a high-rise development in Edgewater, New Jersey, where revenue recognition began in June 2006 under the percentage of completion method. The decrease was a result of slowing sales activity and a $19.9 million provision for uncollectible contracts receivable recorded in June 2007. See detailed discussion above under the caption “Consolidated Results of Operations — Development Division — Sales Revenue, Cost of Sales, and Gross Profit (Loss) from Sales.” A $14.7 million decrease came from three mid-rise developments in Hoboken, New Jersey, that have been completed and closed out, and a $14 million increase came from a mid-rise development in Palisades Park, New Jersey, that began closings and commenced revenue recognition in the fourth quarter of 2007. In addition, a $30.3 million increase resulted from the sale of a rental development in Meriden, Connecticut, in January 2007.

In the Other category, a $1.8 million increase related to a Belle Meade, Tennessee, land development for which the remaining sites were sold in bulk in August 2007 was partially offset by a $1.7 million decrease for a condominium conversion project in Houston, Texas, related to a slowdown in sales.

54

The following table presents gross profit (loss) for our development properties for the periods presented by region.

	For the Year Ended December 31,
	2007						2006
	Percentage of						Percentage of
	Segment Gross						Segment Gross			Gross Profit			Increase
	Profit (Loss)			Gross Profit (Loss)			Profit (Loss)			(Loss)			(Decrease)
Central Florida		(2	%)	$	2,397			72	%	$	38,272		$	(35,875	)
West Florida		20	%		(25,113	)		(6	%)		(3,287	)		(21,826	)
South Florida		36	%		(45,892	)		(14	%)		(7,328	)		(38,564	)
North Florida and South Carolina		12	%		(14,852	)		4	%		1,941			(16,793	)
Northeast		28	%		(36,064	)		43	%		22,817			(58,881	)
Other (1)		6	%		(7,055	)		1	%		507			(7,562	)
		100	%	$	(126,579	)		100	%	$	52,922		$	(179,501	)

(1) Includes projects in Belle Meade, Tennessee, and Houston, Texas.

The decrease in gross profit for Central Florida was primarily related to a decline in sales revenue.

In West Florida, a $17.7 million impairment charge in 2007 for one condominium conversion project in Sarasota accounted for $14.7 million of the increase in gross loss. See discussion of impairment charges above under the caption “Business Overview — Outlook — Development Division.” The remaining increase in gross loss was primarily related to a decline in sales revenue.

The increase in gross loss for South Florida was principally due to a $32.3 million impairment charge in 2007 for one condominium conversion project in Boynton Beach, which accounted for a $25.2 million increase in gross loss. In addition, a $15.1 million increase in gross loss came from a reduction in the expected gross margin for a high-rise development in Fort Lauderdale. Partially offsetting these items was $1.8 million of gross profit for a townhome development in Pompano Beach that began closings and revenue recognition during 2007.

Of the $16.8 million decrease in gross profit (loss) for North Florida and South Carolina, $5.7 million was the result of an impairment charge in 2007 of $9.3 million for a condominium conversion project in Jacksonville, Florida. The remaining decrease came from reductions in expected gross margins.

In the Northeast, a $32 million decrease in gross profit (loss) was the result of a $32 million impairment charge in 2007 for one mid-rise development in Palisades Park, New Jersey, which began closing sales in the fourth quarter of 2007. A $12 million decrease came from a reduction in the expected gross margin, and a $11 million decrease resulted from a decline in revenue, for a high-rise development in Edgewater, New Jersey. A $2.3 million decrease was the result of a decrease in revenue for a Hoboken, New Jersey, mid-rise development that is now completed and closed out. A $1.1 million increase represents the gross profit from the sale of a rental development in Meriden, Connecticut, in January 2007. The remaining decrease was the result of reductions in expected gross margins.

The decrease in gross profit (loss) for Other was the result of reductions in expected gross margins.

55

The following table presents sales revenue for our development properties for the periods presented by region.

	For the Year Ended December 31,
	2006					2005
	Percentage of					Percentage of
	Segment Sales					Segment Sales					Increase
	Revenue			Sales Revenue		Revenue			Sales Revenue		(Decrease)
Central Florida		24	%	$	123,691		45	%	$	331,742	$	(208,051	)
West Florida		16	%		80,558		14	%		100,277		(19,719	)
South Florida		7	%		36,516		25	%		183,239		(146,723	)
North Florida and South Carolina		22	%		112,984		7	%		53,418		59,566
Northeast		23	%		115,098		7	%		49,263		65,835
Other (1)		8	%		39,336		2	%		17,589		21,747
		100	%	$	508,183		100	%	$	735,528	$	(227,345	)

(1) Includes projects in Belle Meade, Tennessee, and Houston, Texas.

A $240.6 million decrease in sales revenue in Central Florida was principally related to four condominium conversion projects in Orlando and Celebration that had reached or neared completion and close-out by the end of 2005. In addition, a townhome development in Kissimmee had reached or neared completion and close-out by 2005 and accounted for a decrease of $31.9 million. Partially offsetting these decreases was a $41.9 million increase contributed by a townhome development in Kissimmee that began closings and revenue recognition during 2006. Also, a condominium conversion project in Orlando that began closings and revenue recognition in mid-2005 and was closed out by the end of 2006 accounted for a $23 million increase in sales revenue.

In West Florida, a $41.4 million decrease was the result of the completion and sell-out of two projects: a $22.1 million decrease for one mid-rise development in Fort Myers and a $19.4 million decrease for a townhome development in Tampa. In addition, a $12.1 million decrease for two condominium conversion projects in Tampa was the result of a slowdown in sales. Partially offsetting these decreases was an increase of $33.6 million from commencing closings and revenue recognition for two condominium conversion projects: one with a $26.5 million increase in Tampa and one with a $7.1 million increase in Sarasota.

In South Florida, a condominium conversion project in Hypoluxo brought a $105.9 million decrease as it was nearly completed and closed out during 2005. A condominium conversion project in Boynton Beach that was completed and closed out during 2005 accounted for a $17.2 million decrease. In addition, a condominium conversion project in Fort Lauderdale that was completed and closed out during 2005 accounted for a $2.4 million decrease. A high-rise development in Fort Lauderdale that began sales in 2001 and closings in December 2005 accounted for a $37.8 million decrease related to slowing sales activity. A $12.8 million increase in revenue came from a condominium conversion project in Boynton Beach that began closings and revenue recognition in 2006. Our first condominium conversion project in Miami Beach contributed a $3.6 million increase from three sales in 2007, while this project had no sales in 2005.

In North Florida and South Carolina, a $59.6 million increase came from four condominium conversion projects that commenced closings and revenue recognition during 2006: $59.5 million from two projects in Jacksonville, Florida, $7.7 million from a project in Charleston, South Carolina, and $7.3 million from a project in Mt. Pleasant, South Carolina. A slowdown in sales accounted for a $14.9 million decrease at two condominium conversion projects: $13.1 million from a Jacksonville project and $1.8 million for a Mt. Pleasant, South Carolina, project.

56

In the Northeast, a $62.8 million increase was contributed by a mid-rise development in Edgewater, New Jersey, and a $28.5 million increase was contributed by a mid-rise development in Hoboken, New Jersey, both of which commenced revenue recognition during 2006. An increase of $11.2 million came from a traditional new development in Warwick, New York, that began closings and revenue recognition in mid-2005. A $36.7 million decrease resulted from two mid-rise developments in Hoboken nearing completion by the end of 2005.

In the Other category, a $25.9 million increase related to a condominium conversion project in Houston, Texas, that began closings and revenue recognition in mid-2005 was partially offset by a $4.2 million decrease resulting from a slowdown in sales at a land development in Belle Meade, Tennessee.

The following table presents gross profit (loss) for our development properties for the periods presented by region.

	For the Year Ended December 31,
	2006						2005
	Percentage of						Percentage of
	Segment Gross			Gross Profit			Segment Gross					Increase
	Profit (Loss)			(Loss)			Profit (Loss)			Gross Profit		(Decrease)
Central Florida		72	%	$	38,272			51	%	$	91,284	$	(53,012	)
West Florida		(6	%)		(3,287	)		9	%		16,562		(19,849	)
South Florida		(14	%)		(7,328	)		24	%		41,725		(49,053	)
North Florida and South Carolina		4	%		1,941			5	%		9,708		(7,767	)
Northeast		43	%		22,817			10	%		16,829		5,988
Other (1)		1	%		507			1	%		1,571		(1,064	)
		100	%	$	52,922			100	%	$	177,679	$	(124,757	)

(1) Includes projects in Belle Meade, Tennessee, and Houston, Texas.

A $69.1 million decrease in gross profit in Central Florida was principally related to four condominium conversion projects in Orlando and Celebration that had reached or neared completion and close-out by the end of 2005. In addition, a townhome development in Kissimmee had reached or neared completion and close-out by 2005 and accounted for a decrease of $3.2 million. Partially offsetting these decreases was an $8.7 million increase contributed by a townhome development in Kissimmee that began closings and revenue recognition during 2006. Also, a condominium conversion project in Orlando that began closings and revenue recognition in mid-2005 and was closed out by the end of 2006 accounted for an $11 million increase in gross profit.

In West Florida, a $10.4 million decrease in gross profit (loss) was the result of the completion and sell-out of two projects: a $6.2 million decrease for one mid-rise development in Fort Myers and a $4.2 million decrease for a townhome development in Tampa. In addition, a $13.9 million decrease for two condominium conversion projects in Tampa was primarily the result of reductions in expected margins. A decrease of $2.9 million was the result of an impairment charge in 2006 for a condominium conversion project in Sarasota that began closings and revenue recognition in 2006. Partially offsetting these decreases was an increase of $7.5 million from commencing closings and revenue recognition for a condominium conversion project in Tampa.

In South Florida, a condominium conversion project in Hypoluxo brought a $26.8 million decrease in gross profit (loss) as it was nearly completed and closed out during 2005. A condominium conversion project in Boynton Beach that was completed and closed out during 2005 accounted for a $4.5 million decrease. In addition, a condominium conversion project in Fort Lauderdale that was completed and closed out during 2005 accounted for a $923,000 decrease. A high-rise development in Fort Lauderdale that began sales in 2001 and

57

closings in December 2005 accounted for a $9 million decrease primarily resulting from a decline in sales revenue. A decrease of $7.2 million was the result of an impairment charge in 2006 for a condominium conversion project in Boynton Beach that began closings and revenue recognition in 2006. A decrease of $727,000 was the result of an impairment charge in 2006 for our first condominium conversion project in Miami Beach.

In North Florida and South Carolina, a $12.1 million increase came from two condominium conversion projects that commenced closings and revenue recognition during 2006: $10.2 million from a project in Jacksonville, Florida, and $1.9 million from a project in Charleston, South Carolina. Impairment charges for two condominium conversion projects in 2006 that began closings and revenue recognition during 2006 resulted in an $8.2 million decrease: $3.6 million for a Jacksonville project and $4.6 million for a project in Mt. Pleasant, South Carolina. A decrease of $11.7 million was primarily caused by reductions in expected gross margins for two condominium conversion projects: $8.3 million from a Jacksonville project and $3.4 million for a Mt. Pleasant, South Carolina project.

In the Northeast, a $15.7 million increase was contributed by a mid-rise development in Edgewater, New Jersey, and a $5 million increase was contributed by a mid-rise development in Hoboken, New Jersey, both of which commenced revenue recognition during 2006. A $14.9 million decrease resulted from two mid-rise developments in Hoboken nearing completion by the end of 2005.

The $1 million decrease for the Other category was primarily related to a slowdown in sales at a land development in Belle Meade, Tennessee.

Active Projects and Development Pipeline. As presented in the following table, as of December 31, 2007, our sales backlog was $70.2 million from 16 for-sale communities under active development, including both consolidated and unconsolidated projects.

	High- and			Townhome and
	Mid-rise			Traditional New		Condominium			Land
	Developments			Developments		Conversions			Development		Total
Current expected average gross profit margin (1)		6.0			4.0		3.1			—		4.4
Number of remaining units		192			546		694			—		1,432
Backlog: (2)
Number of units		48			73		80			—		201
Aggregate contract prices (3)	$	29,397		$	27,013	$	13,754		$	—	$	70,164
Average price per unit	$	612		$	370	$	172		$	—	$	349
Unsold homes under active development:
Number of units		144			473		614			—		1,231
Estimated remaining sell-out of unsold units (4)	$	136,271		$	193,659	$	95,249		$	—	$	425,179
Total estimated remaining sell-out (5)	$	165,668		$	220,672	$	109,003		$	—	$	495,343
Estimated debt on completion (6)	$	65,715				$	41,870
Ratio of fully funded debt to total estimated remaining sell-out		40	%				38	%

(1)	Expected gross profit margins reflect all project costs, including development salaries, marketing, selling, and other costs.
(2)	Represents units sold but not yet closed.
(3)	Of the sales backlog, we have recognized revenue of $9.6 million under the percentage-of-completion method.
(4)	Values in estimated remaining sell-out include other income of $8.4 million for sales other than the offering prices of homes such as marinas, parking, upgrades and commercial units.
(5)	Our weighted average profits interest is 77%.
(6)	Estimated debt on completion is equal to the total financing commitments including amounts outstanding at December 31, 2007. Townhome and traditional new developments are financed with multi-year revolving credit facilities.

The following table presents the changes in the aggregate contract values in our sales backlog by product-type and aggregate units from September 30, 2007, to December 31, 2007.

58

	High- and			Townhome and
	Mid-rise			Traditional New			Condominium			Land						Total
	Developments			Developments			Conversions			Development			Total			Units
Backlog as of September 30, 2007	$	46,762		$	27,736		$	18,225		$	2,314		$	95,037			341
Net new orders		9,360			6,123			80,154			—			95,637			637
Closings		(26,725	)		(6,846	)		(84,625	)		(1,750	)		(119,946	)		(777	)
Adjustments to prices		—			—			—			(564	)		(564	)		—
Backlog as of December 31, 2007	$	29,397		$	27,013		$	13,754		$	—		$	70,164			201

Net new orders include gross new orders of 753 units with an aggregate contract value of $121.5 million and contract cancellations of 116 units with an aggregate contract value of $27.1 million.

The following table presents our default rate, which is computed as the number of firm contracts canceled for the period divided by new orders for the period, by product-type. We believe the increases in 2007 were related primarily to instability in the mortgage lending industry.

	For the Years Ended December 31,
	2007			2006			2005
High- and mid-rise developments		44.3	%		2.4	%		1.9	%
Townhome and traditional new developments		60.0	%		2.5	%		0.3	%
Condominium conversions		13.5	%		18.6	%		2.1	%
Land developments		—			—			—
All active development projects		19.1	%		15.8	%		1.8	%

The following table presents total estimated remaining sell-out, debt, the ratio of debt to total estimated remaining sell-out, and backlog as of December 31, 2007, for our completed condominium inventory.

	December 31, 2007
					Debt/Total
	Total Estimated				Estimated
	Remaining				Remaining
Projects	Sell-out		Debt		Sell-out			Backlog
Bishops Court at Windsor Parke	$	3,331	$	—		—		$	1,103
Cobblestone at Eagle Harbour		21,806		10,571		48	%		1,019
Cordoba Beach Park		360		—		—			—
The Hamptons		184		—		—			—
Las Olas River House		33,577		14,089		42	%		1,150
Lofts on Post Oak		9,648		5,328		55	%		7,571
Mirabella		17,581		7,586		43	%		1,579
Oxford Place		9,306		—		—			393
The Tradition at Palm Aire		37,141		18,281		49	%		—
Twelve Oaks at Fenwick Plantation (1)		9,644		—		—			2,089
	$	142,578	$	55,855		39	%	$	14,904

(1) This property is pledged as collateral under the line of credit with Bank of America with a December 31, 2007, balance of $14.1 million.

The following table presents information about remaining costs and available financing for our active for-sale communities.

59

	High- and		Townhome and
	Mid-rise		Traditional New		Condominium
	Developments		Developments		Conversions		Total
Projects with revolving construction facilities currently in place:
Costs to complete (1)	$	—	$	79,774	$	—	$	79,774
Available financing (2)	$	—	$	79,766	$	—	$	79,766
Other projects with financing currently in place:
Costs to complete (1)	$	9,764	$	—	$	—	$	9,764
Available financing	$	5,354	$	—	$	—	$	5,354
Projects without construction financing currently in place:
Costs to complete (1)	$	—	$	—	$	2,963	$	2,963
Anticipated financing	$	—	$	—	$	104	$	104

(1)	Costs to complete represent estimated construction costs to complete the project. In addition to these costs, we anticipate incurring marketing, advertising, selling commissions and closing costs, and interest. Costs to complete for condominium conversions represent unit upgrades that will be incurred upon sale of the units.
(2)	Costs to complete are expected to be funded by borrowings under revolving construction facilities.

In addition to the active for-sale communities described above, we have active rental communities with 1,969 units under development. We also have 1,552 units in nine communities in our development pipeline. Our development pipeline includes projects either owned or for which we have site control and for which we may not have obtained zoning and other governmental approvals and final determination of economic feasibility. We anticipate these projects will be completed and sold over the next six years.

The following tables present the changes in the number of units in our active projects and development pipeline between September 30, 2007, and December 31, 2007.

	Changes in Units in Active Projects and Development Pipeline
	September 30, 2007, to December 31, 2007
				Mixed-use			Townhome
	High- and			Residential and			and Traditional
	Mid-rise			Commercial			New			Condominium			Land			Rental
	Developments			Developments			Developments			Conversions			Development			Developments			Total
Active projects as of September 30, 2007		449			—			839			1,335			79			2,553			5,255
Closings		(45	)		—			(12	)		(641	)		(79	)		(616	)		(1,393	)
Transfer to development pipeline		—			—			—			—			—			(133	)		(133	)
Adjustment to number of units		(212	)		—			(281	)		—			—			165			(328	)
Active projects as of December 31, 2007		192			—			546			694			—			1,969			3,401
Development pipeline as of September 30, 2007		1,026			1,325			172			—			—			524			3,047
Additions		274			—			—			—			—			319			593
Transfer from active projects		—			—			—			—			—			133			133
Transfer to rental developments		(576	)		—			—			—			—			576			—
Discontinued projects		(150	)		(1,125	)		(100	)		—			—			—			(1,375	)
Development pipeline as of December 31, 2007		574			200			72			—			—			1,552			2,398

60

The following table presents the number of units in our active projects and development pipeline by geographic region as of December 31, 2007. As in the regional discussion above, Northeast includes the states of Connecticut, New Jersey and New York, and Southeast includes the states of Florida, South Carolina, Tennessee and Texas.

	Units in Active Projects and
	Development Pipeline at December 31, 2007
	Northeast		Southeast		Total
High- and mid-rise developments		747		19		766
Mixed-use residential and commercial developments (1)		200		—		200
Rental communities in lease-up or under development or reposition		2,005		1,516		3,521
Townhome and traditional new developments		195		423		618
Condominium conversions		—		694		694
Total		3,147		2,652		5,799

(1) These projects include commercial space with 150,000 square feet.

We have an aggregate weighted-average interest in these active projects and development pipeline of 83%.

Investment Division

As stated previously, results for our segments do not distinguish between revenues of consolidated and unconsolidated properties. Therefore, rental revenue and net operating income (rental revenue less property operating expenses) in the following discussion include both consolidated and unconsolidated rental communities. Rental revenue and net operating income in the following discussion also include operating results of properties sold or held for sale and reported in discontinued operations in our consolidated operating results. You should read the following discussion together with the operating statements and summary of net operating income in NOTE 10. “SEGMENT REPORTING” in the Notes to Consolidated Financial Statements. Net operating income is a supplemental non-GAAP financial measure. We present reconciliation of net operating income to net income for Investment in the operating statements in NOTE 10. “SEGMENT REPORTING” in the Notes to Consolidated Financial Statements.

The Investment Division reported net operating income of $51.1 million in 2007, $47.4 million in 2006, and $55.3 million in 2005. Net operating income as a percentage of rental revenue was 47.3% in 2007, 51.4% in 2006, and 48.2% in 2005. An increase of $7.7 million in 2007 is attributable to eleven properties no longer targeted for conversion to condominium homes for sale. This increase is partially offset by a decrease of $1.7 million for properties held in both years. In addition, properties in lease-up contributed a decrease of $1.4 million. A decrease of $3.5 million in 2006 resulted from transferring rental communities with 2,583 apartments to the Development Division for conversion to condominium homes for sale. Properties sold in 2005 and 2006 contributed a decrease of $3.9 million in 2006. Partially offsetting these decreases is an increase of $2.2 million for properties held in both years.

61

The following table presents net operating income for our 32 same store stabilized rental apartment communities with 6,675 units (consolidated and unconsolidated, including properties held for sale for which operating results have been presented in discontinued operations) owned for all three years presented below.

	For the Years Ended December 31,
	2007			2006			2005
Same store stabilized apartment communities:
Rental revenue	$	61,753		$	62,438		$	59,910
Property operating expenses		(31,157	)		(30,168	)		(29,829	)
Net operating income	$	30,596		$	32,270		$	30,081
Net operating income as a percentage of rental revenue		49.5	%		51.7	%		50.2	%
Average monthly rental revenue per unit	$	771		$	780		$	748

Net operating income for our 32 same store stabilized apartment communities held for three years, with 6,675 units decreased $1.7 million, or 5.2%, in 2007 compared to 2006 and increased $2.2 million, or 7.3%, in 2006 compared to 2005. The decrease in 2007 was primarily due to an increase of 3.3% in property operating expenses and a decrease of 1.1% in rental revenue. The increase in 2006 was mostly due to a 4.2% increase in rental revenue.

Gains on sale of real estate, including properties owned through unconsolidated partnerships and joint ventures, were $59.1 million in 2007, $24.3 million in 2006, and $68.9 million in 2005. We sold ten apartment communities and three commercial properties in 2007, five apartment communities and five commercial properties in 2006, and ten apartment communities and six commercial properties in 2005.

During the year ended December 31, 2007, we wrote down the carrying value of eight apartment communities, two commercial properties, and one parcel of land to their fair value less estimated selling costs and recorded impairment charges of $151.8 million, of which $108.1 million is presented in loss from continuing operations and $43.7 million is presented in discontinued operations.

Interest expense increased by $38.9 million in 2007 compared to 2006. Properties no longer targeted for conversion to condominium homes for sale contributed an increase of $27.8 million. The 32 same store stabilized apartment communities reported a $3.2 million increase due to default interest, late fees and increased debt due to refinancings. Interest expense of $33.5 million in 2006 was comparable to interest expense of $33.7 million in 2005.

Depreciation expense was $17.8 million in 2007, $15.9 million in 2006, and $16.9 million in 2005. Properties no longer targeted for conversion to condominium homes for sale contributed an increase of $3.2 million in 2007. This increase was partially offset by a decrease of $1 million for properties held in both years partially due to resuming depreciation on one property in 2006. In 2006, we decided not to sell two properties and resumed depreciating them, resulting in an increase of $1.1 million.

General and administrative expenses of the Investment Division were $13.3 million in 2007, $6.8 million in 2006 and $9.9 million in 2005. General and administrative expenses were 12.4% of divisional revenues in 2007, 7.4% in 2006, and 8.6% in 2005. The increase in 2007 compared to 2006 is principally due to legal and financial advisory expenses related to restructuring efforts and legal fees paid to lenders. The decrease in 2006 compared to 2005 is principally due to $2 million of investment banking advisory fees incurred in 2005 in connection with the 2005 capital redeployment plan.

62

Liquidity and Capital Resources

Liquidity

Historically, our principal sources of cash have been proceeds from sales of for-sale or for-rent housing, borrowings, rental operations and proceeds from the sale of rental real estate. Throughout 2007, market conditions in the homebuilding industry continued to deteriorate. This market deterioration was driven primarily by a decline in consumer confidence and increased volatility in the mortgage market and resulted in a decline in home prices and sales volume, increases in cancellations, increased use of sales discounts, higher brokerage fees and other sales incentives, and increased interest and other carrying costs. The decline in home prices and increase in discounts and incentives decreased cash flows as closings required additional cash to satisfy lender release prices. We also incurred additional lease-up and interest costs associated with apartment properties that we had targeted for conversion into condominiums and subsequently decided to operate as rental properties. Current market conditions remain difficult, and these conditions may continue to adversely impact our operations.

The sudden and rapid deterioration in the real estate credit markets in the summer of 2007 prevented us from completing financing transactions that had been under negotiation, materially affecting our liquidity, including our ability to repay existing indebtedness as it became due and meet other current obligations, and our ability to comply with financial covenants contained in our existing debt agreements. As described in more detail under “Mortgages and Other Debt” below and in NOTE 5. “NOTES PAYABLE” in the accompanying Notes to Consolidated Financial Statements, we did not pay August 2007 debt service as scheduled and received notices of default and acceleration from most of our lenders. These loans have now been reinstated and/or satisfied through sale of the associated assets. As described in more detail below under “Mortgages and Other Debt,” as of December 31, 2007, we were not in compliance with financial covenants in certain of our existing debt agreements. Failure to comply with these covenants could constitute an event of default that allows the lenders to demand immediate repayment of all outstanding borrowings or pursue other remedies unless we can reach an agreement with such lenders to amend the financial covenants. Our inability to comply with our financial covenants, obtain waivers of non-compliance, restructure our debt or obtain alternative financing to replace our existing debt would have a material adverse effect on the Company’s financial position, results of operations and cash flows.

In response to these events, we began a program to sell non-core assets, including all of the multi-family properties that had been targeted for condominium conversion. Nine of these properties were sold between September 2007 and January 2008, and two more properties are currently under contract of sale. In general, these newer, high quality assets were in different stages of lease-up or renovation in connection with being repositioned as rental properties. Moreover, most of these properties had been financed with significant amounts of short-term, floating rate debt. Accordingly, the sale of these assets improved our liquidity by reducing negative cash flow, reducing debt, and generating sales proceeds. In addition, in an effort to reduce overhead, we implemented a workforce reduction in August 2007. However, due to severance costs, the workforce reduction had very little impact on expenses for 2007.

Our plan to improve our liquidity contemplates additional property sales and, more importantly, continued reduction in our condominium inventory. In addition, we continue to negotiate extensions of maturing debt obligations. Some of our efforts to reduce costs were offset by fees paid to financial advisors and other consultants we engaged in the third quarter of 2007 to assist with the evaluation of strategic and financial alternatives.

Our consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of December 31, 2007, we had $1,111.6 million in consolidated debt, and had guaranteed additional debt of our unconsolidated joint

63

ventures totaling $31.6 million. For the year ended December 31, 2007, we incurred a net loss of ($388.4 million). As of December 31, 2007, we had stockholders’ deficit of ($112.8 million), which was a significant decrease compared to stockholders’ equity of $279.5 million as of December 31, 2006. These factors raise substantial doubt about our ability to continue as a going concern; however, management believes that our current initiatives will continue to generate sufficient liquidity to adequately fund operations and enable us to continue as a going concern. Nonetheless, there can be no assurance that we will be able to successfully implement our plan on favorable terms, or at all. The success of this plan will depend on our ability to complete our planned sales of properties, to modify or obtain waivers of financial covenants in our debt agreements, to extend or refinance our maturing debt obligations, and to continue to sell completed homes in our inventory. If we are unable to generate sufficient liquidity to fund our operations or are unable to modify or obtain waivers of financial covenants and extend or refinance our maturing debt, it may be necessary for us to undertake other actions as may be appropriate at such time. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets.

Mortgages and Other Debt

As of December 31, 2007, our total consolidated debt was $1,111.6 million, and we have guaranteed additional debt of our unconsolidated joint ventures totaling $31.6 million. Of that amount, a $7.4 million land loan secured by a property in Norwalk, Connecticut, matured in July 2007 and is currently in default. The lender has initiated judicial foreclosure proceedings, which we intend to defend. Accrued but unpaid interest at the contractual rate and late fees on this loan were approximately $1 million at December 31, 2007.

In addition, as of December 31, 2007, we did not meet the financial covenants in the loan agreements for $373.2 million of consolidated debt. We have obtained waivers of the financial covenants for $364.2 million of this debt. After obtaining a waiver, we sold a rental development in February 2008 and repaid the related $76.2 million construction loan. There can be no assurance that we will be able reach an agreement with these lenders to modify or waive the financial covenants. Our inability to comply with our financial covenants, obtain waivers of non-compliance, restructure our debt or to refinance our existing debt as it matures would have a material adverse effect on the Company’s financial position, results of operations and cash flows.

The following table summarizes principal payments on loans due in each calendar quarter of 2008.

	Three Months Ending
	March 31,		June 30,		September 30,		December 31,
	2008		2008		2008		2008		Total
Consolidated debt matured or maturing during the period	$	109,816	$	105,672	$	54,954	$	27,484	$	297,926
Less debt satisfied subsequent to December 31, 2007		84,272		36		37		40		84,385
Remaining consolidated debt maturing during the period	$	25,544	$	105,636	$	54,917	$	27,444	$	213,541
Debt of unconsolidated joint ventures guaranteed by Tarragon maturing during period	$	—	$	31,570	$	—	$	—	$	31,570

Debt maturing in the first quarter of 2008 includes the $7.4 million land loan in default described above. We are currently negotiating an extension for another $7.4 million land loan that matures on March 28, 2008. We have offered to convey the rental apartment community securing a $4.7 million nonrecourse mortgage that

64

matured on March 1, 2008, to the lender in satisfaction of the mortgage and are cooperating with the lender to effect a foreclosure or a deed in lieu of foreclosure. We intend to seek extensions or alternative financing for loans maturing in the second, third, and fourth quarters of 2008 to the extent these loans are not repaid with proceeds from sales. There can be no assurance that we will be able to obtain extensions or alternative financing to satisfy this debt as it comes due.

Senior Convertible Notes. The outstanding principal balance of our convertible notes was $5.8 million at December 31, 2007. In January 2008, we entered into a settlement agreement with the noteholder to satisfy the $5.8 million of outstanding senior convertible notes and $400,000 of accrued interest for a payment of $3.6 million.

Subordinated Unsecured Notes. On June 15, 2005, we issued $40 million of subordinated unsecured notes due June 30, 2035. The notes bear interest, payable quarterly, at 8.71% through June 30, 2010, and afterwards at a variable rate equal to LIBOR plus 4.4% per annum (9% at December 31, 2007). The notes are prepayable after June 30, 2010, at par. On September 12, 2005, we issued an additional $25 million of subordinated unsecured notes due October 30, 2035. These notes bear interest, payable quarterly, at 8.79% through October 30, 2010, and afterwards at a variable rate equal to LIBOR plus 4.4% per annum (9% at December 31, 2007). The notes are prepayable after October 30, 2010, at par. On March 1, 2006, we issued an additional $60 million of subordinated unsecured notes due April 30, 2036. These notes bear interest at 400 basis points over 30-day LIBOR, with interest payable quarterly (8.6% at December 31, 2007). The notes are prepayable after April 30, 2011, at par. As of December 31, 2007, the outstanding principal balance of these three series of subordinated unsecured notes was $125 million.

As of December 31, 2007, we were not in compliance with the debt service coverage ratio and net worth covenants contained in the indentures for the subordinated unsecured notes. In an effort to address these existing covenant violations, in March 2008, we entered into an agreement (the “Subordination Agreement”) with the note holders pursuant to which the $36 million affiliate loan described below is subordinated to the subordinated unsecured notes. In exchange for this subordination, the subordinated note holders have agreed to (1) waive compliance with the financial covenants applicable to the subordinated notes through September 2009 and (2) grant a 270-day option to affiliates of Mr. Friedman and Mr. Rothenberg to purchase the subordinated notes from the note holders at a discount (the “Option”).

Unsecured Loan from Affiliates. At December 31, 2007, we had a $36 million unsecured term loan with affiliates of William S. Friedman, our chief executive officer and chairman of our board of directors. This loan was modified in November 2007, converting it from a revolving line of credit to a term loan and extending its maturity to January 2009. The loan bears interest at the lower of 100 basis points over the 30-day LIBOR or the lowest rate offered in writing to us for an unsecured loan by an institutional lender (5.6% at December 31, 2007). Interest payments totaling $1.5 million were approved by the board and paid in November and December 2007. In January 2008, Mr. Friedman sold $10 million of this loan to Robert Rothenberg, our president and chief operating officer and a member of our board of directors. In connection with this sale, we issued replacement notes in the amounts of $26 million to affiliates of Mr. Friedman and $10 million to Mr. Rothenberg.

In consideration for entering into the Subordination Agreement and Option and agreeing to assign the Option to us, the non-management members of our board of directors unanimously approved the issuance to Mr. Friedman and Mr. Rothenberg of five-year warrants to purchase 3.5 million shares of our common stock at an exercise price of $2.35, which was the closing price of our common stock on The Nasdaq Global Select Market on the date of issuance. In addition, we entered into amendments to the affiliate notes and related documents which (1) increased the annual rate of interest paid on the affiliate notes to 12.5%, (2) extended the term of the affiliate notes to the later of March 2013, and the second anniversary of the repayment in full of the subordinated unsecured notes and (3) requires mandatory

65

prepayments, after repayment in full of the subordinated unsecured notes, out of excess cash receipts. The payment of cash interest on the affiliate notes may not exceed 5% per annum for as long as the affiliate notes remain subject to the subordination agreement. The balance of the interest will be added to the principal balance of the loan.

Secured Credit Facilities. As of December 31, 2007, we had $14.1 million outstanding under a line of credit with Bank of America secured by assets of one of our consolidated joint ventures and unsold units of one of our condominium conversion properties. Advances under the loan bear interest at 225 basis points over 30-day LIBOR (6.85 % at December 31, 2007). Payments of interest only are due monthly, with all outstanding principal and interest due in May 2008. As of December 31, 2007, we were not in compliance with certain of the covenants contained in this line of credit. We have obtained waivers of the financial covenants through maturity.

Ansonia, a consolidated joint venture which is 89.44% owned by Tarragon, has a $399.5 million secured credit facility with GECC secured by first and second liens on 23 of its properties, as well as pledges of equity interests in the property owning entities. The non-recourse mortgage loans under this facility are cross-collateralized and cross-defaulted with each other and with the $17.3 million mortgage discussed below, and mature in November 2012. Interest accrues on $367.6 million of this indebtedness at a blended fixed rate of 5.95% payable monthly. The remaining $31.9 million bears interest at a blended floating rate of 7.1% in excess of LIBOR (11.7% as of December 31, 2007) and requires monthly payments of principal and interest computed on a 25-year amortization schedule. The properties securing these loans are subject to a cash management agreement whereby GECC collects rents and funds debt service, reserves, and property operating expenses.

We currently have a non-recourse mortgage loan of $17.3 million under a secured credit facility with GECC that matures in September 2009. The loan bears interest at a fixed rate of 6.06%, payable monthly, and is cross-collateralized and cross-defaulted with the $399.5 million secured credit facility discussed above.

Non-recourse Mortgage Debt. In addition to the GECC secured credit facility, as of December 31, 2007, we had an aggregate of $77.6 million of outstanding non-recourse indebtedness ($24.6 million of which is presented with liabilities related to assets held for sale at December 31, 2007), secured by 12 rental apartment communities and one commercial property. The agreements governing this mortgage debt generally do not contain restrictive covenants and are not guaranteed by us or any of our subsidiaries or joint ventures. These mortgage loans bear interest at various fixed rates and, as of December 31, 2007, the weighted average rate of these mortgage loans was 5.84%.

Recourse Mortgage Debt. The following table summarizes the material terms of our recourse mortgage debt:

	Recourse		Non-Recourse						Tarragon’s
	Balance at		Balance at		Interest Rate at				Interest in
Project	December 31, 2007		December 31, 2007		December 31, 2007			Maturity Date	Profits
Bermuda Island	$	41,458	$	—		6.95	%	Apr-2008		100	%
Las Olas River House		12,102		—		6.75	%	Jul-2008		100	%
Las Olas River House		1,987		—		7.52	%	Jul-2012		100	%
Northgate		15,000		2,019		7.10	%	Apr-2008		100	%
Orlando Central Park		5,455		—		6.60	%	Apr-2008		100	%
	$	76,002	$	2,019

In October 2007, we entered into agreements with Bank of America under which the mortgage loans secured by Bermuda Island, Northgate and Orlando Central Park and the River Oaks land loan (See “Land Loans” below) are now cross defaulted. As of December 31, 2007, we were not in compliance with the financial covenants contained in the loans secured by Northgate and Orlando Central Park. Bank of America also agreed to waive the financial covenants through the loan maturities.

66

As of December 31, 2007, we were not in compliance with the leverage and net worth covenants contained in the $2 million mortgage secured by Las Olas River House. We have obtained a waiver of financial covenants through December 31, 2008, from the lender. In addition, as of December 31, 2007, we were not in compliance with the net worth covenant on the $12.1 million mortgage secured by Las Olas River House. We have executed an amended forbearance agreement with the lender extending the forbearance period through July 2008, when the loan matures. See discussion of forbearance agreement below under “Land Loans.”

Construction Loans. In connection with our various development projects, we obtain loans to finance the cost of construction. Generally, one of our subsidiaries or a joint venture will incur the construction loan, and we will guarantee the repayment of the construction loan and/or grant a completion guarantee with respect to the project. In general, we repay outstanding amounts under construction loans on for-sale communities with proceeds from home sales. We refinance construction loans on rental communities with long-term mortgage financing upon the completion and stabilization of the properties. The following table summarizes the material terms of our subsidiaries’ construction loans, all of which we have guaranteed:

	Commitment		Balance at		Interest Rate at			Maturity	Tarragon’s
Project	Amount		December 31, 2007		December 31, 2007			Date	Interest in Profits
800 Madison	$	74,000	$	35,543		6.85	%	Dec-2009		70	%
1000 Jefferson (1)		77,000		76,262		6.35	%	Mar-2008		70	%
Aldridge		22,950		20,610		6.50	%	Jan-2009		100	%
One Hudson Park		14,490		14,190		7.10	%	Jul-2008		100	%
Stonecrest		1,400		810		6.50	%	Jul-2008		100	%
Trio West		37,136		32,081		7.60	%	Jan-2009		100	%
Vintage at the Grove		47,000		30,547		6.60	%	Mar-2010		100	%
Warwick Grove		20,000		3,298		6.80	%	Sep-2008		50	%
	$	293,976	$	213,341

(1) We sold this property in February 2008 and repaid the loan balance.

In November 2007, we entered into agreements with National City and Capmark Finance pursuant to which they agreed to forbear from exercising their rights under the existing defaults under the Aldridge and Stonecrest construction loans and the loan secured by Gables Floresta and Tarragon’s guarantees until July 14, 2009, the maturity date of one of the construction loans. Under the terms of the agreements, these loans are now cross-defaulted and cross-collateralized, and August through October 2007 debt service payments of $1.9 million were paid in January 2008. Subject to the terms of the forbearance agreement, the lender conditionally waived payment of approximately $2.4 million of default interest provided there are no further defaults under the existing loans through July 2009. The loan secured by Gables Floresta was reduced from $74.4 million to $14.4 million when the property was sold in December 2007, and this note (the “Shortfall Note”) is now secured by second liens on the other two properties. The Shortfall Note matures in December 2009. As of December 31, 2007, we were not in compliance with the net worth covenant contained in the Shortfall Note. Pursuant to the forbearance agreement, we are not required to meet this covenant until June 30, 2009.

As of December 31, 2007, we were not in compliance with the financial covenants contained in the 800 Madison, One Hudson Park, Warwick Grove, and Trio West construction loans. We have obtained a waiver of these financial covenants through December 31, 2008, for the 800 Madison loan. In addition, the lender on the Trio West and One Hudson Park loans waived the financial covenants through March 2008, and amended the financial covenants in March 2008 to measures with which we believe we can comply. We obtained a waiver of the financial covenants from the lender on the Warwick Grove loan until the next reporting period ending March 31, 2008.

Condominium Conversion Loans. Historically, we have obtained loans to finance the cost of acquiring and/or renovating rental properties for conversion into condominium homes. Generally, one of our subsidiaries or a joint venture incurred the loan, and we guaranteed the repayment of the loan. The following table summarizes the material terms of our subsidiaries’ outstanding condominium conversion loans. See the table that presents

67

the ratio of debt to total estimated remaining sell-out as of December 31, 2007, for our subsidiaries’ completed condominium conversion properties under the caption “Development Division” above.

			Recourse		Non-Recourse						Tarragon’s
	Commitment		Balance at		Balance at		Interest Rate at			Maturity	Interest in
Project	Amount		December 31, 2007		December 31, 2007		December 31, 2007			Date	Profits
Cobblestone at Eagle Harbor	$	10,675	$	10,571	$	—		7.10	%	Aug-2008		100	%
Mirabella		7,586		7,557		29		7.34	%	Jul-2009		100	%
The Tradition at Palm Aire		18,281		8,000		10,281		7.55	%	Aug-2009		100	%
	$	36,542	$	26,128	$	10,310

Acquisition and Development Loans. In connection with some of our development projects, we obtain loans to finance the purchase and the development of land infrastructure. Generally, one of our subsidiaries or a joint venture will incur the loan, and we will guarantee the repayment of the loan. The following table summarizes the material terms of our subsidiaries’ acquisition and development loans, all of which we have guaranteed:

									Tarragon’s
	Commitment		Balance at		Interest Rate at				Interest in
Project	Amount		December 31, 2007		December 31, 2007			Maturity Date	Profits
The Exchange (1)	$	12,000	$	12,000		13.00	%	Dec-2008		100	%
Stonecrest		5,790		4,639		6.50	%	Jul-2008		100	%
Trio East		3,600		3,600		6.75	%	May-2008		100	%
Warwick Grove		5,244		5,231		6.80	%	Sep-2008		50	%
	$	26,634	$	25,470

(1) This property is part of the collateral securing The Green at East Hanover loan.

As of December 31, 2007, we were not in compliance with the financial covenants contained in the Trio East and Warwick Grove loans. We have received a waiver of financial covenants through the maturity of the Trio East loan. We have obtained a waiver of the financial covenants on the Warwick Grove loan through December 31, 2007.

68

Land Loans. When we acquire land for future development or sale, we sometimes finance the acquisitions with land loans. Generally, one of our subsidiaries or a joint venture will incur the loan, and we will guarantee the repayment of the loan. The following table summarizes the material terms of our subsidiaries’ land loans, all of which we have guaranteed:

							Tarragon’s
	Balance at		Interest Rate at				Interest in
Project	December 31, 2007		December 31, 2007			Maturity Date	Profits
20 North Water Street	$	7,410		8.00	%	Jul-2007 (1)		100.0	%
390 Capitol/Mariner’s Point/Merritt Stratford		5,300		13.00	%	Dec-2008		100.0	%
900 Monroe		3,900		6.85	%	May-2008		62.5	%
Block 103/104/114		9,000		7.10	%	Dec-2008		55.0	%(4)
Block 106		6,000		6.60	%	Jun-2008		62.5	%
Block 144		2,400		6.60	%	Jun-2008		62.5	%
Central Square		11,250		6.70	%	Jul-2008		100.0	%
The Green at East Hanover		8,600		6.60	%	Jun-2008 (2)		100.0	%
River Oaks		7,419		7.10	%	Mar-2008		100.0	%
Uptown Village		2,223		6.70	%	Jan-2008 (3)		100.0	%
	$	63,502

(1)	Upon maturity of this loan in July 2007, the interest rate increased to 18% in accordance with the terms of the note. In August 2007, North Water LLC, the lender, initiated foreclosure proceedings. We intend to defend the foreclosure.
(2)	This loan was refinanced in February 2008.
(3)	This loan was repaid in January 2008.
(4)	Blended rate for three projects.

As of December 31, 2007, we did not meet the financial covenants in the $9 million land loan secured by Block 103/104/114.

As of December 31, 2007, we did not meet the financial covenant in the $3.9 million land loan secured by 900 Monroe. We obtained a waiver of the financial covenants through the maturity of this loan.

In October 2007, Tarragon and Regions Bank entered into an agreement under which Regions Bank agreed to forbear from exercising its rights relating to existing defaults under the Central Square, Uptown Village, and Las Olas River House (see Recourse Mortgage Debt above) loan agreements, with an aggregate $25.6 million outstanding at December 31, 2007, until January 2, 2008. Pursuant to this agreement, the maturity of the $2.2 million Uptown Village loan was extended to January 2, 2008, at which time it was repaid. We have executed an amendment to the forbearance agreement, which extends the forbearance period until July 1, 2008, at which time the other two loans will mature.

Other Debt. We had other debt with an aggregate balance of $19.5 million at December 31, 2007, which includes the $14.4 million Shortfall Note secured by second liens on two properties and matures in December 2009.

69

Sources and Uses of Cash

The following table presents major sources and uses of cash for the past three years.

	For the Years Ended December 31,
	2007			2006			2005
Sources of cash:
Net proceeds from sales	$	17,172		$	111,467		$	175,316
Net cash flow from rental operations		(30,565	)		34,338			13,900
Net proceeds from the sale of real estate
Development Division		—			—			22,368
Investment Division		31,837			32,223			65,167
Net proceeds (repayments) related to financings and other borrowings
Development Division		28,942			34,992			—
Investment Division		2,029			39,963			80,260
Lines of credit		10,704			25,844			10,490
Subordinated unsecured notes		—			48,750			61,215
Other corporate debt		(1,626	)		(5,261	)		(10,788	)
Other:
Collections of notes and interest receivable		1,576			899			1,670
Proceeds from the exercise of stock options		1,039			905			6,081
Earnest money deposits received		—			—			783
Total sources of cash		61,108			324,120			426,462
Uses of cash:
Purchase of real estate inventory or land for development		(16,704	)		(79,497	)		(183,874	)
Development and renovation costs, net of borrowings		24,905			(182,928	)		(76,693	)
Net (advances to) repayments from partnerships and joint ventures for development activities		7,193			(11,297	)		(26,721	)
Cash used in development activities		15,394			(273,722	)		(287,288	)
Purchase of operating apartment communities		—			—			(16,131	)
Property capital improvements		(10,439	)		(1,812	)		(8,665	)
Other:
Common stock repurchases		—			(16,708	)		(11,955	)
General and administrative expenses paid		(39,707	)		(31,855	)		(29,722	)
Income taxes (paid) refunded		8,620			5,742			(22,773	)
Premium paid on conversion of convertible notes		—			—			(4,340	)
Dividends to stockholders		(763	)		(3,810	)		(929	)
Preferred return on convertible preferred interest		—			(770	)		(624	)
Purchase of partnership interests		(1,750	)		—			(21,850	)
Interest paid on corporate debt		(11,732	)		(11,714	)		(6,186	)
Cash paid for leasehold improvements		—			(3,818	)		—
Other		(51	)		(1,221	)		668
Total uses of cash		(40,428	)		(339,688	)		(409,795	)
Net sources (uses) of cash	$	20,680		$	(15,568	)	$	16,667

70

Cash Flows

2007 Compared to 2006

Operating Activities: For the year ended December 31, 2007, our net cash provided by operating activities was $75.1 million compared to net cash used in operating activities of $213.4 million for the year ended December 31, 2006. This increase in cash provided by operating activities is principally related to a decrease in purchases of real estate inventory. In 2006, we purchased four rental properties for conversion to condominiums for an aggregate cost of $236.2 million, one parcel of land for $7.9 million and purchased land for development of one of our Hoboken, New Jersey, projects for $7.8 million. In 2007, we spent $16.7 million for purchases of real estate inventory. We have decided not to convert the four properties purchased in 2006 and have transferred these properties to the rental real estate portfolio of our Investment Division.

Partially offsetting this decrease in cash used was a decrease in proceeds from closings of home sales, including distributions of earnings from unconsolidated joint ventures, from $7.9 million in 2006 to $868,000 in 2007. We executed net new orders for 1,446 units for all product-types in 2007 compared to 1,562 units in 2006. We closed sales of 2,470 units in 2007 compared to 2,639 units in 2006. The number of units in our active for-sale communities was 1,432 at December 31, 2007, down from 4,560 at December 31, 2006. This decrease is partly attributable to the transfer of four projects with 713 units to our Investment Division in the first quarter of 2007 following our decision not to convert the property to condominiums. We also reduced the number of units in our rental developments by 508 with the sale of two properties in 2007.

We expect to continue to generate net cash from operations in the near term as we focus on completing our active and pipeline development projects because we anticipate fewer new projects will be undertaken than in 2006.

Investing Activities. For the year ended December 31, 2007, our net cash provided by investing activities was $27.4 million compared to cash used in investing activities of $7.3 million for 2006. Contributions to unconsolidated partnerships and joint ventures were $22.8 million lower in 2007 than in 2006 due to a decrease in the purchase of real estate inventory. We received distributions of capital from unconsolidated partnerships and joint ventures of $16.7 million in 2007 compared to $20.2 million in 2006. This decrease in distributions is related to a decrease in home sales and financings of unconsolidated joint ventures. We also paid $1.8 million in 2007 to purchase the interest of one of our partners in one of our Hoboken, New Jersey, projects.

Construction and acquisition costs of real estate projects under development during the year ended December 31, 2006, were $15.1 million. In 2007, all of our projects under development are classified with real estate inventory. Therefore, development costs are operating activities rather than investing activities.

In 2006, we sold five apartment communities, four commercial properties, and one parcel of land generating net proceeds of $27.9 million. Net proceeds from the sale of real estate in 2007 were $31.8 million from the sale of ten apartment communities, three commercial properties, two outparcels adjacent to one of our apartment communities in Murfreesboro, Tennessee, and a home adjacent to one of our apartment communities in New Haven, Connecticut. We expect proceeds from the sale of real estate to continue to be an important source of cash in the future.

Financing Activities. For the year ended December 31, 2007, our net cash used in financing activities was $81.8 million, compared to cash provided by financing activities of $205.1 million for the year ended December 31, 2006. This increase was primarily due to debt paydowns through property sales and homes sales. We borrowed $7.4 million in 2007 and $199.8 million in 2006 to finance properties for conversion to condominiums. Also, in 2006, we issued $60 million of subordinated unsecured notes. During the 2007, we borrowed $54.7 million and repaid $29.1 million under the line of credit from affiliates of William S. Friedman,

71

our Chairman and CEO. During 2006, we borrowed $20.1 million and repaid $9.7 million under this line of credit. We expect borrowings will continue to be an important source of cash in the future.

We received net construction loan advances of $27 million for development costs and made payments on construction loans of $18.1 million from proceeds of home sales of our high- and mid-rise development projects during 2007. We received net construction loan advances of $231 million for development costs and repaid $19.2 million of construction loans from the sales of rental developments during 2007. We made net repayments of $71.1 million of condominium conversion loans during 2007. During 2006, we received construction loan advances of $41.5 million for development costs and repaid $19.1 million on construction loans using proceeds from sales of our high- and mid-rise development projects. We received net construction loan advances of $10.3 million for development costs of our rental developments during 2006, and we repaid $134.7 million on condominium conversion loans. During 2007 and 2006, we used proceeds from home sales to reduce debt by $282.5 million and $250.2 million, respectively.

We spent $16.7 million in 2006 to repurchase 1,034,687 shares of our common stock and 99,665 shares of our preferred stock. We made no stock repurchases in 2007 other than shares surrendered by employees to cover the employees’ tax withholding obligations resulting from the vesting of restricted stock. Under the existing common stock repurchase plan, we have authority to repurchase an additional 72,288 shares of common stock. We do not expect to repurchase any additional shares in the foreseeable future.

2006 Compared to 2005.

Operating Activities: For the year ended December 31, 2006, our net cash used in operating activities was $213.4 million compared to $453.9 million for the year ended December 31, 2005. This decrease in cash used in operating activities is principally related to a decrease in purchases of real estate inventory. In 2005, we purchased 14 rental properties for conversion to condominiums for an aggregate cost of $700 million. In 2006, we purchased four rental properties for conversion to condominiums for an aggregate cost of $236.2 million. We decided not to convert the four properties purchased in 2006 and two of the properties purchased in 2005 and transferred them to the rental real estate portfolio of our Investment Division. Four of these properties have now been sold and the remaining two properties are under contracts of sale as of December 31, 2007.

Proceeds from closings of home sales, including distributions of earnings from unconsolidated joint ventures, declined $201.5 million in 2006. Revenue from condominium conversions sales declined significantly in 2006. We executed net new orders for 1,562 units for all product-types in 2006 compared to 3,899 units in 2005. We also closed fewer sales in 2006: 2,639 units compared to 3,343 in 2005. We reduced the number of units in our active for-sale communities from 8,006 at December 31, 2005, to 4,560 at December 31, 2006. This decrease is partly attributable to transferring projects with 378 units to our investment portfolio, transferring a 216-unit project to our development pipeline, and transferring a 360-unit project to our rental developments and repositions group to begin capital improvements while deferring sales activity.

Investing Activities. For the year ended December 31, 2006, our net cash used in investing activities was $7.3 million compared to $55.7 million in 2005. In 2005, we paid $16.9 million to purchase our partners’ interests in two condominium development projects, one land parcel, and four rental apartment communities. We also paid $5 million to our partners in our Hoboken, New Jersey, projects in 2005 pursuant to a November 2004 agreement to purchase a portion of their interests in these projects.

Contributions to unconsolidated partnerships and joint ventures were $22.1 million lower in 2006 than in 2005 due to a decrease in the purchase of real estate inventory. Additionally, construction and acquisition costs of real estate under development decreased $31.3 million in 2006 compared to 2005, primarily due to the decrease in the number of properties under development.

72

In 2005, we acquired two rental apartment communities for $39.7 million and had no purchases of rental real estate in 2006. In 2006, in connection with our capital redeployment program begun in 2005, we sold five apartment communities, four commercial properties and five land parcels for net proceeds of $27.9 million, while net proceeds from the sale of real estate in 2005 were $86.7 million from the sale of nine apartment communities, three parcels of land, five shopping centers, one office building, and three buildings of a five-building office park.

Financing Activities. For the year ended December 31, 2006, our net cash provided by financing activities decreased to $205.1 million, from $526.3 million for the year ended December 31, 2005. This decrease was due primarily to a decrease in borrowings associated with the acquisition of real estate inventory. In 2006, we borrowed $199.8 million in connection with the purchase of properties for conversion to condominiums. In 2005, we borrowed $596.8 million to finance the purchase of properties for conversion to condominiums. Also, Ansonia’s financing of 23 properties in November 2005 increased debt by $100.7 million and generated net cash proceeds of $71.2 million. We distributed $6.7 million to our partners in this partnership for its share of the net proceeds. Additionally, we issued $65 million of subordinated unsecured notes and obtained a $10 million line of credit in 2005. In 2006, financings increased mortgage debt by $44.5 million, and we issued another $60 million of subordinated unsecured notes. 2006 financings included a $19.5 million financing by Ansonia, which generated net proceeds of $18.7 million, of which $1.9 million was distributed to our partner. In 2006, we borrowed $20.1 million and made repayments of $9.7 million under the line of credit from affiliates of William S. Friedman. Borrowings of $1 million under this line of credit in 2005 were fully repaid by December 31, 2005.

We received net construction loan borrowings of $51.5 million for development costs of our high- and mid-rise development projects during 2006. We received construction loan borrowings of $46.7 million for development costs of our rental developments during 2006. We made repayments on condominium conversion loans of $180.9 million during 2006. During 2005, we made net repayments of $71 million on construction loans for our high- and mid-rise development projects. This was primarily related to Las Olas River House for which proceeds from closings paid off $96.6 million of debt. In 2006, we made repayments of $244.6 million on condominium conversion loans. Proceeds from home sales were used to reduce debt by $250.2 million in 2006 and $386.2 million in 2005.

In 2006, we received contributions of $9.1 million from partners who purchased a portion of our interest in Shefaor/Tarragon LLLP, a consolidated partnership until July 2006, and we made distributions of $8.3 million to Shefaor, our original partner in this partnership, as their share of the proceeds from a refinancing of the property and the contributions from the purchasing partners. We also received a contribution of $12.3 million from the sale of low income housing tax credits from 1118 Adams, a consolidated joint venture. The cash was used to repay the joint venture’s construction loan.

We spent $16.7 million in 2006 to repurchase 1,034,687 shares of our common stock pursuant to our announced stock repurchase plan and 99,665 shares of our preferred stock. In 2005, we spent $12 million to repurchase 603,016 shares of our common stock and 4,500 shares of preferred stock. Under the existing stock repurchase plan, we have authority to repurchase an additional 72,288 shares. We do not expect to repurchase any additional shares in the foreseeable future.

73

Contractual Commitments

The following table summarizes information regarding contractual commitments.

			2009		2011
	2008		and 2010		and 2012		Thereafter		Other		Total
Scheduled principal payments on debt:
Loans with extension options (1)	$	5,455	$	67,703	$	226	$	7,856	$	—	$	81,240
Loans expected to be repaid upon sale of the property (2)		137,308		10,087		516		7,284		—		155,195
Completed condominium inventory (5)		22,706		70		1,885		—		—		24,661
Loans for which we are currently negotiating extensions		7,419		—		—		—		—		7,419
Remaining loans
Mortgages and note payable (7)		119,288		119,748		402,082		71,206		—		712,324
Senior convertible notes (8)		5,750		—		—		—		—		5,750
Subordinated unsecured notes		—		—		—		125,000		—		125,000
		297,926		197,608		404,709		211,346		—		1,111,589
Scheduled interest payments on debt (4)		64,819		93,037		80,200		390,388		—		628,444
Unrecognized tax benefits (6)		—		—		—		—		5,013		5,013
Operating leases		1,862		3,188		2,260		6,613		—		13,923
Firm contracts to purchase real estate for development activities		21,000		44,300		—		—		—		65,300
		87,681		140,525		82,460		397,001		5,013		712,680
Guaranteed debt of unconsolidated partnerships and joint ventures:
Loans with extension options (3)		31,570		—		—		—		—		31,570
		31,570		—		—		—		—		31,570
	$	417,177	$	338,133	$	487,169	$	608,347	$	5,013	$	1,855,839

(1)	Of the loans maturing in 2008, $5.5 million may be extended one year. Of the loans maturing in 2009 and 2010, $67.7 million may be extended for six months.
(2)	Debt repayments totaling $89.4 million have been made as of March 15, 2008. Of the loans maturing in 2008, $41.5 million may be extended for nine months.
(3)	See discussion below under the caption “Off-Balance Sheet Arrangements.”
(4)	Interest is computed based upon the outstanding balances as of December 31, 2007, and for all future periods until the loans mature even though we may repay these loans before the maturity date. For loans with variable rates, interest was calculated based on the interest rate in effect at December 31, 2007.
(5)	See table that presents total estimated remaining sell-out debt, the ratio of debt to total estimated remaining sell-out, and backlog as of December 31, 2007, in the “Development Division” discussion above.
(6)	The tax years to which the unrecognized tax benefits relate have not been examined by the tax authorities; therefore, we cannot determine timing of cash outflows related to these unrecognized tax benefits including $1.5 million of accrued interest and $2.2 million of accrued penalties.
(7)	The amount includes a $7.4 million land loan that is in default as of December 31, 2007.
(8)	This debt was in default as of December 31, 2007, and the debt was subsequently satisfied in January 2008.

We intend to extend or repay these loans primarily through refinancings and sales. We can make no assurances we can arrange new financing as may be needed to repay maturing loans.

Firm contracts to purchase real estate for development activities include contracts to purchase two tracts of land for development of condominiums in New Jersey, one in Ridgefield for $16 million, expected to close in December 2008, and the other in Hoboken for $44.3 million, expected to close in the second or third quarter of 2009. In addition, we have a contract to purchase land for development of a rental property in Tennessee for $5 million, expected to close in April 2008. We anticipate financing these purchases with debt. In addition, we may consider forming joint ventures with other parties who may provide a portion of the capital requirement.

74

Off-Balance Sheet Arrangements

We often undertake development projects in partnership with third parties when our partner has either site control or a particular expertise in the proposed project, or both. We sometimes guarantee loans made to our joint ventures.

Tarragon and its partner jointly and severally guarantee repayment of the construction loan of Orchid Grove, L.L.C., upon maturity in April 2008. The commitment amount of this loan is $52.4 million, and the outstanding balance as of December 31, 2007, was $31.6 million. The joint venture stopped making interest payments in February 2008. We intend to seek an extension of the term with the current lender or to otherwise refinance this debt. However, we believe the value of the collateral property should be sufficient to satisfy this loan.

Inflation

The homebuilding industry is affected by inflation as it relates to the cost to acquire land, land improvements, homebuilding raw materials and contractor labor. We compete with other real estate developers for raw materials and labor. On certain occasions, our contractors have experienced vendors limiting the supply of raw materials, which slows the land and home development process and requires them to obtain raw materials from other vendors, typically at higher prices. Unless these increased costs are recovered through higher sales prices, our gross margins would be impacted. Because the sales prices of our homes in backlog are fixed at the time a buyer enters into a contract to acquire a home, any inflation in the costs of raw materials and labor costs greater than those anticipated may result in lower gross margins.

In general, if interest rates increase, construction and financing costs could increase, which would result in lower future gross margins. Increases in home mortgage interest rates may make it more difficult for our customers to qualify for home mortgage loans, potentially decreasing home sales.

Recently Adopted Accounting Pronouncement

In May 2007, the FASB issued Staff Position FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48” (“FSP FIN 48-1”), which amends FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48,” together with FSP FIN 48-1 referred as “FIN 48, as amended”). As of January 1, 2007, we adopted the provisions of FIN 48, as amended, which clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48, as amended, prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position an entity takes or expects to take in a tax return. To recognize a tax position, the tax position must be more-likely-than-not sustainable upon examination by the relevant taxing authority, and the relevant measurement of the position must be the largest amount of benefit that we would more than 50% likely realize upon settlement. We would recognize the benefit of a position in the interim reporting period during which it meets the threshold, unless we effectively settle it earlier through examination, negotiation, or litigation or the applicable statute of limitations period expires.

As a result of the implementation of FIN 48, we recognized an increase of $57,000 in the liability for unrecognized tax benefits, which was accounted for as a cumulative effect adjustment to accumulated deficit. Prior to the adoption of FIN 48, the balance of unrecognized tax benefits at December 31, 2006, was $1.3 million. The $1.3 million of unrecognized tax benefits at December 31, 2007, if recognized, would impact the effective tax rate.

Interest costs and penalties related to income taxes are classified as interest expense and general and administrative expenses, respectively, in our Consolidated Financial Statements. Upon the adoption of FIN 48, we recorded $467,000 (net of income taxes of $289,000) in interest and $1.9 million in penalties which were accounted for as cumulative effect adjustments to accumulated deficit. At December 31, 2007, the accrual for interest was $1.5 million and the accrual for penalties was $2.2 million, and both are included in other accounts payable and liabilities on the Consolidated Balance Sheet.

75

Critical Accounting Policies and Estimates

Accounting estimates are an integral part of the preparation of our consolidated financial statements and our financial reporting process and are based on our current judgments. Certain accounting estimates are particularly sensitive because of their significance to our consolidated financial statements and because of the possibility that future events affecting these estimates may differ from our current judgments. The most significant accounting policies affecting our consolidated financial statements are as follows:

Asset Impairment. SFAS No. 144 requires completed properties held for sale to be measured at the lower of their carrying amount or fair value less costs to sell. If a property’s estimated fair value less costs to sell is less than its carrying value at the time of evaluation, we recognize a loss and write down the property’s carrying value to its estimated fair value less costs to sell. Prior to sale, we would recognize a gain for any subsequent increases in estimated fair value less costs to sell, but not in excess of the cumulative loss previously recognized. Our review of completed properties held for sale generally includes consideration of the current sales velocity of the property and its impact on holding costs and sales incentives, discussions with the project manager, and a review of the surrounding area. For the year ended December 31, 2007, we wrote down the carrying values of eight rental properties and two commercial properties to their estimated fair value less cost of sale with a charge to earnings of $173.8 million ($43.7 million of which was presented in discontinued operations). For the years ended December 31, 2006 and 2005, we recorded impairment charges of $810,000 and $1.4 million, respectively, when we wrote down the carrying value of one commercial property and one rental property in 2006, and two commercial properties and two rental properties in 2005 to their estimated fair value less cost of sales. We may make adjustments to estimated fair values based on future reviews.

In accordance with SFAS No. 144, we also evaluate our properties under development and rental real estate for potential writedowns when impairment indicators are present. If we conclude that a property has been impaired, we recognize an impairment loss and write down the property’s carrying value to estimated fair value. For properties under development, this evaluation generally consists of reviewing the property’s estimated remaining revenue and costs to completion and current and projected market conditions, as well as changes in general and local economic conditions. Due to uncertainties in the estimation process and the unpredictability of future events, actual results could differ from such estimates. These uncertainties include changes in the length of the construction period, the velocity of sales, the cost of construction materials and labor, and housing demand. To mitigate these factors, we regularly review and revise our project budgets, including estimated selling prices, absorption, and costs to complete.

Specifically, on a quarterly basis, the project management team, senior management and accounting representatives review each project budget. Key assumptions discussed in this evaluation include, on a property by property basis, the estimated remaining sellout value of unsold inventory, the future absorption rate and the interest rate on variable rate debt. The estimated future sellout is based on existing pricing and current and expected future market conditions. We also review other ancillary net pricing factors, including discounts being offered, incentive programs and commission rates. Our anticipated absorption rate takes into consideration the current pricing and recent historical trends as well as market and sub-market information. In addition, current traffic volume and conversion rates are analyzed and used in projecting future monthly sales. Changes in the anticipated sales velocity can have a significant impact on the profitability, or potential impairment of an asset, as any lengthening of the expected sellout period directly impacts a number of time-sensitive carrying costs including interest, real estate taxes, marketing costs, and development salaries. The current variable interest rates in effect are used to estimate future construction loan interest. Any future increase in interest rates may adversely impact the project’s profitability in two respects. First, interest capitalized during the construction period would increase and, second, to the extent potential buyers are also faced with higher mortgage rates, their ability to borrow and the amount they may borrow would be diminished, potentially negatively impacting the sales velocity or pricing.

76

During 2006 and 2007, we experienced increased competition, lower prices and decreased sales activity, initially at our condominium conversion projects in Florida, but affecting all relevant markets by the end of 2007. As a result of these changes in market conditions, we increased our estimated marketing costs and sales incentives for many of our condominium conversion projects, which reduced our expected gross profit margins for these projects. We have used assumptions based on the most recent and reliable information available to us both in the field and in the industry as a whole. If market conditions change, the resulting changes to these assumptions could impact the expected gross margin of the project and, to the extent such change is negative, result in a different determination as to its impairment.

We recognized $194.9 million ($101.3 million in cost of sales and $93.6 million in impairment charges) of write-downs on impaired assets for the year ended December 31, 2007, $21.7 million ($19 million in cost of sales and $2.7 million in impairment charges) for the year ended December 31, 2006 and none for the year ended December 31, 2005. The write-downs in 2007 were attributable to six condominium conversion communities, three active rental developments, one active mid-rise development, six pipeline projects, and five land developments. The write-downs recorded in 2006 were attributable to five condominium conversion communities and two land developments. Of our real estate inventory balance, 37.8% as of December 31, 2007, and 22.2% as of December 31, 2006, represented impaired projects that had been written down to fair value.

For rental real estate, the evaluation for impairment generally consists of reviewing the property’s cash flow and current and projected market conditions, as well as changes in general and local economic conditions. Key assumptions in this evaluation of impairment include the projected future capitalization rate and length of time the property will be held for investment. The first has a material impact on the future sale price, and the second impacts the expected cumulative undiscounted cash flow, as the longer the holding period, the more likely the carrying value will be recovered. Our assumptions are based on current capitalization rates and our best estimate of the probability-weighted investment holding period. A change in either one of these assumptions could result in a different conclusion concerning impairment and related charges. In 2007, we recorded impairment charges of $173.8 million to reduce the carrying value of eight rental properties and two commercial properties to their estimated fair values less estimated cost of sale. In 2006, we recorded impairment charges of $810,000 to reduce the carrying value of two properties in our rental real estate portfolio to their estimated fair values less estimated cost of sale. In 2005, we recorded a total of $1.4 million in impairment charges after entering into contracts to sell four properties, reducing their carrying values to the sale price less estimated cost of sale.

Investments in Joint Ventures Accounted for Using the Equity Method. FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” (“FIN 46R”) clarifies the application of Accounting Research Bulletin 51, “Consolidated Financial Statements,” for certain entities that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or in which equity investors do not have the characteristics of a controlling financial interest, or “variable interest entities.” Variable interest entities within the scope of FIN 46R are required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected returns, or both. We applied the provisions of FIN 46R to our existing joint ventures in the first quarter of 2004. Substantial judgment is required in the determination of which entities are variable interest entities and who is the primary beneficiary.

We have investments in a number of partnerships or joint ventures in which we hold non-controlling interests or our outside partners have significant participating rights, as defined by the FASB’s Emerging Issues Task Force in its 96-16 and 04-5 Consensuses and which we have determined are not variable interest entities, as defined by FIN 46R. We use the equity method to account for investments in partnerships and joint ventures over which we exercise significant influence but do not control and which are not variable interest entities of which we are the primary beneficiary. Under the equity method, our initial investments are increased by our proportionate

77

share of the partnerships’ operating income and additional advances and decreased by our proportionate share of the partnerships’ operating losses and distributions received. Our interest in intercompany transactions is eliminated. We determine our proportionate share of the profits or losses of the partnerships and joint ventures consistent with the allocation of cash distributions in accordance with the provisions of the American Institute of Certified Public Accountants’ Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures.”

The net effect of not consolidating these joint ventures is to exclude their assets, liabilities, and gross revenues and expenses from our consolidated financial statements. There has been no effect on reported net income or loss except in instances where we have received distributions from a joint venture in excess of our investment in the joint venture, with the excess recorded as income. In these situations, we have recovered our investment in the joint venture, its indebtedness is non-recourse to us, and we have no obligation to fund any of its cash flow deficits.

Revenue Recognition. We have generally recognized revenue from sales at the time of closing under the completed contract method. The related profit is recognized when collectibility of the sale price is reasonably assured and the earnings process is substantially complete. When a sale does not meet the requirements for income recognition, profit is deferred until such requirements are met. For high- and mid-rise condominium developments, where construction typically takes eighteen months or more, the percentage-of-completion method of revenue recognition is applied. Under this method, once construction is beyond a preliminary stage, a substantial percentage of homes are under firm contracts, buyers are committed to the extent of being unable to require refunds except for non-delivery of the home, the sale prices are deemed collectible, and remaining costs and revenues can be reasonably estimated, revenue is recorded as a portion of the value of non-cancelable sale contracts. The percentage of completion is calculated based upon the percentage of construction costs incurred in relation to total estimated construction costs. Any amounts due under sale contracts, to the extent recognized as revenue, are recorded as contracts receivable, and are reported net of an allowance for uncollectible contracts receivable. We estimate the number of defaults that may occur for sales under existing contracts that have not yet closed based on our default experience to date. We revise these estimates as additional information becomes available.

Rental revenue is recognized on the straight-line method. Lease terms for our apartment communities are generally for one year or less. Lease terms for our commercial properties are generally from three to five years, although they may be shorter or longer. Rental concessions are deferred and amortized on the straight-line method over the lease terms as a reduction to rental revenue. We accrue percentage rentals only after the tenant’s sales have reached the threshold provided in the lease.

Interest and management fee revenue are recognized when earned. Revenue from long term laundry and cable service contracts is deferred and amortized to income on the straight-line method over the terms of the contracts.

Income taxes. We provide for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated financial statements in the period that includes the enactment date. We establish valuation allowances on our deferred tax assets when we believe it is more likely than not that the deferred tax assets will not be recovered.

Gains on Sale of Real Estate. Gains on sales of real estate are recognized when and to the extent permitted by SFAS No. 66, “Accounting for Sales of Real Estate” (“SFAS No. 66”). Until the requirements of SFAS No. 66

78

for full profit recognition have been met, transactions are accounted for using the deposit, installment, cost recovery, or financing method, whichever is appropriate.

Discontinued operations. In accordance with SFAS No. 144, we present our operating results for our disposed assets or assets held for sale as discontinued operations for all years presented, unless we anticipate we will have either significant cash flows from those assets after the disposal date (“direct continuing cash flows”) or the ability to significantly influence the financial or operating policies over those assets (“significant continuing involvement”) after the disposal date. EITF No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations” (“EITF 03-13”), further clarifies that continuing cash flows consist of cash inflows (and outflows) Tarragon, as the ongoing entity, would generate from the disposed assets or in the disposed assets’ markets.

When we determine our continuing cash flows (inflows or outflows—on a gross basis) from a disposed asset or asset held for sale will be direct or our continuing involvement will be significant, we retain the asset’s operating results in continuing operations. For purposes of our continuing cash flows assessment of a disposed asset or asset held for sale, we conclude total estimated continuing cash inflows are direct if they are greater than 5% of the cash inflows we anticipate we would have generated from the asset if it were still a part of our ongoing operations. For a given asset, we estimate our cash flow amounts using the best available information, which may include preliminary budgets, internal projections, and agreements we have either executed or contemplate with other parties. In accordance with SFAS No. 144 and EITF 03-13, we evaluate our original assessment over the period ending one year after the disposal date, at a minimum when we encounter circumstances that may change our assessment. See NOTE 11. “ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS.”

Warranties. We provide warranties on workmanship and structural integrity in accordance with statutory requirements, which vary by state. Warranty reserves have been established by charging cost of sales and recording a warranty liability. The amounts charged are estimated by management to be adequate to cover expected warranty-related costs under all unexpired warranty obligation periods. Our warranty cost accruals are based upon experience taking into consideration the types and locations of the projects. Actual future warranty costs could differ from our currently estimated amounts.

Accounting Pronouncements Not Yet Adopted

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”), to increase consistency and comparability in fair value measurements. SFAS No. 157 creates a single definition of fair value, emphasizes fair value as a market-based measurement, establishes a framework for measuring fair value, and enhances disclosure requirements. On November 14, 2007, the FASB agreed to defer the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities until fiscal years and interim periods beginning after November 15, 2008. On February 12, 2008, the FASB documented the deferral in FASB Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157” “FSP FAS 157-2.” As a partial modification of the November 2007 decision, FSP FAS 157-2 does not apply to non-financial assets and non-financial liabilities that companies record or disclose at fair value at least annually. On February 14, 2008, the FASB issued FSP No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,” which excludes asset and liabilities subject to lease accounting under SFAS No. 13 and related accounting pronouncements, except for lease assets and liabilities assumed in a business combination.

Companies that have already issued financial statements using SFAS No. 157 before February 12, 2008, are not eligible for the deferral under FSP FAS 157-2; however, companies would retroactively apply the impact of FSP FAS 157-2 to their initial adoption date of SFAS No. 157. SFAS No. 157 would still be effective for

79

financial assets and financial liabilities, as well as non-financial assets and non-financial liabilities outside of the scope of the FSP FAS 157-2, for fiscal years and interim periods beginning after November 15, 2007. We are currently evaluating the impact, if any, SFAS No. 157 will have on our consolidated financial statements.

In November 2006, the FASB ratified EITF Issue No. 06-8, “Applicability of a Buyer’s Continuing Investment Under FASB Statement No. 66 for Sales of Condominiums” (“EITF 06-8”). EITF 06-8 provides guidance in assessing the collectibility of the sales price, which is required to recognize profit under the percentage-of-completion method pursuant to SFAS No. 66. EITF 06-8 states that an entity should evaluate the adequacy of the buyer’s initial and continuing investment in reaching its conclusion that the sales price is collectible. The continuing investment criterion in paragraph 12 of SFAS No. 66 would be met by requiring the buyer to either (1) make additional payments during the construction term at least equal to the level annual payments that would be required to fund principal and interest payments on a hypothetical mortgage for the remaining purchase price of the property or (2) increase the initial investment by an equivalent aggregate amount. If the test for initial and continuing investment is not met, the deposit method should be applied and profit recognized only once the aggregate deposit meets the required investment test for the duration of the construction period. EITF 06-8 will be effective for the first annual reporting period beginning after March 15, 2007. Accounting for sales of condominiums not consistent with EITF 06-8 would require a cumulative effect adjustment to retained earnings in the period of adoption. We do not expect the adoption of EITF 06-8 to have a material effect on our consolidated financial statements. The application of the continuing investment criteria on the collectibility of the sales price will limit our ability to recognize revenue and costs using the percentage of completion accounting method.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” (“SFAS No. 159”).  This statement permits entities to choose to measure financial assets and liabilities, with certain exceptions, at fair value at specified election dates.  A business entity must report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.  This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007.  We adopted SFAS No. 159 on January 1, 2008 and elected not to adopt the provisions of SFAS No. 159 with respect to our existing financial assets and liabilities.

In November 2007, the FASB issued EITF Issue No. 07-6, “Accounting for the Sale of Real Estate Subject to the Requirements of SFAS No. 66 When the Agreement Includes a Buy-Sell Clause” (“EITF 07-6”). A buy-sell clause is a contractual term that gives both investors of a jointly-owned entity the ability to offer to buy the other investor’s interest. EITF 07-6 applies to sales of real estate to an entity if the entity is both partially owned by the seller of the real estate and subject to an arrangement between the seller and the other investor containing a buy-sell clause. The EITF concluded the existence of a buy-sell clause does not represent a prohibited form of continuing involvement that would preclude partial sale and profit recognition pursuant to SFAS No. 66. However, the buy-sell clause could represent such a prohibition if the terms of the buy-sell clause and other facts and circumstances of the arrangement suggest:

• the buyer cannot act independently of the seller; or

• the seller is economically compelled or contractually required to reacquire the other investor’s interest in the jointly owned entity.

EITF 07-6 is effective for new arrangements in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. We are currently evaluating the impact, if any, EITF 07-6 will have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements: an amendment of ARB No. 51” (“SFAS No. 160”), which provides a uniform accounting and

80

reporting approach for noncontrolling interests, or minority interests, in subsidiaries. SFAS No. 160 amends ARB No. 51, “Consolidated Financial Statements,” by requiring an entity that is a parent to a subsidiary report the noncontrolling interest in the subsidiary as equity in the parent’s consolidated financial statements. The face of the parent’s consolidated income statement must show the portion of consolidated net income attributable to the parent separate from that attributable to the noncontrolling owners. An entity that changes but retains its controlling interest must report the change as an equity transaction. An entity that loses its controlling interest must adjust its remaining interest in the former subsidiary to fair value as of the deconsolidation date and report the change as a gain or loss in consolidated net income in the applicable reporting periods. The parent’s financial statement disclosures must include the following:

• a reconciliation of beginning and ending balances of the parent’s equity and noncontrolling owners’ equity in the subsidiary; and

• a schedule showing the changes in equity resulting from changes in the parent’s ownership interest.

SFAS No. 160 also amended SFAS No. 128, “Earnings per Share,” by continuing to base earnings (loss) per share calculations on the operating results of the parent. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. We have not determined the impact, if any, SFAS No. 160 will have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS No. 141R”), which replaces SFAS No. 141, “Business Combinations” (“SFAS No. 141”). SFAS No. 141R does not apply to the formation of a joint venture or the acquisition of an asset that does not constitute a business combination. Unlike SFAS No. 141, SFAS No. 141R defines an acquiring entity as the entity that obtains control of one or more businesses in a business combination, and SFAS No. 141R expands the scope of SFAS No. 141 to include business combinations that do not involve an exchange or transfer of consideration. It also defines the acquisition date as the date upon which the acquiring entity achieves control of the acquired business or businesses. Under SFAS No. 141R, an acquiring entity must still apply the acquisition method, or purchase method, to all business combinations. SFAS No. 141R is effective, on a prospective basis, for business combinations with an acquisition date on or after the fiscal years beginning on or after December 15, 2008. We have not determined the impact, if any, SFAS No. 141R will have on our consolidated financial statements.

On March 19, 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We have not determined the impact, if any SFAS No. 161 will have on our consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates that may adversely affect our financial position, results of operations, and cash flows. In seeking to minimize the risks from interest rate fluctuations, we manage such exposure through our regular operating and financing activities. We do not trade or speculate in financial instruments. Changes in interest rates on fixed rate debt generally affect the fair value of the instrument, but not earnings or cash flow. We estimate the fair value of our $565.1 million of consolidated fixed rate debt to be $534.6 million as of December 31, 2007.

At December 31, 2007, we had approximately $546.5 million of consolidated variable rate debt. The primary base rate is 30-day LIBOR. Using this amount of debt, a 100 basis point (1%) increase in LIBOR or any other indexes on which the rates are based would reduce our annual pre-tax earnings and cash flows by approximately $5.5 million. A 100 basis point decrease in interest rates would increase our annual pre-tax earnings and cash flows by approximately $5.5 million.

At December 31, 2007, unconsolidated partnerships and joint ventures had approximately $116.3 million of variable rate debt. A 100 basis point increase in the index on which the rates are based would reduce our annual pre-tax earnings and cash flows by $415,000, based on our interests in profits and losses of those entities. A 100 basis point decrease in the index would increase our pre-tax earnings by $415,000.

81

As of December 31, 2007, we had an interest rate cap on $31.9 million of variable rate debt. The cap has no value, therefore a 100-basis-point (1%) increase or decrease in LIBOR would have no material effect on our pre-tax earnings.

As of December 31, 2007, we had an interest rate swap agreement with a fair value of ($2.7 million) on $60 million of variable rate debt. We are accounting for this derivative as a hedge, and therefore, changes in its fair value are recorded to accumulated other comprehensive income (loss) and do not affect earnings. A 100-basis-point (1%) increase in LIBOR would increase the fair value of the swap agreement by ($891,000), and a 100-basis-point (1%) decrease in LIBOR would decrease the fair value of the swap agreement by ($4.5 million). The impact on cash flows of the changes in fair value of the swap agreement are offset by the impact on cash flows of changes in the variable rate interest on the hedged transaction.

82

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm		84
Consolidated Balance Sheets — December 31, 2007 and 2006		85
Consolidated Statements of Operations — December 31, 2007, 2006, and 2005		86
Consolidated Statements of Stockholders’ Equity (Deficit) — December 31, 2007, 2006, and 2005		88
Consolidated Statements of Cash Flows — December 31, 2007, 2006, and 2005		89
Notes to Consolidated Financial Statements		93
Schedule II — Valuation and Qualifying Accounts		140
Schedule III — Rental Real Estate and Accumulated Depreciation		141

All other schedules are omitted because they are not required or are not applicable or because the information required is included in the Consolidated Financial Statements or Notes.

83

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Tarragon Corporation

We have audited the accompanying consolidated balance sheets of Tarragon Corporation (a Nevada Corporation) and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2007. Our audits of the basic financial statements included the financial statement schedules listed in Item 15.2. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tarragon Corporation and subsidiaries as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, Liquidity, to the consolidated financial statements, as of December 31, 2007 the Company had $1,111.6 million in consolidated debt and had guaranteed additional debt of its unconsolidated joint ventures totaling $31.6 million. At December 31, 2007, the Company was not in compliance with certain of its debt covenants. Additionally the Company incurred a net loss of $388.4 million during the year ended December 31, 2007, and, as of that date, the Company’s total liabilities exceeded its total assets by $93.6 million. These factors, among others, as discussed in Note 1 to the consolidated financial statements, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 12, Income Taxes, to the consolidated financial statements, the Company recorded a cumulative effect adjustment as of January 1, 2007, in connection with adoption of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.” As discussed in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements, the Company recorded a cumulative effect adjustment as of January 1, 2006, in connection with the adoption of Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.”

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Tarragon Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our accompanying report dated March 27, 2008, expressed an adverse opinion thereon.

/s/ GRANT THORNTON LLP

New York, New York
March 27, 2008

84

TARRAGON CORPORATION

CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)

	December 31,			December 31,
	2007			2006
Assets
Cash and cash equivalents	$	44,156		$	23,476
Restricted cash		33,122			23,597
Contracts receivable (net of allowance of $5 million in 2007 and $0 in 2006)		5,064			69,048
Real estate inventory:
Land for development		188,681			129,975
Residential construction in progress		111,346			231,894
Condominium conversions		45,474			397,299
Construction in progress — rentals		253,727			257,866
Contract deposits		5,865			13,589
Rental real estate (net of accumulated depreciation of $103,939 in 2007 and $110,520 in 2006)		312,315			731,477
Investments in and advances to partnerships and joint ventures		11,822			61,523
Deferred tax asset		1,522			—
Assets held for sale		82,946			34,531
Other assets, net		38,044			48,486
	$	1,134,084		$	2,022,761
Liabilities and Stockholders’ Equity (Deficit)
Liabilities
Accounts payable and other liabilities:
Trade accounts payable	$	14,911		$	21,387
Other accounts payable and liabilities (including $175 in 2007 and $5,744 in 2006 due to affiliates)		93,617			121,126
Liabilities related to assets held for sale		96,121			25,588
Deferred tax liability		—			34,576
Mortgages and notes payable:
Land for development		63,202			31,586
Residential construction in progress		68,889			129,585
Condominium conversions		36,438			227,137
Construction in progress — rentals		184,311			135,519
Rental real estate		472,575			824,104
Other (including $36,033 in 2007 and $10,381 in 2006 due to affiliates)		66,855			39,800
Senior convertible notes		5,750			5,750
Subordinated unsecured notes		125,000			125,000
		1,227,669			1,721,158
Commitments and contingencies
Minority interest		19,232			22,089
Stockholders’ equity (deficit)
Common stock, $.01 par value; authorized shares, 100,000,000; shares issued, 38,263,508 in 2007 and 38,715,663 in 2006		381			385
Special stock, $.01 par value; authorized shares, 17,500,000; no shares issued		—			—
Cumulative preferred stock, $.01 par value; authorized shares, 2,500,000; shares issued and outstanding, 1,302,085 in 2007 and 1,265,835 in 2006; liquidation preference, $15,190 in 2007 and 2006, or $12 per share		13			13
Additional paid-in capital		407,024			407,260
Accumulated deficit		(472,471	)		(80,059	)
Accumulated other comprehensive loss		(2,708	)		(266	)
Treasury stock, at cost (9,345,554 shares in 2007 and 10,018,806 in 2006)		(45,056	)		(47,819	)
		(112,817	)		279,514
	$	1,134,084		$	2,022,761

The accompanying Notes are an integral part of these Consolidated Financial Statements.

85

TARRAGON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)

	For the Years Ended December 31,
	2007			2006			2005
Revenue
Sales	$	358,911		$	444,274		$	504,722
Rental and other (including $346 in 2007, $225 in 2006, and $0 in 2005 from affiliates)		89,607			82,868			73,708
		448,518			527,142			578,430
Expenses
Cost of sales		481,237			396,507			394,999
Property operations		50,890			41,760			35,584
Depreciation		15,204			15,272			12,121
Provision for losses		3,000			—			1,628
Impairment charges		223,756			2,721			—
General and administrative
Corporate		43,835			33,320			21,045
Property		5,341			5,269			5,072
		823,263			494,849			470,449
Other income and expenses
Equity in income (loss) of partnerships and joint ventures		(8,356	)		17,166			29,603
Minority interests in (income) loss of consolidated partnerships and joint ventures		3,955			(4,748	)		(10,071	)
Interest income (including $318 in 2007, $247 in 2006, and $242 in 2005 from affiliates)		946			854			995
Interest expense (including $2 million in 2007, $602 in 2006, and $49 in 2005 to affiliates)		(72,635	)		(36,349	)		(21,685	)
Gain on sale of real estate		16,466			1,148			3,808
Loss on disposition of other assets		—			—			(300	)
Net gain (loss) on extinguishment of debt		1,587			(3,984	)		(34,771	)
Provision for litigation, settlements, and other claims		(1,988	)		—			(1,214	)
Income (loss) from continuing operations before income taxes		(434,770	)		6,380			74,346
Income tax (expense) benefit		55,483			(3,039	)		(28,289	)
Income (loss) from continuing operations		(379,287	)		3,341			46,057
Discontinued operations, net of income tax benefit (expense) ($5,445 in 2007, ($4,837) in 2006, and ($26,067) in 2005)
Income (loss) from operations		(36,129	)		(4,519	)		732
Gain on sale of real estate		26,975			12,331			41,709
Net income (loss)		(388,441	)		11,153			88,498
Dividends on cumulative preferred stock		(1,534	)		(971	)		(899	)
Net income (loss) allocable to common stockholders	$	(389,975	)	$	10,182		$	87,599

The accompanying Notes are an integral part of these Consolidated Financial Statements.

86

TARRAGON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Dollars in Thousands, Except Per Share Data)

	For the Years Ended December 31,
	2007			2006		2005
Earnings (loss) per common share — basic
Income (loss) from continuing operations allocable to common stockholders	$	(13.20	)	$	.08	$	1.75
Discontinued operations		(.32	)		.28		1.64
Net income (loss) allocable to common stockholders	$	(13.52	)	$	.36	$	3.39
Earnings (loss) per common share — assuming dilution
Income (loss) from continuing operations allocable to common stockholders	$	(13.20	)	$	.09	$	1.61
Discontinued operations		(.32	)		.25		1.32
Net income (loss) allocable to common stockholders	$	(13.52	)	$	.34	$	2.93

The accompanying Notes are an integral part of these Consolidated Financial Statements.

87

TARRAGON CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Dollars in Thousands, Except Per Share Data)

																			Accumulated
													Additional						Other			Treasury
	Preferred Stock						Common Stock						Paid-in			Accumulated			Comprehensive			Stock			Stockholders’
	Shares			Amount			Shares			Amount			Capital			Deficit			Loss			Amount			Equity (Deficit)
Balance, January 1, 2005		753,333		$	8			15,322,892		$	212		$	336,846		$	(173,743	)	$	—		$	(26,830	)	$	136,493
Repurchase of common stock		—			—			(603,016	)		—			—			—			—			(11,928	)		(11,928	)
Retirement of preferred stock		(4,500	)		(1	)		—			—			(56	)		—			—			—			(57	)
Stock issued in connection with conversion of convertible debt		—			—			4,595,579			46			56,204			—			—			—			56,250
Acquisition of interests in partnerships and joint ventures		—			—			85,402			—			1,771			—			—			—			1,771
Dividends on cumulative preferred stock ($1.20 per share)		—			—			—			—			—			(899	)		—			—			(899	)
Stock options and SARs exercised		—			—			1,463,159			15			6,066			—			—			—			6,081
Three-for-two common stock split		—			—			7,703,348			106			(106	)		—			—			—			—
Compensation expense related to stock options granted		—			—			—			—			1,020			—			—			—			1,020
Income tax benefits for non-qualified stock option exercises		—			—			—			—			786			—			—			—			786
Net income		—			—			—			—			—			88,498			—			—			88,498
Balance, December 31, 2005		748,833			7			28,567,364			379			402,531			(86,144	)		—			(38,758	)		278,015
Cumulative effect for change in accounting principle, net of tax		—			—			—			—			—			(4,097	)		—			—			(4,097	)
Balance, December 31, 2005, as adjusted		748,833			7			28,567,364			379			402,531			(90,241	)		—			(38,758	)		273,918
Repurchase of common stock		—			—			(1,034,687	)		—			—			—			—			(15,512	)		(15,512	)
Retirement of preferred stock		(99,665	)		(1	)		—			—			(1,195	)		—			—			—			(1,196	)
Retirement of common stock		—			—			(55,402	)		(4	)		(6,447	)		—			—			6,451			—
Stock options and SARs exercised		—			—			263,165			3			902			—			—			—			905
Conversion of convertible preferred interest in consolidated joint venture		616,667			7			668,096			7			10,889			—			—			—			10,903
Cash dividend paid on common stock ($.10 per share)		—			—			—			—			(2,839	)		—			—			—			(2,839	)
Dividends on cumulative preferred stock ($1.20 per share)		—			—			—			—			—			(971	)		—			—			(971	)
Compensation expense related to stock options granted		—			—			—			—			1,575			—			—			—			1,575
Income tax benefits from non-qualified stock option exercises		—			—			—			—			163			—			—			—			163
Restricted stock grants		—			—			288,321			—			1,681			—			—			—			1,681
Change in value of derivative, net of tax		—			—			—			—			—			—			(266	)		—			(266	)
Net income		—			—			—			—			—			11,153			—			—			11,153
Balance, December 31, 2006		1,265,835			13			28,696,857			385			407,260			(80,059	)		(266	)		(47,819	)		279,514
Retirement of common stock		—			—			(242,823	)		(8	)		(4,397	)		—			—			2,763			(1,642	)
Stock options and SARs exercised		—			—			460,420			4			2,097			—			—			—			2,101
Dividends on cumulative preferred stock ($1.20 per share)		—			—			—			—			—			(1,534	)		—			—			(1,534	)
Issuance of preferred stock		36,250			—			—			—			146			—			—			—			146
Compensation expense for share-based payments		—			—			3,500			—			2,251			—			—			—			2,251
Income tax expense from non-qualified stock option exercises		—			—			—			—			(333	)		—			—			—			(333	)
Cumulative effect of change in accounting principle, net of tax		—			—			—			—			—			(2,437	)		—			—			(2,437	)
Change in value of derivative, net of tax		—			—			—			—			—			—			(2,442	)		—			(2,442	)
Net loss		—			—			—			—			—			(388,441	)		—			—			(388,441	)
Balance, December 31, 2007		1,302,085		$	13			28,917,954		$	381		$	407,024		$	(472,471	)	$	(2,708	)	$	(45,056	)	$	(112,817	)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

88

TARRAGON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)

	For the Years Ended December 31,
	2007			2006			2005
Cash Flows from Operating Activities
Net income (loss)	$	(388,441	)	$	11,153		$	88,498
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Deferred income taxes		(36,098	)		6,840			24,779
Loss on disposition of other assets		—			—			300
Gain on sale of real estate		(59,489	)		(21,116	)		(71,134	)
Net gain on extinguishment of debt		(4,420	)		—			—
Provision for litigation, settlements, and other claims		5,038			—			2,842
Provision for uncollectible contracts receivable		19,895			—			—
Minority interests in income (loss) of consolidated partnerships and joint ventures		(3,955	)		4,748			10,071
Depreciation and amortization of leasing costs		20,783			20,008			15,983
Amortization of deferred borrowing costs		8,934			13,479			18,899
Provision for impairment charges		368,721			22,521			1,438
Equity in (income) loss of partnerships and joint ventures		8,356			(17,166	)		(29,603	)
Distributions of earnings from partnerships and joint ventures		675			7,904			38,128
Stock-based compensation expense		1,355			1,575			1,020
(Excess tax benefit) deficiency from stock-based compensation		333			(163	)		(786	)
Changes in operating assets and liabilities, net of effects of non-cash investing and financing activities:
Real estate inventory		130,253			(188,165	)		(558,599	)
Contracts receivable		44,089			(19,303	)		49,999
Restricted cash		(18,339	)		6,170			4,518
Income tax receivable		(1,067	)		—			—
Other assets		(373	)		11,919			(13,320	)
Accounts payable and other liabilities		(21,160	)		(73,770	)		(36,966	)
Net cash provided by (used in) operating activities		75,090			(213,366	)		(453,933	)
Cash Flows from Investing Activities
Cash paid for acquisition of rental apartment communities		—			—			(39,667	)
Cash received from the sale of real estate		31,837			27,907			86,653
Capital improvements to real estate		(10,439	)		(1,812	)		(8,665	)
Construction and acquisition costs of real estate under development		—			(15,127	)		(46,447	)
Earnest money deposits paid		—			(67	)		(1,186	)
Distributions of capital from partnerships and joint ventures		16,718			20,159			29,465
Advances and contributions to partnerships and joint ventures		(9,525	)		(32,325	)		(54,465	)
Net cash effect of consolidation of partnerships and joint ventures		—			—			170
Cash paid for leasehold improvements		—			(3,818	)		—
Deposits to reserve for replacements		(1,054	)		(2,988	)		(1,577	)
Disbursements from reserves for replacements		1,003			1,042			1,261

The accompanying Notes are an integral part of these Consolidated Financial Statements.

89

TARRAGON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in Thousands)

	For the Years Ended December 31,
	2007			2006			2005
Cash Flows from Investing Activities (continued)
Purchase of joint venture interest	$	(1,750	)	$	—		$	(21,850	)
Other		600			(234	)		652
Net cash provided by (used in) investing activities		27,390			(7,263	)		(55,656	)
Cash Flows from Financing Activities
Proceeds from borrowings		271,161			972,400			1,442,704
Principal payments on notes payable		(371,644	)		(754,326	)		(877,523	)
Advances from affiliates		54,731			20,110			1,010
Repayments of advances from affiliates		(29,079	)		(9,729	)		(1,010	)
Distributions to minority partners of consolidated partnerships and joint ventures		—			(12,289	)		(10,122	)
Contributions from minority partners of consolidated partnerships and joint ventures		392			21,454			—
Premium paid on conversion of convertible notes		—			—			(4,340	)
Deferred borrowing costs paid		(7,503	)		(12,264	)		(22,074	)
Stock repurchases		—			(16,708	)		(11,955	)
Dividends to stockholders		(763	)		(3,810	)		(929	)
Proceeds from the exercise of stock options		1,039			905			6,081
Excess tax benefit (deficiency) from stock-based compensation		(333	)		163			786
Change in cash overdrafts		199			(845	)		3,628
Net cash (used in) provided by financing activities		(81,800	)		205,061			526,256
Net increase (decrease) in cash and cash equivalents		20,680			(15,568	)		16,667
Cash and cash equivalents, beginning of year		23,476			39,044			22,377
Cash and cash equivalents, end of year	$	44,156		$	23,476		$	39,044
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest	$	52,177		$	34,028		$	47,231
Income taxes paid (refunded)	$	(8,620	)	$	(5,742	)	$	22,773

The accompanying Notes are an integral part of these Consolidated Financial Statements.

90

TARRAGON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in Thousands)

	For the Years Ended December 31,
	2007			2006			2005
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired and liabilities assumed in connection with the purchase of rental apartment communities:
Real estate	$	—		$	—		$	39,342
Restricted cash		—			—			172
Other assets		—			—			555
Accounts payable and other liabilities		—			—			(402	)
Cash paid for acquisition of rental apartment communities	$	—		$	—		$	39,667
Assets written off and liabilities released in connection with the sale of real estate:
Real estate	$	383,363		$	41,264		$	108,172
Other assets		(9,657	)		605			4,149
Notes payable		(374,553	)		(33,818	)		(94,438	)
Accounts payable and other liabilities		(29,962	)		(1,260	)		(2,325	)
Minority interest		—			—			(39	)
Gain on extinguishment of debt		3,503			—			—
Gain on sale (excluding land)		59,143			21,116			71,134
Cash received from the sale of real estate	$	31,837		$	27,907		$	86,653
Effect on assets and liabilities of the consolidation of four apartment communities in 2005, two development projects in 2006, and nine development projects in 2007:
Real estate	$	—		$	—		$	41,620
Real estate inventory		57,075			70,244			17,161
Investments in and advances to (distributions from) partnerships and joint ventures		(36,545	)		(27,974	)		425
Restricted cash		375			17			1,421
Other assets		92			1,528			492
Cash acquired on consolidations		—			—			170
Notes payable		(21,300	)		(33,763	)		(59,680	)
Accounts payable and other liabilities		960			(3,052	)		(1,609	)
Minority interest		(657	)		(7,000	)		—
	$	—		$	—		$	—

The accompanying Notes are an integral part of these Consolidated Financial Statements.

91

TARRAGON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in Thousands)

	For the Years Ended December 31,
	2007			2006			2005
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES (Continued):
Effect on assets and liabilities of the transfer of one apartment community to an unconsolidated joint venture in 2006:
Real estate inventory	$	—		$	(54,314	)	$	—
Investments in and advances to partnerships and joint ventures		—			(9,625	)		—
Restricted cash		—			(838	)		—
Other assets		—			(1,847	)		—
Notes payable		—			65,431			—
Other liabilities		—			325			—
Minority interest		—			868			—
	$	—		$	—		$	—
Conversion of convertible notes to common stock	$	—		$	—		$	56,250
Rental real estate transferred to real estate inventory	$	—		$	171,263		$	174,311
Real estate inventory transferred to rental real estate	$	170,451		$	162,661		$	—
Cumulative effect of change in accounting principle, net of tax	$	(2,437	)	$	—		$	—
Change in derivative, net of tax	$	(2,442	)	$	(266	)	$	—
Issuance and vesting of restricted stock grants	$	1,360		$	—		$	—
Stock retired in connection with stock option exercises	$	(1,062	)	$	—		$	—
Stock retired for income tax withholding	$	(580	)	$	—		$	—
Accrued dividends on preferred stock	$	771		$	—		$	—
Issuance of preferred stock	$	146		$	—		$	—

The accompanying Notes are an integral part of these Consolidated Financial Statements.

92

TARRAGON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying Consolidated Financial Statements of Tarragon Corporation, its subsidiaries, and consolidated partnerships and joint ventures (collectively “Tarragon”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), the most significant of which are described in NOTE 2. “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.” The Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements. The data presented in the Notes to Consolidated Financial Statements are as of December 31 of each year and for the years then ended unless otherwise indicated. Dollar amounts in tables are in thousands, except per share amounts.

NOTE 1. LIQUIDITY

Throughout 2007, market conditions in the homebuilding industry continued to deteriorate. This market deterioration was driven primarily by a decline in consumer confidence and increased volatility in the mortgage market and resulted in a decline in home prices and sales volume, increases in cancellations, increased use of sales discounts, higher brokerage fees, and other sales incentives, and increased interest and other carrying costs. The decline in home prices and increase in discounts and incentives decreased our cash flows as closings required additional cash to satisfy lender release prices. We also incurred additional lease-up and interest costs associated with apartment properties that we had targeted for conversion into condominiums and subsequently decided to operate as rental properties. Current market conditions remain difficult, and there can be no assurance that they will not continue to adversely impact our operations.

The sudden and rapid deterioration in the real estate credit markets in the summer of 2007 prevented us from completing financing transactions that had been under negotiation, materially affecting our liquidity, including our ability to repay existing indebtedness as it became due and meet other current obligations, and our ability to comply with financial covenants contained in our existing debt agreements. As described in more detail in NOTE 5. “NOTES PAYABLE,” we did not pay August 2007 debt service as scheduled and received notices of default and acceleration from most of our lenders. With the exception of a $7.4 million land loan, all of these loans were reinstated or brought current and/or the loans were satisfied through sale of the associated assets. However, we are currently out of compliance with certain debt covenants on many loans. As of December 31, 2007, we were not in compliance with financial covenants in certain of our existing debt agreements. Failure to comply with these covenants could constitute an event of default that allows the lenders to demand immediate repayment of all outstanding borrowings or pursue other remedies unless we can reach an agreement with such lenders to amend the financial covenants. Our inability to comply with our financial covenants, obtain waivers of non-compliance, restructure our debt or obtain alternative financing to replace our existing debt would have a material adverse effect on the Company’s financial position, results of operations and cash flows.

In response to these events, we began a program to sell non-core assets, including all of the multi-family properties that had been targeted for condominium conversion. Nine of these properties were sold between September 2007 and January 2008, and two more properties are currently under contract of sale. In general, these newer, high quality assets were in different stages of lease-up or renovation in connection with being repositioned as rental properties. Moreover, most of these properties had been financed with significant amounts of short-term, floating rate debt. Accordingly, the sale of these assets improved the Company’s liquidity by reducing negative cash flow, reducing debt, and generating sales proceeds. In addition, in an effort to reduce overhead, we implemented a workforce reduction in August 2007. However, due to severance costs, the workforce reduction had very little impact on expenses for 2007.

The Company’s plan to improve its liquidity contemplates additional property sales and, more importantly, continued reduction in our condominium inventory. In addition, the Company continues to negotiate extensions

93

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1. LIQUIDITY (Continued)

of maturing debt obligations. Some of our efforts to reduce costs were offset by fees paid to financial advisors and other consultants engaged by Tarragon in the third quarter of 2007 to assist with the evaluation of strategic and financial alternatives.

During 2007, we recorded impairment charges of $368.8 million, $101.3 million of which was recorded in cost of sales, $223.8 million of which was recorded in impairment charges, and $43.7 million of which was reported in discontinued operations in the Consolidated Statement of Operations. We also recorded an impairment charge of approximately $6 million during 2007 to write down our investment in an unconsolidated joint venture. See further discussion at NOTE 4. “INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS AND JOINT VENTURES.” In addition, we wrote off $7.8 million in pursuit costs (contract deposits) in 2007 which were included in general and administrative expenses — corporate in the Consolidated Statement of Operations.

Our consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of December 31, 2007, we had $1,111.6 million in consolidated debt, and had guaranteed additional debt of our unconsolidated joint ventures totaling $31.6 million. For the year ended December 31, 2007, we incurred a net loss of ($388.4 million). As of December 31, 2007, we had stockholders’ deficit of ($112.8 million), which was a significant decrease compared to stockholders’ equity of $279.5 million as of December 31, 2006. These factors raise substantial doubt about our ability to continue as a going concern; however, management believes that the restructuring plan currently in place will continue to generate sufficient liquidity to adequately fund operations and enable us to continue as a going concern. Nonetheless, there can be no assurance that we will be able to successfully implement our restructuring plan on favorable terms, or at all. The success of this restructuring plan will depend on our ability to complete our planned sales of properties, to modify or obtain waivers of financial covenants in our debt agreements, to extend or refinance our maturing debt obligations and to continue to sell completed homes in our inventory. If we are unable to generate sufficient liquidity to fund our operations or are unable to modify or obtain waivers of financial covenants and extend or refinance our maturing debt, it may be necessary for us to undertake other actions as may be appropriate at such time. The accompanying Consolidated Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation. The Consolidated Financial Statements include the accounts of Tarragon, and all of its subsidiaries, partnerships and joint ventures (which consist primarily of limited liability companies) in which Tarragon has a controlling interest and variable interest entities in which Tarragon is deemed the primary beneficiary. Tarragon is deemed to control partnerships and joint ventures that have no unaffiliated owners and for which Tarragon is designated as the manager and the outside owners are given no participating rights, as defined in the Financial Accounting Standard Board’s (“FASB”) Emerging Issues Task Force (“EITF”) 96-16 Consensus, “Investor’s Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights” (“EITF 96-16”) and EITF 04-5 Consensus, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.” All significant intercompany transactions and balances have been eliminated in consolidation.

We evaluate material joint ventures under FASB Interpretation No. 46, “Consolidations of Variable Interest Entities,” (“FIN 46R”), which requires the consolidation of certain entities in which an enterprise absorbs a majority of the entity’s

94

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. At December 31, 2007, we have identified 13 joint ventures as VIEs. We have consolidated 12 of these VIEs because we are the primary beneficiary. The 12 entities consist of one partnership with 24 rental communities and 5,690 apartments, one limited liability company with a rental apartment community containing 90 units, two limited liability companies engaged in development, one with a 215-unit age-restricted traditional new development, and the other with a 217-unit rental development, and eight limited liability companies that own land for future development. The aggregate total assets of the 12 consolidated VIEs were $468.8 million as of December 31, 2007. Of the total assets, $283 million, net of accumulated depreciation of $82.9 million, was classified as rental real estate, and $158.8 million was classified as real estate inventory at December 31, 2007 in the accompanying Consolidated Balance Sheet. At December 31, 2007, these entities had debt of $517.5 million, of which $11.9 million is non-recourse to the general assets of Tarragon.

We have identified one VIE that is not consolidated, as we are not the primary beneficiary. This VIE is a limited liability limited partnership that acquired a rental apartment community for conversion to condominium homes for sale. The liabilities of this VIE are non-recourse to the general assets of Tarragon. In accordance with the terms of the partnership agreement, Tarragon may be required to fund a portion of partnership losses up to a maximum of $195,000. Through December 31, 2007, none of that amount had been funded. We are a limited partner and have recovered our investment in the partnership.

At December 31, 2006, the aggregate total assets of our six consolidated VIEs were $436.4 million. Of the total assets, $313.8 million, net of accumulated depreciation of $75.8 million, was classified as real estate held for investment, and $106.2 million was classified as real estate inventory in the accompanying Consolidated Balance Sheet. These entities had debt of $525.1 million at December 31, 2006, $446 million of which was non-recourse to the general assets of Tarragon.

Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis, the Company reviews its estimates and assumptions. The Company’s estimates are based on its historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions. Revenue recognized under the percentage of completion method is based upon estimated construction costs. Gross profit on sales is recognized based upon estimates of remaining revenue and costs on development projects. Any material changes in these estimates could impact revenue and gross profit recognized. Critical estimates used in impairment analysis for rental real estate include the projected future capitalization rate and the length of time the property will be held. Critical estimates used in impairment analysis for development projects include the remaining revenue and costs, sales velocity and its impact on holding costs, and sale incentives. Asset impairment analysis is also based on current and projected market and economic conditions, among other things. Any material changes in any of these factors could cause actual results to differ from such estimates.

Real estate and depreciation. Rental real estate to be held and used is carried at cost unless an impairment is determined to exist. We periodically evaluate whether events or changes in circumstances indicate that the carrying value of any of our rental real estate may not be recoverable. This evaluation generally consists of a review of the property’s cash flow and current and projected market conditions, as well as any changes in general and local economic conditions. If an impairment loss exists based on the results of this review, the

95

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

asset’s carrying value is written down to estimated fair value with a charge against current earnings.

We capitalize improvements and major rehabilitation projects that increase the value of the respective property and have useful lives greater than one year except for individual expenditures less than $10,000 that are not part of a planned renovation project. Depreciation is provided against rental real estate by the straight-line method over the estimated useful lives of the assets, as summarized in the following table:

Carpet and vinyl flooring	5 years
Appliances and common area upgrades	10 years
Roof replacements	10-15 years
Boiler/HVAC replacements	10-20 years
Plumbing replacements and apartment upgrades	20 years
Building and building improvements	40 years

Properties for which we have implemented a plan of disposal are reclassified to assets held for sale. We cease depreciating these properties in the month following their reclassification to held for sale. These properties remain classified as held for sale until sold or until we discontinue our plan of disposal. We resume depreciating properties reclassified from held for sale in the month of their reclassification, and depreciation expense is adjusted to record depreciation for the time during which the properties were classified as held for sale. Real estate held for sale is carried at the lower of cost or estimated fair value less estimated costs to sell. For the year ended December 31, 2007, we wrote down the carrying value of eight apartment properties and two commercial properties to their estimated fair value less cost of sale with a charge to earnings of $173.8 million ($43.7 million of which was presented in discontinued operations). For the years ended December 31, 2006 and 2005, we recorded impairment charges of $810,000 and $1.4 million, respectively, when we wrote down the carrying value of one commercial property and one apartment property in 2006, and two commercial properties and two apartment properties in 2005 to their estimated fair value less cost of sales.

Properties may be transferred from real estate inventory to rental real estate either upon the decision not to convert to condominiums but, instead, to be operated as rental properties or upon the completion of construction or reposition. We begin depreciating properties transferred from real estate inventory to rental real estate in the month of transfer.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” operating results for assets sold or held for sale from which we will not have continuing cash flows and with which we will not have significant continuing involvement are presented as discontinued operations for all years presented. Under EITF No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations,” (“EITF 03-13”), for assets which we anticipate we will have significant continuing cash inflows or outflows or significant continuing involvement after disposal, we retain the operating results of the disposed properties in continuing operations. See further discussion in NOTE 11. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS.”

Real estate inventory. Real estate inventory consists of land for development, residential construction in progress, condominium conversions, construction in progress — rentals, and contract deposits. Land for development includes costs of land acquired and any additional improvement costs to ready land for use. Residential construction in progress includes development costs of new construction of condominiums,

96

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

townhomes, high- and mid-rise developments intended for sale. Condominium conversions include the acquisition and development costs of condominium conversions in various stages of construction. Construction in progress — rentals include development costs of new construction of rental apartment communities. Contract deposits represent deposits made in connection with executing contracts to purchase development projects. Real estate inventory under development, including capitalized interest and real estate taxes, is carried at cost unless an impairment is determined to exist. Whenever events or circumstances indicate that the carrying value of real estate inventory under development may not be recoverable, the related assets are written down to their estimated fair value, with an offsetting charge to either cost of sales or impairment charges (depending on the circumstances).

Completed real estate inventory is carried at the lower of cost or fair value less cost of sale.

The following table summarizes impairment charges related to real estate inventory recorded during the year ended December 31, 2007:

					Impairments		Write-offs
			Impairments		Included In		of		Total
	Number of		Included In		Impairment		Contract		Impairments/
Project Type	Projects		Cost of Sales		Charges		Deposits		Write-offs
Active condominium conversions		6	$	66,875	$	—	$	—	$	66,875
Active mid-rise developments		1		32,049		—		—		32,049
Active rental repositions/ developments		3		—		27,513		—		27,513
Active land developments		5		2,357		9,679		—		12,036
Pipeline and pre-pipeline projects		6		—		56,434		—		56,434
Contract deposits		16		—		—		7,833		7,833
Total		37	$	101,281	$	93,626	$	7,833	$	202,740

For the year ended December 31, 2006, we recorded impairment charges, presented in cost of sales, of $19 million related to five condominium conversion communities and wrote off $10.7 million in contract deposits. In 2005, we wrote off $1.8 million in contract deposits and recorded no impairment charges.

Cost of sales. Cost of sales includes land, construction costs, development salaries, construction supervision, marketing, commissions and other selling costs, property taxes, insurance, interest (previously capitalized), developer fees, architectural and engineering fees, and impairment charges related to active projects. Cost of sales is recognized based upon estimates of remaining revenue and costs on development projects. Any material changes in these estimates could impact cost of sales recognized. The following table presents interest (previously capitalized), impairment charges and development salaries, marketing and selling costs included in cost of sales for the periods presented.

	For the Year Ended December 31,
	2007		2006		2005
Cost of sales:
Interest (previously capitalized)	$	42,490	$	24,169	$	20,017
Development, salaries, marketing and selling costs		26,010		23,509		23,429
Construction and other project costs		412,737		348,829		351,553
	$	481,237	$	396,507	$	394,999
Impairment charges included in cost of sales (above):
Interest (previously capitalized)	$	9,414	$	4,349	$	—
Development, salaries, marketing and selling costs		2,932		826		—
Construction and other project costs		88,935		13,815		—
	$	101,281	$	18,990	$	—

97

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for uncollectible contracts receivable. Amounts due under sales contracts, to the extent recognized as revenue under the percentage-of-completion method, are recorded as contracts receivable and are reported net of an allowance for uncollectible contracts receivable. We estimate the number of defaults that may occur for sales under existing contracts that have not yet closed based on our default experience to date. We revise these estimates as additional information becomes available. At December 31, 2007, our contracts receivable of $5.1 million are net of an allowance of $5 million for estimated potential customer defaults. The following table presents the activity in our allowance for uncollectible contracts receivable:

	For the Years Ended December 31,
	2007			2006		2005
Allowance for uncollectible contracts receivable at January 1	$	—		$	—	$	—
Provision for uncollectible contracts receivable		19,895			—		—
Write-offs		(14,847	)		—		—
Allowance for uncollectible contracts receivable at December 31	$	5,048		$	—	$	—

Warranties. We provide warranties on workmanship and structural integrity in accordance with contractual or statutory requirements, which vary by state. Warranty reserves have been established by charging cost of sales and recording a warranty liability. The amounts charged are estimated by management to be adequate to cover expected warranty-related costs for unexpired warranty obligation periods. Our warranty cost accruals are based upon experience taking into consideration the types and locations of the projects. See NOTE 14. “COMMITMENTS AND CONTINGENCIES” for a discussion of statutory notices of claims for construction defects received from homeowners associations of four of our recently completed projects in Florida.

The following table presents the activity in our warranty liability account included in other accounts payable and liabilities, in the accompanying Consolidated Balance Sheets:

	For the Years Ended December 31,
	2007			2006			2005
Warranty liability at January 1	$	4,000		$	2,664		$	—
Warranty costs accrued		1,335			1,917			2,664
Warranty costs paid		(508	)		(581	)		—
Warranty liability at December 31	$	4,827		$	4,000		$	2,664

Capitalized interest. We capitalize interest on funds used in constructing property from the date of initiation of construction activities through the time the property is ready for leasing or sale.

The following table is a summary of interest expense, net:

	For the Years Ended December 31,
	2007			2006			2005
Total interest incurred	$	107,032		$	97,460		$	56,254
Deferred borrowing cost amortization		8,883			10,702			7,103
Interest capitalized		(43,280	)		(71,813	)		(41,672	)
Interest expense, net	$	72,635		$	36,349		$	21,685

98

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash and cash equivalents. We consider all highly liquid debt instruments purchased with maturities of one year or less to be cash equivalents.

Restricted cash. Restricted cash is primarily escrow accounts, generally held by the lenders of certain of our mortgage notes payable, for taxes, insurance, and property repairs and replacements and deposits from buyers at our for-sale properties held in escrow.

Other assets, net. Other assets consist primarily of notes and interest receivable, tenant accounts receivable, deferred borrowing costs, and prepaid leasing commissions. Notes and interest receivable was $4.6 million and $1.6 million as of December 31, 2007 and 2006, respectively, gross of allowances of $4.6 million and $1.6 million, respectively. Deferred borrowing costs are amortized using the straight-line method which approximates the effective interest method and such amortization is included in interest expense. Prepaid leasing commissions are amortized to leasing commission expense, included in property operating expenses, on the straight-line method over the related lease terms.

Goodwill. Goodwill was recorded in connection with the acquisitions of Tarragon Realty Advisors and Accord Properties Associates and, until December 31, 2001, was amortized on the straight-line method. In accordance with SFAS No.142, “Goodwill and Other Intangible Assets,” goodwill is no longer amortized but rather carried on the balance sheet as a permanent asset and is subject to at least annual assessment for impairment by applying a fair-value-based test. The balance of goodwill was $2.7 million as of December 31, 2007 and 2006 and is included in other assets in the accompanying Consolidated Balance Sheets. As of December 31, 2007 and 2006, there were no material identifiable intangible assets, other than goodwill.

Revenue Recognition. Sales revenue is typically recognized at the time of closing under the completed contract method. The related profit is recognized when collectibility of the sale price is reasonably assured and the earnings process is substantially complete. When a sale does not meet the requirements for income recognition, profit is deferred until such requirements are met. For high-rise and mid-rise condominium developments, where construction typically takes eighteen months or more, the percentage-of-completion method is applied. Under this method, once construction is beyond a preliminary stage, a substantial percentage of homes are under firm contracts, buyers are committed to the extent of being unable to require refunds except for non-delivery of the home, the sale prices are deemed collectible, and remaining costs and revenues can be reasonably estimated, revenue is recorded as a portion of the value of non-cancelable sale contracts. The percentage of completion is calculated based upon the percentage of construction costs incurred in relation to total estimated construction costs. Any amounts due under sale contracts, to the extent recognized as revenue, are recorded as contracts receivable, net of an allowance for uncollectible contracts receivable, as discussed above.

For the criteria that construction must be beyond a preliminary stage, we believe that most developers use a measure of 25% to 50% of costs incurred to conclude construction is beyond a preliminary stage. We have concluded that construction was beyond a preliminary stage at 50% completion (through 2005) and 40% completion (since 2006), provided the exterior structure including the roof of the building is complete. The

99

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

effect of this change in accounting estimate was to increase income from continuing operations and net income in the second quarter of 2006 by $4.1 million, or $0.14 per share and $0.13 per fully diluted share, and to decrease income from continuing operations and net income in the third quarter of 2006 by the same amount.

Rental revenue is recognized on the straight-line method. Lease terms for our apartment communities are generally for one year or less. Lease terms for our commercial properties are generally from three to five years, although they may be shorter or longer. Rental concessions are deferred and amortized on the straight-line method over the lease terms as a reduction to rental revenue. We accrue percentage rentals only after the tenants’ sales have reached the threshold provided in the lease.

Interest and management fee revenue are recognized when earned. Revenue from long-term laundry and cable service contracts is deferred and amortized to income on the straight-line method over the terms of the contracts.

Gains on Sale of Real Estate. Gains on sales of real estate are recognized when and to the extent permitted by SFAS No. 66 — “Accounting for Sales of Real Estate.” Until the requirements of SFAS No. 66 for full profit recognition have been met, transactions are accounted for using the deposit, installment, cost recovery, or financing method, whichever is appropriate.

Investments in noncontrolled partnerships and joint ventures. We use the equity method to account for investments in partnerships and joint ventures over which we exercise significant influence but do not control, and that are not required to be consolidated under the provisions of FIN 46R as discussed above. Under the equity method, our initial investments are increased by our proportionate share of the partnerships’ and joint ventures’ operating income and additional advances and decreased by our proportionate share of the partnerships’ and joint ventures’ operating losses and distributions received. We determine our proportionate share of the profits or losses of the partnerships and joint ventures consistent with the allocation of cash distributions in accordance with the provisions of the American Institute of Certified Public Accountants’ Statement of Position (“SOP”) 78-9, “Accounting for Investments in Real Estate Ventures.” Our interest in intercompany transactions is eliminated.

Stock splits. In January 2005, the board of directors approved a three-for-two stock split effective February 10, 2005. All amounts presented have been adjusted for stock splits.

Earnings (loss) per common share. Basic earnings (loss) per share of common stock is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each year. Diluted earnings (loss) per share is calculated by dividing net income available to common stockholders by the weighted average number of shares outstanding including the dilutive effect of Stock-based awards and convertible notes. See NOTE 9. “EARNINGS (LOSS) PER COMMON SHARE.”

Fair value of financial instruments. Financial instruments consist primarily of cash and cash equivalents, accounts receivable, notes receivable, contracts receivable, accounts payable and contract retainage, customer deposits, mortgages and notes payable, senior convertible notes and subordinated unsecured notes. For financial instruments other than senior convertible notes and other fixed rate debt, the carrying amounts approximate their fair value because of their short maturity or because they bear interest at market rates. The estimated fair value of all notes payable was $1 billion and $1.5 billion at December 31, 2007 and 2006, respectively.

100

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock-based awards. In 2002, we adopted the fair value method defined in SFAS No. 123, “Accounting for Stock-Based Compensation,” in accounting for our stock option plans. Previously we applied the Accounting Principles Board’s Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees,” and related Interpretations. We elected to apply SFAS No. 123 prospectively for all options granted or modified since the beginning of 2002, as allowed by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” Effective January 1, 2006, we adopted SFAS No. 123(R) “Share-Based Payments,” which replaces SFAS No. 123, using the modified prospective transition method. SFAS No. 123(R) requires that compensation cost relating to share-based payment transactions be recognized in financial statements. Because the fair value recognition provisions of SFAS No. 123 and SFAS No. 123(R) were materially consistent under our stock option plans, the adoption of SFAS No. 123(R) did not have a significant impact on our consolidated financial statements.

The following table illustrates the proforma effect on net income and earnings per common share for the year ended December 31, 2005 as if the fair value based method had been applied to all outstanding and unvested awards. For more information about our stock option plans, see NOTE 6. “STOCK-BASED AWARDS.”

	For the Year
	Ended
	December 31,
	2005
Net income allocable to common stockholders, as reported	$	87,599
Add:
Stock-based employee compensation expense included in reported net income, net of income taxes		632
Deduct:
Total stock-based employee compensation expense determined under fair value based method for all awards, net of income taxes		(653	)
Pro forma net income allocable to common stockholders	$	87,578
Earnings per common share — basic
Net income allocable to common stockholders, as reported and pro forma	$	3.39
Earnings per common share — assuming dilution
Net income allocable to common stockholders, as reported and pro forma	$	2.93

The effect on income from continuing operations was $21,000 for the year ended December 31, 2005.

Marketing costs. Marketing costs, including advertising, incurred in connection with newly constructed rental apartment communities in lease-up and to be held and used are deferred and amortized to property operating expenses over the lease-up period. Marketing costs incurred in connection with for-sale communities are deferred and recorded as cost of sales when revenue is recognized. Deferred marketing costs are presented in other assets, net in the accompanying Consolidated Balance Sheets. All other advertising costs are recorded to property operating expenses as incurred. Total advertising costs included in property operating expenses were $925,000 (net of $526,000 included in discontinued operations) in 2007, $1.4 million (net of $79,000 included in discontinued operations) in 2006, and $1.2 million (net of $297,000 included in discontinued operations) in 2005.

101

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Concentrations of credit risks. We maintain cash equivalents in accounts with financial institutions in excess of the amount insured by the Federal Deposit Insurance Corporation. We monitor the financial stability of the depository institutions regularly.

Information about Major Customers. Revenue for the year ended December 31, 2007 included the sale of three active condominium conversions in a bulk sale to one purchaser for $49.7 million which represents more than 10% of the consolidated revenue for the year ended December 31, 2007, and is reported in sales revenue by the Development Division.

Geographic concentration risks. Approximately 77% of our total revenues are generated from our operations in Florida, Connecticut and New Jersey, with our other markets comprising the remaining revenues. Consequently, any significant economic downturn in the Connecticut and New Jersey markets or a further decline in the Florida market could potentially have an effect on our business, results of operations and financial condition.

Employee benefit plan. We have a defined contribution plan covering substantially all of our employees. Our contributions are 401(k) matches determined based on 100% of the first 3% and 50% of the next 2% of the employee’s salary deferrals. Total plan expense was $664,000 in 2007, $586,000 in 2006, and $505,000 in 2005 and is included in corporate and property general and administrative expenses in the accompanying Consolidated Statements of Operations.

Income taxes. Income taxes are accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes,” (“SFAS No. 109”). We record income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted.

SFAS No. 109 requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically by the Company based on the SFAS No. 109 more-likely-than-not realization threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives.

At December 31, 2007, the Company’s net deferred tax asset was $1.5 million and at December 31, 2006, the Company’s net deferred tax liability was $34.6 million. As of December 31, 2007, we have recorded a valuation allowance of $122.3 million against our net deferred tax asset.

102

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

See NOTE 12. “INCOME TAXES.”

Comprehensive income (loss). Comprehensive income (loss) is comprised of net income (loss) from our results of operations and changes in the fair value of a derivative accounted for as a cash flow hedge. The components of comprehensive income (loss), net of income taxes, are as follows:

	For the Years Ended December 31,
	2007			2006			2005
Net income (loss)	$	(388,441	)	$	11,153		$	88,498
Changes in fair value of derivative, net of income tax benefit		(2,442	)		(266	)		—
Comprehensive income (loss)	$	(390,883	)	$	10,887		$	88,498

Derivative instruments and hedging activities. On April 10, 2006, we entered into an interest rate swap agreement with a major financial institution as the counterparty. This agreement effectively fixes the variable rate on $60 million of subordinated unsecured notes issued March 1, 2006, for five years, which reduces our exposure to volatility in interest costs. See NOTE 5. “NOTES PAYABLE.” The interest rate swap agreement is based on a notional amount of $60 million, a fixed rate of 5.377%, a floating rate index of three month LIBOR and a maturity of April 30, 2011.

We designated and accounted for the interest rate swap as a cash flow hedge in accordance with SFAS No. 133, as amended, “Accounting for Derivative Instruments and Hedging Activities.” The effective portion of the gain or loss on a derivative instrument is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The fair value of the interest rate swap agreement was estimated based upon quoted market rates of similar financial instruments and is valued at ($2.7 million) as of December 31, 2007 and was valued at ($433,000) at December 31, 2006.

The net change in fair value of ($2.4 million) is included in accumulated other comprehensive income (loss) in the accompanying Consolidated Balance Sheets. Amounts to be received or paid as a result of the swap agreement are recognized as adjustments to interest incurred on the related debt. During the period from inception through December 31, 2007, the interest rate swap agreement was considered an effective hedge, and there were no gains or losses recognized in earnings for hedge ineffectiveness.

Quantifying and Recording Misstatements. We adopted the SEC’s Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”) as of January 1, 2006. The SEC issued SAB 108 to provide consistency in quantifying financial misstatements. SAB 108 established the “dual approach” method of quantifying misstatements, which requires quantification of financial statement misstatements under both the rollover and iron curtain methods. The rollover method, which quantifies a misstatement based on the amount of the error originating in the current year income statement, can result in the misstatement of one or more balance sheet accounts. The iron curtain method, which quantifies a misstatement based on the amount of the error in the balance sheet at the end of the current year, can trigger misstatements in the current year income statement. Before 2006, we applied the rollover method.

103

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

As allowed by SAB 108, we reported the cumulative effect of the initial application of SAB 108 in the carrying amounts of assets and liabilities as of January 1, 2006, with an offsetting amount to accumulated deficit. Upon adoption, we recorded a $4.1 million reduction of accumulated deficit, net of income taxes of $1.7 million, to correct errors arising in 2005. Our $1.9 million reduction of total assets primarily consisted of adjustments to gross profit on development projects. Our $2.2 million increase of total liabilities included property operating and general and administrative expenses ($2.6 million) and the tax effect of a transaction that occurred in 2005 ($1.3 million), offset by the stated tax effect of our corrections under SAB 108.

Except for the $1.3 million increase to income taxes payable, these adjustments were the result of our year end accounting processes, in which we close the books before we determine some immaterial liabilities and make immaterial revisions to certain estimates. We did not record the income taxes payable increase because we did not initially identify all of the tax characteristics of the transaction. Under our prior approach, we determined all of these adjustments were immaterial.

NOTE 3. MINORITY INTERESTS

In February 2000, Tarragon acquired the interests of Robert C. Rohdie and his affiliates in ten apartment communities. Mr. Rohdie, our partner in the development of these projects, contributed his equity interests to Tarragon Development Company, LLC, (“TDC”), an operating entity we formed, in exchange for a preferred interest in TDC of $10 million. Mr. Rohdie joined Tarragon as the president and chief executive officer of Tarragon Development Corporation, a wholly owned subsidiary of Tarragon, and became a member of our board of directors in February 2000. Mr. Rohdie was an officer until March 31, 2007, and a director of Tarragon until August 14, 2007.

Mr. Rohdie’s preferred interest in TDC earned a guaranteed return until September 30, 2006, when he converted his preferred interest into 668,096 shares of our common stock and 616,667 shares of our 10% cumulative preferred stock in accordance with the terms of the operating agreement of TDC. Mr. Rohdie received distributions of $770,366 and $623,556 in 2006 and 2005, respectively, in payment of his guaranteed return.

During 2006, we purchased the interests of our outside partners in two separate consolidated entities. In January 2006, we acquired a 15% outside member’s interest in Adams Street Development, L.L.C. for $1.7 million. In April 2006, we purchased a 15% interest of an outside member in Block 99/102 Development, L.L.C. for $5 million.

During 2005, we purchased the interests of our outside partners in eight separate consolidated entities. In January 2005, we acquired our partners’ interests in One Las Olas, Ltd., 100 East Las Olas, Ltd., East Las Olas, Ltd., and Metropolitan Sarasota, Ltd. for $14.8 million. In April 2005, we purchased the 30% outside member’s interest in Fenwick Tarragon Apartments, L.L.C. for $1 million. In May 2005, we purchased the 30% outside partners’ interest in Guardian-Jupiter Partners, Ltd., for $5 million. We purchased the 30% outside member’s interest in Summit/Tarragon Murfreesboro, L.L.C. for $1.5 million in September 2005. Lastly, also in September 2005, we purchased the 30% outside member’s interest in Lake Sherwood Partners, L.L.C. for $3.4 million. The excess of the aggregate $11.9 million purchase prices over the carrying amounts of the minority interests was capitalized to the basis of the properties.

104

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS AND JOINT VENTURES

Investments in and advances to partnerships and joint ventures consisted of the following at December 31:

				Carrying Amount
	Profits Interest			2007		2006
Choice Home Financing, L.L.C.		50	%	$	156	$	333
Delaney Square, L.L.C.		50	%		—		—
Hoboken joint ventures:
900 Monroe Street Development, L.L.C. (1)		63	%		—		4,261
Block 106 Development, L.L.C. (1)		63	%		—		5,972
Block 102 Development, L.L.C. (1)		48	%		—		3,069
Block 103 Development, L.L.C. (1)		48	%		—		2,160
Block 112 Development, L.L.C. (1)		63	%		—		11,134
Block 114 Development, L.L.C. (1)		48	%		—		3,767
Block 144 Development, L.L.C. (1)		63	%		—		2,273
TDC/Ursa Hoboken Sales Center, L.L.C. (1)		48	%		—		1,570
Thirteenth Street Development, L.L.C.		50	%		—		—
Upper Grand Realty, L.L.C.		50	%		—		—
Keane Stud, L.L.C.		50	%		8,554		7,795
LOPO, L.P.		50	%		1,025		11,953
Merritt Stratford, L.L.C. (2)		50	%		—		325
Orchid Grove, L.L.C.		50	%		1,455		6,279
Park Avenue at Metrowest, Ltd.		50	%		—		—
Shefaor/Tarragon, LLLP		29	%		—		—
Tarragon Calistoga, L.L.C.		80	%		632		632
				$	11,822	$	61,523

(1)	These entities were consolidated in the fourth quarter of 2007, in accordance with the provisions of FIN 46R.
(2)	This entity was consolidated in the second quarter of 2007 upon the acquisition of our partner’s 50% interest for $1.75 million.

We account for our investments in these partnerships and joint ventures using the equity method because we hold noncontrolling interests or our outside partners have significant participating rights, as defined in EITF 96-16 and EITF 04-5, or we are not the primary beneficiary of a VIE, as defined under FIN 46R.

During the year ended December 31, 2007, we recorded impairment charges of $6 million related to our investment in Orchid Grove, L.L.C., when management concluded our investment was not recoverable.

Loan Guarantees for Unconsolidated Partnerships and Joint Ventures.

Tarragon and its partner jointly and severally guarantee repayment of a construction loan of Orchid Grove, L.L.C., upon maturity in April 2008. The commitment amount of this loan is $52.4 million, and the outstanding balance as of December 31, 2007, was $31.6 million. The joint venture stopped making interest payments subsequent to year end in February 2008. We intend to seek an extension of the term with the current lender or to otherwise refinance this debt. There can be no assurance that we will be successful in this regard. However, we believe the value of the collateral property should be sufficient to satisfy the obligation. In accordance with FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” at inception, the fair value of this guarantee totaling $1.5 million was recorded as a liability, which is presented in other accounts payable and liabilities in the accompanying Consolidated Balance Sheet.

105

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS AND JOINT VENTURES (Continued)

As of December 31, 2006, we had guaranteed payment of one construction loan, one condominium conversion loan, and three land loans of five unconsolidated joint ventures. The aggregate fully funded amount of the five loans was $92.7 million, and the aggregate outstanding balance was $69.8 million. As of December 31, 2006, a liability of $2.1 million had been recorded in connection with these guarantees.

Below are summarized financial data combined for our unconsolidated partnerships and joint ventures, as listed above, none of which are individually significant as of and for the periods indicated.

	As of December 31,
	2007			2006
Real estate inventory	$	133,439		$	201,883
Other assets, net		5,948			13,369
Notes payable (1)		(122,224	)		(147,788	)
Other liabilities		(10,292	)		(14,443	)
Partners’ capital	$	6,871		$	53,021
Our proportionate share of partners’ capital (deficit)	$	(6,778	)	$	39,586
Cash distributions in excess of investment		10,040			9,625
Liability established for excess distributions		6,510			5,434
Liability established for debt guarantees		1,455			2,058
Impairment charge		(6,045	)		—
Loan to partnership		4,949			3,342
Costs associated with investment in joint ventures		1,691			1,478
Investments in and advances to partnerships and joint ventures	$	11,822		$	61,523

	For the Year Ended December 31,
	2007			2006		2005
Sales revenue	$	71,867		$	63,909	$	230,806
Gross profit (loss) from home sales		(4,253	)		5,155		67,957
Net income (loss)		(4,375	)		11,125		68,274

(1) Includes a $4.9 million note payable to us from one of our joint ventures in 2007, and $3.5 million in 2006.

106

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5. NOTES PAYABLE

At December 31, 2007, scheduled principal payments on mortgages and notes payable are due as follows:

	2008		2009		2010		2011		2012		Thereafter		Total
Mortgages and notes payable
Land for development	$	63,202	$	—	$	—	$	—	$	—	$	—	$	63,202
Residential construction in progress		34,852		32,115		36		39		1,847		—		68,889
Condominium conversions		10,571		25,867		—		—		—		—		36,438
Construction in progress — rentals		97,610		56,154		30,547		—		—		—		184,311
Rental real estate		503		22,142		6,167		2,018		398,715		43,030		472,575
Other		16,390		14,433		—		—		—		36,032		66,855
Senior convertible notes		5,750		—		—		—		—		—		5,750
Subordinated unsecured notes		—		—		—		—		—		125,000		125,000
Mortgages and notes payable presented in liabilities related to assets held for sale		69,048		402		9,745		1,826		264		7,284		88,569
	$	297,926	$	151,113	$	46,495	$	3,883	$	400,826	$	211,346	$	1,111,589

We did not make August 2007 debt service payments as scheduled and received notices of default and acceleration from most of our lenders. With the exception of a $7.4 million land loan, all of these loans were reinstated or brought current and/or the loans were satisfied through sale of the associated assets. However, we are currently out of compliance with certain debt covenants on many loans. The land loan matured on July 29, 2007. Under the terms of the note, the interest rate increased from 8% to 18% per annum upon maturity of the loan. In August 2007, North Water LLC, the lender, initiated foreclosure proceedings. We intend to defend the foreclosure. Accrued but unpaid interest at the contractual rate and late fees on this loan were $1 million at December 31, 2007.

As of December 31, 2007, we did not meet the financial covenants for consolidated debt totaling $373.2 million. We have obtained waivers of financial covenants for loans totaling $364.2 million. After obtaining a waiver, we sold a rental development in

107

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5. NOTES PAYABLE (Continued)

February 2008 and repaid the $76.2 million construction loan.

There can be no assurance that we will be able to reach agreements with our lenders to extend or refinance the maturing debt or to successfully defend the foreclosure of the Norwalk, Connecticut, property. Our inability to extend our debt, or obtain alternative financing to replace our maturing debt, would have a material adverse effect on the Company’s financial position, results of operations and cash flows.

Mortgages and notes payable. Mortgages and notes payable at December 31, 2007, bear interest at fixed rates from 1% to 13% per annum and variable rates currently ranging from 5.6% to 13.5% and mature from 2008 through 2051. Mortgages on rental real estate are generally nonrecourse and are collateralized by deeds of trust on real estate with an aggregate net carrying value of $394 million. Loans on development properties are generally recourse and are collateralized by deeds of trust on real estate inventory with an aggregate carrying value of $576 million. Some of our loans on development properties and the indenture governing the subordinated unsecured notes contain certain financial covenants.

Subordinated unsecured notes. On June 15, 2005, we issued $40 million of subordinated unsecured notes due June 30, 2035. The notes bear interest, payable quarterly, at 8.71% through June 30, 2010, and afterwards at a variable rate equal to LIBOR plus 4.4% per annum (9% at December 31, 2007). The notes are prepayable after June 30, 2010 at par. On September 12, 2005, we issued an additional $25 million of subordinated unsecured notes due October 30, 2035. The notes bear interest, payable quarterly, at 8.79% through October 30, 2010, and afterwards at a variable rate equal to LIBOR plus 4.4% per annum (9% at December 31, 2007). The notes are prepayable after October 30, 2010 at par. On March 1, 2006, we issued an additional $60 million of subordinated unsecured notes due April 30, 2036. These notes bear interest at 400 basis points over 30-day LIBOR, with interest payable quarterly (8.6% at December 31, 2007). These notes are prepayable after April 30, 2011, at par. In April 2006, we entered into an interest rate swap agreement to effectively fix the variable rate on this $60 million. See further discussion in NOTE 2. “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.” As of December 31, 2007, the outstanding principal balance of these three series of subordinated unsecured notes was $125 million.

As of December 31, 2007, we were not in compliance with the debt service coverage ratio and net worth covenants contained in the indentures for the subordinated unsecured notes. As discussed in NOTE 13. “RELATED PARTY TRANSACTIONS,” we have obtained a waiver of these covenants through September 2009. After September 2009, if we are unable to comply with these covenants, under the terms of the indentures, the indenture trustee or the holders of not less than 25% of the outstanding notes of any series (after 30 days prior notice), could give us a notice of default and accelerate payment of these subordinated unsecured notes. The acceleration of our obligations under these notes would have a material adverse effect on our liquidity and financial position.

Senior convertible notes. In 2004, we completed the sale of $62 million principal amount of 8% Senior Convertible Notes Due 2009 (the “Notes”). The Notes are general, senior, unsecured obligations of Tarragon, bear interest at 8% per annum and are convertible into our common stock at a conversion rate of 82.1168 shares per $1,000 in principal amount of the Notes (equal to a conversion price of $12.18 per share of our common stock), subject to adjustment in certain instances. During 2005, we converted $56.25 million of the Notes into 4.6 million shares of common stock. In connection with this conversion, we paid a premium of $4.3 million

108

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5. NOTES PAYABLE (Continued)

and wrote off $2.9 million of deferred financing expenses. The outstanding balance of remaining senior convertible notes was $5.8 million at December 31, 2007.

In August 2007, we received a notice of default from the holder of the senior convertible notes based on cross-default provisions in the indenture governing the notes. In October 2007, we received a subsequent notice of default and acceleration for failure to make the semi-annual interest payment due September 15, 2007. We reached a settlement with the noteholder in January 2008 and repaid the convertible notes at a discount.

Other notes payable. Other notes payable as of December 31, 2007 include $14.1 million outstanding under a bank line of credit secured by mortgages on land owned by one of our consolidated joint ventures and unsold units of one of our condominium projects. Advances under this line of credit bear interest at 225 basis points over 30-day LIBOR (6.85% at December 31, 2007). Payments of interest only are due monthly, with all outstanding principal and interest due in May 2008. As of December 31, 2007, the line of credit was fully drawn. As of December 31, 2007, we were not in compliance with the financial covenants contained in this line of credit. We have received a waiver of the financial covenants from the lender through the maturity of this loan.

As of December 31, 2007, we also had a $36 million unsecured term loan with affiliates of William S. Friedman, chairman of our board of directors and chief executive officer. For the terms of this loan, see NOTE 13. “RELATED PARTY TRANSACTIONS.”

Forbearance Agreements

In October 2007, we entered into agreements with Bank of America under which three mortgage loans and a land loan, with an aggregate balance of $71.4 million at December 31, 2007, are now cross defaulted. As of December 31, 2007, we were not in compliance with the financial covenants of two of the mortgage loans totaling $22.5 million. Bank of America also agreed to waive the financial covenants through the maturities of these two loans in April 2008.

In October 2007, Tarragon and Regions Bank entered into an agreement under which Regions Bank agreed to forbear from exercising its rights relating to existing defaults under three loan agreements, with an aggregate $25.6 million outstanding December 31, 2007, until January 2, 2008. Pursuant to this agreement, the maturity of the $2.2 million loan was extended to January 2, 2008, at which time it was repaid. In addition, we were not in compliance with financial covenants on one of the two remaining loans as of December 31, 2007. Tarragon has executed an amendment to the forbearance agreement, which extends the forbearance period until July 1, 2008, at which time the other two loans mature.

In November 2007, we entered into agreements with National City and Capmark Finance pursuant to which they agreed to forbear from exercising their rights resulting from existing defaults under two construction loans and one loan secured by a rental property until July 14, 2009. Under the terms of the agreements, these loans are now cross-defaulted and cross-collateralized, and August through October 2007 debt service payments of $1.9 million were paid in January 2008. Subject to the forbearance terms, the lender conditionally waived payment of approximately $2.4 million of default interest provided there are no further defaults under the existing loans through July 2009. The loan secured by a rental property was reduced from $74.4 million to $14.4 million when the property was sold in December 2007, and this note (the “Shortfall Note”) is now secured by second liens on the other two properties and matures in December 2009. As of December 31, 2007,

109

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5. NOTES PAYABLE (Continued)

we were not in compliance with the net worth covenant contained in the Shortfall Note. Pursuant to the forbearance agreement, we are not required to meet this covenant until June 30, 2009. The aggregate outstanding balance at December 31, 2007, of the three loans was $40.4 million.

Other Noncompliance with Financial Covenants

In addition to our failure to meet the financial covenants contained in the indenture governing the subordinated unsecured notes and the bank line of credit discussed above, as of December 31, 2007, we were not in compliance with the financial covenants in the following loans.

We have four additional loans with Bank of America with a combined outstanding balance as of December 31, 2007, of $119.3 million. We have obtained waivers of the financial covenants for three of the loans through the maturities of these loans. The fourth loan had an outstanding balance of $76.2 million at December 31, 2007 and was repaid in February 2008 when the property was sold.

As of December 31, 2007, we had an outstanding loan from BankAtlantic with an outstanding balance of $2 million. We obtained a waiver of financial covenants through December 31, 2008.

We have two construction loans with iSTAR with an aggregate balance of $46.3 million as of December 31, 2007. We obtained a waiver of the financial covenants through March 2008, and amended the financial covenants in March 2008.

As of December 31, 2007, we had an $8.5 million construction loan with Wachovia Bank, National Association on one of our consolidated joint venture properties. We obtained a waiver of the financial covenants from the lender until the next reporting period ending March 31, 2008.

As of December 31, 2007, we did not meet the financial covenants in the $9 million land loan of Block 103/104/114.

Other

In September 2007, we entered into cash management agreements with General Electric Capital Corporation, (“GECC”) pursuant to which rents from all of the properties securing loans from GECC are deposited in an account controlled by GECC. GECC uses the rents to pay debt service and fund reserves and then funds agreed-upon amounts monthly to Tarragon to pay property operating expenses. All of the GECC loans have been reinstated and/or satisfied through the sale of the associated properties. GECC loans with an aggregate outstanding balance of $416.8 million as of December 31, 2007, are cross-defaulted and cross-collateralized.

On December 28, 2007, we sold six properties securing a credit facility from Barclays Capital Real Estate, Inc. (“Barclays”). The purchaser assumed the outstanding loan balances on the properties as of the closing date. However, Barclays required Tarragon to remain as a co-guarantor of the loans for a maximum amount of $15 million (the “limitation amount”). Under the amended guaranty, Barclays will reduce the limitation amount by an amount equal to the buyer’s prepayment as a percentage of the outstanding loan balance prior to the repayment. In connection with the sale, on December 28, 2007, the guaranty was reduced to $11.7 million. The guaranty as of December 31, 2007, remained at $11.7 million. In accordance with FIN 45, we have recorded a liability of $95,000 representing the fair value of the guaranty and presented in other accounts payable and liabilities in the accompanying December 31, 2007, Consolidated Balance Sheet.

110

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6. STOCK-BASED AWARDS

Tarragon has an Independent Director Stock Option Plan (the “Director Plan”), a Share Option and Incentive Plan (the “Incentive Plan”), and an Amended and Restated Omnibus Plan (collectively, the “Option Plans”). The Director Plan and the Incentive Plan expired in November 2005, and no future grants will be made under these plans. Through November 2005, under Tarragon’s Director Plan, independent directors received annual awards of options to purchase 2,000 shares of Tarragon common stock on January 1 of each year. The options were immediately exercisable and expire on the earlier of the first anniversary of the date on which the director ceases to serve as a director or ten years from the date of grant. The compensation committee of our board of directors adopted a standing resolution to grant non-employee directors options to purchase 2,000 shares of Tarragon common stock on the first business day of each year under the Omnibus Plan consistent with the annual grants formerly made under the Director Plan.

Through November 2005, under the Incentive Plan, incentive stock options were awarded to officers and employees of Tarragon and its subsidiaries. Under the Omnibus Plan, we have a maximum of two million shares of common stock available for issuance, including an aggregate of one million shares of common stock that are available for issuance of awards other than stock options. The Plan authorizes the award of incentive stock options and non-qualified stock options to our employees and directors, as well as restricted or unrestricted stock awards or stock units; dividend equivalent rights; other stock based awards, including stock appreciation rights payable in stock or cash; and performance based and annual incentive awards. The stock options vest between one and five years from the date of grant and expire between five and ten years thereafter, unless the optionees’ relationship with Tarragon terminates earlier. The stock appreciation rights (“SARs”) have ten-year terms, are limited in appreciation to $15 per share, may be settled only in shares of our common stock, and vest immediately or between one and three years from the date of grant. As of December 31, 2007, there were 1,373,390 shares of common stock available for grant under the Omnibus Plan.

Stock-based compensation expense recognized under SFAS No. 123(R), “Share-Based Payments,” for the years ended December 31, 2007, 2006 and 2005 was approximately $849,000, $973,000, and $632,000, respectively, net of income taxes. As of December 31, 2007, there was approximately $1.2 million of total unrecognized compensation cost related to nonvested stock options, restricted stock and SARs, which are expected to be amortized over the weighted average life of 3.04 years.

111

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6. STOCK-BASED AWARDS (Continued)

The following table summarizes stock option activity:

	For the Years Ended December 31,
	2007					2006					2005
				Weighted					Weighted					Weighted
				Average					Average					Average
	Number of			Exercise		Number of			Exercise		Number of			Exercise
	Options			Prices		Options			Prices		Options			Prices
Outstanding at January 1		2,716,579		$	5.91		2,721,767		$	4.48		4,150,959		$	4.06
Granted		14,000			12.17		385,500			18.40		70,125			22.96
Exercised		(458,805	)		4.58		(246,194	)		3.67		(1,457,349	)		3.81
Forfeited		(269,406	)		11.48		(144,494	)		9.93		(41,968	)		7.27
Outstanding at December 31		2,002,368		$	5.50		2,716,579		$	5.91		2,721,767		$	4.48
Exercisable at December 31		1,817,580		$	4.34		2,220,119		$	4.06		2,307,752		$	3.68
Weighted average grant-date fair value of options granted				$	1.25				$	7.90				$	6.30

The following table summarizes SARs activity:

	For the Years Ended December 31,
	2007					2006					2005
				Weighted					Weighted					Weighted
				Average					Average					Average
	Number of			Exercise		Number of			Exercise		Number of			Exercise
	SARs			Prices		SARs			Prices		SARs			Prices
Outstanding at January 1		282,277		$	14.05		323,796		$	13.74		105,300		$	8.75
Granted		—			—		4,000			14.13		311,000			15.78
Exercised		(12,600	)		9.72		(43,149	)		11.79		(88,150	)		15.37
Forfeited		(85,034	)		15.18		(2,370	)		14.57		(4,354	)		23.07
Outstanding at December 31		184,643		$	13.83		282,277		$	14.05		323,796		$	13.74
Exercisable at December 31		162,548		$	13.87		123,427		$	14.06		35,650		$	10.28
Weighted average grant-date fair value of SARs granted				$	—				$	3.00				$	3.49

The aggregate intrinsic value as of December 31, 2007, of vested options and vested SARs was $0 .

112

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6. STOCK-BASED AWARDS (Continued)

A summary of the status of nonvested stock options as of December 31, 2007, 2006 and 2005 is presented below:

	For the Years Ended December 31,
	2007					2006					2005
				Weighted					Weighted					Weighted
				Average					Average					Average
	Number of			Grant Date		Number of			Grant Date		Number of			Grant Date
	Options			Fair Value		Options			Fair Value		Options			Fair Value
Nonvested at January 1		496,460		$	7.29		414,015		$	5.08		661,013		$	4.80
Granted		—			—		371,500			7.92		52,123			6.64
Vested		(190,468	)		6.00		(152,687	)		6.64		(260,906	)		4.91
Forfeited		(121,204	)		6.58		(136,368	)		7.19		(38,215	)		4.95
Nonvested at December 31		184,788		$	7.98		496,460		$	7.29		414,015		$	5.08

A summary of the status of nonvested SARs as of December 31, 2007, 2006 and 2005 is presented below:

	For the Years Ended December 31,
	2007					2006					2005
				Weighted					Weighted					Weighted
				Average					Average					Average
	Number of			Grant Date		Number of			Grant Date		Number of			Grant Date
	SARS			Fair Value		SARS			Fair Value		SARS			Fair Value
Nonvested at January 1		158,850		$	3.12		288,146		$	3.12		97,500		$	3.30
Granted		—			—		1,500			3.14		228,301			3.09
Vested		(119,010	)		3.12		(129,716	)		3.14		(37,500	)		3.12
Forfeited		(17,745	)		3.34		(1,080	)		2.80		(155	)		2.80
Nonvested at December 31		22,095		$	3.67		158,850		$	3.12		288,146		$	3.12

The fair value of each option and SAR is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	For the Years Ended December 31,
	2007			2006			2005
Dividend yield		.50	%		.29	%		—
Expected volatility		34	%		31	%		21	%
Risk-free interest rate		4.64	%		4.79	%		3.64	%
Expected lives (in years)		.50			7.79			4.62
Forfeitures		1.80	%		1.80	%		1.80	%

113

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6. STOCK-BASED AWARDS (Continued)

The following table summarizes information about the options outstanding at December 31, 2007:

	Outstanding						Exercisable
			Weighted						Weighted		Weighted
Range of			Average		Weighted				Average		Average
Exercise			Contractual		Average				Contractual		Exercise
Prices	Options		Life		Exercise Price		Options		Life		Price
$2.39-3.53		1,400,415		2.59	$	3.15		1,400,415		2.59	$	3.15
4.24-5.42		258,328		4.60		4.92		245,953		4.58		4.90
7.47-8.89		90,375		5.99		8.45		75,000		6.00		8.45
9.13-18.78		134,750		7.95		15.25		54,612		7.77		13.23
20.46-25.32		118,500		7.94		21.21		41,600		7.87		21.94
$2.39-25.32		2,002,368		3.68	$	5.50		1,817,580		3.28	$	4.34

The following table summarizes information about the SARs outstanding at December 31, 2007:

	Outstanding						Exercisable
			Weighted						Weighted		Weighted
Range of			Average		Weighted				Average		Average
Exercise			Contractual		Average				Contractual		Exercise
Prices	SARs		Life		Exercise Price		SARs		Life		Price
$8.47-13.16		91,846		6.97	$	10.97		74,081		6.96	$	10.69
16.33-19.97		92,097		7.08		16.62		87,767		7.07		16.48
21.20-23.63		700		7.45		22.62		700		7.45		22.62
$8.47-23.63		184,643		7.03	$	13.83		162,548		7.02	$	13.87

The following table summarizes information about restricted stock grants as of December 31, 2007 and 2006:

	For the Years Ended December 31,
	2007				2006
			Grant Date				Grant Date
	Number of Shares		Fair Value		Number of Shares		Fair Value
Restricted stock issued to directors		3,500	$	41		3,500	$	66
Restricted stock granted to employees		—	$	—		284,821	$	4,030

In February 2008, we granted restricted stock awards for 81,045 shares of stock to employees and 16,209 shares of stock to a director under the Omnibus Plan. The restricted stock awards issued to employees vest one year after the date of grant, and there are no restrictions on trading upon vesting. The fair value of the 81,045 shares was $127,000 on the grant date. The director grant was immediately vested but subject to the director’s agreement not to sell as long as the director remains on our board of directors. The fair value of the 16,209 shares issued to a director was $24,000 on the grant date. In January and February 2008, we granted options to purchase 651,596 shares of stock to employees, which vest over three years, and 148,903 shares of stock to directors under the Omnibus Plan. The stock options granted to directors were immediately exercisable. Neither the options nor the restricted stock would impact the 2007 calculation of loss per share as their effect would be antidilutive due to a loss from continuing operations allocable to common stockholders in 2007.

114

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7. COMMON STOCK REPURCHASE PROGRAM

The board of directors has authorized a common stock repurchase program. In 2007, 2006, and 2005, Tarragon repurchased an aggregate of 1,637,703 shares of its common stock in open market and negotiated transactions at a cost of $27.4 million. Our cumulative cost of common stock repurchases is $47.8 million. As of December 31, 2007, Tarragon had authorization to repurchase an additional 72,288 common shares. We do not expect to make any stock repurchases in the foreseeable future.

NOTE 8. 10% CUMULATIVE PREFERRED STOCK

Our outstanding 10% cumulative preferred stock provides for the payment of a fixed dividend of $1.20 per year, payable quarterly, and has a liquidation value of $12 per share. We may redeem our preferred stock at any time after June 30, 2003 at the liquidation value plus a premium of $0.50 per share, which declines by $0.10 per share each year thereafter ($12.10 at December 31, 2007). No mandatory redemption or “sinking fund” is required. We issued 616,667 shares of 10% cumulative preferred stock in September 2006 in connection with the conversion of a convertible preferred interest in a consolidated joint venture. See NOTE 3. “MINORITY INTERESTS.”

In the third quarter of 2007, Tarragon’s board of directors suspended the payment of quarterly dividends on Tarragon’s 10% cumulative preferred stock beginning with the dividend payable on September 30, 2007. As of December 31, 2007, the preferred stock dividend in arrears was $770,376 in the aggregate, or $.60 per preferred share. If, at any time, six consecutive quarterly dividends are in arrears, then the holders of the 10% cumulative preferred stock, voting separately as a class, have the right to elect one director to sit on the Board of Directors of the Company until such time as the dividends in default have been paid in full.

115

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9. EARNINGS (LOSS) PER COMMON SHARE

Earnings (loss) per common share have been computed based on the weighted average number of shares of common stock outstanding for the years ended December 31, 2007, 2006, and 2005. Following is a reconciliation of earnings (loss) per common share — basic and earnings (loss) per common share – assuming dilution.

	For the Years Ended December 31,
	2007			2006		2005
Net income (loss) allocable to common stockholders, as reported	$	(389,975	)	$	10,182	$	87,599
Add:
Interest expense on convertible notes, net of income taxes		—			339		6,757
Net income (loss) allocable to common stockholders — assuming dilution	$	(389,975	)	$	10,521	$	94,356
Weighted average shares of common stock used in computing earnings per share		28,834,767			28,295,534		25,823,431
Convertible preferred interest of minority partner in consolidated joint venture		—			501,072		668,096
Convertible notes		—			469,771		3,404,846
Effect of stock-based awards		—			1,880,256		2,299,942
Weighted average shares of common stock used in computing earnings per share – assuming dilution		28,834,767			31,146,633		32,196,315
Earnings (loss) per common share
Net income (loss) allocable to common stockholders — basic	$	(13.52	)	$	.36	$	3.39
Net income (loss) allocable to common stockholders — assuming dilution	$	(13.52	)	$	.34	$	2.93

Net income (loss) allocable to common stockholders — assuming dilution in 2007 excludes $533,846 of interest expense on convertible notes, net of income taxes, because its effect was anti-dilutive due to a loss from continuing operations.

The following table summarizes the effect of potentially dilutive items on weighted average shares of common stock outstanding used in the computation of earnings (loss) per share — assuming dilution in 2007 that are not reflected because their effect was antidilutive due to a loss from continuing operations allocable to common stockholders.

	For the
	Year Ended
	December 31,
	2007
Convertible notes		472,172
Effect of stock-based awards		826,700
		1,298,872

116

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. SEGMENT REPORTING

Our business is divided into two principal segments – Development and Investment.

Development. Our activities in the Development Division encompass the development of new mid-rise or high-rise condominiums and town homes for sale to residents, development of new rental properties, primarily apartment communities, condominium conversions of existing apartment communities, and land development and sale. We measure the performance of the Development Division primarily by gross profit from home sales. The following table presents units in our active development projects at December 31, 2007, by product type:

	Remaining Homes
Community	or Home Sites
High-and mid-rise developments (1)		192
Townhome and traditional new developments		546
Condominium conversions		694
Rental developments (2)		1,969
		3,401

(1)	As of December 31, 2007, we have recognized revenue under the percentage of completion method from the sale of 14 units in two projects that had not been delivered.
(2)	Includes 642 units held by the Investment Division.

Investment. This segment includes rental properties under development, in lease-up, and with stabilized operations. We consider a property stabilized when development or renovation is substantially complete and recurring operating income exceeds operating expenses and debt service. At December 31, 2007, we owned 8,771 consolidated stabilized apartments. We also had consolidated commercial properties with 232,000 square feet of space. The results of operations of four apartment communities with 880 units and two commercial properties with 177,000 square feet that are held for sale have been presented in discontinued operations in the accompanying Consolidated Statements of Operations. We also had three rental properties with 719 apartments in lease-up following the transfer of these properties from the Development Division to the Investment Division as a result of the decision not to convert them to condominiums. We have sold one of these properties with 180 units since December 31, 2007. See NOTE 17. “SUBSEQUENT EVENTS.”

We use net operating income to measure the performance of the Investment Division. Net operating income is defined as rental revenue less property operating expenses. We believe net operating income is an important supplemental measure of operating performance of our investment properties because it provides a measure of the core operations of the properties. Additionally, we believe that net operating income, as defined, is a widely accepted measure of comparative operating performance in the real estate community.

We believe that net income (loss) is the most directly comparable GAAP measure to net operating income. The operating statements for the Investment Division present reconciliations of net operating income to net income (loss).

117

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. SEGMENT REPORTING (Continued)

We allocate our general and administrative expenses between the segments based on the functions of the corporate departments. We allocate other corporate items not directly associated with one of our segments, including interest income, management fee and other revenue, and minority interests in income of consolidated partnerships and joint ventures, in the same proportions applicable to our general and administrative expenses.

Prior to January 1, 2004, we transferred properties between segments at their estimated fair values. We reported depreciation and cost of sales in the segment results using these basis amounts, which differed from the basis amounts for GAAP purposes. On January 1, 2007, we eliminated these differences in basis amounts in the segment balance sheets and operating statements.

Following are operating statements and balance sheets for our two segments and net operating income for the Investment Division. In our segment operating statements, we do not distinguish between consolidated and unconsolidated properties. We have provided a reconciliation of segment revenue to consolidated revenue below.

118

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. SEGMENT REPORTING (Continued)

	DEVELOPMENT
	Operating Statements
	For the Years Ended December 31,
	2007					2006					2005
Sales	$	430,778		100	%	$	508,185		100	%	$	735,528		100	%
Cost of sales (1)		(557,357	)	(129	%)		(455,261	)	(90	%)		(557,848	)	(76	%)
Gross profit (loss) on sales		(126,579	)	(29	%)		52,924		10	%		177,680		24	%
Minority interests in sales of consolidated partnerships and joint ventures		3,450		1	%		(2,302	)	—			(2,093	)	—
Outside partners’ interests in sales of unconsolidated partnerships and joint ventures		2,227		—			(2,138	)	—			(33,627	)	(5	%)
Overhead costs associated with investment in joint ventures		(323	)	—			(600	)	—			(1,410	)	—
Performance-based compensation related to projects of unconsolidated partnerships and joint ventures		(7	)	—			(209	)	—			(2,662	)	—
		(121,232	)	(28	%)		47,675		10	%		137,888		19	%
Other income and expenses:
Impairment charges		(115,648	)	(27	%)		(2,721	)	(1	%)		—		—
Interest expense		(17,496	)	(4	%)		(18,307	)	(4	%)		(5,683	)	(1	%)
Net income from rental operations		510		—			7,435		1	%		8,595		1	%
Taxes, insurance, and other carrying costs		(7,198	)	(2	%)		(4,706	)	(1	%)		(876	)	—
Mortgage banking income		—		—			864		—			457		—
General and administrative expenses (including the write-off of pursuit costs of development projects that did not go forward of $7,833 in 2007, $10,694 in 2006, and $1,808 in 2005)		(35,981	)	(8	%)		(31,777	)	(6	%)		(16,229	)	(2	%)
Other corporate items		912		—			250		—			550		—
Provision for litigation, settlement, and other claims		(1,313	)	—			—		—			—		—
Distributions from unconsolidated partnerships and joint ventures in excess of investment		405		—			9,625		2	%		—		—
Provision for losses		(3,000	)	(1	%)		—		—			—		—
Write-off of investment in joint venture		(6,045	)	(1	%)		—		—			—		—
Loss on extinguishment of debt		(562	)	—			(2,855	)	(1	%)		(1,199	)	—
Gain on sale of real estate		346		—			817		—			1,979		—
Income (loss) before income taxes		(306,302	)	(71	%)		6,300		—			125,482		17	%
Income tax (expense) benefit		33,055		8	%		(2,410	)	—			(47,746	)	(6	%)
Net income (loss)	$	(273,247	)	(63	%)	$	3,890		—		$	77,736		11	%

(1) Cost of sales includes marketing and advertising of for-sale communities, salaries and office costs related to personnel directly involved in acquiring, managing, and accounting for for-sale communities, as well as land, construction costs, architectural and engineering fees, and previously capitalized interest. Cost of sales in 2007 included impairment charges of $101.3 million and the effect of margin reductions totaling $52.4 million. Cost of sales in 2006 included impairment charges of $19 million and the effect of margin reductions totaling $23.6 million. Cost of sales in 2005 included the effect of margin reductions totaling $2 million.

119

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. SEGMENT REPORTING (Continued)

	DEVELOPMENT
	Balance Sheets
	December 31,
	2007		2006
Assets
Cash and cash equivalents	$	42,112	$	21,468
Restricted cash		23,329		13,594
Contracts receivable, net		5,064		69,048
Real estate inventory:
Land for development		188,681		129,975
Residential construction in progress		111,346		231,894
Condominium conversions		45,474		397,299
Construction in progress — rentals		178,186		221,545
Contract deposits		5,865		13,390
Investments in and advances to partnerships and joint ventures		11,034		60,559
Other assets, net		20,228		28,045
	$	631,319	$	1,186,817
Liabilities and Equity
Accounts payable and other liabilities:
Trade accounts payable	$	9,994	$	15,903
Other accounts payable and liabilities		65,257		75,144
Deferred tax liability		—		33,055
Mortgages and notes payable:
Land for development		63,202		31,586
Residential construction in progress		68,889		129,585
Condominium conversions		36,438		227,137
Construction in progress — rentals		133,154		128,179
Other		30,822		29,419
Senior convertible notes		—		5,750
Subordinated unsecured notes		125,000		125,000
		532,756		800,758
Minority interest		4,776		9,771
Equity		93,787		376,288
	$	631,319	$	1,186,817

120

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. SEGMENT REPORTING (Continued)

	INVESTMENT
	Operating Statements
	For the Years Ended December 31,
	2007					2006					2005
Rental revenue	$	107,836		100	%	$	92,269		100	%	$	114,827		100	%
Property operating expenses		(56,783	)	(53	%)		(44,858	)	(49	%)		(59,492	)	(52	%)
Net operating income		51,053		47	%		47,411		51	%		55,335		48	%
Net gain on sale of real estate		59,143					24,324					68,856
Distributions from unconsolidated partnerships and joint ventures in excess of investment		—					—					88
Minority interests in (income) loss of consolidated partnerships and joint ventures		505					(2,446	)				(7,685	)
Mortgage banking income		496					—					—
Elimination of management and other fees paid to Tarragon by unconsolidated partnerships and joint ventures		—					—					310
Outside partners’ interest in income of unconsolidated partnerships and joint ventures		—					—					(1,723	)
General and administrative expenses (including legal and financial advisory expenses of $2.3 million in 2007 and investment banking advisory fees of $2,375 in 2005)		(13,334	)				(6,812	)				(9,888	)
Other corporate items		1,680					1,902					865
Impairment charges		(151,792	)				(810	)				(3,066	)
Net gain (loss) on extinguishment of debt		122					(1,363	)				(33,574	)(1)
Provision for litigation, settlements, and other claims		(726	)				—					(1,214	)
Interest expense		(72,412	)				(33,528	)				(33,669	)
Depreciation expense		(17,803	)				(15,948	)				(16,923	)
Income (loss) before income taxes		(143,068	)				12,730					17,712
Income tax (expense) benefit		27,874					(5,467	)				(6,950	)
Net income (loss)	$	(115,194	)			$	7,263				$	10,762

(1) Loss on extinguishment of debt for the year ended December 31, 2005, includes $7.2 million of interest and premium associated with the conversion of convertible debt and $17 million of prepayment penalties and the write-off of deferred borrowing costs in connection with Ansonia’s refinancing of 23 properties in November 2005.

121

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. SEGMENT REPORTING (Continued)

	INVESTMENT
	Balance Sheets
	December 31,
	2007			2006
Assets
Cash and cash equivalents	$	2,044		$	2,008
Restricted cash		9,793			10,003
Construction in progress — rentals		75,541			36,321
Contract deposits		—			199
Rental real estate, net		312,315			731,477
Investments in and advances to partnerships and joint ventures		788			964
Deferred tax asset		1,522			—
Assets held for sale		82,946			34,531
Other assets, net		15,125			17,750
	$	500,074		$	833,253
Liabilities and Deficit
Accounts payable and other liabilities:
Trade accounts payable	$	4,917		$	5,484
Other accounts payable and liabilities		28,360			45,982
Liabilities related to assets held for sale		96,121			25,588
Deferred tax liability		—			1,521
Mortgages and notes payable:
Construction in progress — rentals		51,157			7,340
Rental real estate		472,575			824,104
Other		36,033			10,381
Senior convertible notes		5,750			—
		694,913			920,400
Minority interest		14,456			12,318
Deficit (1)		(209,295	)		(99,465	)
	$	500,074		$	833,253

(1) Investment Division deficit is the result of the net loss reported in 2007 and distributions to the parent exceeding accumulated divisional earnings.

122

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. SEGMENT REPORTING (Continued)

	INVESTMENT
	Net Operating Income
	For the Years Ended December 31,
	2007					2006					2005
Rental revenue
Same store stabilized apartment communities	$	61,753		100	%	$	62,438		100	%	$	59,910		100	%
Apartment communities stabilized or in lease-up during period		6,144		100	%		5,687		100	%		5,230		100	%
Apartment communities transferred to the Development Division for condominium conversion		—		—			—		—			6,557		100	%
Apartment communities acquired during period		5,616		100	%		5,122		100	%		3,826		100	%
Apartment communities sold during period		6,063		100	%		7,685		100	%		18,821		100	%
Apartment communities transferred to the Investment Division upon the decision not to convert to condominiums		24,386		100	%		3,798		100	%		6,394		100	%
Commercial properties		3,874		100	%		7,539		100	%		14,089		100	%
		107,836		100	%		92,269		100	%		114,827		100	%
Property operating expenses
Same store stabilized apartment communities		(31,157	)	(50	%)		(30,168	)	(48	%)		(29,829	)	(50	%)
Apartment communities stabilized or in lease-up during period		(4,405	)	(72	%)		(2,571	)	(45	%)		(2,500	)	(48	%)
Apartment communities transferred to the Development Division for condominium conversion		—		—			—		—			(3,085	)	(47	%)
Apartment communities acquired during period		(2,436	)	(43	%)		(2,539	)	(50	%)		(2,220	)	(58	%)
Apartment communities sold during period		(2,573	)	(42	%)		(4,308	)	(56	%)		(11,568	)	(61	%)
Apartment communities transferred to the Investment Division upon the decision not to convert to condominiums		(14,090	)	(58	%)		(1,177	)	(31	%)		(2,777	)	(43	%)
Commercial properties		(2,122	)	(55	%)		(4,095	)	(54	%)		(7,513	)	(53	%)
		(56,783	)	(53	%)		(44,858	)	(49	%)		(59,492	)	(52	%)
Net operating income
Same store stabilized apartment communities		30,596		50	%		32,270		52	%		30,081		50	%
Apartment communities stabilized or in lease-up during period		1,739		28	%		3,116		55	%		2,730		52	%
Apartment communities transferred to the Development Division for condominium conversion		—		—			—		—			3,472		53	%
Apartment communities acquired during period		3,180		57	%		2,583		50	%		1,606		42	%
Apartment communities sold during period		3,490		58	%		3,377		44	%		7,253		39	%
Apartment communities transferred to the Investment Division upon the decision not to convert to condominiums		10,296		42	%		2,621		69	%		3,617		57	%
Commercial properties		1,752		45	%		3,444		46	%		6,576		47	%
	$	51,053		47	%	$	47,411		51	%	$	55,335		48	%

123

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10. SEGMENT REPORTING (Continued)

	For the Years Ended December 31,
	2007			2006			2005
Reconciliation of segment revenues to consolidated revenue:
Development Division total revenue	$	430,778		$	508,185		$	735,528
Less Development Division rental revenue presented in discontinued operations		(562	)		(10,456	)		(17,663	)
Less Development Division sale revenue presented in discontinued operations		—			(2	)		—
Less sales revenue of unconsolidated partnerships and joint ventures		(71,867	)		(63,909	)		(230,806	)
Add rental revenue from development properties presented in net income from rental operations (1)		2,495			17,948			13,810
Development Division contribution to consolidated revenue		360,844			451,766			500,869
Investment Division rental revenue		107,836			92,269			114,827
Less Investment Division rental revenue presented in discontinued operations		(21,809	)		(17,172	)		(26,546	)
Add management fee and other revenue included in other corporate items		1,647			1,299			420
Less rental revenue of unconsolidated partnerships and joint ventures		—			(1,020	)		(11,140	)
Investment Division contribution to consolidated revenue		87,674			75,376			77,561
Consolidated total revenue	$	448,518		$	527,142		$	578,430
Reconciliation of segment net income (loss) to consolidated net income (loss):
Development Division net income (loss)	$	(273,247	)	$	3,890		$	77,736
Investment Division net income (loss)		(115,194	)		7,263			10,762
Consolidated net income (loss)	$	(388,441	)	$	11,153		$	88,498

(1) Rental revenue generated by properties transferred from Investment to Development for conversion to condominiums and properties constructed by Development in lease-up.

	December 31,
	2007		2006
Reconciliation of segment total assets to consolidated total assets:
Development Division total assets	$	631,319	$	1,186,817
Investment Division total assets		500,074		833,253
		1,131,393		2,020,070
Add goodwill		2,691		2,691
Consolidated total assets	$	1,134,084	$	2,022,761

NOTE 11. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Pursuant to a strategic plan announced in March 2005, we sold 24 apartment communities and commercial properties in 2005 and 2006. In August 2007, we implemented a plan to dispose of 16 apartment communities and commercial properties, and sold ten properties during 2007. The remaining rental real estate properties that we intend to sell are classified as assets held for sale as of December 31, 2007, and their results of operations, along with the results of operations of the properties sold, are presented in discontinued operations except as discussed below.

124

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Continued)

During 2006, we reclassified one apartment community with a net carrying value of $3.5 million and one commercial property with a net carrying value of $1.6 million from assets held for sale to rental real estate because we decided not to sell them. Results of operations for these two properties are presented in continuing operations for all periods presented.

Assets held for sale and liabilities related to assets held for sale in the accompanying Consolidated Balance Sheets include the following:

	December 31,
	2007		2006
Rental real estate (net of accumulated depreciation of $16,965 in 2007 and $12,940 in 2006)	$	81,519	$	32,698
Other assets, net		1,427		1,833
	$	82,946	$	34,531
Accounts payable and other liabilities	$	7,552	$	925
Mortgages and notes payable		88,569		24,663
	$	96,121	$	25,588

Amounts include balances related to six apartment communities and two commercial properties at December 31, 2007, and one apartment community and four commercial properties at December 31, 2006, sold, under contract of sale, or currently marketed for sale.

In accordance with SFAS No. 144, we generally report the operating results for properties we disposed of—or for which we have implemented plans of disposal—in discontinued operations. In accordance with EITF 03-13, we retain the operating results for properties with which we anticipate we will have direct continuing cash flows or have significant continuing involvement after the disposals, and present all years in income (loss) from continuing operations. See our Discontinued Operations discussion at NOTE 2. “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” regarding EITF 03-13 and the general assumptions underlying our continuing cash flows assessment.

During 2007, we entered into agreements with the buyers of five of our rental properties pursuant to which TMI will continue to manage these properties for a fee.

Based on available operating budget information for the year ended December 31, 2008, we have determined that our cash inflows and outflows for each rental property related to advancing reimbursable costs would be significant. In accordance with EITF 03-13, we will reevaluate our assessment of the significance of continuing cash flows and continuing involvement for the twelve month period following the sale of each of these properties.

We have included our applicable gains on these sales in gain on sale of real estate in the accompanying Consolidated Statements of Operations for the year ended December 31, 2007, and have retained the operating results for these five properties in income (loss) from continuing operations for all years presented.

125

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Continued)

Discontinued operations for the years ended December 31, 2007, 2006, and 2005, include the operations of properties sold since the beginning of 2005 (except for three properties, as discussed below) and six properties held for sale as of December 31, 2007. The results of these operations were as follows:

	For the Years Ended December 31,
	2007			2006			2005
Rental revenue	$	22,371	(1)	$	27,632	(2)	$	44,209	(3)
Property operating expenses		(14,382	)		(17,048	)		(25,315	)
Depreciation expense (10)		(2,599	)		(3,285	)		(3,236	)
Impairment charges		(43,684	) (4)		(810	) (5)		(1,438	) (6)
General and administrative expenses		(139	)		—			—
Interest expense		(17,113	)		(13,575	)		(13,036	)
Loss on extinguishment of debt		(2,026	)		(234	)		(2	)
Provision for litigation, settlements, and other claims		(50	)		—			—
Income (loss) from operations before income taxes		(57,622	) (7)		(7,320	) (8)		1,182	(9)
Income tax (expense) benefit		21,493			2,801			(450	)
Income (loss) from operations	$	(36,129	)	$	(4,519	)	$	732
Gain on sale of real estate before income taxes		43,023			19,969			67,326
Income tax expense		(16,048	)		(7,638	)		(25,617	)
Gain on sale of real estate	$	26,975		$	12,331		$	41,709

(1)	$21.8 million previously reported in the Investment Division, and $563,000 previously reported in the Development Division.
(2)	$20.6 million previously reported in the Investment Division, and $7 million previously reported in the Development Division.
(3)	$41.6 million previously reported in the Investment Division, and $2.6 million previously reported in the Development Division.
(4)	Includes two apartment communities we have decided not to convert to condominium homes for sale and two commercial properties.
(5)	Includes one apartment community and one commercial property. Losses of $810,000 on sale of the two properties are included in impairment charges.
(6)	Includes three apartment communities and one commercial property. Losses of $1.4 million on sale of the four properties are included in impairment charges.
(7)	$56.1 million previously reported in the Investment Division, and $1.5 million previously reported in the Development Division.
(8)	$691,000 previously reported in the Investment Division, and $6.6 million previously reported in the Development Division.
(9)	$1 million previously reported in the Investment Division, and $162,000 previously reported in the Development Division.
(10)	Depreciation expense relates to depreciation recorded on properties prior to the date of transfer to assets held for sale.

126

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (Continued)

Assets held for sale at December 31, 2007, include two properties for which the operating results are presented in income (loss) from continuing operations in the accompanying Consolidated Statements of Operations based on our anticipated future continuing involvement with these properties following their sale. In addition, we included the operating results of the five rental properties sold during the fourth quarter of 2007 in income (loss) from continuing operations in the accompanying Consolidated Statements of Operations based on our anticipated continuation of activities and continuing involvement with these properties. The results of operations for these seven properties were as follows:

	For the Years Ended December 31,
	2007			2006			2005
Rental revenue	$	17,411	(1)	$	5,815	(2)	$	3,478	(3)
Property operating expenses		(8,893	)		(2,927	)		(1,186	)
Depreciation expense		(2,706	)		(1,689	)		(776	)
Impairment charges		(130,130	) (7)		—			—
General and administrative expenses		(14	)		—			—
Interest expense		(21,937	)		(3,415	)		(732	)
Net gain (loss) on extinguishment of debt		2,419			(567	)		(111	)
Income (loss) from continuing operations before income taxes		(143,850	) (4)		(2,783	) (5)		673	(6)
Income tax (expense) benefit		53,656			1,064			(256	)
Income (loss) from continuing operations	$	(90,194	)	$	(1,719	)	$	417

(1)	Previously reported in the Investment Division.
(2)	Previously reported in the Investment Division.
(3)	Previously reported in the Investment Division.
(4)	$119 million previously reported in the Investment Division, and $24.9 million previously reported in the Development Division.
(5)	$2 million previously reported in the Investment Division, and $764,000 previously reported in the Development Division.
(6)	$71,000 previously reported in the Investment Division, and $602,000 previously reported in the Development Division.
(7)	Losses of $5.9 million on sale of four properties are included in impairment charges.

For the seven rental properties, TMI earned management fees of approximately $839,000, $752,000, and $140,000 for the years ended December 31, 2007, 2006, and 2005, respectively, which we eliminated from our consolidated operating results as intercompany items.

127

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12. INCOME TAXES

The provision for income taxes related to continuing operations consists of the following:

	For the Years Ended December 31,
	2007			2006			2005
Current:
Federal	$	(27,451	)	$	(711	)	$	11,737
State		(2,872	)		(364	)		901
		(30,323	)		(1,075	)		12,638
Deferred:
Federal		(22,145	)		3,490			14,321
State		(3,015	)		624			1,330
		(25,160	)		4,114			15,651
Income tax expense (benefit)	$	(55,483	)	$	3,039		$	28,289

A reconciliation of income taxes at the federal statutory income tax rate to income taxes as reported is as follows:

	For the Years Ended December 31,
	2007			2006			2005
Income (loss) from continuing operations before taxes	$	(434,770	)	$	6,380		$	74,346
Statutory Federal income tax rate		34	%		35	%		35	%
Income taxes at statutory rate		(147,822	)		2,233			26,021
State income taxes, net of Federal benefit		(16,305	)		207			2,416
Change in valuation allowance		121,706			560			—
True-up NOL		(7,943	)		—			—
Change in effective tax rate		(1,093	)		—			—
Other		(4,026	)		39			(148	)
Income tax expense (benefit) from continuing operations	$	(55,483	)	$	3,039		$	28,289

128

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12. INCOME TAXES (Continued)

The following table discloses the components of the deferred tax amounts at December 31, 2007 and 2006:

	December 31,
	2007			2006
Deferred tax assets — temporary differences:
Outside basis in partnership assets	$	6,637		$	6,806
Minority interests		6,757			6,929
Real estate		34,825			—
Real estate inventory		36,691			—
Allowance for losses		1,933			623
Straight-line rent		114			—
Deferred revenue		580			2,436
Accrued benefits		757			1,732
Warranty reserves		1,801			1,530
Accrued settlements		789			1,033
Stock-based awards		1,478			1,024
Interest on unrecognized tax benefits		573			—
Interest rate swap		1,010			—
Other		10			10
Total deferred tax assets — temporary differences		93,955			22,123
Net operating loss carryforward		53,200			18,636
Alternative minimum tax credit carryforward		1,151			3,232
State tax credits		246			—
Less: valuation allowance		(122,266	)		(560	)
Total deferred tax assets		26,286			43,431
Deferred tax liabilities — temporary differences:
Distributions from partnerships and joint ventures in excess of basis		1,160			1,044
Real estate inventory		—			38,315
Investments in partnerships and joint ventures		18,560			28,635
Real estate		—			3,826
Remediation costs		3,804			3,901
Prepaid insurance		821			1,811
Straight-line rent		—			140
Prepaid rent		187			139
Goodwill		232			196
Total deferred tax liabilities		24,764			78,007
Net deferred tax assets (liabilities)	$	1,522		$	(34,576	)

At December 31, 2007, we had Federal net operating loss carryforward (“NOLs”) of approximately $144 million that expire in 2027. In 2006, we established a valuation allowance of $560,000 against a deferred tax asset for NOLs that have limitations on their use. During 2007, we increased the valuation allowance against our deferred tax asset by $121.7 million to $122.3 million against a net deferred tax asset of $123.8 million. The valuation allowance has been established and maintained for net deferred tax assets on a “more likely than not” basis. We have considered the following possible sources of taxable income when assessing the realization of the deferred tax assets: (1) future reversals of existing taxable temporary differences; (2) taxable income in prior carryback years; (3) tax planning strategies; and (4) future taxable income exclusive of reversing temporary differences and carryforwards.

129

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12. INCOME TAXES (Continued)

The first source of taxable income listed above is available to support the recognition of our deferred tax assets only up to the amount that current year losses will be used to offset prior years taxable income. We anticipate that future reversals of existing taxable temporary differences will generate future taxable income to offset only a portion of the current projected loss for 2007. We also anticipate taxable losses in 2008 primarily due to planned sales of assets. Forecasts of losses were considered in connection with other positive and negative evidence, including our current financial performance, the current environment in the homebuilding and credit markets, and other factors. As a result, the conclusion was made that there was not sufficient positive evidence to enable us to conclude that it is more likely than not that our deferred tax assets would be realized beyond an amount that approximates $1.5 million. Therefore, we have provided a valuation allowance on the amount over the $1.5 million. This assessment will continue to be undertaken in future periods.

Our results of operations may be impacted in the future by our inability to realize a tax benefit for future tax losses or for items that will generate additional deferred tax assets. Our results of operations may be favorably impacted in the future by reversals of valuation allowances if we are able to demonstrate sufficient positive evidence that our deferred tax assets will be realized. However, there could be restrictions on the amount of the carryforwards that can be utilized if certain changes in our ownership should occur which likely would significantly limit potential future benefit, even if we could demonstrate sufficient positive evidence that our deferred taxes could otherwise be realized.

Accounting for Uncertainty In Income Taxes. In May 2007, the FASB issued Staff Position FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48” (“FSP FIN 48-1”), which amends FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48,” together with FSP FIN 48-1 referred as “FIN 48, as amended”). As of January 1, 2007, we adopted the provisions of FIN 48, as amended, which clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48, as amended, prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position an entity takes or expects to take in a tax return. To recognize a tax position, the tax position must be more-likely-than-not sustainable upon examination by the relevant taxing authority, and the relevant measurement of the position must be the largest amount of benefit that we would more than 50% likely realize upon settlement. We would recognize the benefit of a position in the interim reporting period during which it meets the threshold, unless we effectively settle it earlier through examination, negotiation, or litigation or the applicable statute of limitations period expires.

The following table includes a reconciliation of the total amounts of unrecognized tax benefits as of January 1, 2007 to that as of December 31, 2007:

Unrecognized tax benefits — January 1, 2007	$	1,310
Increases as a result of tax positions taken in prior periods		57
Decreases as a result of tax positions taken in prior periods		(57	)
Increases as a result of tax positions taken in the current period		21
Decreases as a result of tax positions taken in the current period		(21	)
Change in effective tax rate		(34	)
Unrecognized tax benefits — December 31, 2007	$	1,276

130

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12. INCOME TAXES (Continued)

As a result of the implementation of FIN 48 in the first quarter of 2007, we recorded a cumulative effect adjustment to accumulated deficit of $57,000 to increase the liability for unrecognized tax benefits. The $1.3 million of unrecognized tax benefits at December 31, 2007, if recognized, would impact the effective tax rate.

Interest costs and penalties related to income taxes are classified as interest expense and general and administrative expenses, respectively, in our Consolidated Statements of Operations. Upon the adoption of FIN 48, we recorded $467,000 (net of income taxes of $289,000) in interest and $1.9 million in penalties which were accounted for as cumulative effect adjustments to accumulated deficit. At December 31, 2007, the accrual for interest was $1.5 million and the accrual for penalties was $2.2 million, and both are included in other accounts payable and liabilities on the Consolidated Balance Sheet.

We are subject to taxation in the United States and various state and local jurisdictions. Our tax years for 2004 through the current period are subject to examination by the tax authorities. Currently, an estimate of the range of the reasonably possible change in unrecognized tax benefits in the next twelve months cannot be made.

NOTE 13. RELATED PARTY TRANSACTIONS

In considering transactions with related persons, our board of directors requires full disclosure of all material facts concerning the relationship and financial interest of the relevant individuals involved in the transaction. If the transaction is deemed to be fair to the Company, the transaction must be approved by a majority of the independent directors entitled to vote on the matter.

At December 31, 2007, we had a $36 million unsecured term loan with affiliates of William S. Friedman, our chief executive officer and chairman of our board of directors. As of December 31, 2006, the outstanding amount under this loan was $10.4 million. This loan was modified in November 2007, converting it from a revolving line of credit to a term loan and extending its maturity to January 2009. The loan bears interest at the lower of 100 basis points over the 30-day LIBOR or the lowest rate offered in writing to us for an unsecured loan by an institutional lender (5.6% at December 31, 2007). Interest payments totaling $1.5 million were approved by the board and paid in November and December 2007. We incurred interest on this loan of $2 million in 2007, $602,000 in 2006, and $49,000 in 2005.

In January 2008, Mr. Friedman sold $10 million of this loan to Robert Rothenberg, our president and chief operating officer and a member of our board of directors, for $6 million, and the independent members of our board of directors approved the modification of the loan and the execution of replacement notes in the amounts of $26 million to affiliates of Mr. Friedman (the “Friedman Note”) and $10 million to Mr. Rothenberg (the “Rothenberg Note”). Mr. Rothenberg paid Mr. Friedman $1 million in cash and financed the remainder of the purchase price with a $5 million promissory note made in favor of Mr. Friedman (the “Friedman/Rothenberg Note”). The Friedman/Rothenberg Note bears interest at the same rate as the Rothenberg Note. Monthly payments of interest on the Friedman/Rothenberg Note are payable to the extent of payments received under the Rothenberg Note. Principal payments on the Friedman/Rothenberg Note are payable based on 25% of payments received under the Rothenberg Note in excess of the required monthly interest payments, with remaining principal due at maturity, which occurs when the Rothenberg Note is paid in full.

In an effort to address existing covenant violations under the subordinated unsecured notes, as described in NOTE 5. “NOTES PAYABLE,” in March 2008, we entered into an agreement with Messrs. Friedman and Rothenberg and the note holders pursuant to which the aggregate of $36 million in notes payable to Mr. Friedman and Mr. Rothenberg, or the affiliate notes, is subordinated to the subordinated notes. In exchange for this subordination, the subordinated note holders have agreed to (1) waive our compliance with the financial covenants applicable to the subordinated notes through September 2009 and (2) grant a 270-day option (or the option) to Mr. Friedman and Mr. Rothenberg to purchase the subordinated notes from the note holders at a discount.

With the approval of the non-management members of our board, in consideration for entering into the subordination agreement and option and agreeing to assign the option to us, we issued to Mr. Friedman and Mr. Rothenberg five-year warrants to purchase 3.5 million shares of our common stock at an exercise price of $2.35, which was the closing price of our common stock on The NASDAQ Global Select Market on the date of issuance. In addition, we entered into amendments to the affiliate notes and related documents which (1) increased the annual rate of interest paid on the affiliate notes to 12.5%, (2) extended the term of the affiliate notes to the later of March 2013 and the second anniversary of the repayment in full of the subordinated unsecured notes and (3) requires mandatory prepayments, after repayment in full of the subordinated unsecured notes, out of excess cash receipts. Payments of cash interest on the affiliate notes may not exceed 5% for as long as the affiliate notes remain subject to the subordination agreement, although interest on the affiliate notes is payable in kind at any time. The fair value of the warrants will be accounted for as deferred financing costs and will be amortized to interest expense over the term of the affiliate loans.

We received property and asset management fees totaling $92,000 in 2007, $69,000 in 2006, and $10,000 in 2005 and loan origination fees of $156,000 in 2006 from real estate partnerships controlled by Mr. Friedman.

We provide asset and property management services for certain properties owned by partnerships and joint ventures in which we hold interests. We received management fees of $338,000 in 2007, $193,000 in 2006, and $504,000 in 2005 from properties accounted for by the equity method and recognized as income $283,000, $78,000, and $132,000 for the portion of the fee allocable to our joint venture partners. The remaining portion of the fees was treated as a return of our investment. From our consolidated joint ventures, we received

131

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13. RELATED PARTY TRANSACTIONS (Continued)

management fees of $2.8 million in 2007, $1.9 million in 2006, and $1.6 million in 2005, all of which were eliminated in consolidation.

In October 2007, we sold Kennesaw Farms, a rental property under development in Gallatin, Tennessee, for $4.3 million of cash and the assumption of a $1.2 million construction loan to an affiliate of Robert C. Rohdie, who served as president and chief executive officer of Tarragon Development Corporation, a wholly owned subsidiary of Tarragon, until March 31, 2007, and as a member of our board of directors until August 14, 2007. Our board of directors determined that it was in the best interests of the Company to accept an offer from Mr. Rohdie rather than pursue an offer of $6.2 million from an unrelated third party purchaser because a sale to Mr. Rohdie was more likely to close and could be closed more expeditiously because Mr. Rohdie had agreed to waive due diligence and the lender was amenable to Mr. Rohdie’s assumption of the construction loan. Mr. Rohdie was also paid fees of $54,000 for consulting services he provided to Tarragon in the second quarter of 2007, while still a member of our board of directors.

In 2006, Mr. Rohdie converted his preferred interest in TDC into 668,096 shares of our common stock and 616,667 shares of our 10% cumulative preferred stock. See NOTE 3. “MINORITY INTERESTS.”

Our partners in Ansonia Apartments, LP (“Ansonia”) and Tarragon Calistoga, L.L.C. include certain directors and officers of Tarragon. Ansonia, one of our consolidated joint ventures, has a secured credit facility with GECC with a balance of $399.5 million as of December 31, 2007. When GECC reinstated Ansonia’s debt in September 2007, these loans were cross-defaulted and cross-collateralized with another GECC loan—see NOTE 5. “NOTES PAYABLE.”

We received interest income of $882,000 in 2007, $447,000 in 2006, and $431,000 in 2005 under a $5 million revolving loan to one of our unconsolidated joint ventures. Of the interest received, we recognized $318,000 in 2007, $247,000 in 2006, and $242,000 in 2005 for the portion of interest allocable to our joint venture partner. Interest accrues monthly at a rate of 20% and matures in June 2008. During 2007, we wrote off the $4.6 million note receivable due to uncertainty of its collectibility.

NOTE 14. COMMITMENTS AND CONTINGENCIES

The Company and three of its officers (William S. Friedman, chairman of the board of directors and chief executive officer; Robert P. Rothenberg, president and chief operating officer; and Erin D. Pickens, executive vice president and chief financial officer), Beachwold Partners, L.P., a Texas limited partnership with William S. Friedman, as general partner, and members of his family, as limited partners, and the Company’s independent registered public accounting firm, have been named as defendants in a securities class action lawsuit brought on behalf of persons who purchased the Company’s common stock between January 5, 2005 and August 9, 2007. In addition, the members of the board of directors of the Company and Ms. Pickens have been named as defendants in a separate shareholder derivative action. The plaintiffs’ in both lawsuits allege generally that the Company issued materially false and misleading statements regarding the Company’s business and financial results during the relevant time period. The Company believes that these claims are without merit and intends to defend the cases vigorously.

In December 2004, we were notified by our general liability insurer that it was withdrawing coverage for Orlando Central Park Tarragon, LLC, one of our subsidiaries, in connection with a negligence action pending in state court in Florida for personal injuries and damages allegedly suffered by the plaintiff as a result of the use by the outside property management company of an insecticide at the property. In November 2007, we settled this lawsuit for $650,000.

132

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)

In May 2007, we settled a contract dispute with the general contractor of one of our recently completed projects by agreeing to pay $1.4 million, including a previously accrued $300,000 retainage balance. We accrued the balance of the settlement payment as of December 31, 2007, and payment was made in January 2008.

In March 2008, we reached an agreement to settle a dispute with the counter-party to a brokerage agreement. We have agreed to pay $976,000 which has been accrued as of December 31, 2007.

In connection with our development or conversion of properties into condominiums, from time to time, we receive statutory notices from the homeowners’ of these properties claiming construction defects. We currently have open claims with the homeowners’ associations of three of our projects in Florida. See discussion of warranty reserve in NOTE 2. “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.” We were also notified by the homeowners’ association of one of our condominium conversion projects of discrepancies in the size and configuration of certain of the units from that described in the property’s condominium declaration. We are currently in discussions with the homeowners’ association concerning appropriate steps to correct the condominium declaration.

In connection with the acquisition of land in Fort Lauderdale, Florida, in 2005 as part of an assemblage for a development project, we agreed to build a community center for the seller of one of the sites acquired. In October 2007, the seller drew down on a $750,000 letter of credit securing our obligation, claiming breach of contract, rescission, and specific performance of our obligation to build the community center. We have negotiated a settlement with the seller under which we are conveying title to the land for the community center to the seller. The cost of the land was written off during the second quarter of 2007 in connection with the impairment of the related development project. In addition, in the fourth quarter of 2007, we paid $750,000 to the bank on which the letter of credit was drawn.

We are also party to various other claims and routine litigation arising in the ordinary course of business.

Our accrual for litigation-related losses that were probable and estimable, primarily those discussed above, was $2.1 million at December 31, 2007. As additional information about current or future litigation or other contingencies becomes available, we will assess whether additional amounts related to those contingencies should be accrued based on such information. Such additional accruals could potentially have a material impact on the Company’s business, results of operations, financial position and cash flows.

We believe we may have exposure for taxes other than income taxes. We believe the range of potential deficiency, including interest and penalties, is between $564,000 and $1.2 million and have accrued a loss contingency of $564,000 in connection with this exposure as of December 31, 2007, which is recorded in other accounts payable and liabilities in the Consolidated Balance Sheet.

We are responsible for funding certain condominium and homeowner association deficits in the ordinary course of business. We do not currently believe these obligations will have any material adverse effect on our financial position or results of operations and cash flows.

Firm contracts to purchase real estate for development activities include contracts to purchase two tracts of land for development of condominiums in New Jersey, one in Ridgefield for $16 million, expected to close in December 2008, and the other in Hoboken for $44.3 million, expected to close in the second or third quarter of 2009. Additionally, we have a contract to purchase land for development of a rental property in Tennessee for $5 million, expected to close in April 2008. We anticipate financing these purchases with debt. In addition, we may consider forming joint ventures with other parties to provide a portion of the capital required.

133

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)

The following is a schedule of future minimum lease payments due on leases for equipment and office space occupied by us that expire at various dates through 2018. The subleased office space is related to the subleases of our Fort Lauderdale and Rutherford office spaces.

	Office Space		Subleased
	and Equipment		Office Space
2008	$	1,862	$	(376	)
2009		1,641		(680	)
2010		1,547		(699	)
2011		1,172		(626	)
2012		1,088		(625	)
Thereafter		6,613		(2,041	)
	$	13,923	$	(5,047	)

Tarragon’s rental operations include the leasing of commercial properties subject to leases with terms greater than one year. The leases thereon expire at various dates through 2014. The following is a schedule of future minimum rentals to be received on non-cancelable operating leases as of December 31, 2007:

2008	$	1,548
2009		1,305
2010		1,136
2011		800
2012		437
Thereafter		400
	$	5,626

Tarragon recorded rent expense of $2 million, $1.6 million, and $1.4 million for the years ended December 31, 2007, 2006, and 2005, respectively, which was net of sublease income of $112,000 and $82,000 in 2007 and 2006, respectively. Tarragon recorded no sublease income in 2005.

On February 12, 2008, we entered into employment agreements with nine of our executive officers. The employment agreements have terms of three years, provide for a guaranteed minimum bonus for 2008 and salary and benefits continuation for periods ranging from 12 to 36 months in the event the named executive is terminated for any reason other than cause, or as a result of death or voluntary resignation. The guaranteed bonuses for 2008 total $1.8 million.

134

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15. QUARTERLY RESULTS OF OPERATIONS (Unaudited)

The following is a tabulation of the quarterly results of operations for the years ended December 31, 2007 and 2006 (unaudited). The quarterly results of operations have been recast to present the operating results of 26 properties sold in 2007 and 2006 and eight properties held for sale at December 31, 2007, in discontinued operations in accordance with SFAS No. 144.

	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
2007
Revenue	$	145,396		$	70,971		$	75,038		$	157,113
Gross profit (loss) from home sales		7,543			(42,703	)		(48,847	)		(38,319	)
Impairment charges		—			143,080			73,165			7,511
Equity in income (loss) of partnerships and joint ventures		291			(5,729	)		(2,255	)		(663	)
Discontinued operations, net of income taxes:
Income (loss) from operations		(1,573	)		25,914			(7,419	)		(53,051	)
Gain on sale of real estate		—			854			2,323			23,798
Income (loss) from continuing operations		(2,672	)		(207,777	)		(179,707	)		10,869
Net income (loss)		(4,245	)		(181,009	)		(184,803	)		(18,384	)
Earnings (loss) per common share — basic and diluted
Income (loss) from continuing operations allocable to common stockholders	$	(.11	)	$	(7.24	)	$	(6.22	)	$	.36
Net income (loss) allocable to common stockholders		(.16	)		(6.31	)		(6.40	)		(.65	)

During the second quarter of 2007, we recorded impairment charges of $143.1 million on three rental properties, two active rental developments, one property in reposition, two mid-rise developments, and three pipeline projects. We also recorded impairment charges of $39.1 million (recorded as cost of sales) on five of our active development projects and one mid-rise development. During the third quarter of 2007, we recorded impairment charges of $73.2 million on six rental properties, three active rental developments, two mid-rise developments, five pipeline projects, and one townhome and traditional new development. Additionally, during the third quarter of 2007, we recorded impairment charges of $35.7 million (recorded as cost of sales) on five of our active development projects, one mid-rise development, and three parcels of land. During the fourth quarter of 2007, we recorded impairment charges of $7.5 million on four rental properties, one active rental development, and two pipeline projects. We also recorded impairment charges of $22.1 million (recorded as cost of sales) on five of our active development projects and one mid-rise development.

135

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15. QUARTERLY RESULTS OF OPERATIONS (Unaudited) (Continued)

	First		Second		Third			Fourth
	Quarter		Quarter		Quarter			Quarter
2006
Revenue	$	109,589	$	142,363	$	115,654		$	159,536
Gross profit (loss) from home sales		23,095		22,526		13,325			(11,179	)
Impairment charges		—		—		—			2,721
Equity in income of partnerships and joint ventures		2,061		920		13,040			1,145
Discontinued operations, net of income taxes:
Income (loss) from operations		307		133		(3,368	)		(1,591	)
Gain on sale of real estate		7,338		1,811		3,332			(150	)
Income (loss) from continuing operations		10,830		8,722		6,000			(22,211	)
Net income (loss)	$	18,475	$	10,666	$	5,964		$	(23,952	)
Earnings (loss) per common share — basic
Income (loss) from continuing operations allocable to common stockholders	$	.37	$	.30	$	.21		$	(.79	)
Net income (loss) allocable to common stockholders		.64		.37		.21			(.85	)
Earnings (loss) per common share — assuming dilution
Income (loss) from continuing operations allocable to common stockholders	$	.34	$	.27	$	.19		$	(.79	)
Net income (loss) allocable to common stockholders		.58		.33		.19			(.85	)

During the fourth quarter of 2006, we recorded impairment charges of $19 million (recorded as cost of sales) on five of our active development projects and $2.7 million on two tracts of land. Additionally, during the fourth quarter, we recorded $11.8 million of additional cost of sales as a result of margin reductions on five of our active development projects. We also wrote off $5.7 million of pursuit costs on development projects that were canceled in the fourth quarter of 2006.

NOTE 16.     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”), to increase consistency and comparability in fair value measurements. SFAS No. 157 creates a single definition of fair value, emphasizes fair value as a market-based measurement, establishes a framework for measuring fair value, and enhances disclosure requirements. On November 14, 2007, the FASB agreed to defer the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities until fiscal years and interim periods beginning after November 15, 2008. On February 12, 2008, the FASB documented the deferral in FASB Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157” “FSP FAS 157-2.” As a partial modification of the November 2007 decision, FSP FAS 157-2 does not apply to non-financial assets and non-financial liabilities that companies record or disclose at fair value at least annually. On February 14, 2008, the FASB issued FSP No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,” which excludes asset and liabilities subject to lease accounting under SFAS No. 13 and related accounting pronouncements, except for lease assets and liabilities assumed in a business combination.

136

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 16.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (Continued)

Companies that have already issued financial statements using SFAS No. 157 before February 12, 2008, are not eligible for the deferral under FSP FAS 157-2; however, companies would retroactively apply the impact of FSP FAS 157-2 to their initial adoption date of SFAS No. 157. SFAS No. 157 would still be effective for financial assets and financial liabilities, as well as non-financial assets and non-financial liabilities outside of the scope of the FSP FAS 157-2, for fiscal years and interim periods beginning after November 15, 2007. We are currently evaluating the impact, if any, SFAS No. 157 will have on our consolidated financial statements.

In November 2006, the FASB ratified EITF Issue No. 06-8, “Applicability of a Buyer’s Continuing Investment Under FASB Statement No. 66 for Sales of Condominiums” (“EITF 06-8”). EITF 06-8 provides guidance in assessing the collectibility of the sales price, which is required to recognize profit under the percentage-of-completion method pursuant to SFAS No. 66. EITF 06-8 states that an entity should evaluate the adequacy of the buyer’s initial and continuing investment in reaching its conclusion that the sales price is collectible. The continuing investment criterion in paragraph 12 of SFAS No. 66 would be met by requiring the buyer to either (1) make additional payments during the construction term at least equal to the level annual payments that would be required to fund principal and interest payments on a hypothetical mortgage for the remaining purchase price of the property or (2) increase the initial investment by an equivalent aggregate amount. If the test for initial and continuing investment is not met, the deposit method should be applied and profit recognized only once the aggregate deposit meets the required investment test for the duration of the construction period. EITF 06-8 will be effective for the first annual reporting period beginning after March 15, 2007.

Accounting for sales of condominiums not consistent with EITF 06-8 would require a cumulative effect adjustment to retained earnings in the period of adoption. We do not expect the adoption of EITF 06-8 to have a material effect on our consolidated financial statements. The application of the continuing investment criteria on the collectibility of the sales price will limit our ability to recognize revenue and costs using the percentage of completion accounting method.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” (“SFAS No. 159”). This statement permits entities to choose to measure financial assets and liabilities, with certain exceptions, at fair value at specified election dates. A business entity must report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. We adopted SFAS No. 159 on January 1, 2008 and elected not to adopt the provisions of SFAS No. 159 with respect to our existing financial assets and liabilities.

In November 2007, the FASB issued EITF Issue No. 07-6, “Accounting for the Sale of Real Estate Subject to the Requirements of SFAS No. 66 When the Agreement Includes a Buy-Sell Clause” (“EITF 07-6”). A buy-sell clause is a contractual term that gives both investors of a jointly-owned entity the ability to offer to buy the other investor’s interest. EITF 07-6 applies to sales of real estate to an entity if the entity is both partially owned by the seller of the real estate and subject to an arrangement between the seller and the other investor containing a buy-sell clause. The EITF concluded the existence of a buy-sell clause does not represent a prohibited form of continuing involvement that would preclude partial sale and profit recognition pursuant to SFAS No. 66. However, the buy-sell clause could represent such a prohibition if the terms of the buy-sell clause and other facts and circumstances of the arrangement suggest:

• the buyer cannot act independently of the seller; or

137

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 16.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (Continued)

• the seller is economically compelled or contractually required to reacquire the other investor’s interest in the jointly owned entity.

EITF 07-6 is effective for new arrangements in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. We are currently evaluating the impact, if any, EITF 07-6 will have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements: an amendment of ARB No. 51” (“SFAS No. 160”), which provides a uniform accounting and reporting approach for noncontrolling interests, or minority interests, in subsidiaries. SFAS No. 160 amends ARB No. 51, “Consolidated Financial Statements,” by requiring an entity that is a parent to a subsidiary report the noncontrolling interest in the subsidiary as equity in the parent’s consolidated financial statements. The face of the parent’s consolidated income statement must show the portion of consolidated net income attributable to the parent separate from that attributable to the noncontrolling owners. An entity that changes but retains its controlling interest must report the change as an equity transaction. An entity that loses its controlling interest must adjust its remaining interest in the former subsidiary to fair value as of the deconsolidation date and report the change as a gain or loss in consolidated net income in the applicable reporting periods. The parent’s financial statement disclosures must include the following:

• a reconciliation of beginning and ending balances of the parent’s equity and noncontrolling owners’ equity in the subsidiary; and

• a schedule showing the changes in equity resulting from changes in the parent’s ownership interest.

SFAS No. 160 also amended SFAS No. 128, “Earnings per Share,” by continuing to base earnings (loss) per share calculations on the operating results of the parent. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. We have not determined the impact, if any, SFAS No. 160 will have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS No. 141R”), which replaces SFAS No. 141, “Business Combinations” (“SFAS No. 141”). SFAS No. 141R does not apply to the formation of a joint venture or the acquisition of an asset that does not constitute a business combination. Unlike SFAS No. 141, SFAS No. 141R defines an acquiring entity as the entity that obtains control of one or more businesses in a business combination, and SFAS No. 141R expands the scope of SFAS No. 141 to include business combinations that do not involve an exchange or transfer of consideration. It also defines the acquisition date as the date upon which the acquiring entity achieves control of the acquired business or businesses. Under SFAS No. 141R, an acquiring entity must still apply the acquisition method, or purchase method, to all business combinations. SFAS No. 141R is effective, on a prospective basis, for business combinations with an acquisition date on or after the fiscal years beginning on or after December 15, 2008. We have not determined the impact, if any, SFAS No. 141R will have on our consolidated financial statements.

On March 19, 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We have not determined the impact, if any SFAS No. 161 will have on our consolidated financial statements.

138

TARRAGON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 17. SUBSEQUENT EVENTS

Asset sales. The following table summarizes asset sales completed after December 31, 2007 through March 27, 2008:

2008						Net Cash
Date of Sale	Property	Sale Price		Debt Satisfied		Proceeds
January	Creekwood North	$	11,800	$	5,723	$	5,429
January	Park Dale Gardens		6,200		5,172		390
February	University Center		2,750		—		2,608
		$	20,750	$	10,895	$	8,427

In February 2008, we also sold 1000 Jefferson, a rental development in Hoboken, New Jersey. The property was sold for $116.2 million, satisfied $76.2 million of debt, and provided net cash proceeds of $29.3 million.

Notice of Delisting from Nasdaq. On January 4, 2008, we received a staff determination letter from The Nasdaq Stock Market stating that our common stock is subject to delisting from The Nasdaq Global Select Market for our failure to solicit proxies and hold an annual meeting in 2007, in accordance with Nasdaq Marketplace Rules. We requested a hearing to appeal Nasdaq’s determination, which was held on February 21, 2008. Tarragon’s common stock will continue to be listed on The Nasdaq Global Select Market pending a decision on the appeal. There can be no assurance, however, that Nasdaq will grant our request to waive this requirement or that our common stock will not be delisted.

If our common stock is delisted from The Nasdaq Global Select Market, our common stock would be traded over-the-counter, more commonly known as OTC. OTC transactions involve risks in addition to those associated with transactions in securities traded on The Nasdaq Global Select Market. Many OTC stocks trade less frequently and in smaller volumes than securities traded on The Nasdaq Global Select Market. Accordingly, our common stock would be less liquid, and the value of our common stock could decline.

In addition, the delisting of our common stock could result in breaches of covenants prohibiting transfer of ownership contained in certain of our debt agreements. Under these circumstances, the lenders could give us a notice of default and accelerate payment of our outstanding indebtedness. The acceleration of our obligations under these debt agreements would have a material adverse effect on our liquidity and financial position.

Notes payable. On March 1, 2008, one of two non-recourse mortgage loans secured by our Carlyle Towers rental apartment community matured. The other loan matures in October 2011. We have offered to convey the property to the lender in satisfaction of the mortgage and are cooperating with the lender to effect a foreclosure or a deed in lieu of foreclosure. As of December 31, 2007, the loans had an outstanding balance of $6.4 million.

139

SCHEDULE II

TARRAGON CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2007
(dollars in thousands)

	Beginning		Charged					Ending
	Balance		to earnings		Deductions			Balance
Valuation allowance against deferred tax asset
Year ended December 31, 2005	$	—	$	—	$	—		$	—
Year ended December 31, 2006		—		560		—			560
Year ended December 31, 2007		560		121,706		—			122,266
Valuation allowance against notes receivable
Year ended December 31, 2005	$	—	$	1,628	$	—		$	1,628
Year ended December 31, 2006		1,628		—		—			1,628
Year ended December 31, 2007		1,628		3,000		—			4,628
Valuation allowance against contracts receivable
Year ended December 31, 2005	$	—	$	—	$	—		$	—
Year ended December 31, 2006		—		—		—			—
Year ended December 31, 2007		—		19,895		(14,847	)		5,048

140

SCHEDULE III

TARRAGON CORPORATION
RENTAL REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2007
(Dollars in Thousands)

							Costs (1)
							Capitalized		Gross Carrying Amounts											Life on Which
			Initial Cost to Company				Subsequent		at End of Year											Depreciation in Latest
					Buildings and		To Acquisition				Buildings and				Accumulated		Date of		Date	Statement of Income
Description	Encumbrances		Land		Improvements		Improvements		Land		Improvements		Total		Depreciation		Construction		Acquired	Is Computed
Rental Real Estate
Apartments
200 Fountain	$	11,432	$	3,081	$	12,323	$	674	$	2,921	$	13,157	$	16,078	$	1,398		1965	May-04	3 - 40 years
New Haven, CT
278 Main Street		5,042		1,154		4,615		709		1,150		5,328		6,478		463		1988	Feb-05	3 - 40 years
West Haven, CT
1118 Adams		9,124		3,828		1,022		21,658		4,144		22,364		26,508		877		2005	Mar-04	3 - 40 years
Hoboken, NJ
Autumn Ridge		5,668		397		1,589		391		400		1,977		2,377		725		1973	Dec-97	3 - 40 years
East Haven, CT
Aventerra		8,160		876		3,506		4,468		876		7,974		8,850		3,284		1974	Nov-98	3 - 40 years
Dallas, TX
Club at Danforth		25,799		3,000		—		14,959		2,351		15,608		17,959		4,798		1997	Sep-97	3 - 40 years
Jacksonville, FL
Dogwood Hills		4,375		504		2,016		393		505		2,408		2,913		748		1972	Nov-99	3 - 40 years
Hamden, CT
Forest Park		11,914		1,670		6,680		1,453		1,719		8,084		9,803		1,780		1967	Oct-01	3 - 40 years
Rocky Hill, CT
French Villa		2,831		447		1,786		1,129		447		2,915		3,362		902		1971	Nov-98	3 - 40 years
Tulsa, OK
Groton Towers		9,006		968		3,871		985		969		4,855		5,824		1,609		1975	Aug-98	3 - 40 years
Groton, CT
Gull Harbor		2,766		295		1,182		236		327		1,386		1,713		337		1974	Nov-99	3 - 40 years
New London, CT
Hamden Centre		4,993		592		2,366		246		595		2,609		3,204		646		1970	Nov-99	3 - 40 years
Hamden, CT
Harbour Green		17,288		718		10,460		986		718		11,446		12,164		3,339		1997	Feb-00	3 - 40 years
Panama City, FL
Heather Hill		36,056		643		14,562		10,964		766		25,403		26,169		15,580		1966	May-86	3 - 40 years
Temple Hills, MD
Lakeview		5,330		622		2,490		354		629		2,837		3,466		803		1990	Apr-98	3 - 40 years
Waterbury, CT
Liberty Building		12,900		1,540		6,160		631		1,540		6,791		8,331		1,387		1999	Jan-01	3 - 40 years
New Haven, CT
Links at Georgetown		28,856		1,750		—		23,679		2,108		23,321		25,429		6,171		1999	Dec-97	3 - 40 years
Savannah, GA
Lofts at the Mills		30,610		6,715		26,859		4,165		6,700		31,039		37,739		2,568		1989	Feb-05	3 - 40 years
Manchester, CT
Mustang Creek		5,476		718		2,872		2,937		720		5,807		6,527		3,530		1974	May-95	3 - 40 years
Arlington, TX

141

SCHEDULE III

TARRAGON CORPORATION
RENTAL REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2007
(Dollars in Thousands)

							Costs (1)
							Capitalized			Gross Carrying Amounts											Life on Which
			Initial Cost to Company				Subsequent			at End of Year											Depreciation in Latest
					Buildings and		To Acquisition					Buildings and				Accumulated		Date of		Date	Statement of Income
Description	Encumbrances		Land		Improvements		Improvements			Land		Improvements		Total		Depreciation		Construction		Acquired	Is Computed
Rental Real Estate (Continued)
Apartments (Continued)
Nutmeg Woods	$	27,412	$	3,104	$	12,416	$	4,586		$	3,108	$	16,998	$	20,106	$	5,536		1970	Aug-98	3 - 40 years
New London, CT
Ocean Beach		23,499		2,557		10,227		3,558			2,628		13,714		16,342		3,769		1972	Nov-99	3 - 40 years
New London, CT
Parkview		12,161		1,122		4,489		2,553			1,128		7,036		8,164		2,406		1970	Jul-98	3 - 40 years
Naugatuck, CT
River City Landing		18,478		1,237		5,602		10,901			1,237		16,503		17,740		6,485		1965	Jun-96	3 - 40 years
Jacksonville, FL
Sagamore Hills		11,521		1,385		5,540		3,457			1,384		8,998		10,382		3,121		1967	Jul-98	3 - 40 years
Middletown, CT
Southern Elms		2,178		304		1,216		365			304		1,581		1,885		640		1968	Nov-98	3 - 40 years
Tulsa, OK
Summit on the Lake		6,000		895		3,582		1,386			907		4,956		5,863		2,313		1986	Mar-94	3 - 40 years
Fort Worth, TX
Vintage at Legacy		24,894		4,545		—		24,774			2,685		26,634		29,319		6,460		1999	May-98	3 - 40 years
Frisco, TX
Vintage at Madison Crossing		12,507		522		245		10,906			622		11,051		11,673		2,045		2002	Feb-00	3 - 40 years
Huntsville, AL
Vintage at Plantation Bay		22,044		2,231		64		13,655			2,224		13,726		15,950		3,045		2001	Jun-00	3 - 40 years
Jacksonville, FL
Vintage at the Parke		17,677		1,051		14,843		1,359			787		16,466		17,253		2,866		2001	Jan-04	3 - 40 years
Murfreesboro, TN
Woodcliff Estates		37,333		3,441		13,765		7,789			3,437		21,558		24,995		7,275		1970	Aug-98	3 - 40 years
East Hartford, CT
Woodcreek		14,600		472		4,977		3,645			451		8,643		9,094		5,856		1975	Nov-86	3 - 40 years
Jacksonville, FL
Shopping Centers
Mariner Plaza		4,600		295		1,180		1,118			295		2,298		2,593		1,177		1968	Aug-97	3 - 40 years
Panama City, FL
Rental Real Estate Held For Sale
Apartments
Bermuda Island (3)		41,458		10,009		40,036		(9,352	)		10,009		30,684		40,693		—		1998	Dec-05		—
Naples, FL
Carlyle Towers (3)		6,402		559		5,939		3,353			559		9,292		9,851		4,561		1970	Nov-88	3 - 40 years
Southfield, MI
Creekwood North (4)		5,729		532		2,127		3,180			532		5,307		5,839		2,960		1973	Nov-92	3 - 40 years
Altamonte Springs, FL
Desert Winds (2)		7,329		354		1,399		1,546			354		2,945		3,299		1,604		1972	June-98	3 - 40 years
Jacksonville, FL

142

SCHEDULE III

TARRAGON CORPORATION
RENTAL REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2007
(Dollars in Thousands)

							Costs (1)
							Capitalized			Gross Carrying Amounts											Life on Which
			Initial Cost to Company				Subsequent			at End of Year											Depreciation in Latest
					Buildings and		To Acquisition					Buildings and				Accumulated		Date of		Date	Statement of Income
Description	Encumbrances		Land		Improvements		Improvements			Land		Improvements		Total		Depreciation		Construction		Acquired	Is Computed
Rental Real Estate Held For Sale (Continued)
Apartments (Continued)
Northgate Apartments	$	17,019	$	5,983	$	23,931	$	(10,296	)	$	5,983	$	13,635	$	19,618	$	529		1973	Apr-06	3 - 40 years
Middletown, RI
Park Dale Gardens (4)		5,178		354		1,416		2,594			531		3,833		4,364		2,387		1975	Dec-91	3 - 40 years
Dallas, TX
Silver Creek (2)		—		301		1,206		1,433			322		2,618		2,940		1,225		1972	Jun-98	3 - 40 years
Jacksonville, FL
Office Buildings
Orlando Central Park		5,455		1,888		7,605		(1,990	)		1,294		6,209		7,503		1,820		1966	May-99	3 - 40 years
Orlando, FL
Shopping Centers
University Center (3),(4)		—		578		2,430		1,370			525		3,854		4,379		1,879		1959	Jul-91	3 - 40 years
Waco, TX
	$	561,100	$	73,237	$	268,594	$	172,907		$	70,891	$	443,848	$	514,739	$	120,904

(1)	Includes property improvements, impairment charges, and amounts written off in connection with sales of portions of certain properties.
(2)	Mortgage is collateralized by both Desert Winds and Silver Creek.
(3)	No depreciation was recorded for these properties for 2007 because they were classified as held for sale.
(4)	Property was sold during first quarter of 2008.

143

SCHEDULE III
(Continued)

TARRAGON CORPORATION
RENTAL REAL ESTATE AND ACCUMULATED DEPRECIATION

	2007			2006			2005
	(dollars in thousands)
Reconciliation of real estate
Balance at January 1	$	887,634		$	588,960		$	737,576
Additions
Acquisitions or consolidation of joint ventures		—			10,418			90,898
Capital improvements		11,139			2,688			24,187
Development costs		—			11,278			45,981
Deductions
Sales or deconsolidation of joint ventures		(404,168	)		(58,740	)		(107,653	)
Transfers from (to) real estate inventory		170,451			333,924			(200,283	)
Impairment charges		(150,317	)		(894	)		(1,746	)
Balance at December 31	$	514,739		$	887,634		$	588,960
Reconciliation of accumulated depreciation
Balance at January 1	$	123,459		$	112,799		$	148,726
Additions
Depreciation expense		17,550			18,557			15,357
Consolidation of joint ventures		—			—			9,468
Deductions
Sales or deconsolidation of joint ventures		(20,105	)		(17,472	)		(34,781	)
Transfers from (to) real estate inventory		—			9,575			(25,971	)
Balance at December 31	$	120,904		$	123,459		$	112,799

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

144

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision of and with the participation of our principal executive officer and principal financial officer, has carried out an evaluation of the design and effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 as of December 31, 2007. Based upon that evaluation, the principal executive officer and principal financial officer have concluded that, as of December 31, 2007, due to the material weakness in our internal control over financial reporting described below, our disclosure controls and procedures were not effective to ensure that all material information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed under the supervision of our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and preparation of our financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

As of December 31, 2007, our management conducted an assessment of the effectiveness of our internal control over financial reporting based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control-Integrated Framework”.

Based on the assessment, management has concluded that our internal control over financial reporting was not effective as of December 31, 2007. Management has identified the following material weakness of internal control over financial reporting as of December 31, 2007:

Accounting Resources — In our 2006 Report, we identified as a material weakness at December 31, 2006 insufficient accounting resources to support our financial reporting requirements. We have taken steps to address this material weakness, which included expanding our financial reporting staff by adding two new positions, including one responsible for complex accounting and financial reporting requirements. However, the integration and effective deployment of these resources was not fully achieved as of December 31, 2007. This integration and our evaluation of the need for additional resources is ongoing. As a result, we could not conclude that this material weakness had been remediated as of December 31, 2007.

The effectiveness of our internal control over financial reporting has been audited by our independent registered public accounting firm, Grant Thornton LLP, as stated in their report included herein.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

145

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Tarragon Corporation

We have audited Tarragon Corporation’s (a Nevada Corporation) and subsidiaries (the “Company”) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. At December 31, 2006, the Company’s financial and accounting organization was not adequate to support its financial reporting requirements. The Company did not remediate this material weakness during the year ended December 31, 2007, which resulted in the identification of material audit adjustments.

In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control— Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2007. The material weakness identified above was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2007 financial statements, and this report does not affect our report dated March 27, 2008, which expressed an unqualified opinion on those financial statements and includes an explanatory paragraph regarding the application of Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements” and the Company’s adoption of Financial Accounting Standards Board Statement Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” and an explanatory paragraph relating to uncertainties that raise substantial doubt about the Company’s ability to continue as a going concern as discussed in Note 1 to the consolidated financial statements.

/s/ GRANT THORNTON LLP

New York, New York
March 27, 2008

146

PART III

Except as noted, we have omitted from this report the information required by Part III and incorporated by references to our Proxy Statement for the 2008 Annual Meeting of Shareholders.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

We disclose information concerning our executive officers in Part I of this Annual Report on 10-K under the caption “Executive Officers.”

Code of Ethics

We have adopted a code of conduct that applies to all directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. You can find our code of conduct on our website by going to our website address at http://www.tarragoncorp.com and clicking on the link for “Investor Relations,” followed by “Governance Documents” to the link entitled “Code of Business Conduct and Ethics.” We will post on our website any amendments to the code of conduct, as well as any waivers that are required to be disclosed by the rules of the SEC or The Nasdaq Global Select Market on our website.

Our board of directors has adopted charters for audit, executive compensation and corporate governance and nominating committees of the board of directors. You can find these documents on our website by going to our website address at http://www.tarragoncorp.com and clicking on the link for “Investor Relations,” followed by “Governance Documents,” and clicking on the appropriate link.

You can also obtain a printed copy of the materials referred to above by contacting us at the following address:

Tarragon Corporation
Attn: Investor Relations
423 W. 55^th Street
New York, New York 10019-4460
Telephone: 212-949-5000

We incorporate the other information required for Item 10 by referencing our definitive Proxy Statement for the 2008 Annual Meeting of Shareholders, which we will file no later than April 29, 2008 (i.e., 120 days after the end of the fiscal year covered by this report).

ITEM 11. EXECUTIVE COMPENSATION

We incorporate the information required by Item 11, including the compensation discussion and analysis, by referencing the information included under the captions “Management—Executive Compensation” and “Election of Directors—Director Compensation” in our definitive Proxy Statement for the 2008 Annual Meeting of Shareholders, which we will file no later than April 29, 2008.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

We incorporate the information required by Item 12 by referencing the information included under the captions “Security Ownership of Certain Beneficial Holders and Management” and “Equity Compensation Plan Information” in our definitive Proxy Statement for the 2008 Annual Meeting of Shareholders, which we will file no later than April 29, 2008.

147

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We incorporate the information required by Item 13, including the compensation discussion and analysis, by referencing the information included under the caption “Election of Directors—Certain Relationships and Related Transactions” in our definitive Proxy Statement for the 2008 Annual Meeting of Shareholders, which we will file no later than April 29, 2008.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

We incorporate the information required by Item 14 with respect to the fees and services of Grant Thornton LLP, our independent registered public accounting firm, by referencing the information included under the caption “Report of the Audit Committee of the Board of Directors—Independent Auditors Fees” in our Proxy Statement for the 2008 Annual Meeting of Shareholders, which we will file no later than April 29, 2008.

148

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Report:

1. Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm — Grant Thornton LLP

Consolidated Balance Sheets — December 31, 2007 and 2006

Consolidated Statements of Operations -

     Years Ended December 31, 2007, 2006, and 2005

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) -

     Years Ended December 31, 2007, 2006, and 2005

Consolidated Statements of Cash Flows -

     Years Ended December 31, 2007, 2006, and 2005

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

Schedule II — Valuation and Qualifying Accounts

Schedule III — Rental Real Estate and Accumulated Depreciation

All other schedules are omitted because they are not applicable or because the required information is shown in the Consolidated Financial Statements or the notes thereto.

3. Exhibits

The following documents are filed as Exhibits to this report:

Exhibit
Number	Description
3.1	Articles of Incorporation of Tarragon Realty Investors, Inc. (incorporated by reference to Appendix C to the Proxy Statement/Prospectus filed as part of Registration Statement No. 333-25739 on Form S-4, filed April 24, 1997).
3.2	Certificate of Amendment to the Articles of Incorporation of Tarragon Corporation as filed with and approved by the Secretary of State of Nevada on June 17, 2004 (incorporated by reference to Exhibit 3.10 to Form 8-K filed June 23, 2004).
3.3	Certificate of Designation of Preferences and Relative Participating or Optional or Other Special Rights and Qualification, Limitations or Restrictions thereof of 10% Cumulative Preferred Stock of Tarragon Realty Investors, Inc., as filed with and approved by the Secretary

149

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (Continued)

Exhibit
Number	Description
	of State of Nevada on May 1, 2000 (incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-31424 on Form S-4, filed March 1, 2000).
3.4	Bylaws of Tarragon Realty Investors, Inc. (incorporated by reference to Appendix D to the Proxy Statement/Prospectus filed as part of Registration Statement No. 333-25739 on Form S-4, filed April 24, 1997).
4.1	Indenture Agreement dated September 16, 2004, between Tarragon Corporation and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarterly period ended September 30, 2004).
10.1	Limited Liability Company Agreement of Tarragon Development LLC, dated February 7, 2000, between Tarragon Realty Investors, Inc., and The Rohdie Family LLC (incorporated by reference to Exhibit 10.1 to Form 10-K for the fiscal year ended December 31, 1999).
10.2	Amended and Restated Independent Director Share Option and Incentive Plan, as adopted July 21, 1995 and amended July 24, 1997 and November 24, 1998 (incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-36582 on Form S-8 filed May 9, 2000).
10.3	Amended and Restated Share Option and Incentive Plan, as adopted July 21, 1995 and amended July 25, 1997, November 24, 1998 and May 1, 2000 (incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-36576 on Form S-8 filed May 9, 2000).
10.4	Tarragon Corporation Amended and Restated Omnibus Plan, effective as of December 6, 2005 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 9, 2006).
10.5	Form of Stock Appreciation Rights Agreement under the Tarragon Corporation Amended and Restated Omnibus Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarterly period ended September 30, 2005).
10.6	Form of Incentive Stock Option Agreement under the Tarragon Corporation Amended and Restated Omnibus Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarterly period ended September 30, 2005).
10.7	Form of Director Stock Option Agreement under the Tarragon Corporation Amended and Restated Omnibus Plan (incorporated by reference to Exhibit 10.2 to Form 8-K filed on January 9, 2006).
10.8	Form of Restricted Stock Agreement under the Tarragon Corporation Amended and Restated Omnibus Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 17, 2006).
10.9	Limited Partnership Agreement of Ansonia Apartments, L.P., dated November 25, 1997 (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 6, 2005).

150

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (Continued)

Exhibit
Number	Description
10.10	Letter Agreement amending Limited Partnership Agreement of Ansonia Apartments, L.P., dated July 15, 2001 (incorporated by reference to Exhibit 10.2 to Form 8-K filed December 6, 2005).
10.11	Amendment to Limited Partnership Agreement of Ansonia Apartments, L.P., dated as of February 1, 2002 (incorporated by reference to Exhibit 10.3 to Form 8-K filed December 6, 2005).
10.12	Amendment to Limited Partnership Agreement of Ansonia Apartments, L.P., dated as of November 30, 2005 (incorporated by reference to Exhibit 10.4 to Form 8-K filed December 6, 2005).
10.13	Letter Agreement dated March 6, 2006 between the Company and Beachwold (incorporated by reference to Exhibit 10.2 to Form 8-K filed March 10, 2006).
10.14	Promissory Note in the original principal amount of $30,000,000, executed by the Company for the benefit of Beachwold (incorporated by reference to Exhibit 10.3 to Form 8-K filed March 10, 2006).
10.15	Form of Restricted Stock Agreement between the Company and Non-Employee Directors (incorporated by reference to Exhibit 10.1 to Form 8-K filed March 10, 2006).
10.16	Loan Agreement between The Entities Identified as Borrowers Party Hereto, The Lenders Party Hereto and General Electric Capital Corporation as of November 30, 2005 (incorporated by reference to Exhibit 10.16 to form 10-K for the year ended December 31, 2005).
10.17	First Amendment to Loan Agreement and Omnibus Amendment and Reaffirmation of Loan Documents with General Electric Capital Corporation (incorporated by reference to Exhibit 10.17 to form 10-K for the year ended December 31, 2005).
10.18	Incentive Compensation Plan (incorporated by reference to Appendix II to the Company’s 2006 Proxy Statement, filed April 28, 2006).
10.19	Mortgage Consolidation and Spreader Agreement with Barclays Capital Real Estate, Inc. (incorporated by reference to Exhibit 10.2 to form 10-Q for the quarterly period ended September 30, 2006).
10.20	Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing Agreement with Barclays Capital Real Estate, Inc. (incorporated by reference to Exhibit 10.3 to form 10-Q for the quarterly period ended September 30, 2006).
10.21	Letter Agreement, dated November 7, 2007, an amendment to March 6, 2006 Letter Agreement, between Beachwold Partners, L.P., as Lender and Tarragon Corporation, as Borrower, as modified by a May 18, 2007 Letter Agreement (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarterly period ended June 30, 2007).

151

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (Continued)

Exhibit
Number	Description
10.22	Loan Reinstatement, Second Amendment to Loan Agreement and Omnibus Agreement and Reaffirmation of Loan Documents and Guaranties, dated September 12, 2007, between the Company and General Electric Capital Corporation (incorporate by reference to Exhibit 10.2 to Form 10-Q for the quarterly period ended September 30, 2007).
10.23*	Purchase and Sale Agreement, dated November 7, 2007, among Tampa Palms Tarragon, LLC, Ocala Tarragon, LLC, Lake Sherwood Partners, LLC, and Midway Mills Partners, L.P., as Sellers, and BREOF Investors LLC, as Purchaser.
10.24*	Membership Interest Purchase and Sale Agreement, dated December 28, 2007, among Ballantrae Manager Inc., Reflection Lakes Manager Inc., Monterra Tarragon, Inc., Madison Tarragon Manager, Inc., Tarragon South Development Corporation, and Tarragon Corporation, as Sellers, and Northland Fund II, L.P., as Purchaser.
10.25	Letter Agreement, dated January 7, 2008, an amendment to November 7, 2007 Letter Agreement, among Beachwold Partners, L.P. and Robert Rothenberg, as Lenders, and the Company, as Borrower (incorporated by reference to Exhibit 10.1 to Form 8-K filed January 8, 2008).
10.26	Promissory Note, dated January 7, 2008, in the original principal amount of $26,032,861.12, payable to Beachwold Partners, L.P. (incorporated by reference to Exhibit 10.2 to Form 8-K filed January 8, 2008).
10.27	Promissory Note, dated January 7, 2008, in the original principal amount of $10,000,000, payable to Robert Rothenberg (incorporated by reference to Exhibit 10.3 to Form 8-K filed January 8, 2008).
10.28*	Settlement Agreement, dated January 24, 2008, between PNC Equity Securities, LLC, as Holder, and the Company, as Issuer.
10.29	Form of Employment Agreement, dated as of February 12, 2008, between the Company and each of the Named Executive Officers (incorporated by reference to Exhibit 10.1 to Form 8-K filed February 14, 2008).
21.1 *	Subsidiaries of the Registrant.
23.1 *	Consent of Grant Thornton LLP.
31.1 *	Rule 13a-14(a) certification by William S. Friedman, chief executive officer.
31.2 *	Rule 13a-14(a) certification by Erin D. Pickens, executive vice president and chief financial officer.
32.1 *	Section 1350 certifications by William S. Friedman, chief executive officer, and Erin D. Pickens, executive vice president and chief financial officer.

* Filed herewith

152

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TARRAGON CORPORATION
Dated: March 28, 2008	By:	/s/ William S. Friedman
		William S. Friedman, Chief Executive Officer,
		Director, and Chairman of the Board

Signature	Capacities In Which Signed	Date
/s/ William S. Friedman	Chief Executive Officer,	March 28, 2008
William S. Friedman	Director, and Chairman of the Board
	(Principal Executive Officer)
/s/ Robert P. Rothenberg	President and Director	March 28, 2008
Robert P. Rothenberg
/s/ Erin D. Pickens	Executive Vice President and	March 28, 2008
Erin D. Pickens	Chief Financial Officer
	(Principal Financial Officer)
/s/ Stephanie D. Buffington	Director of Financial Reporting	March 28, 2008
Stephanie D. Buffington	(Principal Accounting Officer)
/s/ Willie K. Davis	Director	March 28, 2008
Willie K. Davis
/s/ Richard S. Frary	Director	March 28, 2008
Richard S. Frary
/s/ Lance Liebman	Director	March 28, 2008
Lance Liebman
/s/ Lawrence G. Schafran	Director	March 28, 2008
Lawrence G. Schafran
/s/ Raymond V.J. Schrag	Director	March 28, 2008
Raymond V. J. Schrag
/s/ Martha E. Stark	Director	March 28, 2008
Martha E. Stark
/s/ Carl B. Weisbrod	Director	March 28, 2008
Carl B. Weisbrod

153

TARRAGON CORPORATION

INDEX TO EXHIBITS

Exhibit
Number	Description
3.1	Articles of Incorporation of Tarragon Realty Investors, Inc. (incorporated by reference to Appendix C to the Proxy Statement/Prospectus filed as part of Registration Statement No. 333-25739 on Form S-4, filed April 24, 1997).
3.2	Certificate of Amendment to the Articles of Incorporation of Tarragon Corporation as filed with and approved by the Secretary of State of Nevada on June 17, 2004 (incorporated by reference to Exhibit 3.10 to Form 8-K filed June 23, 2004).
3.3	Certificate of Designation of Preferences and Relative Participating or Optional or Other Special Rights and Qualification, Limitations or Restrictions thereof of 10% Cumulative Preferred Stock of Tarragon Realty Investors, Inc., as filed with and approved by the Secretary of State of Nevada on May 1, 2000 (incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-31424 on Form S-4, filed March 1, 2000).
3.4	Bylaws of Tarragon Realty Investors, Inc. (incorporated by reference to Appendix D to the Proxy Statement/Prospectus filed as part of Registration Statement No. 333-25739 on Form S-4, filed April 24, 1997).
4.1	Indenture Agreement dated September 16, 2004, between Tarragon Corporation and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarterly period ended September 30, 2004).
10.1	Limited Liability Company Agreement of Tarragon Development LLC, dated February 7, 2000, between Tarragon Realty Investors, Inc., and The Rohdie Family LLC (incorporated by reference to Exhibit 10.1 to Form 10-K for the fiscal year ended December 31, 1999).
10.2	Amended and Restated Independent Director Share Option and Incentive Plan, as adopted July 21, 1995 and amended July 24, 1997 and November 24, 1998 (incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-36582 on Form S-8 filed May 9, 2000).
10.3	Amended and Restated Share Option and Incentive Plan, as adopted July 21, 1995 and amended July 25, 1997, November 24, 1998 and May 1, 2000 (incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-36576 on Form S-8 filed May 9, 2000).
10.4	Tarragon Corporation Amended and Restated Omnibus Plan, effective as of December 6, 2005 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 9, 2006).
10.5	Form of Stock Appreciation Rights Agreement under the Tarragon Corporation Amended and Restated Omnibus Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarterly period ended September 30, 2005).
10.6	Form of Incentive Stock Option Agreement under the Tarragon Corporation Amended and Restated Omnibus Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarterly period ended September 30, 2005).

154

TARRAGON CORPORATION
INDEX TO EXHIBITS
(Continued)

Exhibit
Number	Description
10.7	Form of Director Stock Option Agreement under the Tarragon Corporation Amended and Restated Omnibus Plan (incorporated by reference to Exhibit 10.2 to Form 8-K filed on January 9, 2006).
10.8	Form of Restricted Stock Agreement under the Tarragon Corporation Amended and Restated Omnibus Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 17, 2006).
10.9	Limited Partnership Agreement of Ansonia Apartments, L.P., dated November 25, 1997 (incorporated by reference to Exhibit 10.1 to Form 8-K filed December 6, 2005).
10.10	Letter Agreement amending Limited Partnership Agreement of Ansonia Apartments, L.P., dated July 15, 2001 (incorporated by reference to Exhibit 10.2 to Form 8-K filed December 6, 2005).
10.11	Amendment to Limited Partnership Agreement of Ansonia Apartments, L.P., dated as of February 1, 2002 (incorporated by reference to Exhibit 10.3 to Form 8-K filed December 6, 2005).
10.12	Amendment to Limited Partnership Agreement of Ansonia Apartments, L.P., dated as of November 30, 2005 (incorporated by reference to Exhibit 10.4 to Form 8-K filed December 6, 2005).
10.13	Letter Agreement dated March 6, 2006 between the Company and Beachwold (incorporated by reference to Exhibit 10.2 to Form 8-K filed March 10, 2006).
10.14	Promissory Note in the original principal amount of $30,000,000, executed by the Company for the benefit of Beachwold (incorporated by reference to Exhibit 10.3 to Form 8-K filed March 10, 2006).
10.15	Form of Restricted Stock Agreement between the Company and Non-Employee Directors (incorporated by reference to Exhibit 10.1 to Form 8-K filed March 10, 2006).
10.16	Loan Agreement between The Entities Identified as Borrowers Party Hereto, The Lenders Party Hereto and General Electric Capital Corporation as of November 30, 2005 (incorporated by reference to Exhibit 10.16 to form 10-K for the year ended December 31, 2005).
10.17	First Amendment to Loan Agreement and Omnibus Amendment and Reaffirmation of Loan Documents with General Electric Capital Corporation (incorporated by reference to Exhibit 10.17 to form 10-K for the year ended December 31, 2005).
10.18	Incentive Compensation Plan (incorporated by reference to Appendix II to the Company’s 2006 Proxy Statement, filed April 28, 2006).
10.19	Mortgage Consolidation and Spreader Agreement with Barclays Capital Real Estate, Inc. (incorporated by reference to Exhibit 10.2 to form 10-Q for the quarterly period ended September 30, 2006).

155

TARRAGON CORPORATION
INDEX TO EXHIBITS
(Continued)

Exhibit
Number	Description
10.20	Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing Agreement with Barclays Capital Real Estate, Inc. (incorporated by reference to Exhibit 10.3 to form 10-Q for the quarterly period ended September 30, 2006).
10.21	Letter Agreement, dated November 7, 2007, an amendment to March 6, 2006 Letter Agreement, between Beachwold Partners, L.P., as Lender and Tarragon Corporation, as Borrower, as modified by a May 18, 2007 Letter Agreement (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarterly period ended June 30, 2007).
10.22	Loan Reinstatement, Second Amendment to Loan Agreement and Omnibus Agreement and Reaffirmation of Loan Documents and Guaranties, dated September 12, 2007, between the Company and General Electric Capital Corporation (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarterly period ended September 30, 2007).
10.23*	Purchase and Sale Agreement, dated November 7, 2007, among Tampa Palms Tarragon, LLC, Ocala Tarragon, LLC, Lake Sherwood Partners, LLC, and Midway Mills Partners, L.P., as Sellers, and BREOF Investors LLC, as Purchaser.
10.24*	Membership Interest Purchase and Sale Agreement, dated December 28, 2007, among Ballantrae Manager Inc., Reflection Lakes Manager Inc., Monterra Tarragon, Inc., Madison Tarragon Manager, Inc., Tarragon South Development Corporation, and Tarragon Corporation, as Sellers, and Northland Fund II, L.P., as Purchaser.
10.25	Letter Agreement, dated January 7, 2008, an amendment to November 7, 2007 Letter Agreement, among Beachwold Partners, L.P. and Robert Rothenberg, as Lenders, and the Company, as Borrower (incorporated by reference to Exhibit 10.1 to Form 8-K filed January 8, 2008).
10.26	Promissory Note, dated January 7, 2008, in the original principal amount of $26,032,861.12, payable to Beachwold Partners, L.P. (incorporated by reference to Exhibit 10.2 to Form 8-K filed January 8, 2008).
10.27	Promissory Note, dated January 7, 2008, in the original principal amount of $10,000,000, payable to Robert Rothenberg (incorporated by reference to Exhibit 10.3 to Form 8-K filed January 8, 2008).
10.28*	Settlement Agreement, dated January 24, 2008, between PNC Equity Securities, LLC, as Holder, and the Company, as Issuer.
10.29	Form of Employment Agreement, dated as of February 12, 2008, between the Company and each of the Named Executive Officers (incorporated by reference to Exhibit 10.1 to Form 8-K filed February 14, 2008).
21.1*	Subsidiaries of the Registrant.
23.1 *	Consent of Grant Thornton LLP.
31.1 *	Rule 13a-14(a) certification by William S. Friedman, chief executive officer.

156

TARRAGON CORPORATION
INDEX TO EXHIBITS
(Continued)

Exhibit
Number	Description
31.2 *	Rule 13a-14(a) certification by Erin D. Pickens, executive vice president and chief financial officer.
32.1 *	Section 1350 certifications by William S. Friedman, chief executive officer, and Erin D. Pickens, executive vice president and chief financial officer.

* Filed herewith

157

EX-10.23

Exhibit 10.23

PURCHASE AND SALE AGREEMENT
(Deerwood Village; Villa Tuscany; Midway Mills; and Vista Grande)

     THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is made as of this 7th day of November, 2007 by and among: TAMPA PALMS TARRAGON, LLC (“Tampa Palms”), a Florida limited liability company; OCALA TARRAGON, LLC (“Ocala”), a Florida limited liability company; LAKE SHERWOOD PARTNERS, LLC (“Lake Sherwood”), a Florida limited liability company; and MIDWAY MILLS PARTNERS, L.P., a Texas limited partnership (“Midway”: together with Tampa Palms, Ocala and Lake Sherwood, collectively, “Seller”) whose address is 423 West 55^th Street, 12^th Floor, New York, New York 10019, and BREOF INVESTORS LLC, a Delaware limited liability company (together with its permitted successors, assigns or designees, the “Purchaser”) whose address is Three World Financial Center, 200 Vesey Street, 11^th Floor, New York, NY 10281-1021.

W I T N E S S E T H :

     WHEREAS, (i) Ocala Tarragon is the owner of the real property and the apartment complex thereon known as “Deerwood Village”, located in Ocala, Florida, more particularly described on Exhibit “A-1” attached hereto; (ii) Lake Sherwood is the owner of the real property and the apartment complex thereon known as “Villa Tuscany”, located in Orlando, Florida, more particularly described on Exhibit “A-2” attached hereto; (iii) Tampa Palms is the owner of the real property and the apartment complex thereof known as “Vista Grande”, located in Tampa, Florida more particularly described on Exhibit “A-3” attached hereto (each, an “Apartment Complex”, and collectively, the “Apartment Complexes”); and (iv) Midway Mills is the owner of the real property and the shopping center thereon known as the “Midway Mills Shopping Center”, located in Carollton, Texas, more particularly described on Exhibit “A-4” attached hereto (the “Shopping Center”); and

     WHEREAS, Purchaser desires to acquire the Apartment Complexes and Shopping Center from Seller and Seller desires to transfer the Apartment Complexes and Shopping Center to Purchaser.

     NOW, THEREFORE, in consideration of the mutual covenants and representations herein contained, Seller and Purchaser agree as follows:

ARTICLE 1.
DEFINITIONS

     1.1 In this Agreement, and in the Exhibits and Schedules attached hereto, the following words and phrases shall have the following meanings:

     “Amendment” means an amendment, renewal, supplement, modification, expansion, restatement, extension, or any other change or revision.

Exhibit 10.23 (Continued)

     “Apartment Complex” and “Apartment Complexes” is defined in the recitals.

     “Appurtenance” means all easements, rights-of-way, covenants, restrictions, tenements, rights and appurtenances benefiting or appertaining to the Premises and the land lying in the streets and roads in front of and adjoining the Premises.

     “Books and Records” means copies of the annual 2006 and 2007 year-to-date operating statements for the Premises and, to the extent in Seller’s possession, copies of all real estate and personal property tax statements and assessments notices for 2007, together with current water, sewer, utility and fuel bills received by Seller prior to the date hereof.

     “Broker” is defined in Section 13.1

     “Business Day” means any day other than (a) a Saturday or Sunday, (b) a Federal, State of Florida or State of Texas banking holiday or Canadian banking holiday or (c) a day on which the county recorder’s office in the county where the Premises is located is closed.

     “Casualty” is defined in Section 10.1.

     “Casualty Notice” is defined in Section 10.1

     “Casualty Termination Notice” is defined in Section 10.1 (a)

     “Closing” means (i) the consummation of the transactions contemplated under this Agreement on the Closing Date with respect to the Apartment Complexes and Shopping Center, other than Villa Tuscany, and (ii) the consummation of the transaction contemplated under this Agreement on the Villa Tuscany Closing Date with respect to Villa Tuscany.

     “Closing Date” is defined in Section 6.1.

     “Closing Documents” is defined in Section 6.2.

     “Closing Statement” is defined in Section 6.2 (o)

     “Commitment” is defined in Section 4.2

     “Condemnation” is defined in Section 10.2.

     “Condemnation Notice” is defined in Section 10.2

     “Contracts” means all agreements between Seller and any third party affecting the Property.

     “Deerwood Existing Loan” means that certain loan in the original principal amount of $22,125,000, as evidenced by that certain Promissory Note dated as of August 15, 2005, from

Exhibit 10.23 (Continued)

Ocala Tarragon, LLC to the order of Wachovia Bank, National Association, which Note is secured by that certain Mortgage, Assignment of Leases and Rents and Security Agreement, dated as of August 15, 2005, between Ocala Tarragon, LLC and Wachovia Bank, National Association, which is a lien encumbering the Deerwood Village Apartment Complex.

     “Deerwood Holder” means Wachovia Bank, National Association, as holder of the Deerwood Existing Loan.

     “Deposits” means all refundable security deposits, expense deposits and/or prepaid rentals received from a Tenant under a Tenant Lease, including security, key, cleaning, storage locker, and pet deposits of Tenants.

     “Development Rights” means all rights of Seller to the air space above the Land, if any, all zoning entitlements, development rights and appurtenances accruing to the Premises under, or by reason of, any applicable zoning ordinance or other laws.

     “Due Diligence Review” is defined in Section 14.1

     “Earnest Money” is defined in Section 3.2(a).

     “Encumbrances” means any and all liens, mortgages, deeds of trust, security agreements, security interests, options, rights of purchase or first refusal, rights-of-way, restrictive covenants, reservations, judgments, leases, subleases, licenses, assignments, restrictions, or other encumbrances affecting title to the Property.

     “Escrow Holder” means the Title Company, or such other escrow holder as may be mutually acceptable to the parties, and which agrees to serve as the escrow holder pursuant to the terms of this agreement.

     “Existing Loans” means, collectively, the Deerwod Village Existing Loan, the Vista Grande Existing Loan, and the Villa Tuscany Existing Loan.

     “Governmental Entity” means any national, state or local government (domestic or foreign), any political subdivision thereof or any other governmental or quasi-governmental, judicial, public or statutory instrumentality, authority, body, agency, bureau or entity or any arbitrator with authority to bind a party at law.

     “Holder” means, collectively, (i) Fannie Mae or its successors and assigns, as holder of the Villa Tuscany Existing Loan, and/or the servicer of the Villa Tuscany Existing Loan, (ii) the Deerwood Holder, and (iii) the Vista Grande Holder.

     “Holder Consent” means, collectively, Villa Tuscany Holder Consent, Deerwood Holder Consent, and Vista Grande Holder Consent, as such terms are defined in Sections 15.1., 15.2 and 15.3, respectively.

Exhibit 10.23 (Continued)

     “Improvements” means the Apartment Complexes and the Shopping Center and all other buildings, structures, and improvements located on the Land.

     “Initial Deposit” is defined in Section 3.2

     “Land” means the real property more particularly described on Exhibits “A-1” – “A-4” attached hereto.

     “Legal Proceeding” means any litigation, arbitration, administrative proceeding, or other legal proceeding of any kind.

     “Licenses and Permits” means all building, construction, land use, environmental or other certificates, licenses, permits, consents, authorizations and approvals issued by any Governmental Entity for or in connection with the construction, ownership, use, occupation and operation of the Premises.

     “Notice of Waiver” is defined in Section 14.2.

     “Objections” is defined in Section 4.3

     “Objection Notice” is defined in Section 4.3.

     “Oxford Place Property” means all unsold condominium units at Oxford Place, a Condominium, at 5125 Palm Springs Blvd., Tampa, Florida.

     “Permitted Encumbrances” is defined in Section 4.2.

     “Permitted Termination” is defined in Section 11.1

     “Person” means an individual person, a corporation, partnership, trust, joint venture, proprietorship, estate, association, Governmental Entity or other incorporated or unincorporated enterprise, entity or organization of any kind.

     “Personal Property” means all equipment, machinery, furniture, furnishings, fixtures, goods, inventory, boilers, appliances, dynamos, elevators, escalators, elevator and escalator plants, stokers, tanks and vacuum, cleaning, plumbing, heating, lighting, air conditioning, ventilating, refrigerating, disposal and incinerating and laundry systems, cleaning, cooking and cooling apparatus and equipment, stoves, cleaning and lifting equipment, public address and communications systems, switchboards, security and surveillance equipment and devices, power equipment, transformers, sprinkler systems and other fire prevention and extinguishing apparatus, golf carts and all financial equipment, calculators, adding machines, and all other tangible and intangible personal property of every nature and description used in connection with the Premises (excluding computer hardware, software and peripherals, except for any which might be necessary to operate or control the operation of any portions of the Property, such as lighting, irrigation, security, etc., which shall be included in this sale), which are not owned by

Exhibit 10.23 (Continued)

the Tenants, which are owned by and in the possession of Seller, and also including any rights Seller may have, if any, with respect to the use of the names of the Apartment Complexes and the Shopping Center.

     “Plans” means all architectural, electrical, mechanical or plumbing plans and specifications and any environmental, engineering and geotechnical studies or reports, including without limitation, any Phase I environmental report, performed in connection with the Property or any portion thereof, which are not owned by the Tenants and which are owned by and in the possession of Seller.

     “Premises” means the Land and all Improvements thereon and the Appurtenances thereto.

     “Property” means the Premises, Personal Property, Development Rights, Contracts, Licenses and Permits, Plans, Books and Records, Deposits and Warranties and Guaranties on, to or in connection with the Land.

     “Rent Roll” is defined in Section 4.1(a).

     “Response Notice” is defined in Section 4.4.

     “Seller Party” is defined in Section 8.1 (c).

     “Shopping Center” is defined in the recitals.

     “Survey” is defined in Section 4.1 (b).

     “Tenant” means all tenants and other parties having the right to use or occupy all or any portions of the Property.

     “Tenant Lease” means all leases, rental agreements, subleases, or other agreements which permit or authorize the use and occupancy of the Property, together with any and all, if any, guaranties, security deposits, or other security for performance of a Tenant’s obligations thereunder, all Amendments and/or other agreements forming a part thereof.

     “Termination Deadline” means 4:00 p.m. (Eastern time) on the date hereof.

     “Title Company” means Chicago Title Insurance Company, and/or its affiliated title insurance companies, together with such other title insurance companies as Purchaser may request.

     “Title Policy” means one or more ALTA Owner’s policies of Title Insurance, insuring Purchaser’s right, title and interest in the Property in the aggregate amount of the Purchase Price, allocated among the Apartment Complexes and the Shopping Center in the manner set forth in Section 3.1, subject only to Permitted Encumbrances.

Exhibit 10.23 (Continued)

     “Villa Tuscany Closing Date” is defined in Section 6.1.

     “Villa Tuscany Existing Loan” means that certain loan in the original principal amount of $24,340,500, as evidenced by that certain Consolidated, Amended and Restated Multifamily Note dated as of March 17, 2005, between Lake Sherwood Partners, LLC, a Florida limited liability company, and Harborpoint Capital, L.P., a Delaware limited partnership, which note is secured by that certain Consolidated, Amended and Restated Multifamily Mortgage, Assignment of Rents and Security Agreement, dated as of March 17, 2005, between Lake Sherwood Partners, LLC, a Florida limited liability company, and Harborpoint Capital, L.P., a Delaware limited partnership, which is a lien encumbering the Apartment Complex known as “Villa Tuscany”.

     “Villa Tuscany Purchase Price” is defined in Section 3.1.

     “Vista Grande Existing Loan” means that certain loan in the original principal mount of $70,350,000, as evidenced by that certain Second Amended and Restated Promissory Note dated as of October 6, 2005, from Tampa Palms Tarragon, LLC to the order of the Vista Grande Holder, which Note is secured by that certain Second Amended and Restated Mortgage, Security Agreement and Fixture Filing dated as of October 6, 2005, between Tampa Palms Tarragon, LLC and the Vista Grande Holder, which is a lien encumbering the Vista Grande Apartment Complex and Oxford Place Property.

     “Vista Grande Holder” means General Electric Capital Corporation, as holder of the Vista Grande Existing Loan.

     “Warranties and Guaranties” means all unexpired warranties and guaranties and payment and/or performance bonds required to be provided under the Contracts and run to the benefit of Seller in connection with the construction, renovation and/or operation of the Property.

     1.2 Unless specified to the contrary, references to Sections, Exhibits and Schedules mean the particular Section, Exhibit or Schedule in or to this Agreement, all of which Exhibits and Schedules are made a part hereof for all purposes the same as if set forth herein verbatim; it being expressly understood that if any Exhibit attached hereto which is to be executed and delivered at Closing contains blanks, such Exhibit attached hereto shall be deemed completed in the form executed.

     1.3 Wherever used in this Agreement:

          1. the words “include” or “including” shall be construed as incorporating, also, “but not limited to” or “without limitation”;

          2. the word “day” means a calendar day unless otherwise specified;

          3. the word “party” means each of Seller and Purchaser;

Exhibit 10.23 (Continued)

          4. the word “law” (or “laws”) means any statute, ordinance, resolution, regulation, code, rule, order, decree, judgment, injunction, mandate or other legally binding requirement of a Governmental Entity;

          5. each reference to the Premises or Property shall be deemed to include “and/or any portion thereof”; and

          6. each reference to $ or dollars means United States dollars.

     1.4 Certain other words and phrases are defined or described elsewhere in this Agreement.

ARTICLE 2.
PURCHASE AND SALE

     2.1 Purchase and Sale. Subject to the terms and conditions of this Agreement, Seller hereby agrees to sell and convey to Purchaser, and Purchaser hereby agrees to purchase from Seller, the Property.

ARTICLE 3.
PURCHASE PRICE AND EARNEST MONEY

     3.1 Purchase Price. Subject to the mechanics for closing and as otherwise amended or reduced by the terms hereof, described in Article 6 below and the prorations and adjustments described in Article 7 below, the purchase price (the “Purchase Price”) for the Property shall be an aggregate ONE HUNDRED TWENTY-THREE MILLION EIGHT HUNDRED NINETY-TWO THOUSAND DOLLARS ($123,892,000), the allocated portion of which shall be paid by Purchaser to Seller by federal funds wire transfer on or prior to 2:00 P.M. (Florida time) on the Closing Date or the Villa Tuscany Closing Date as applicable. If all conditions to Purchaser’s obligation to close have been satisfied, but Seller does not receive the net sales proceeds credited to its account by 3:00 P.M. (Florida time) on the Closing Date or the Villa Tuscany Closing Date, as applicable, then prorations and adjustments will made as of 11:59 P.M. (Florida time) on the Closing Date and the Villa Tuscany Closing Date, as applicable. The Purchase Price shall, for purposes of title insurance, brokerage, documentary stamp tax, transfer tax and other closing matters, be allocated among the Apartment Complexes and the Shopping Center as follows: (a) Vista Grande, $45,000,000 (the “Vista Grande Purchase Price”); (b) Deerwood Village, $32,892,000 (the “Deerwood Village Purchase Price”); (c) Midway Mills, $6,000,000 (the “Midway Mills Purchase Price”); and (d) Villa Tuscany, $40,000,000 (the “Villa Tuscany Purchase Price”). Purchaser shall receive a credit against the portion of the Purchase Price payable for the Villa Tuscany Apartment Complex and/or the Deerwood Village Apartment Complex and/or the Vista Grande Apartment Complex, as applicable, equal to (i) the principal balance of the Existing Loans assumed by Purchaser on the applicable Closing Date, or (ii) the principal balance of the Existing Loans repaid by Purchaser, plus any default interest, late

Exhibit 10.23 (Continued)

charges or other costs or amounts paid by Purchaser to cure any defaults existing under the Existing Loans immediately prior to the prepayment thereof.

     3.2 Earnest Money.

          (a) Purchaser shall deliver to the Escrow Holder no later than 5:00 pm (Florida time) on the second (2nd) Business Days after a counterpart of this Agreement signed by Purchaser and Seller has been delivered to Purchaser, the sum of $1,277,000 by federal funds wire transfer (together with all interest earned thereon, the “Earnest Money”). This Agreement shall terminate and be deemed void ab initio if the Earnest Money is not timely deposited with Escrow Holder. The Earnest Money shall be held in escrow by the Escrow Holder in a segregated interest-bearing account, with interest accruing for the benefit of the party entitled to the payment or return of the Earnest Money. The Earnest Money shall be paid to Seller and applied toward the Purchase Price at Closing, and shall otherwise be paid or applied in accordance with this Agreement. $339,374 of the Earnest Money (the “Deerwood Earnest Money”) shall be allocated to Deerwood Village. $412,144 of the Earnest Money shall be allocated to Villa Tuscany (the “Villa Tuscany Earnest Money”). $61,821 of the Earnest Money shall be allocated to Midway Mills, and $463,661 of the Earnest Money shall be allocated to Vista Grande (the “Vista Grande Earnest Money”). The Villa Tuscany Earnest Money shall remain in escrow following the Closing of Vista Grande and Midway Mills, and shall be paid to Seller and applied to the Villa Tuscany Purchase Price and, if applicable, the portion of the Purchase Price allocated to the Deerwood Village Apartment Complex at the Closing of each such Apartment Complex, and shall otherwise be paid or applied in accordance with this Agreement.

          (b) The Escrow Holder shall hold the Earnest Money pursuant to the following provisions:

               (i) The Escrow Holder is not a party to, and is not bound by, or charged with notice of any agreement out of which this escrow may arise, other than the terms and provisions of this Section 3.2.

               (ii) The Escrow Holder shall deliver the Earnest Money to the party so designated on written notice from both the Purchaser and Seller specifying the time and the place where the Earnest Money is to be delivered, provided, however that the Escrow Holder shall have received such written instructions at least one (1) Business Day prior to the date designated for delivery; provided, further, however, the Closing Statement shall be sufficient to constitute such notice regardless of the date so executed.

               (iii) The Escrow Holder is acting solely as a stakeholder and depository as an accommodation to Purchaser and Seller, and is not responsible or liable for any matter or loss arising out of the Escrow Holder’s conduct hereunder, except for its gross negligence or willful misfeasance. The Escrow Holder shall not be responsible or liable for the sufficiency, correctness, genuineness, or validity of the subject matter of this Agreement, or for the identity or authority of any person executing any documents or instruments in connection herewith.

Exhibit 10.23 (Continued)

               (iv) Purchaser and Seller agree to jointly and severally, indemnify, defend and hold harmless the Escrow Holder from and against any loss, cost, claims, damage or expense, including, without limitation, any and all court costs and attorney’s fees and expenses, collectively called “Expenses”, incurred by the Escrow Holder in connection with or in any way arising out of this Agreement, other than Expenses resulting from the Escrow Holder’s gross negligence or willful misconduct, provided that as between Purchaser and Seller any costs or expenses incurred as a result of any dispute between Seller and Purchaser shall be the responsibility of the non-prevailing party in such dispute. The Escrow Holder may, at its own expense, consult with legal counsel in the event of any dispute or questions as to the construction of any provisions hereof or its duties hereunder, and it shall be fully protected in acting in accordance with the written opinion or instructions of such counsel.

               (v) The Escrow Holder shall be entitled to act or rely upon, and the Escrow Holder shall be protected in acting or relying upon, the genuineness and validity of any written notice, request, waiver, consent, certificate, receipt, authorization, power of attorney or other document the Escrow Holder shall receive from any party hereto.

               (vi) Except as otherwise provided in Section 3.2 (b) (ii) above, in the event that (a) the Escrow Holder receives contradictory instructions from the parties hereto, or (b) there shall be any dispute between Seller and Purchaser as to any matter arising under this Agreement, or (c) there shall be any uncertainty as to the meaning or applicability of the provisions hereof or any written instructions received by the Escrow Holder pursuant hereto, the Escrow Holder shall continue to hold the Earnest Money pending resolution of the matter if so instructed by written notification from both Seller and Purchaser or if not so instructed shall deposit the Earnest Money with any appropriate court in the State of New York at the cost and expense of Purchaser and Seller jointly and severally, and, upon making such deposit, the Escrow Holder shall thereupon be discharged and released from any and all liability with respect to the Earnest Money. The Escrow Holder may dispose of the escrowed funds in accordance with a court order, and shall be fully protected if it acts in accordance with any such court order.

               (vii) Deposits made pursuant to these instructions may be invested on behalf of any party or parties hereto, provided that any direction to the Escrow Holder for such investment shall be in writing and contain the consent of all other parties to this Agreement together with a completed, signed W-9 Form. The Escrow Holder is not to be held responsible for the loss of principal or interest on any investment made pursuant to the aforesaid instruction or in the redemption thereof.

               (viii) The Earnest Money must be held in a segregated escrow account and may not be commingled with any other escrowed funds held by the Escrow Holder; and

               (ix) Upon delivery of the Earnest Money in accordance with the terms hereof, the Escrow Holder shall be discharged and released from any and all liability with respect to the Earnest Money.

Exhibit 10.23 (Continued)

               (x) Escrow Holder may resign as Escrow Holder hereunder at any time upon written notice to Purchaser and Seller, provided that such resignation shall not be effective unless and until a replacement escrow agent acceptable to Purchaser and Seller shall have been identified and such replacement escrow agent shall have agreed in writing to serve as Escrow Holder hereunder pursuant to the terms and conditions of this Agreement.

               (xi) Purchaser and Seller may jointly terminate the services of Escrow Holder hereunder at any time upon written notice to Escrow Holder, provided that such termination shall not be effective unless and until a replacement escrow agent acceptable to Purchaser and Seller shall have been identified and such replacement escrow agent shall have agreed in writing to serve as Escrow Holder hereunder pursuant to the terms and conditions of this Agreement.

ARTICLE 4.
DELIVERY OF DOCUMENTS/TITLE

     4.1 Within two (2) Business Days after a fully executed counterpart of this Agreement is delivered to Purchaser (except as otherwise provided), Seller shall deliver the following information and documents to Purchaser with respect to each Apartment Complex and the Shopping Center:

          (a) Tenant Leases (which shall be made available for inspection at the Shopping Center and each Apartment Complex, and not delivered to Purchaser), a current rent roll concerning each Property (each, a “Rent Roll” and collectively, the “Rent Roll”) setting forth, with respect to each apartment unit: (i) the name of the Tenant, (ii) the rent payable, (iii) the expiration date of each lease and the status of the rental payments payable thereunder, and (iv) the security or other deposit(s) held by Seller.

          (b) The most recent surveys of the Property in Seller’s possession (the “Survey”). Any updated Surveys required by Purchaser shall be ordered and paid for by Purchaser.

          (c) Copies of any unrecorded written agreements with utility companies in Seller’s possession, if any.

          (d) Copies of all Books and Records (provided that Seller will promptly forward to Purchaser copies of any tax, water, sewer, utility and/or fuel bills received by Seller after the date hereof), Contracts, Licenses and Permits, Plans, and Warranties and Guaranties.

          (e) Copies of the most recent title commitments and owner’s title policies for each Property in Seller’s possession, if any. If Seller shall fail to deliver to Purchaser items (a) through (e) above within two (2) Business Days after a fully-executed copy of this Agreement is delivered to Purchaser, Purchaser’s sole remedy therefor shall be Purchaser’s right to terminate this Agreement by delivering written notice thereof to Seller prior to the delivery of all such

Exhibit 10.23 (Continued)

items and receive the return of the Earnest Money, in which event neither party shall have any further rights or obligations hereunder (except as otherwise provided herein).

     4.2 Purchaser shall request the Title Company to deliver to Purchaser and Seller: (a) current commitments for Owner’s Policies of Title Insurance issued by the Title Company, whereby said Title Company commits to issue the Title Policy, written in accordance with this Agreement (collectively, the “Commitment”, and each, individually, a “Commitment”); and (b) copies of all instruments shown on Schedule B of the Commitments, and Purchaser may also order such Survey updates as Purchaser reasonably deems necessary. The Commitments shall describe the Property; shall list Purchaser as the prospective named insured; shall show as the policy amounts the allocable portions of the Purchase Price specified in Section 3.1; and shall contain the commitment of the Title Company to insure Purchaser’s fee simple interest in the Property upon the Closing, subject only to the Permitted Encumbrances. The Commitments shall show the status of the title of the Property and all exceptions which would appear in the Title Policy. Any items or exceptions to title which are accepted or waived in writing or deemed to have been accepted or waived by Purchaser pursuant to the terms of this Agreement are hereinafter referred to as “Permitted Encumbrances”. Seller makes no representations or warranties with respect to the accuracy of the Commitment. Notwithstanding anything contained in this Agreement to the contrary, Purchaser shall be entitled to reasonable adjournments of the Closing Date or the Villa Tuscany Closing Date, in the event the Title Company is not able to deliver any Commitments and/or updated Surveys in a reasonable time prior to the Closing Date or the Villa Tuscany Closing Date.

     4.3 Within two (2) Business Days after the later of (i) the date hereof, or (ii) receipt of any Commitment (and all instruments shown thereon and any updated Survey, if applicable) for any Property (or, with respect to any title matter appears in an update or bringdown to the Commitment which did not appear in the original Commitment, within two (2) Business Days after receipt of such update or bringdown), Purchaser shall give written notice (the “Objection Notice”) to the Seller and the Title Company of any conditions of title and anything contained or set forth in the Commitment (or such update or bringdown thereto) or on the Survey, regardless of whether or not the items being objected to were known to Purchaser, which are unacceptable to Purchaser in its reasonable discretion or for which Purchaser will in its reasonable discretion require the Title Company give affirmative insurance with respect thereto and which Purchaser is unwilling to take title subject to (the “Objections”), separately specifying and setting forth each of such Objections. Seller shall be entitled to reasonable adjournments of the Closing Date and the Villa Tuscany Closing Date, as applicable, to cure the Objections, not to exceed thirty (30) days in the aggregate. If Purchaser gives Seller an Objection Notice as set forth above, then all matters disclosed on such Commitment which are not objected to in such Objection Notice shall be deemed to be Permitted Encumbrances. If Purchaser fails to give Seller an Objection Notice within the period set forth above, then all matters disclosed on the Commitment shall be deemed to be Permitted Encumbrances.

     4.4 Except as otherwise set forth in this Section 4.4, Seller shall not be required to expend any money or bring any action or proceeding to cure such Objections. Notwithstanding the foregoing: (a) the standard preprinted exceptions set forth in the Commitment shall not

Exhibit 10.23 (Continued)

constitute Permitted Encumbrances for purposes hereof to the extent they can be omitted in the State of Florida or Texas, as applicable, by Seller’s affidavit without payment of additional premium by Purchaser; (b) all mortgages and other encumbrances evidencing or securing indebtedness of Seller, or any predecessor-in-interest, shall not constitute Permitted Encumbrances and shall be discharged and satisfied by Seller prior to Closing; provided, however, upon receipt of the Holder Consent the Existing Loans shall constitute a Permitted Encumbrance; (c) Seller shall be required to expend up to $1,000,000 in the aggregate to satisfy, discharge or bond over liens or other monetary or non-monetary items which can be satisfied by the expenditure of less than $1,000,000 in the aggregate; (d) Seller shall use its reasonable good faith efforts (without cost to Seller) to cure any objections to Seller’s title raised by Purchaser or the Title Company with respect to affidavits or consents of stockholders, directors and officers approving any acts of affiliated corporations in the chain of title, and proof of payment of franchise or dissolution taxes thereof; and (e) Seller shall be required to discharge or satisfy any encumbrances first appearing of record following the date hereof which are created by or at the direction of Seller, regardless of the amount of the expenditure required to discharge or satisfy such encumbrances. Within five (5) Business Days after an Objection Notice is given, Seller shall give Purchaser notice (the “Response Notice”) if Seller is unable or unwilling (except as otherwise required in accordance with clauses (a) through (e) in the immediately preceding sentence) to cure any of Purchaser’s Objections. If Seller’s Response Notice indicates that Seller is unwilling or unable (except as otherwise required in accordance with clauses (a) through (e) above) to cure Purchaser’s Objections, or if Seller shall fail to timely give a Response Notice, then Purchaser may, as its exclusive remedy, elect by written notice given to Seller within five (5) Business Days after the Response Notice is given, either (a) to accept such title as Seller is able to convey without any reduction or abatement of the Purchase Price, or (b) terminate this Agreement with respect to the individual Apartment Complex or Shopping Center for which Seller has indicated that it is unwilling or unable to cure Purchaser’s Objections, or (c) to terminate this Agreement, in which event the Earnest Money and all interest thereon shall be returned to Purchaser. If Purchaser fails to deliver any such notice, Purchaser will be deemed to have elected to terminate under clause (c). Notwithstanding anything contained in this Agreement to the contrary, in the event Purchaser elects option (b) in the immediately preceding sentence, this Agreement shall be deemed to be amended upon receipt of Purchaser’s notice of such partial termination and (i) the Purchase Price shall be deemed to be reduced by the amount of the Purchase Price allocated to such Apartment Complex or Shopping Center, (ii) the Earnest Money and all interest earned thereon with respect to the Earnest Money allocated to such Apartment Complex or Shopping Center shall be returned to Purchaser, and (iii) the Apartment Complex or Shopping Center which is the subject of the Purchaser’s Objection causing such partial termination shall be eliminated from the Property being purchased hereunder.

Exhibit 10.23 (Continued)

ARTICLE 5.
CONDITIONS TO CLOSING

     5.1 Conditions to Obligations of Purchaser. The obligations of Purchaser to execute and deliver the applicable Closing Documents, to pay the Purchase Price and to perform Purchaser’s other obligations at the Closing for all or a portion of the Property under this Agreement are and shall be subject to the satisfaction of each of the following conditions at or prior to the Closing, unless otherwise specified:

          (a) Title to the Property shall be free of Encumbrances other than Permitted Encumbrances.

          (b) Seller shall have executed (where applicable) and delivered to Escrow Holder the Closing Documents to be executed and delivered by Seller.

          (c) All of the representations and warranties of Seller contained in this Agreement shall have been true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable, with the same effect as if made on and as of such date.

          (d) Seller shall have performed, observed, and complied in all material respects with all covenants, agreements, and conditions required by this Agreement to be performed, observed, and complied with on Seller’s part prior to or as of the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable.

          (e) Other than in the event of a Casualty or a Condemnation, the physical condition of the Property shall be substantially the same on the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable, as on the date hereof, reasonable wear and tear excepted.

          (f) With respect to the Closing of the Villa Tuscany Apartment Complex, Villa Tuscany Holder Consent (as defined in Article 15) shall have been issued.

          (g) With respect to the Closing of the Vista Grande Apartment Complex, Vista Grande Holder Consent (as defined in Article 15) shall have been issued.

          (h) With respect to the Closing of the Deerwood Village Apartment Complex, Deerwood Village Holder Consent (as defined in Article 15) shall have been issued.

          (i) Seller shall have delivered to the Title Company funds in amounts sufficient to pay any transfer or other taxes or fees and/or expenses required to be paid by Seller hereunder (unless Seller authorizes the Title Company to deduct and pay such expenses out of monies payable to Seller).

Exhibit 10.23 (Continued)

          (j) The Warranties and Guarantees have been made available for inspection by Purchaser or have been delivered to Purchaser.

In the event that one of the above conditions precedent to the obligations of Purchaser shall not occur by the Closing Date or the Villa Tuscany Closing Date, as applicable, and the occurrence of such condition is not waived by Purchaser, then upon written notice from Purchaser to Seller and Escrow Agent delivered on or prior to the Closing Date or the Villa Tuscany Closing Date, as applicable, this Agreement shall terminate, the Earnest Money (or applicable portion thereof) shall be returned to Purchaser (and, if such failure was due to a default by Seller, Purchaser may pursue its remedies hereunder) and neither party shall have any further obligation to the other.

     5.2 Conditions to Obligations of Seller. The obligations of Seller to execute and deliver the applicable Closing Documents and to perform Seller’s other obligations at the Closing for all or a portion of the Property under this Agreement are and shall be subject to the satisfaction of each of the following conditions at or prior to the Closing:

          (a) Subject to Sections 4.1 and 6.1, Purchaser shall have delivered the balance of the Purchase Price due at Closing to Escrow Holder for delivery to Seller at the Closing pursuant to the terms of this Agreement.

          (b) Purchaser, or its designee, as applicable, shall have executed (where applicable) and delivered to Escrow Holder the Closing Documents to be executed and delivered by Purchaser.

          (c) All of the representations and warranties of Purchaser contained in this Agreement shall have been true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable, with the same effect as if made on and as of such date.

          (d) Purchaser shall have performed, observed, and complied in all material respects with all covenants, agreements, and conditions required by this Agreement to be performed, observed, and complied with on Purchaser’s part prior to or as of the Closing Date.

          (e) With respect to the Closing of the Vista Grande Apartment Complex, the Deerwood Village Apartment Complex, and the Villa Tuscany Apartment Complex only, the applicable Holder Consent shall have been issued, and Seller and all of its affiliates shall have been released by Holder from all obligations under the Existing Loans.

In the event that one of the above conditions precedent to the obligations of Seller shall not occur by the Closing Date and the occurrence of such condition is not waived by Seller, then upon written notice from Seller to Purchaser and Escrow Agent delivered on or prior to the Closing Date, this Agreement shall terminate (and, if such failure was due to a default by Purchaser, the Earnest Money shall be paid to the Seller) and neither party shall have any further obligation to the other.

Exhibit 10.23 (Continued)

ARTICLE 6.
CLOSING

     6.1 Closing. The Closing shall occur through an escrow at the Title Company, no later than 2:00 p.m. (EST) on November 13, 2007 (the “Closing Date”) as to the Shopping Center and all Apartment Complexes other than the Villa Tuscany Apartment Complex, the Closing Dates for which shall occur as to Villa Tuscany, no later than seven (7) Business Days after the Villa Tuscany Holder Consent (as defined in Article 15) has been obtained (the “Villa Tuscany Closing Date”), TIME BEING OF THE ESSENCE TO SUCH DATES (subject, however, to any adjournment rights provided for in this Agreement), unless the parties mutually agree in writing upon another place, time or date. The parties will deliver (i) the Closing Documents to the Escrow Holder by hand, overnight delivery service or fax one (1) Business Day prior to the Closing Date or the Villa Tuscany Closing Date, as applicable, and (ii) the funds by wire transfer(s) on or prior to the Closing Date or the Villa Tuscany Closing Date, as applicable, in accordance with the terms of this Agreement.

     6.2 Seller’s Obligations at Closing. At least one (1) Business Day prior to the applicable Closing, Seller shall deliver to Escrow Holder four (4) copies of the following documents with respect to Seller, the Shopping Center and each Apartment Complex (the “Closing Documents”):

          (a) a Special Warranty Deed (herein so called), in form and substance as set forth on Exhibit “C” attached hereto, duly executed and acknowledged by the applicable Seller, conveying fee simple title to the Premises to Purchaser or its designee, subject only to the Permitted Encumbrances;

          (b) counterparts of an Assignment and Assumption of Leases (herein so called), in form and substance as set forth on Exhibit “D” attached hereto, duly executed by the applicable Seller, conveying the Tenant Leases and Deposits for the Property to Purchaser;

          (c) counterparts of a Bill of Sale (herein so called), in form and substance as set forth on Exhibit “E” attached hereto, duly executed by the applicable Seller, conveying the Property other than the Premises to Purchaser;

          (d) counterparts of a General Assignment and Assumption (herein so called), in form and substance as set forth on Exhibit “F” attached hereto, duly executed by the applicable Seller, conveying the Contracts, Licenses and Permits and Warranties and Guaranties owned by Seller for the Property to Purchaser;

          (e) a form of Notice Letter (herein so called) originally executed by the applicable Seller and addressed to Tenants under the Tenant Leases, in form and substance as set forth in Exhibit “G” attached hereto;

Exhibit 10.23 (Continued)

          (f) an affidavit originally executed by the applicable Seller to the effect that such Seller is not a foreign person for purposes of 26 U.S.C. 1445 (b) (2);

          (g) such affidavits executed by the applicable Seller as the Title Company shall reasonably require in order to omit from the Title Policy all exceptions for (i) judgments, bankruptcies or other returns against persons or entities whose names are the same or similar to the applicable Seller’s name, (ii) mechanic’s and materialman’s liens for work conducted by or on the applicable Seller’s behalf, (iii) rights of parties in possession (other than Tenants under the Tenant Leases, as tenants only), (iv) notices of commencement for work conducted by or on the applicable Seller’s behalf, (v) any matters arising as a result of Seller’s acts during the “gap” period between the time of execution and delivery of the deed and the recordation thereof, and (vi) survey matters which can be resolved by Seller’s affidavit that there have been no material changes to the Property since the date of the Survey;

          (h) a Certificate of an officer of the managing member of the applicable Seller, reflecting the authorization of (i) the actions to be taken by the applicable Seller under this Agreement and (ii) the execution and delivery of this Agreement, the Closing Documents and all other documents required to be executed and delivered by the applicable Seller pursuant to this Agreement and such organizational and other authorizing documents of Seller as may be reasonably required by the Title Company.;

          (i) all Tenant Leases, Books and Records (originals when available or photocopies if not available) in the possession or control of the applicable Seller;

          (j) all keys and master keys to all locks at the Property which are in the possession or control of the applicable Seller;

          (k) all Licenses and Permits in the applicable Seller’s possession or control;

          (l) all Plans in the applicable Seller’s possession or control;

          (m) all Contracts, if any, in the applicable Seller’s possession or control;

          (n) executed and acknowledged counterparts of all documents and instruments required by Holder in connection with the issuance of Holder Consent, the assumption of the Existing Loans by Purchaser and the release of Seller and its affiliates from all obligations under the Existing Loans;

          (o) a closing statement prepared by Seller and approved by Purchaser (the “Closing Statement”);

          (p) original counterparts of a management agreement for each Apartment Complex (collectively, the “Management Agreements”), pursuant to which Tarragon Management, Inc. (the “Manager”) will manage such Apartment Complexes for a term of one

Exhibit 10.23 (Continued)

year, for a fee equal to 3% of gross revenues from each Apartment Complex, which Management Agreements shall substantially be on the form annexed hereto as Exhibit “M”;

          (q) an updated Rent Roll for the Property;

          (r) all transfer tax and other similar tax returns which Seller is required by law to execute and acknowledge and to deliver, either individually or together with Purchaser, to any governmental authority as a result of the sale, and if Seller is responsible for payment of such taxes in accordance with this Agreement, checks made payable to the appropriate governmental authority in the required amounts (unless Seller authorizes the Title Company to deduct and pay such expenses out of monies payable to Seller).

          (s) Certificates of Occupancy for all Improvements.

     6.3 Purchaser’s Obligations at Closing. At Closing, Purchaser shall deliver to Escrow Holder the following:

          (a) subject to Article 4 and Article 6 hereof, the balance of the Purchase Price, by wire transfer of immediately available funds to the account of the Title Company;

          (b) executed counterparts of all of the Assignments and Assumptions of Leases, General Assignments and Assumptions and Notice Letters, originally executed and acknowledged (where applicable) by Purchaser, or its designee, as applicable;

          (c) a certificate of the manager of Purchaser, reflecting the authorization of (i) the actions to be taken by Purchaser under this Agreement, (ii) the execution and delivery of this Agreement, the Closing Documents and all other documents to be executed and delivered by Purchaser pursuant to this Agreement and/or as customarily required by the Title Company, and (iii) the payment of the Purchase Price;

          (d) executed and acknowledged counterparts of all documents and instruments required by Holder in connection with the issuance of Holder Consent, the assumption of the Existing Loans by Purchaser and the release of Seller and its affiliates from all obligations under the Existing Loans;

          (e) the Closing Statement; and

          (f) original counterparts of the Management Agreements, duly executed by Purchaser or its designee, as applicable.

     6.4 Closing Costs. Except as otherwise expressly provided herein, Purchaser shall pay (i) all sales taxes on personal property, if any, (ii) the title premiums and the cost of any endorsements to the Title Policy required by Purchaser or Purchaser’s acquisition lender and the search and examination fees incurred in connection with the transfer of the Property, (iii) Purchaser’s share of prorations, (iv) the cost of updating the Survey, (v) all recording charges

Exhibit 10.23 (Continued)

(other than for discharges of mortgages), (vi) all documentary stamps and intangible taxes in connection with Purchaser’s financing, (vii) all application fees, assumption fees and other costs associated with obtaining Villa Tuscany Holder Consent, Deerwood Village Holder Consent and Vista Grande Holder Consent, and (viii) fifty percent (50%) of any escrow fees and other customary charges of the Escrow Holder (if any). Seller shall pay (i) Seller’s share of prorations, (ii) all applicable state, city and county deed stamp tax, excise, documentary stamp, conveyance and transfer taxes and (iii) fifty percent (50%) of any escrow fees and other customary charges of the Escrow Holder (if any). Except as otherwise provided herein, each party shall pay its own attorneys’ fees.

     6.5 Electronic Data Transfer. Seller shall, with Purchaser’s cooperation, use its commercially reasonable efforts to electronically transfer all Property-related financial and operational information to Purchaser as of the Closing Date, in a manner such that Purchaser will not have to manually input such data into its computer records or systems, provided that Seller shall not be required to transfer any proprietary information, violate any license agreements, or incur any material costs in so doing.

ARTICLE 7.
PRORATIONS

     7.1 The following shall be apportioned and adjusted between Seller and Purchaser as of 11:59 p.m. (Florida time) on October 31, 2007 (the “Adjustment Date”), except as otherwise specified:

          (a) rents and additional rents under or in respect of the Tenant Leases, as, when and to the extent actually collected, on the basis of the period for which payable under the applicable Tenant Lease and apportioned on the basis of the actual number of days in such period;

          (b) any real property taxes, water and sewer rents and charges; property owners’ association dues, assessments, fees and charges; the cost of any real property tax appeal commenced or continuing after the date hereof, as well as any tax credit or refund collected as a result thereof; vault taxes or charges, elevator inspection charges and other like and similar municipal taxes and charges, each on the basis of the fiscal year or other period for which assessed, and apportioned upon the basis of the actual number of days in such year or period. If actual tax bills are not available, taxes shall be apportioned based on the most recent tax bills available, with a post-Closing adjustment to be made as soon as tax bills for the fiscal year during which the Closing occurs become available;

          (c) subject to Section 7.5, electric, gas, steam and other public utility charges for services furnished to the Property, on the basis of the actual number of days in any period covered by the charge being apportioned (except that no apportionment shall be made for any of such items as are furnished and charged by the applicable utility company directly to Tenants under the Tenant Leases);

Exhibit 10.23 (Continued)

          (d) all charges under the Contracts to be assumed by Purchaser, on the basis of the actual number of days in any period covered by the charge being apportioned. Seller shall pay, at or prior to the Closing, all installments or amounts of items which are being apportioned under this Section which became due and payable prior to the Adjustment Date; and

          (e) interest actually paid under the Existing Loan but excluding any penalties and default interest accruing between the Adjustment Date and the Closing Date, which shall be paid by Seller on or prior to Closing.

     7.2 Seller shall pay all unpaid commissions, fees and other charges due on or prior to the Adjustment Date to real estate brokers or other Persons with respect to any Tenant Lease beginning prior to the Adjustment Date. If the Closing occurs, then Purchaser shall be responsible for commissions, fees, or other charges due to real estate brokers or other Persons with respect to Tenant Leases, and any renewals, extensions and expansions thereof beginning after the Adjustment Date. Purchaser will receive a credit against the Purchase Price for all Deposits.

     7.3 If the Closing occurs before a new real property or other applicable tax rate or charge of a Governmental Entity is fixed, then the apportionment of such tax or charge at the Closing shall be based upon the tax rate for the immediately preceding fiscal period applied to the latest assessed valuation. Promptly after the new tax rate has been fixed, the apportionment of such tax or charge made at the Closing shall be recalculated and any reimbursement owed by Purchaser to Seller or Seller to Purchaser, as the case may be, shall be paid promptly after such recalculation.

     7.4 If any Tenant under a Tenant Lease is in arrears in the payment of rent, or other charges, payments received from such Tenant after the Adjustment Date shall be applied in the following order of priority: first, to any rents or other sums due and owing during the month in which the payment is received, then to the payment of current rents and other sums due Purchaser as the current owner of the Property and landlord under the Tenant Leases, and the balance to any delinquent sums owing to Seller under the Tenant Leases. Notwithstanding the preceding sentence, any arrearages from delinquent Tenants at the Shopping Center shall remain the property of Purchaser and shall not be remitted to Seller if and when collected. If any payments from a Tenant received by Purchaser or Seller after the Closing are payable to the other party by reason of this Section, then the appropriate sum shall be promptly paid to the other party. After the Closing, Seller may bring, in Seller’s name and at Seller’s expense, an action against any Tenant to collect rent, additional rent, or other payments due Seller for a period prior to the Adjustment Date, together with the cost of collection thereof; but in no event shall Seller seek any remedy against any such Tenant other than collection of funds from the particular Tenant. Seller shall not interfere with other Tenants of the Property and shall comply with all applicable laws in connection with its collection of delinquent sums pursuant to the terms of this paragraph. Notwithstanding anything contained herein to the contrary, nothing shall prevent Purchaser from commencing eviction proceedings against any Tenant for non-payment of current rents as they become due.

Exhibit 10.23 (Continued)

     7.5 The apportionment of utility charges shall be made upon the basis of charges shown on the latest available bills of such utilities. The charges shown on such available bills for periods prior to the Adjustment Date shall be paid by Seller, and for the period from the date of each such last available utility bill to the Adjustment Date, an apportionment shall be made based on the amount charged for the period covered by such last available bill. Notwithstanding the foregoing, Seller will use reasonable efforts to cause the respective utility companies to read their meters or fix their charges to the Closing Date, and the Villa Tuscany Closing Date, as applicable, in which event Seller shall pay such charges, when billed, to the Adjustment Date, and Purchaser shall pay such charges from and after the Adjustment Date, and/or promptly reimburse Seller for any such charges paid by Seller for any period subsequent to the Adjustment Date.

     7.6 At the Closing if requested by Purchaser, Seller shall assign to Purchaser, all deposits or escrows held for Seller’s account at or by any public utility company in connection with the utility services furnished to the Property; and in such case Purchaser shall pay Seller, at the Closing, for the amount of deposits, or escrows so assigned. Prior to the Closing Date or the Villa Tuscany Closing Date, as applicable, Seller shall notify all such public utilities in writing of the applicable transfer of service. Seller shall receive a credit at Closing equal to the amount of all escrows or reserves held by or on behalf of Holder under the Existing Loans.

     7.7 If any item covered by this Article cannot be apportioned because the same has not been (or cannot be) fully ascertained on the Closing Date or the Villa Tuscany Closing Date, as applicable, or if any error has been made with respect to any apportionment, then such item shall be apportioned (or corrected, as applicable) as soon as the same is fully ascertained and shall be paid within twenty (20) days thereafter by the appropriate party. Any Property-related bills received after Closing related to the period prior to the Adjustment Date shall be promptly paid by Seller.

     7.8 Real estate tax refunds and credits received after the Closing which are attributable to the fiscal tax year during which the Adjustment Date, occurs shall be apportioned between Seller and Purchaser, pursuant to this Article.

     7.9 If, as of the Adjustment Date, the Property shall be (or shall have become) subject to a special or local assessment or charge of any kind (whether or not yet a lien), then (to the extent not payable by the tenants) Seller shall pay all installments thereof due and payable prior to the Adjustment Date; provided, however, any installment thereof attributable to a period from and after the Adjustment Date shall be apportioned at the Closing in the same manner as for taxes under Section 7.1(b). Purchaser shall be responsible for all installments of such assessment attributable to the period from and after the Adjustment Date.

     7.10 In the event either Purchaser or Seller shall owe the other any money as a result of the terms of this Article 7 (whether at Closing or thereafter), then the party owing such money shall pay the other party such money promptly, as soon as the amount is finally determined.

Exhibit 10.23 (Continued)

     7.11 At the Closing if requested by Purchaser, Seller shall cause all existing insurance policies currently held by Seller with respect to the Property to remain in effect, and shall take all steps reasonably requested by Purchaser to have Purchaser, and Purchaser’s lender, if applicable, named as “additional insureds” and “loss payee(s)” on any such insurance policies. In such event, the prepaid premium paid by Seller in connection with any such insurance policies shall be apportioned and adjusted based on the actual number of days remaining in the period for which such policies were prepaid, between Seller and Purchaser as of 11:59 p.m. (Florida time) the day preceding the Closing Date, and Seller shall receive, a credit at Closing in the amount equal to such apportionment.

     7.12 If Tarragon Ocala Development Corp., as a member of Ocala, is or becomes entitled to receive proceeds from the sale of the Deerwood Village Apartment Complex pursuant to the Operating Agreement for Ocala Tarragon or the consent of S.E.T., LLC to the sale of the Deerwood Village Apartment Complex pursuant to this Agreement, in excess of what Tarragon Ocala Development Corp. would have been entitled to receive under the Tarragon Ocala Operating Agreement if such Apartment Complex were sold to Purchaser for $32,000,000, then Purchaser will receive a credit against the Purchase Price or a reimbursement equal to the amount of such excess.

     7.13 This Article 7, and all rights and duties of the parties hereunder, shall survive the Closing.

ARTICLE 8.
REPRESENTATIONS AND WARRANTIES OF SELLER

     8.1 Disclaimer of Seller.

          (a) Except as expressly set forth in this Agreement and except for those items delivered pursuant to the terms of this Agreement, including Section 8.2, Purchaser acknowledges and agrees that Seller, or any member, shareholder, partner, director, officer, manager, person, firm, agent, employee or representative of, or acting or purporting to act on behalf of, Seller has not made, does not make and specifically negates and disclaims any representations, warranties, promises, covenants, agreements or guaranties of any kind or character whatsoever, whether express or implied, oral or written, past, present or future, of, as to, concerning or with respect to the Property. Seller is not liable or bound in any manner by any verbal or written statements, representations or information pertaining to the Property, or the operation thereof, furnished by any real estate broker or any agent or employee of Seller, except for those items delivered by or on behalf of Seller pursuant to the terms of this Agreement. Purchaser further acknowledges and agrees that except as expressly set forth in this Agreement, to the maximum extent permitted by law, that should the Closing occur, then the sale of the Property as provided for herein will be made on an “AS IS” condition and basis “WITH ALL FAULTS” as of the date hereof, reasonable wear and tear, and casualty and condemnation (as provided in Article 10) excepted. It is understood and agreed that the Purchase Price has been adjusted by prior negotiation to reflect that the Property is sold by Seller and purchased by

Exhibit 10.23 (Continued)

Purchaser subject to the foregoing.

          (b) Except as expressly set forth in Section 8.2 below, Seller makes no representations or warranties as to the truth, accuracy or completeness of any materials, data or other information supplied to Purchaser in connection with Purchaser’s inspection of the Property (e.g., that such materials are complete, accurate or the final version thereof, or that all such materials are in Seller’s possession). It is the parties express understanding and agreement that such materials are provided only for Purchaser’s convenience in making its own examination and determination prior to the date hereof as to whether it wishes to purchase the Property, and, in doing so, Purchaser shall rely exclusively on its own independent investigation and evaluation of every aspect of the Property and not on any materials supplied by Seller, except as may be expressly set forth below in Section 8.2.

          (c) Each party comprising Seller and its shareholders, officers, directors, agents, employees, property manager and affiliates (individually a “Seller Party” and collectively the “Seller Parties”) are hereby released from all responsibility and liability regarding the condition (including the presence in the soil, air, structures and surface and subsurface waters, of any and all materials or substances that have been or may in the future be determined to be toxic, hazardous, undesirable or subject to regulation and that may need to be specially treated, handled and/or removed from the Property under current or future federal, state and local laws, regulations or guidelines), valuation, salability or utility of the Property, or its suitability for any purpose whatsoever. Without limitation, Purchaser specifically releases Seller from any claims it may have against Seller now or in the future under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601 et seq., as amended; the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., as amended; any other analogous state or federal statute; and common law arising from the environmental conditions of the Property or the presence of hazardous materials, solid wastes, or any other pollutants or contamination the Property.

          (d) Notwithstanding anything herein (including, without limitation, the other provisions of this Article 8) or otherwise to the contrary, (a) Purchaser has not released Seller from, and Seller agrees to be and remain fully liable and responsible for (i) any breach of Seller’s representations and warranties contained in this Agreement and/or documents executed and delivered by Seller at or contemporaneously with the Closing, (ii) any breach by Seller of its covenants in this Agreement or in any document executed and delivered by Seller at or contemporaneously with the Closing, (iii) Seller’s fraud, or (iv) Seller’s acts or omissions from and after the Closing; and (b) Purchaser has not assumed, and shall have no obligation to indemnify Seller from and against, any governmental or third party claims asserted after the Closing as a result of any act or omission taken or failed to be taken prior to the Closing.

          (e) THE PROVISIONS OF THIS SECTION ARE A MATERIAL PART OF THE CONSIDERATION FOR SELLER’S ENTERING INTO THIS AGREEMENT, AND SHALL SURVIVE CLOSING.

Exhibit 10.23 (Continued)

     8.2 Representations and Warranties of Seller. Each party comprising Seller represents and warrants to Purchaser as follows with respect to the Property owned by such party, which representations and warranties shall be true and correct as of the date hereof and as of the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable, subject to changes in facts permitted hereunder and occurring in the ordinary course of Seller’s business:

          (a) Rent Roll. Attached hereto as Exhibits “H-1” – “H-4” are true, correct and complete copies of the Rent Roll for the Shopping Center and each Apartment Complex, and the information set forth therein is true and correct in all material respects as of the date hereof. An updated Rent Roll for the Shopping Center and each Apartment Complex will be provided at Closing. There are no leases, license agreements, occupancy agreements, tenancies (written or oral) or other agreements or contracts between Seller and any other party for any space in the Property, or relating to the Property except as disclosed thereon.

          (b) Authority, Actions of Seller, Authorization and Consents.

               (i) Each party comprising Seller is a limited liability company or limited partnership duly organized and validly existing under the laws of its state of organization and is qualified as a to do business in each jurisdiction in which it is required to so qualify in order to conduct its business and own the Property. Each party comprising Seller has all necessary power and lawful authority to own and operate its assets and properties, including, but not limited to the Apartment Complex or Shopping Center owned by it, and to carry on its business (including all business contemplated under this Agreement and the Closing Documents). The execution and delivery by Seller of this Agreement and the Closing Documents, and the consummation by Seller of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action of Seller. There are no other approvals, authorizations, consents or other actions by or filings with any Person which are required to be obtained or completed by Seller in connection with the execution and delivery of this Agreement or any of the Closing Documents (or any other agreement or instrument required hereunder) or the sale or assignment of the Property or in connection with any other action required to be taken by Seller hereunder at or before the Closing, except for Holder Consent.

               (ii) Neither the execution and delivery of this Agreement or the Closing Documents by Seller nor the consummation of the transaction contemplated hereby will: (A) violate any provision of Seller’s articles of organization or operating agreements; (B) violate, conflict with or result in a breach or termination of, or give any other party the right to terminate, or constitute a default under the terms of, any agreement or instrument to which Seller is a party or by which it is bound; (C) violate any judgment, order, injunction, award or decree of any Governmental Entity against or binding upon Seller or upon the Property or business of Seller; or (D) constitute a violation by Seller of any applicable law or regulation to which Seller is subject.

          (c) Legal Proceedings. To Seller’s knowledge, except as set forth on Exhibit “I”, Seller is not a party to and has not received any written notice of any pending Legal Proceedings against Seller (to the extent that the same would have material adverse effect on

Exhibit 10.23 (Continued)

Seller’s performance of it’s obligations under this Agreement or the Closing Documents) or otherwise affecting the Property.

          (d) FIRPTA. No party comprising Seller is a foreign person within the meaning of Section 1445(b) (2) of the Internal Revenue Code of 1986, as amended.

          (e) Documents Delivered. The Tenant Leases, Plans, Books and Records, Warranties and Guarantees, Contracts and other financial information concerning the Properties delivered or made available by Seller to Purchaser for inspection pursuant to Section 4.1 are or at the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable, will be true and correct copies of the originals thereof in Seller’s possession. Attached hereto as Exhibits “J-1” – “J-4” is a true, correct and complete copy of the current inventory of the Personal Property at each Apartment Complex and the Shopping Center, and the information set forth therein is true and correct in all material respects as of the date thereof.

          (f) Other Agreements. Seller is not a party to any outstanding contracts or options to purchase the Property or any portion thereof in favor of any third party. Exhibits “B-1” – “B-4” attached hereto are a true, correct and complete list of Contracts affecting the Property.

          (g) Licenses and Permits. To Seller’s knowledge, there are no conditions to the Licenses and Permits, or other agreements or obligations associated therewith, which are not expressly set forth in such Licenses and Permits, in the publicly adopted resolutions pursuant to which the Licenses and Permits were issued, or elsewhere in this Agreement. Seller has not received written notice that the Property or the use thereof violates any Licenses and Permits or other law or regulation applicable thereto.

          (h) Hazardous Materials. Except as may otherwise be specified in any environmental reports delivered to Purchaser pursuant to Section 4.1, to Seller’s knowledge, each Property is free of the presence on or under such Property of any hazardous materials or hazardous substances, as such terms are defined in applicable federal and state environmental laws, in a manner which violates any such laws. Seller has not received written notice from any Governmental Entity that the Property or any Tenant in the Shopping Center or any commercial Tenant is in violation of any environmental Laws. Seller has provided or otherwise made available to Purchaser copies of all documents, maintenance records and other reports, Contracts or agreements related to environmental matters, hazardous substances and hazardous materials in connection with the Property in Seller’s possession or control. Seller has no knowledge of any contamination in association with the Property or any property adjoining the Property.

          (i) Violations. To Seller’s knowledge, there are no outstanding written violations of any state, federal or local law or ordinance against the Property or any written complaints or notices issued with respect thereto.

          (j) Existing Loans. The outstanding principal balance of the Villa Tuscany Existing Loan as of the date hereof is approximately $23,508,000. There are no defaults under

Exhibit 10.23 (Continued)

the Villa Tuscany Existing Loan and there has occurred no event or circumstance, or the failure of any event to occur, which with the passage of time or giving of notice could become an event of default thereunder. The outstanding principal balance of the Deerwood Existing Loan as of the date hereof is approximately $21,859,000. The outstanding principal balance of the Vista Grande Existing Loan is approximately $36,300,000 as of the date hereof. The Deerwood Existing Loan and the Vista Grande Loan have matured and are due and payable.

          (k) Contesting of Taxes. Except as disclosed on Exhibit “I”, Seller is not currently engaged in any real property tax appeal.

          (l) Leases. Attached hereto as Exhibit “K” is a true, correct and complete copy of Seller’s standard forms of Tenant Lease for the Apartment Complexes. All Tenant Leases for the Apartment Complexes are in form and substance substantially similar to the forms attached as Exhibit “K”. Except as otherwise described on the Rent Roll, Seller has not accepted any rental payments more than thirty (30) days in advance of the date due, and no tenant has been given any free rent, any concession in the payment of rent or any abatement in the payment of rent which has not yet been satisfied, except as set forth on the Rent Roll. Seller has delivered to Purchaser true, correct and complete copies of all Tenant Leases for the Shopping Center, together with all Amendments thereto.

          (m) ERISA. Seller is not selling the Property form any account holding the “plan of assets” or any “employees benefit plan” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), which is subject to Title I of ERISA, or any “plan” as defined in Section 4975 of the Internal Revenue Code of 1986, as amended.

          (n) Tenant Leases. Attached hereto as Exhibit “L” is a true, correct and complete schedule of all Amendments to Tenant Leases at the Shopping Center, and there are no unpaid commissions, fees and other charges due to real estate brokers or other Persons with respect to any Tenant Lease at the Shopping Center beginning prior to the Closing Date. Except as disclosed on Exhibit “L”, there are no Amendments to Tenant Leases at the Shopping Center or other agreements in connection therewith or with the Properties which would result in any commissions, fees and other charges due to real estate brokers or other Persons with respect to any Tenant Lease. To Seller’s knowledge, there are no payment defaults under any Tenant Leases which are not reflected on the Rent Roll, and there has occurred no event or circumstance, or the failure of any event to occur, which with the passage of time or giving of notice could become an event of default thereunder. The material terms of any amendments to Tenant Leases at the Apartment Complexes are reflected on the Rent Roll.

          (o) Deposits. All Deposits held by Seller in connection with any Tenant Lease are held in accordance with applicable law. Seller has not used or withdrawn any Deposits except in strict accordance with the applicable Tenant Lease and applicable law and as disclosed on the Rent Roll.

Exhibit 10.23 (Continued)

          (p) Solvency. Each party comprising Seller represents and warrants that both before and after giving effect to the transactions contemplated by this Agreement each such party is and will continue to be solvent and no transfer of property is being made, and no obligation is being incurred in connection with the transactions contemplated by this Agreement, with the intent to hinder, delay or defraud either the present or future creditors of any party compromising Seller.

          (q) Deerwood Consent. Seller has received the Consent of S.E.T., LLC to the sale of the Deerwood Village Apartment Complex to Purchaser pursuant to this Agreement.

          (r) Licenses and Permits. To Seller’s knowledge, there are no licenses, permits, approvals, consents, authorizations or certificates required to be issued by any Governmental Entity in connection with the lawful operation of the Apartment Complex and the Shopping Center, other than the Licenses and Permits.

          (s) Deerwood Ownership. Tarragon Ocala Development Corp. (“Tarragon Ocala”) is the owner and holder of a 50% membership interest in Ocala, and holds such interest free and clear of all liens, claims and encumbrances.

     8.3 Knowledge. As used herein, the term “to Seller’s knowledge” shall mean only the “current knowledge” (as defined below) of the following designees of Seller: Chris Clinton, Michael Johnson, Teri Bridenbaugh, Aimee Bakh, Debra Carter, Karina Nahmens, Dori Carr-Day, Jan Surrat and Paige Beale, who are the persons with the most knowledge and experience in connection with the ownership and operation of the Property by Seller. As used herein, the term “current knowledge” shall mean only the actual, current, conscious and not constructive, imputed or implied knowledge of such designee after due investigation and inquiry. Anything herein to the contrary notwithstanding, such designee shall not have any personal liability or obligation whatsoever with respect to any of the matters set forth in this Agreement or any of the Seller’s representations herein being or becoming untrue, inaccurate or incomplete in any respect.

     8.4 Survival. The representations and warranties of Seller set forth in this Article 8 and anywhere else in this Agreement (unless expressly stated otherwise) shall survive the Closing of the transaction contemplated in this Agreement and the delivery of the Special Warranty Deed from Seller to Purchaser for a period of six (6) months from and after the Closing Date or the Villa Tuscany Closing Date, as applicable. Consequently, Purchaser stipulates and agrees that from and after such six (6) month period, it is entitled to and agrees to claim no damages of any kind with respect to any alleged breach and/or violation of any of such representations and/or warranties of Seller. As a condition precedent to Purchaser’s obligation to close the purchase contemplated by this Agreement, Seller’s representation and warranties contained herein shall remain and be true and correct in all material respects as of the Closing Date or the Villa Tuscany Closing Date, as applicable, unless such representations and warranties have changed by reason of facts or circumstances occurring in the ordinary course of business and operation of the Property which pursuant to the terms of this Agreement are expressly permitted or contemplated to have occurred. In the event Purchaser becomes aware of any breach and/or violation of any Seller’s representations and warranties prior to Closing and

Exhibit 10.23 (Continued)

following notice thereof to Seller, Seller fails or is unable to cure any such breach or violation to the reasonable satisfaction of Purchaser, Purchaser’s sole remedy for any such breach or violation shall be to terminate this Agreement by delivering written notice of such termination to Seller on or before the Closing Date or the Villa Tuscany Closing Date, as applicable, in which event the Earnest Money will be returned to Purchaser, and neither party shall have any obligation hereunder. Purchaser hereby waives any right Purchaser may have to commence any action(s) to enforce any alleged breach and/or violation of any of the representations of Seller as set forth in this Agreement or to seek damages in connection therewith in the event that Purchaser becomes aware of any such alleged breach and/or violation prior to Closing and fails to give Seller notice thereof on or before the Closing Date or the Villa Tuscany Closing Date, as applicable.

     8.5 Indemnification. Seller agrees to indemnify and hold Purchaser harmless from and against any and all loss, claim, liability or expense, including reasonable attorneys fees, arising as a result of any personal injury or property damage occurring on or about the Property prior to the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable, except if occasioned by Purchaser or its agents, servants or employees, or as otherwise provided in Section 14.3 below. Purchaser agrees to indemnify and hold Seller harmless from and against any and all loss, claim, liability or expense, including reasonable attorneys fees, arising as a result of any personal injury or property damage occurring on or about the Property from and after the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable, except if occasioned by Seller or its agents, servants or employees. The provisions of this Section 8.5 shall survive the Closing.

ARTICLE 9.
REPRESENTATIONS AND WARRANTIES OF PURCHASER

     9.1 Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to Seller as follows, which representations and warranties shall be true and correct as of the date hereof and as of the Closing Date or the Villa Tuscany Closing Date, as applicable:

          (a) Authority, Actions of Purchaser and Authorization. Purchaser has all necessary power and lawful authority to own and operate its assets and properties, including, but not limited to the Property, and to carry on its business (including all business contemplated under this Agreement and the Closing Documents). The execution and delivery by Purchaser of this Agreement and the Closing Documents, and the consummation by Purchaser of the transactions contemplated thereby, have been duly authorized by all necessary action of Purchaser. There are no other approvals, authorizations, consents or other actions by or filings with any Person which are required to be obtained or completed by Purchaser in connection with the execution and delivery of this Agreement or any of the Closing Documents (or any other agreement or instrument required hereunder) or the sale or assignment of the Property or in connection with any other action required to be taken by Purchaser hereunder at or before the Closing.

Exhibit 10.23 (Continued)

          (b) Consents. Neither the execution and delivery of this Agreement or the Closing Documents by Purchaser nor the consummation of the transaction contemplated hereby will: (i) violate, conflict with or result in a breach or termination of, or give any other party the right to terminate, or constitute a default under the terms of, any agreement to which Purchaser is a party or by which it is bound; (ii) violate any judgment, order, injunction, award or decree of any Governmental Entity against or binding upon Purchaser or upon the Property or business of Purchaser; or (iii) constitute a violation by Purchaser of any applicable law or regulation to which Purchaser is subject.

          (c) Patriot Act. Purchaser further represents, warrants and covenants to Seller as follows:

               (i) Purchaser is not now nor shall it be at any time until Closing an individual, corporation, partnership, joint venture, association, joint stock company, trust, trustee, estate, limited liability company, unincorporated organization, real estate investment trust, government or any agency or political subdivision thereof, or any other form of entity (collectively, a “Person”) with whom a United States citizen, entity organized under the laws of the United States or its territories or entity having its principal place of business within the United States or any of its territories (collectively, a “U.S. Person”), is prohibited from transacting business of the type contemplated by this Agreement, whether such prohibition arises under United States law, regulation, executive orders and lists published by the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) (including those executive orders and lists published by OFAC with respect to Persons that have been designated by executive order or by the sanction regulations of OFAC as Persons with whom U.S. Persons may not transact business or must limit their interactions to types approved by OFAC (“Specially Designated Nationals and Blocked Persons”) or otherwise.

               (ii) Neither Purchaser nor any Person who owns a direct interest in Purchaser (collectively, a “Purchaser Party”) is now nor shall be at any time until Closing a Person with whom a U.S. Person, including a United States Financial Institution as defined in 31 U.S.C. 5312, as periodically amended (“Financial Institution”), is prohibited from transacting business of the type contemplated by this Agreement, whether such prohibition arises under United States law, regulation, executive orders and lists published by the OFAC (including those executive orders and lists published by OFAC with respect to Specially Designated Nationals and Blocked Persons) or otherwise.

               (iii) Purchaser has taken, and shall continue to take until Closing, such measures as are required by law to assure that the funds used to pay to Seller the Purchase Price are derived (i) from transactions that do not violate United States law nor, to the extent such funds originate outside the United States, do not violate the laws of the jurisdiction in which they originated; and (ii) from permissible sources under United States law and to the extent such funds originate outside the United States, under the laws of the jurisdiction in which they originated.

               (iv) To the best of Purchaser’s knowledge after making due inquiry, neither Purchaser nor any Purchaser Party, nor any Person providing funds to Purchaser (i) is

Exhibit 10.23 (Continued)

under investigation by any governmental authority for, or has been charged with, or convicted of, money laundering, drug trafficking, terrorist related activities, any crimes which in the United States would be predicate crimes to money laundering, or any violation of any Anti-Money Laundering Laws (as defined herein); (ii) has been assessed civil or criminal penalties under any Anti-Money Laundering Laws; or (iii) has had any of its funds seized or forfeited in any action under any Anti-Money Laundering Laws. For purposes of this Subsection (b), the term “Anti-Money Laundering Laws” shall mean laws, regulations and sanctions, state and federal, criminal and civil, that (1) limit the use of and/or seek the forfeiture of proceeds from illegal transactions; (2) limit commercial transactions with designated countries or individuals believed to be terrorists, narcotics dealers or otherwise engaged in activities contrary to the interests of the United States; (3) require identification and documentation of the parties with whom a Financial Institution conducts business; or (4) are designed to disrupt the flow of funds to terrorist organizations. Such laws, regulations and sanctions shall be deemed to include the USA PATRIOT Act of 2001, Pub. L. No. 107-56 (the “Patriot Act”), the Bank Secrecy Act, 31 U.S.C. Section 5311 et. seq., the Trading with the Enemy Act, 50 U.S.C. App. Section 1 et. seq., the International Emergency Economic Powers Act, 50 U.S.C. Section 1701 et. seq., and the sanction regulations promulgated pursuant thereto by the OFAC, as well as laws relating to prevention and detection of money laundering in 18 U.S.C. Sections 1956 and 1957.

               (v) Purchaser is in compliance with any and all applicable provisions of the Patriot Act.

     9.2 Survival. The representations and warranties of Purchaser set forth in this Article 9 and anywhere else in this Agreement (unless expressly stated otherwise) shall survive the Closing of the transaction contemplated in this Agreement and delivery of the Special Warranty Deeds from Seller to Purchaser for a period of six (6) months from and after the Closing Date or the Villa Tuscany Closing Date, as applicable. Consequently, Seller stipulates and agrees if from and after such six (6) month period it is entitled to and agrees to claim no damages of any kind with respect to any alleged breach and/or violation of such representations or warranties of Purchaser.

ARTICLE 10.
RISK OF LOSS

     10.1 Casualty. Seller assumes all risks for damage to or injury occurring to the Property by fire, storm, accident, or any other casualty or cause (a “Casualty”) until the Closing. Immediately after Seller has received notice of the occurrence of any Casualty between the date hereof and the Closing, Seller shall give Purchaser written notice thereof (a “Casualty Notice”), which Casualty Notice shall state the type, location and amount of damage to the Shopping Center or any Apartment Complex and Seller’s good faith estimate of the cost to complete repairs of such Casualty.

          (a) If prior to the Closing such a Casualty shall occur and the cost to complete repairs of such Casualty shall be greater than or equal $1,000,000 with respect to the Shopping Center or any one Apartment Complex, or greater than or equal to $2,500,000 in the aggregate

Exhibit 10.23 (Continued)

with respect to the Shopping Center and all Apartment Complexes, as determined by Purchaser in its reasonable discretion, then in any such event, Purchaser may, at its sole option, (i) terminate this Agreement with respect to the Property which was the subject of such Casualty Notice, or (ii) terminate this Agreement in its entirety, by written notice to Seller (any such notice, a “Casualty Termination Notice”) within ten (10) Business Days after Purchaser has received the Casualty Notice (provided, however, if the Closing is scheduled for a date which is less than ten days after Purchaser’s receipt of the Casualty Notice the Closing shall be postponed until ten days after Purchaser’s receipt of the Casualty Notice), specifying whether the termination will be with respect to an individual Property or the Agreement in its entirety. In the event (A) the Casualty Termination Notice specifies a termination with respect to the Shopping Center or an individual Apartment Complex only, then this Agreement automatically shall be deemed to have been amended and (i) the Purchase Price shall be deemed to be reduced by the amount of the Purchase Price allocated to such Apartment Complex or Shopping Center, (ii) the Earnest Money and all interest earned thereon with respect to the Earnest Money allocated to such Apartment Complex or Shopping Center shall be returned to Purchaser, and (iii) the Apartment Complex or Shopping Center which is the subject of such Casualty Notice shall be eliminated from the Property being purchased hereunder, or (B) Purchaser elects to terminate this Agreement in its entirety, this Agreement shall be null and void, the Earnest Money shall be returned to Purchaser and neither party shall have any further liability or obligations to the other (except as specifically provided in this Agreement).

          (b) If (i) Purchaser has the right, but elects not to terminate this Agreement as set forth in clause (a) of this Section 10.1, or (ii) the cost to complete repairs of such Casualty shall be less than $1,000,000 with respect to the Shopping Center or any one Apartment Complexes, or $2,500,000 in the aggregate with respect to the Shopping Center and all Apartment Complex, as determined by Purchaser in its reasonable discretion, then the Closing shall take place as provided herein, and at the Closing Purchaser shall receive a credit to be applied toward the Purchase Price in an amount equal to (A) the cost to complete the repairs of such Casualty(ies) as determined by Purchaser in its reasonable discretion, if the cost to complete repairs of such Casualty shall be less than $1,000,000 with respect to the Shopping Center or any one Apartment Complexes, or $2,500,000 in the aggregate with respect to the Shopping Center and all Apartment Complex, or (B) the threshold amounts enumerated above, individually or in the aggregate, as the case may require, if the cost of repairs for such Casualty(ies) shall exceed such thresholds, and there shall be assigned to Purchaser all of Seller’s rights, titles and interest in and to any insurance policies covering such Casualty (including rental interruption insurance) and all proceeds to be paid thereunder in excess of the amount of the credit given to Purchaser, as may be then uncollected. Seller shall credit against the Purchase Price, at Closing, an amount equal to the deductible under such policy applicable to such casualty. From and after the Closing Date or the Villa Tuscany Closing Date, as applicable, Seller agrees to execute, acknowledge and deliver each and every such further reasonable acts, agreement, assignments, notices of assignments, reasonably requested by Purchaser or its insurance company in connection with any such Casualty.

     10.2 Condemnation. If, prior to the Closing, an action is initiated to take all or any portion of the Shopping Center or any Apartment Complex by eminent domain proceedings or

Exhibit 10.23 (Continued)

by deed in lieu thereof (a “Condemnation”), Seller, upon receipt of written notice of such action from any Governmental Entity, shall immediately give Purchaser written notice of such Condemnation stating the amount, type and location of such Condemnation (a “Condemnation Notice”) and, if the proceeds to be paid under such Condemnation equal or exceed $1,000,000 with respect to the Shopping Center or any one Apartment Complex, as determined by Purchaser in its reasonable discretion, or $2,500,000 in the aggregate with respect to the Shopping Center and all Apartment Complexes after attorneys fees, or if any material part of the Property, including parking spaces or access to the Property is to be condemned, as determined by Purchaser in its reasonable discretion, then Purchaser may, at its sole option, either (a) terminate this Agreement with respect to the Shopping Center or Apartment Complex which is the subject of such Condemnation Notice by written notification, within ten (10) Business Days after Purchaser has received the Condemnation Notice (provided, however, if the Closing is scheduled for a date which is less than ten (10) days after Purchaser’s receipt of the Condemnation Notice the Closing shall be adjourned until ten (10) days after Purchaser’s receipt of the Condemnation Notice), (b) terminate this Agreement in its entirety by written notification, within ten (10) Business Days after Purchaser has received the Condemnation Notice (provided, however, if the Closing is scheduled for a date which is less than ten (10) days after Purchaser’s receipt of the Condemnation Notice the Closing shall be adjourned until ten (10) days after Purchaser’s receipt of the Condemnation Notice), or (c) consummate the Closing, in which latter event Purchaser shall receive a credit to be applied toward the Purchase Price in the amount of the award of the condemning authority which such award shall be paid to Seller at the Closing, in form and substance reasonably satisfactory to Seller and Purchaser. If the proceeds to be paid under such Condemnation are less than $1,000,000 with respect to the Shopping Center or any one Apartment Complex or $2,500,000 in the aggregate with respect to the Shopping Center and all Apartment Complexes, and the condemnation action only applies to an immaterial portion of the Property, as determined by Purchaser in its reasonable discretion, then the Closing shall take place as provided herein, Purchaser shall receive a credit to be applied toward the Purchase Price in the amount of the award of the condemning authority and such award of the condemning authority shall be assigned to Seller at the Closing, in form and substance reasonably satisfactory to Seller and Purchaser. In the event (A) Purchaser elects to termination this Agreement with respect to the Shopping Center or an individual Apartment Complex only, then this Agreement automatically shall be deemed to have been amended and (i) the Purchase Price shall be deemed to be reduced by the amount of the Purchase Price allocated to such Apartment Complex or Shopping Center, (ii) the Earnest Money and all interest earned thereon with respect to the Earnest Money allocated to such Apartment Complex or Shopping Center shall be returned to Purchaser, and (iii) the Apartment Complex or Shopping Center which is the subject of such Casualty shall be eliminated from the Property being purchased hereunder, or (B) Purchaser elects to terminate this Agreement in its entirety, this Agreement shall be null and void, the Earnest Money shall be returned to Purchaser and neither party shall have any further liability or obligations to the other (except as specifically provided in this Agreement).

Exhibit 10.23 (Continued)

ARTICLE 11.
DEFAULT

     11.1 Permitted Termination. If this Agreement is terminated by either party pursuant to a right expressly given to it hereunder (a “Permitted Termination”), neither party shall have any further obligation to the other party except as expressly provided in the Agreement.

     11.2 Default Remedies of Purchaser.

          (a) Seller shall be in default hereunder upon the occurrence of any one or more of the following events:

               (i) any of Seller’s warranties or representations set forth herein are untrue or inaccurate and Seller fails to cure the condition rendering such representation or warranty untrue or inaccurate within ten (10) days after notice from Purchaser of such untruth or inaccuracy; or

               (ii) Seller shall fail to meet, comply with or perform any covenant, agreement, or obligation on its part required, within the time limits and in the manner required in this Agreement, for any reason other than a Permitted Termination.

          (b) In the event of a default by Seller under this Section 11.2, Purchaser may, at Purchaser’s sole option, do any of the following:

               (i) terminate this Agreement by written notice delivered to Seller and Escrow Agent at or prior to the Closing, in which event the Earnest Money and all interest earned thereon shall be returned to Purchaser and thereafter neither Seller nor Purchaser shall have any obligations to the other under this Agreement, except as specifically set forth herein;

               (ii) enforce specific performance of this Agreement against Seller; and/or

               (iii) following the Closing, and prior to the expiration of the survival period set forth in Section 8.4 above, seek damages resulting from any breach of any or the representations and warranties included in this Agreement.

     11.3 Default Remedies of Seller.

          (a) Purchaser shall be in default hereunder upon the occurrence of any one or more of the following events:

               (i) any of Purchaser’s warranties or representations set forth herein are untrue or inaccurate in any material respect and Purchaser fails to cure the condition rendering such representation or warranty untrue in any material respect within ten (10) days after the earlier to occur of (a) notice from Seller of such untruth or inaccuracy and (b) Purchaser’s self discovery of such untruth or inaccuracy; or

Exhibit 10.23 (Continued)

               (ii) Purchaser shall fail to meet, comply with or perform in any material respect any covenant, agreement, or obligation on its part required, within the time limits and in the manner required in this Agreement, for any reason other than a Permitted Termination.

          (b) In the event of a default by Purchaser under this Section 11.3, Seller may terminate this Agreement by written notice delivered to Purchaser at or prior to the Closing, in which event Seller shall, as Seller’s sole and exclusive remedy, retain all of the Earnest Money actually deposited (plus all interest accrued thereon), it being agreed between Purchaser and Seller that such sum shall be liquidated damages for a default by Purchaser hereunder because of the difficulty, inconvenience and uncertainty of ascertaining actual damages for such default and thereafter neither Seller nor Purchaser shall have any obligations to the other under this Agreement, except as specifically set forth herein.

ARTICLE 12.
FUTURE OPERATIONS

     12.1 Operations. Seller hereby agrees and covenants that from the date hereof through the Closing or earlier termination of this Agreement:

     (a) Seller shall not enter into any contract, agreement or other arrangement with regards to the Property which will be binding on Purchaser or the Property after the Closing and which cannot be terminated by Purchaser after Closing on 30 or fewer days notice without any cancellation fee or penalty and without approval of Purchaser. Seller agrees to terminate all Contracts designated by Purchaser prior to the Closing Date, other than Tenant Leases, at Seller’s sole cost, on or before the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable, provided, however, Seller has no obligation to terminate any Contracts which cannot be terminated by Seller, without cause and without any payment or other penalty, on thirty (30) or less days notice.

     (b) Seller shall not initiate or consent to any zoning changes, liens or encumbrances of or against the Property without the prior written consent of Purchaser, and shall give Purchaser copies of all notices received by Seller with respect to any such matters.

     (c) Seller shall not sell or otherwise transfer or dispose of all or any part of any Property.

     (d) Seller shall continue to manage, lease and operate the Property in the ordinary course of business in accordance with the management, leasing and operation standards and practices currently in effect at the Property, and shall continue to perform all of its obligations with respect to the Tenant Leases.

Exhibit 10.23 (Continued)

     (e) Seller shall repair and maintain the Property in its present condition, normal wear and tear excluded.

     (f) Seller shall not enter into any new lease or amend any existing Tenant Lease, without Purchaser’s consent, not to be unreasonably withheld or delayed, unless (i) same is on the Apartment Project’s current standard lease form; (ii) provides for payment of monthly rent at the rates currently in effect for the Apartment Project, subject only to changes required by market conditions; (iii) is for a term of no less than 6 months nor more than 15 months; and (iv) does not provide any “free rent” or other concessions beyond those currently in effect with respect to the Apartment Project, subject only to changes required by market conditions.

     (g) Seller shall, or shall cause its affiliates and subsidiaries to, continue to make interest payments and otherwise perform all of the obligations required to be performed (and which it is capable of performing) pursuant to the documents governing the Existing Loan. Seller shall not take, or fail to take, nor shall it permit any affiliate or subsidiary to take or fail to take, any action which with the giving of notice and passage of time could reasonably be expected to result in a default or event of default thereunder.

     (h) From and after the Termination Deadline, Seller shall not, nor shall it permit, the use, application or withdrawal of any Security Deposit held by Seller, without the prior written consent of Purchaser.

     (i) Seller agrees that, from and after the date hereof, it will work with Purchaser in good faith and take such further actions as may be reasonably requested by Purchaser to timely file, commence and prosecute any real property tax appeal Purchaser deems reasonably necessary or advisable, including, without limitation, filing any such appeal on or prior to Closing.

ARTICLE 13.
BROKERS

     13.1 Except for: Cushman & Wakefield of Florida, Inc.; CB Richard Ellis, Inc.; Marcus & Millichap; and The Weitzman Group (collectively, “Broker”), Seller represents and warrants to Purchaser, and Purchaser represents and warrants to Seller, that they know of no broker or finder who has claimed or who has the right to claim any fee, commission or other similar compensation in connection with the transaction contemplated by this Agreement, and that they have taken no actions which would form the basis for such a claim. In the event that the transactions herein contemplated close, and only in such event, Seller shall pay a commission to the Broker pursuant to a separate agreement. Seller shall be responsible for the payment to Lazard of any fee or commission owed to it in connection with this transaction.

     13.2 Seller shall indemnify, hold harmless and defend Purchaser against all liability, loss, cost, claim or expense arising out of any breach of Seller’s obligation or representation in Sections 13.1. Purchaser shall indemnify, hold harmless, and defend Seller against all liability,

Exhibit 10.23 (Continued)

loss, cost, claim or expense arising out of any breach of Purchaser’s obligations or representations in Sections 13.1.

     13.3 This Article shall survive the Closing (or, if the Closing does not occur, the earlier termination of this Agreement).

ARTICLE 14.
DUE DILIGENCE REVIEW

     14.1 Purchaser’s Right to Inspect the Property. A. Purchaser, at Purchaser’s sole cost and expense, shall be entitled, on and after the date hereof, to inspect and review the Property and all matters relating to the Property (the “Due Diligence Review”), including without limitation the physical condition of the Property, Contracts, Leases, Books and Records (including, without limitation, all maintenance records in Seller’s possession or control with respect to the Property), Plans, surveys and title examinations. During the Due Diligence Review, Purchaser, at Purchaser’s sole cost, shall also have the right to make such inspections, investigations and tests as Purchaser may elect to make or obtain, subject to the right of the Tenants and the terms and provisions of this Agreement. Seller will provide access to Purchaser and Purchaser’s agents to the Property during normal business hours provided that Purchaser shall provide reasonable advance notice. Purchaser and Purchaser’s representatives, agents, designees and contractors have the right during the term of this Agreement upon twenty four hours prior notice (by telephone and electronic mail) to Seller, at Purchaser’s sole cost, to enter the Property to conduct any environmental, soils, seismic, hydro geologic, geologic and engineering tests and studies with respect to the Property, provided that any environmental testing other than a standard Phase I (ASTM) assessment shall require the prior written consent of Seller, not to be unreasonably withheld. Purchaser shall have the right, at Purchaser’s sole cost and expense, to conduct a final walk-through and inspection of the Property the day of or immediately prior to Closing.

     14.2 Intentionally Deleted.

     14.3 Purchaser’s Responsibility and Indemnity. Purchaser’s right to inspect the Property and conduct the tests referred to in Section 14.1 is subject to the condition that such inspection and tests shall not materially interfere with the use and occupancy of any Tenant at the Property. Purchaser shall be responsible for and shall indemnify and hold Seller harmless from and against all damages, liabilities, losses, costs or expenses, together with reasonable attorney’s fees and disbursements, which may arise as a result of the acts or omissions of Purchaser or its representatives or agents in connection with any tests conducted by any such parties in connection with Purchaser’s inspection rights under Section 14.1, and in the event the sale of the Property fails to close, Purchaser shall repair any such damage to the condition that the Property was prior to such tests; provided Purchaser is not responsible for any such costs associated with the discovery of a condition existing on or prior to testing or for any such losses or costs attributable to Seller’s negligence or misconduct. Purchaser shall carry not less than One Million and 00/100 Dollars ($1,000,000) comprehensive general liability insurance which insures against

Exhibit 10.23 (Continued)

Purchaser’s indemnity obligations under this Section, naming Seller as additional insured, and, prior to any entry onto the Property, Purchaser shall deliver to Seller a certificate of insurance evidencing the required coverages and insureds.

     14.4 Confidentiality of Results. Prior to Closing, Purchaser shall not disclose the results of any environmental investigation or other due diligence results to any Person or Governmental Entity without the prior written consent of Seller, except for Purchaser’s attorneys and other advisors in connection with the transactions contemplated by this Agreement and except as Purchaser may otherwise be required by any applicable law, rule or regulation, and except as may be required by Purchaser’s prospective lenders or investors.

     14.5 Expense Deposit. On or prior to the date hereof, Seller has paid $50,000 to Purchaser to defray, in part, the out-of-pocked due diligence costs to be incurred by Purchaser in connection with the transactions contemplated hereby. The expense deposit is non-refundable.

     14.6 Survival. The provisions of this Article 14 shall survive the Closing.

ARTICLE 15.

     15.1 Villa Tuscany Holder Consent. The obligations of the parties under this Agreement with respect to the Villa Tuscany Apartment Complex are subject to and conditioned upon the approval by the Villa Tuscany Holder of the transfer of the Villa Tuscany Apartment Complex to Purchaser, the assumption by Purchaser of the Villa Tuscany Existing Loan and the release of Seller and its affiliates from all liability and obligations thereunder that arise after the Closing Date of this transaction on terms and conditions reasonably acceptable to Purchaser (the “Villa Tuscany Holder Consent”) and the execution and delivery by Villa Tuscany Holder and Purchaser of the documents reasonably required by Villa Tuscany Holder to evidence the assumption by Purchaser of the Villa Tuscany Existing Loan, in form and substance reasonably acceptable to Purchaser. For purposes of establishing the Villa Tuscany Closing Date, Villa Tuscany Holder Consent shall be deemed issued upon the transmittal by Villa Tuscany Holder of a written notice indicating that it is prepared to approve the assumption, subject only to the satisfaction of Villa Tuscany Holder’s customary closing requirements and documentation provided such documentation has been reviewed and accepted by Purchaser. Purchaser, with Seller’s assistance, as necessary, shall apply for the Villa Tuscany Holder Consent, in good faith, within three (3) Business Days after the date hereof, shall at that time pay the Villa Tuscany Holder’s required application fee, and shall thereafter diligently take such actions, deliver such information and documents and pay such other costs and expenses as the Villa Tuscany Holder may require, provided that Purchaser shall not be obligated to pay an assumption fee in excess of 1% of the principal balance of the Villa Tuscany Existing Loan. Purchaser agrees to provide a “Key Principal” or limited guarantor satisfactory to Villa Tuscany Holder to guarantee the “non-recourse carve-outs” and provide environmental indemnifications under the Villa Tuscany Existing Loan, if so required by Villa Tuscany Holder, and to continue to provide escrows or reserves at the levels required under the Villa Tuscany Existing Loan, as such levels may be modified by Villa Tuscany Holder based on current property conditions. Purchaser shall deliver

Exhibit 10.23 (Continued)

to Seller evidence (in the form of copies of correspondence to the Villa Tuscany Holder transmitting applications and other data) of its timely application for Villa Tuscany Holder Consent and payment of the required application fee. If Purchaser shall fail to deliver such evidence to Seller prior to the fifth (5^th) Business Day after the date hereof, this Agreement shall, at Seller’s option, by notice to Purchaser and the Title Company, be deemed amended so as to eliminate the Villa Tuscany Apartment Complex from the Property being purchased hereunder, the Villa Tuscany Earnest Money shall be delivered by Escrow Holder to Seller, the Purchase Price shall be automatically reduced by the Villa Tuscany Purchase Price and the parties shall have no further liability hereunder with respect to such Apartment Complex. If Purchaser timely makes application therefor, but the Villa Tuscany Holder Consent in accordance with the requirements of this Section 15.1 is not obtained on or before November 30, 2007 (the “Consent Deadline”), then, except as otherwise set forth below in this Section 15.1, this Agreement shall be deemed amended so as to eliminate the Villa Tuscany Apartment Complex from the Property being purchased hereunder and the Villa Tuscany Earnest Money shall be returned to Purchaser and the Purchase Price shall be deemed to have been reduced by the Villa Tuscany Purchase Price. If the Villa Tuscany Holder Consent is not obtained on or before the Consent Deadline, then (i) either party shall have the right, exercisable by written notice to the other given not more than two (2) days after the original Consent Deadline, to extend the Consent Deadline by an additional period of time not to exceed 20 days, and Purchaser shall continue to diligently seek Villa Tuscany Holder Consent during such 20 day period and (ii) Purchaser shall (if permitted under the terms of the Villa Tuscany Existing Loan) have the right, but not the obligation, in lieu of assuming the Villa Tuscany Existing Loan, to pay off the Villa Tuscany Existing Loan in full at Closing, including any applicable prepayment premiums and/or penalties, and other costs associated therewith and to take title to the Villa Tuscany Apartment Complex in such event free and clear of the Villa Tuscany Existing Loan in which event the Villa Tuscany Earnest Money, and the outstanding principal balance of the Villa Tuscany Existing Loan, plus any default interest, late charges or other costs or amounts paid by Purchaser to cure any defaults existing under the Villa Tuscany Existing Loan immediately prior to the prepayment thereof, shall be credited against the Villa Tuscany Purchase Price. If the required Villa Tuscany Holder Consent is not obtained during the extended period and the Purchaser does not elect to pay off the Villa Tuscany Existing Loan, this Agreement shall be deemed amended so as to eliminate the Villa Tuscany Apartment Complex from the Property being purchased hereunder, and the Villa Tuscany Earnest Money shall be returned by Escrow Holder to Purchaser and the Purchase Price shall be deemed to have been reduced by the Villa Tuscany Purchase Price.

     15.2 Deerwood Holder Consent. The obligations of the parties under this Agreement with respect to the Deerwood Village Apartment Complex are subject to and conditioned upon the approval by the Deerwood Holder of the transfer of the Deerwood Village Apartment Complex to Purchaser, the assumption by Purchaser of the Deerwood Existing Loan, an extension of the maturity of the Deerwood Existing Loan until at least February 12, 2008, and the release of Seller and its affiliates from all liability and obligations thereunder that arise after the Closing Date of this transaction on terms and conditions reasonably acceptable to Purchaser (the “Deerwood Holder Consent”) and the execution and delivery by Deerwood Holder and Purchaser of the documents reasonably required by Deerwood Holder to evidence the assumption by Purchaser of the Deerwood Existing Loan, in form and substance reasonably

Exhibit 10.23 (Continued)

acceptable to Purchaser. Purchaser represents that prior to the date hereof it has applied for the Deerwood Holder Consent, and agrees that it shall hereafter timely pay all necessary fees and expenses, and diligently take such actions, deliver such information and documents and pay such other reasonable costs and expenses as the Deerwood Holder may require. Purchaser agrees to provide a “Key Principal” or limited guarantor satisfactory to Deerwood Holder to guarantee the “non-recourse carve-outs” and provide environmental indemnifications under the Deerwood Existing Loan, if so required by Holder, and to continue to provide escrows or reserves at the levels required under the Deerwood Existing Loan, as such levels may be modified by Deerwood Holder based on current property conditions. Purchaser shall deliver to Seller evidence (in the form of copies of correspondence to the Deerwood Holder transmitting applications and other data) of its timely application for Deerwood Holder Consent and payment of the required application fee. If Purchaser shall fail to deliver such evidence to Seller prior to the fifth (5^th) Business Day after the date hereof, this Agreement shall, at Seller’s option, by notice to Purchaser and the Title Company, be deemed amended so as to eliminate the Deerwood Apartment Complex from the Property being purchased hereunder, the Deerwood Earnest Money shall be delivered by Escrow Holder to Seller, the Purchase Price shall be automatically reduced by the Deerwood Purchase Price and the parties shall have no further liability hereunder with respect to such Apartment Complex. If Purchaser timely makes application therefor, but the Deerwood Holder Consent in accordance with the requirements of this Section 15.2 is not obtained on or before the Closing Date, then this Agreement shall be deemed amended so as to eliminate the Deerwood Apartment Complex from the Property being purchased hereunder, the Deerwood Earnest Money shall be returned to Purchaser and the Purchase Price shall be deemed to have been reduced by the Deerwood Purchase Price. Notwithstanding the preceding sentence, if the Deerwood Holder Consent is not obtained on or before the Closing Date, then Purchaser shall (if permitted under the terms of the Deerwood Existing Loan) have the right, but not the obligation, in lieu of assuming the Deerwood Existing Loan, to pay off the Deerwood Existing Loan in full at Closing, including any applicable prepayment premiums and/or penalties, and other costs associated therewith and to take title to the Deerwood Village Apartment Complex in such event free and clear of the Deerwood Existing Loan in which event the Deerwood Earnest Money, and the outstanding principal balance of the Deerwood Existing Loan, plus any default interest, late charges or other costs or amounts paid by Purchaser to cure any defaults existing under the Deerwood Existing Loan immediately prior to the prepayment thereof, shall be credited against the Deerwood Purchase Price. If the Purchaser does not elect to pay off the Existing Loan, this Agreement shall be deemed amended so as to eliminate the Deerwood Apartment Complex from the Property being purchased hereunder, the Deerwood Earnest Money shall be returned by Escrow Holder to Purchaser and the Purchase Price shall be deemed to have been reduced by the Deerwood Purchase Price.

     15.3 Vista Grande Holder Consent. The obligations of the parties under this Agreement with respect to the Vista Grande Apartment Complex are subject to and conditioned upon the approval by the Vista Grande Holder of the transfer of the Vista Grande Apartment Complex to Purchaser, the assumption by Purchaser of the Vista Grande Existing Loan, an extension of the maturity of the Vista Grande Existing Loan until at least February 12, 2008, the release of the Oxford Place Property from the Vista Grande Existing Loan, and the release of Seller and its affiliates from all liability and obligations thereunder that arise after the Closing

Exhibit 10.23 (Continued)

Date of this transaction on terms and conditions reasonably acceptable to Purchaser (the “Vista Grande Holder Consent”) and the execution and delivery by Vista Grande Holder and Purchaser of the documents reasonably required by Vista Grande Holder to evidence the assumption by Purchaser of the Vista Grande Existing Loan, in form and substance reasonably acceptable to Purchaser. Purchaser represents that prior to the date hereof it has applied for the Vista Grande Holder Consent, and agrees that it shall hereafter timely pay all necessary fees and expenses, and diligently take such actions, deliver such information and documents and pay such other reasonable costs and expenses as the Vista Grande Holder may require. Purchaser agrees to provide a “Key Principal” or limited guarantor satisfactory to Vista Grande Holder to guarantee the “non-recourse carve-outs” and provide environmental indemnifications under the Vista Grande Existing Loan, if so required by Vista Grande Holder, and to continue to provide escrows or reserves at the levels required under the Vista Grande Existing Loan, as such levels may be modified by Vista Grande Holder based on current property conditions. Purchaser shall deliver to Seller evidence (in the form of copies of correspondence to the Vista Grande Holder transmitting applications and other data) of its timely application for Vista Grande Holder Consent and payment of the required application fee. If Purchaser shall fail to deliver such evidence to Seller prior to the fifth (5^th) Business Day after the date hereof, this Agreement shall, at Seller’s option, by notice to Purchaser and the Title Company, be deemed amended so as to eliminate the Vista Grande Apartment Complex from the Property being purchased hereunder, the Vista Grande Earnest Money shall be delivered by Escrow Holder to Seller, the Purchase Price shall be automatically reduced by the Vista Grande Purchase Price and the parties shall have no further liability hereunder with respect to such Apartment Complex. If Purchaser timely makes application therefor, but the Holder Consent in accordance with the requirements of this Section 15.3 is not obtained on or before the Closing Date, then this Agreement shall be deemed amended so as to eliminate the Vista Grande Apartment Complex from the Property being purchased hereunder, the Vista Grande Earnest Money shall be returned to Purchaser and the Purchase Price shall be deemed to have been reduced by the Vista Grande Purchase Price. Notwithstanding the preceding sentence, if the Vista Grande Holder Consent is not obtained on or before the Closing Date, then Purchaser shall (if permitted under the terms of the Vista Grande Existing Loan) have the right, but not the obligation, in lieu of assuming the Vista Grande Existing Loan, to pay off the Vista Grande Existing Loan in full at Closing, including any applicable prepayment premiums and/or penalties, and other costs associated therewith and to take title to the Vista Grande Apartment Complex in such event free and clear of the Vista Grande Existing Loan, in which event the Vista Grande Earnest Money, and the outstanding principal balance of the Vista Grande Existing Loan, plus any default interest, late charges or other costs or amounts paid by Purchaser to cure any defaults existing under the Vista Grande Existing Loan immediately prior to the prepayment thereof, shall be credited against the Vista Grande Purchase Price. If the Purchaser does not elect to pay off the Vista Grande Existing Loan, this Agreement shall be deemed amended so as to eliminate the Vista Grande Apartment Complex from the Property being purchased hereunder, the Vista Grande Earnest Money shall be returned by Escrow Holder to Purchaser and the Purchase Price shall be deemed to have been reduced by the Vista Grande Purchase Price.

Exhibit 10.23 (Continued)

ARTICLE 16.
MISCELLANEOUS

     16.1 Notices. All notices, demands and requests which may be given or which are required to be given by either party to the other, and any exercise of a right of termination provided by this Agreement, shall be in writing and shall be deemed effective when (a) personally delivered to the address of the party to receive such notice set forth below, (b) transmitted if sent via facsimile (with confirmation of successful transmission), (c) the next succeeding Business Day after deposit with a nationally recognized overnight courier service (e.g., Federal Express) and addressed to the party as set forth below, or (d) three days after when deposited in any post office or mail receptacle regularly maintained by the United States Government, certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

If to Seller:	TARRAGON CORPORATION
	423 West 55th Street – 12th Floor
	New York, New York 10019
	Attn: William S. Friedman &
	Charles D. Rubenstein, Esq.
	Phone: (212) 949-5000
	Fax: (646) 354-2171
	E-mail: crubenstein@tarragoncorp.com
With a copy to:	TARRAGON CORPORATION
	423 West 55th Street – 12th Floor
	New York, New York 10019
	Attn: David Goldban
	Phone: (212) 949-5000
	Fax: (646) 354-2171
	E-mail: dgoldban@tarragoncorp.com
If to Purchaser:	BROOKFIELD ASSET MANAGEMENT, LLC
	Three World Financial Center
	200 Vesey Street – 11th Floor
	New York, NY 10281-1021
	Attn: Steven H. Ganeless
	Phone: (212) 417-7269
	Fax: (212) 417-7292
	E-mail: sganeless@brookfield.com

Exhibit 10.23 (Continued)

and to:	BROOKFIELD ASSET MANAGEMENT, LLC
	Three World Financial Center
	200 Vesey Street — 11th Floor
	New York, NY 10281-1021
	Attn: Alexander D. Greene
	Phone: (212) 417-7202
	Fax: (212) 417-7292
	E-mail: agreene@brookfield.com
With a copy to:	WEIL, GOTSHAL & MANGES LLP
	767 Fifth Avenue
	New York, NY 10153
	Attn: J. Philip Rosen, Esq.
	Phone: (212) 310-8000
	Fax: (212) 310-8007
	E-mail: Philip.rosen@weil.com
If to Title Company	Chicago Title Insurance Company
Or Escrow Holder:	711 Third Avenue
	New York, NY 10017
	Attn: Elliot L. Hurwitz
	Phone: (212) 880-1205
	Fax: (212) 880-1402
	E-mail: hurwitze@ctt.com

or such other place as Seller or Purchaser or Title Company, respectively, may from time to time designate by written notice to the other. A notice may be given by a party or by a party’s attorney at law. Any notice given by facsimile shall be followed within one (1) day by a second notice given by one of the other methods specified above. The parties hereto acknowledge and agree that any notice required to be given by Purchaser may be given by the attorneys representing Purchaser, which as of the date hereof, and until receipt by Seller of a notice from the Purchaser to the contrary, shall be Weil, Gotshal & Manges LLP.

     16.2 Entire Agreement. This Agreement embodies the entire agreement between the parties relative to the subject matter hereof, and there are no oral or written agreements between the parties, nor any representations made by either party relative to the subject matter hereof, which are not expressly set forth herein. The parties hereto do not intend to confer any benefit hereunder on any Person other than the parties hereto.

     16.3 Amendment. This Agreement may be amended only by a written instrument executed by the party or parties to be bound thereby.

Exhibit 10.23 (Continued)

     16.4 Headings. The captions and headings used in this Agreement are for convenience only and do not in any way limit, amplify, or otherwise modify the provisions of this Agreement.

     16.5 Governing Law. This Agreement shall be governed by the laws of the State of Florida.

     16.6 Successors and Assigns. This Agreement shall bind and inure to the benefit of Seller and Purchaser and their respective successors and permitted assigns.

     16.7 Invalid Provision. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement; and, the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by such illegal, invalid, or unenforceable provision or by its severance from this Agreement.

     16.8 Multiple Counterparts. This Agreement may be executed in a number of identical counterparts, each of which for all purposes is deemed an original, and all of which constitute collectively one agreement; but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.

     16.9 Construction. The words “herein” “hereof “hereunder” and other similar compounds of the words “here” when used in this Agreement shall refer to the entire Agreement and not to any particular provision or section. Whenever used in this Agreement, the singular shall include the plural, the plural the singular, and the use of any gender shall be applicable to all genders. Marginal notes are inserted for convenience only and shall not form part of the text of this Agreement. This Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. Each party acknowledges that such party’s obligations with respect to any covenant, indemnity, representation or warranty under this Agreement which expressly survives the Closing shall be considered a “liability” for purposes of any distribution limitation imposed under the organizational laws applicable to such party, its members and/or their respective partners, members and shareholders.

     16.10 Waivers. No waiver of any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act.

     16.11 Time of Essence. Seller and Purchaser hereby acknowledge and agree that time is strictly of the essence with respect to each and every term, condition, obligation and provision hereof and that failure to timely perform any of the terms, conditions, obligations or provisions hereof by either party shall constitute a material breach of and a non-curable default under this Agreement by the party so failing to perform.

Exhibit 10.23 (Continued)

     16.12 No Joint Venture. This Agreement shall not create a partnership or joint venture relationship between Purchaser and Seller.

     16.13 Assignment. Except as provided in this Section, this Agreement may not be assigned by Purchaser without the prior written consent of Seller. The foregoing sentence to the contrary notwithstanding, Purchaser may (i) assign this Agreement, in whole or in part, to an entity or entities which are owned by, controlled by or under common control with Purchaser, provided that Purchaser delivers to Seller not less than three (3) Business Days prior to the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable, a draft instrument or instruments evidencing such assignment, and (ii) may, without assigning this Agreement but upon notice to Seller, appoint a designee to receive fee simple title to any one or more of the Properties; provided that such designee shall be an entity or entities which are owned by, controlled by or under common control with Purchaser. No assignment of this Agreement shall release the original Purchaser named herein from its obligations hereunder without the express written consent of Seller.

     16.14 Timing. If the final date of any period which is set out in any provision of this Agreement falls on a day which is not a Business Day, in such event, the time of such period shall be extended to the next Business Day.

     16.15 Attorney’s Fees. In the event of any dispute between the parties concerning this Agreement, the non-prevailing party in such dispute shall reimburse the prevailing party for its reasonable attorneys fees incurred in connection with such dispute.

     16.16 Section 1031 Exchange. Purchaser acknowledges that Seller may elect to effect the disposition of the Property pursuant to this Agreement as a like-kind exchange pursuant to Section 1031 of the United States Internal Revenue Code (an “Exchange”). Purchaser agrees to cooperate with Seller in all respects in effecting such Exchange, including, without limitation, by executing and delivering such documents as may be customarily required in such exchange transactions, provided that Purchaser shall not be required to incur any expense or additional obligation in connection therewith nor shall any such Exchange delay the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable. Seller acknowledges that Purchaser may acquire the Property as part of an Exchange. Seller agrees to cooperate with Purchaser in all respects in effecting such Exchange, including, without limitation, by executing and delivering such documents as may be customarily required in such Exchange, provided that Seller shall not be required to incur any expense or additional obligation in connection therewith, nor shall any such Exchange delay the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable.

Exhibit 10.23 (Continued)

ARTICLE 17.
PURCHASER’S RIGHTS WITH RESPECT TO CERTAIN OTHER PROPERTIES

     17.1 In the event that at any time prior to April 30, 2008, Omni Monterra LLC (“Omni”), an affiliate of Seller, receives a bona fide written offer from a third party unaffiliated with Seller or Omni (the “Offer”) to purchase its property in Bonita Springs, Florida known as “Monterra at Bonita Springs” (“Monterra”), Seller shall promptly deliver a copy of such Offer to Purchaser. Purchaser shall have the right (the “ROFR”), exercisable by notice to Seller (the “Exercise Notice”) given within five (5) Business Days after delivery of a copy of the offer to Purchaser, to purchase Monterra from Omni for “all cash” on the same price, down payment, due diligence time and closing time as set forth in the Offer, pursuant to a Purchase and Sale Agreement in form and substance the same as this Agreement, subject only to changes necessitated by the different property and terms ( the “Monterra Agreement”). If Purchaser timely exercises the ROFR, it shall within three (3) Business Days after giving the Exercise Notice deliver to Seller four original counterparts of the Monterra Agreement, executed by Purchaser, and Seller will promptly returns two original counterparts executed by Omni to Purchaser. If Purchaser does not timely exercise the ROFR, or does not timely deliver the executed Monterra Agreement to Seller, Purchaser shall be deemed to have waived the ROFR, and Seller shall thereafter be entitled to sell Monterra pursuant to the Offer free and clear of the ROFR. If a contract to sell Monterra is entered into by Omni pursuant to the Offer, but such contract is terminated and not reinstated within five (5) Business Days after any such termination on substantially the same terms and conditions (in Purchaser’s reasonable judgment) as the executed contract, then Monterra shall once again be subject to the ROFR.

     17.2 If Omni shall transfer Monterra to the holder of the mortgage currently encumbering Monterra, such transfer shall not be subject to the ROFR, and the ROFR shall expire upon such transfer. Seller will notify Purchaser in the event of such transfer.

     17.3 Seller’s affiliate, Middletown Tarragon, LLC is currently under contract (the “Northgate Contract”) to sell its property in Middletown, Rhode Island known as “Northgate Apartments” (“Northgate”). In the event that the Northgate Contract is terminated and not reinstated within five (5) Business Days after any such termination on substantially the same terms and conditions (in Purchaser’s reasonable judgment) as the executed contract, then Northgate shall also be subject to the ROFR set forth in Section 17.1 above, in accordance with the terms and procedures set forth therein.

     17.4 Seller’s affiliate, Freesia Acquisitions, LLC, is negotiating a purchase and sale agreement for the sale of its property in Murfreesboro, Tennessee known as Cason Estates (“Cason”) to DeSanto Realty Group, LLC. In the event that such contract is not executed and delivered on or prior to November 1, 2007, or after having been executed such contract is terminated and not reinstated within five (5) Business Days after any such termination on substantially the same terms and condition (in Purchaser’s reasonable judgment) as the executed contract, then Cason Estates shall also be subject to the ROFR set forth in Section 17.1 above, in accordance with the terms and procedures set forth therein.

Exhibit 10.23 (Continued)

     17.5 In the event that the Deerwood Holder Consent is not timely obtained as provided in Section 15.2, then the Deerwood Village Apartment Complex shall also be subject to the ROFR set forth in Section 17.1 above, in accordance with the terms and procedures set forth therein.

     17.6 In the event that the Vista Grande Holder Consent is not timely obtained as provided in Section 15.3, then the Vista Grande Apartment Complex shall be subject to the ROFR set forth in Section 17.1 above in accordance with the terms and procedures set forth therein.

     17.7 The provisions of this Article 17 shall survive the Closing.

[remainder of page intentionally left blank — signatures on next page]

Exhibit 10.23 (Continued)

     IN WITNESS WHEREOF, the undersigned parties have executed this Agreement on the date first written above.

SELLERS:

DEERWOOD VILLAGE:	OCALA TARRAGON, LLC
	By:	Tarragon Ocala Development Corp., manager
		By:	/s/ William S. Friedman
			William S. Friedman
			CEO
(As to Section 7.12 only)	TARRAGON OCALA DEVELOPMENT CORP.
		By:	/s/ William S. Friedman
			William S. Friedman
			CEO
VILLA TUSCANY:	LAKE SHERWOOD PARTNERS, LLC
	By:	Ansonia Apartments, L.P., manager
		By:	Tarragon Development Company,
			LLC, general partner
			By:	Tarragon Corporation, manager
				By:	/s/ William S. Friedman
					William S. Friedman
					CEO

Exhibit 10.23 (Continued)

VISTA GRANDE:	TAMPA PALMS TARRAGON, LLC
	By:	Tarragon Corporation, manager
		By:	/s/ William S. Friedman
			William S. Friedman
			CEO
MIDWAY MILLS:	MIDWAY MILLS PARTNERS, L.P.
	By:	Tarragon Corporation, manager
		By:	/s/ William S. Friedman
			William S. Friedman
			CEO
PURCHASER:	BREOF INVESTORS LLC
	By:	/s/ Steven H. Ganeless
		Steven H. Ganeless
		Senior Vice President

Exhibit 10.23 (Continued)

ESCROW HOLDER:	CHICAGO TITLE INSURANCE COMPANY
	By:	/s/ Elliot L. Hurwitz
		Name: Elliot L. Hurwitz
		Title: Chief Commercial Counsel

Exhibit 10.23 (Continued)

EXHIBIT “A”

LEGAL DESCRIPTION

Exhibit 10.23 (Continued)

EXHIBIT “B”

CONTRACTS

Exhibit 10.23 (Continued)

EXHIBIT “C”

SPECIAL WARRANTY DEED
[Florida Form]

Prepared by:

Charles D. Rubenstein, Esq.
Tarragon Corporation
423 West 55th Street, 12th Floor
New York, New York 10019

Return to:

J. Philip Rosen, Esq.
Weil Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153

Tax Parcel I.D. No.:                     
Grantee’s FEIN No.:                     

SPECIAL WARRANTY DEED

STATE OF NEW YORK	)
	)	ss.:
COUNTY OF NEW YORK	)

     THIS SPECIAL WARRANTY DEED, made this ___ day of ___, 2007, by                                         , a                                         , having an address of 423 West 55^th Street, 12^th Floor, New York, New York 10019 (“Grantor”), in favor of                                         , a Delaware limited liability company, having an address c/o                     ,                                          (“Grantee”).

Exhibit 10.23 (Continued)

     WITNESSETH, that Grantor, for and in consideration of the sum of Ten Dollars ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, by these presents does GRANT, SELL and CONVEY unto Grantee, its successors and assigns the following described real property:

     Being that certain tract of land located in                     ,                      and being more particularly described on Schedule A attached hereto and made a part hereof, together with all improvements, buildings, or fixtures situated or located thereon, and all appurtenant rights, privileges or easements belonging or in any way relating thereto, including but not limited to, all interest, if any, of Grantor in any land lying in or under the bed of any highway, avenue, street, road, alley, easement or right-of-way, open or proposed, in, on, across, abutting or adjacent to the property described on Schedule A hereto, together with all of Grantor’s right, title and interest to any strips and gores within or bounding the property described on Schedule A attached hereto (all of said property and interest being collectively referred to herein as the “Property”).

     TO HAVE AND TO HOLD the Property, together with any and all the rights and appurtenances thereto in anywise belonging to Grantor, unto Grantee, its successors and assigns FOREVER. Grantor, (a) for itself and its successors, does covenant, promise and agree, to and with Grantee that Grantor has not done or suffered to be done, anything whereby the Property hereby granted is, or may be, in any manner encumbered or charged, except as set forth in Schedule B hereto and (b) does hereby warrant and agree to defend title to the Property against the lawful claims of all persons claiming by, through or under Grantor, but not otherwise, subject in each case only to the matters described in Schedule B hereto, but without intent to reimpose the same to the extent such matters have expired or been extinguished by law or otherwise.

     IN WITNESS WHEREOF, Grantor has caused its name to be signed to these presents the day and year first above written.

Witnessed:

	By:	Tarragon Corporation, manager
By:		By:
Name:			Name:
			Title:
By:
Name:

Exhibit 10.23 (Continued)

STATE OF NEW YORK	)
	)	ss.:
COUNTY OF NEW YORK	)

     The foregoing instrument was acknowledged before me on                     , by                                         , the                        of                                           , the                      of                                         , a                                                               . He is personally known to me.

Notary Public, State of

Name printed:

My Commission Expires:

Commission No.:

[NOTARIAL SEAL]

Exhibit 10.23 (Continued)

EXHIBIT “C”

SPECIAL WARRANTY DEED
[Texas Form]

Return to:

J. Philip Rosen, Esq.
Weil Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153

Tax Parcel I.D. No.:                     
Grantee’s FEIN No.:                     

SPECIAL WARRANTY DEED

STATE OF NEW YORK	)
	)	ss.:
COUNTY OF NEW YORK	)

KNOW ALL MEN BY THESE PRESENTS:

     THIS SPECIAL WARRANTY DEED, made this ___ day of ___, 2007, by                                         , a                     , having an address of 423 West 55^th Street, 12^th Floor, New York, New York 10019 (“Grantor”), in favor of                                         , a Delaware limited liability company, having an address c/o                     ,                                          (“Grantee”).

Exhibit 10.23 (Continued)

     WITNESSETH, that Grantor, for and in consideration of the sum of Ten Dollars ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, by these presents does GRANT, SELL and CONVEY unto Grantee, its successors and assigns the following described real property:

     Being that certain tract of land located in                     ,                      and being more particularly described on Schedule A attached hereto and made a part hereof, together with all improvements, buildings, or fixtures situated or located thereon, and all appurtenant rights, privileges or easements belonging or in any way relating thereto, including but not limited to, all interest, if any, of Grantor in any land lying in or under the bed of any highway, avenue, street, road, alley, easement or right-of-way, open or proposed, in, on, across, abutting or adjacent to the property described on Schedule A hereto, together with all of Grantor’s right, title and interest to any strips and gores within or bounding the property described on Schedule A attached hereto (all of said property and interest being collectively referred to herein as the “Property”).

     TO HAVE AND TO HOLD the Property, together with any and all the rights and appurtenances thereto in anywise belonging to Grantor, unto Grantee, its successors and assigns FOREVER. Grantor, (a) for itself and its successors, does covenant, promise and agree, to and with Grantee that Grantor has not done or suffered to be done, anything whereby the Property hereby granted is, or may be, in any manner encumbered or charged, except as set forth in Schedule B hereto and (b) does hereby warrant and agree to defend title to the Property against the lawful claims of all persons claiming by, through or under Grantor, but not otherwise, subject in each case only to the matters described in Schedule B hereto, but without intent to reimpose the same to the extent such matters have expired or been extinguished by law or otherwise.

     IN WITNESS WHEREOF, Grantor has caused its name to be signed to these presents the day and year first above written.

Witnessed:

	By: Tarragon Corporation, manager
By:		By:
Name:			Name:
			Title:
By:
Name:

Exhibit 10.23 (Continued)

STATE OF NEW YORK	)
	)	ss.:
COUNTY OF NEW YORK	)

     The foregoing instrument was acknowledged before me on                     , by                                         , the                      of                                           , the                      of                                           , a                                            . He is personally known to me.

Notary Public, State of

Name printed:

My Commission Expires:

Commission No.:

[NOTARIAL SEAL]

Exhibit 10.23 (Continued)

EXHIBIT “D”

ASSIGNMENT AND ASSUMPTION OF LEASES AND DEPOSITS

     THIS ASSIGNMENT AND ASSUMPTION OF LEASES AND DEPOSITS (the “Assignment”) is made as of                     , 2007, by and between OCALA TARRAGON, LLC, a Florida limited liability company (“Assignor”), whose address is 423 West 55^th Street, 12^th Floor, New York, New York 10019, and                     , an                      (“Assignee”), whose mailing address is                                          .

Introductory Provisions:

     The following provisions form a part of this Assignment:

     A. Assignor and/or Assignor’s predecessor in title heretofore entered into certain leases with tenants covering spaces located in those certain buildings on certain land situated in Ocala, Florida (the “Property”) and described in Exhibit “A” which is attached hereto and incorporated herein by reference for all purposes.

     B. Assignor represents that attached hereto as Exhibit “B” and incorporated herein by reference for all purposes is a true and correct copy of a current rent roll listing all leases affecting the Property or any portion thereof presently in force (collectively, the “Leases”).

     C. Assignee desires to acquire from Assignor, and Assignor desires to convey and assign to Assignee, the Leases and all security deposits, pet deposits and other refundable deposits currently held by Assignor under the Leases (the “Deposits”) and all of the rights, benefits and privileges of the lessor under the Leases and the Deposits in connection with Assignee’s acquisition of the Property from Assignor.

     THEREFORE, in consideration of the foregoing and the agreements and covenants herein set forth, together with the sum of Ten Dollars ($10.00) and other good and valuable consideration this day paid and delivered by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged by Assignor, Assignor does hereby ASSIGN, TRANSFER, SET OVER, CONVEY and DELIVER unto Assignee all of Assignor’s right, title and interest in and to all of the Leases and Deposits pertaining to the Property, and all of the rights, benefits and privileges of the lessor under the Leases and/or Deposits including without limitation those with respect to all security deposits and prepaid rentals, but subject to all terms, conditions, reservations and limitations set forth in the Leases (the Leases, Deposits properties, rights and interests, subject as aforesaid, being hereinafter collectively referred to as the “Assigned Leases”).

     TO HAVE AND TO HOLD the Assigned Leases unto Assignee, and Assignee’s successors, and assigns forever, and Assignor does hereby bind Assignor, and Assignor’s successors and assigns, to warrant and forever defend the Assigned Leases unto Assignee, and

Exhibit 10.23 (Continued)

Assignee’s successors and assigns, against every person whomsoever lawfully claiming or to claim the same, or any part thereof, by, through or under Assignor, but not otherwise.

     Assignee hereby assumes and agrees to perform all of the terms, covenants and conditions of the Assigned Leases on the part of the lessor therein required to be performed from and after the date hereof including, but not limited to, the obligation to repay to the lessees thereunder, in accordance with the terms of the Assigned Leases, any and all Deposits and prepaid rentals, to the extent (and only to the extent) of the amount of cash delivered by Assignor to Assignee with respect to such Deposits and prepaid rentals. Assignor shall not be responsible to the lessees under the Leases for the discharge or performance of any duties or obligations to be performed or discharged by the lessor thereunder after the date hereof, except for repayment of Deposits owed to Tenants in excess of amounts thereof actually delivered or credited to Assignee.

     Assignee hereby agrees to indemnify and hold harmless Assignor from and against any and all damages, loss, cost or expenses (including but not limited to reasonable attorneys fees) resulting by reason of Assignee’s failure to perform any of the obligations assumed by Assignee hereunder arising from and after the date hereof. Assignor hereby agrees to indemnify and hold harmless Assignee from and against any and all damages, loss, cost or expenses (including but not limited to reasonable attorney fees) resulting by reason of Assignor’s failure to perform any of the obligations assumed by Assignor hereunder arising from any claims brought by third parties for injury or damage to person or property occurring on or about the Property prior to the date hereof. The foregoing indemnifications shall survive for a period of six months after the date hereof and shall thereafter expire.

     All of the covenants, terms and conditions set forth herein shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. This Assignment may only be modified, altered, amended, or terminated by the written agreement of Assignor and Assignee. If any term, covenant or condition of this Assignment shall be held to be invalid, illegal or unenforceable in any respect, this Assignment shall be construed without such provision. This Assignment shall be governed by and construed under the laws of the state in which the Property is located without regard to the principles of conflicts of law.

[remainder of page intentionally left blank]

Exhibit 10.23 (Continued)

     IN WITNESS WHEREOF, Assignor and Assignee have duly executed this Assignment as of the day first above written.

ASSIGNOR:	OCALA, LLC
	By:	Tarragon Ocala Development Corp., manager
		By:
			Charles D. Rubenstein,
			Executive Vice President
ASSIGNEE:
	By:
	Name:
	Title:

Exhibit 10.23 (Continued)

EXHIBIT “E”

BLANKET CONVEYANCE, BILL OF SALE AND ASSIGNMENT

     THIS BLANKET CONVEYANCE, BILL OF SALE AND ASSIGNMENT (the “Assignment”), dated as of                     , 2007 is executed by and between OCALA TARRAGON, LLC, a Florida limited liability company (“Assignor”), whose address is 423 West 55th Street, 12th Floor, New York, New York 10019, and                      , an                       (“Assignee”), whose mailing address is                                            .

Introductory Provisions:

     The following provisions form a part of this Assignment:

     Assignor and Assignee are parties to that certain Purchase and Sale Agreement dated as of October ___, 2007 (the “Agreement”), which provides, among other things, for the sale by Assignor to Assignee of that certain land (the “Land”) lying and being situated in Ocala, Florida and described on Exhibit “A” which is attached hereto and incorporated herein by reference for all purposes, together with the buildings on the Land (the said Land and the improvements thereon being herein referred to as the “Property”), and the execution of this Assignment.

     It is the desire of Assignor hereby to sell, assign, transfer and convey to Assignee all of Assignor’s rights, titles and interests in the below described items.

     THEREFORE, in consideration of the foregoing and Ten Dollars ($10.00) and other good and valuable consideration in hand paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged and confessed by Assignor, Assignor does hereby ASSIGN, SELL, TRANSFER, SET OVER and DELIVER to Assignee all of the following items listed in (a) through and including (f) below, (collectively, the “Assigned Properties”):

     (a) all of Assignor’s rights, titles and interests in all appliances, equipment, machinery, fixtures and other personal property of every nature and description used in connection with the Property, which are not owned by any of the tenants in the Property and which are in the possession of Assignor, including without limitation, the personal property described on Exhibit “C” attached hereto and incorporated herein by reference for all purposes;

     (b) all of Assignor’s rights, titles and interests in any and all, if any, rights to the air space above the Property, all zoning entitlements, development rights and appurtenances accruing to the Property (and/or the Assignor with respect to the Property) under, or by reason of, any applicable zoning ordinance or other laws;

     (c) all books, records and tenant lists for the Property owned by Assignor and in the possession or control of Assignor, together with any and all, files, reports, surveys, studies,

Exhibit 10.23 (Continued)

and/or budgets owned by Assignor in connection with the ownership, operation, maintenance and/or management of the Property, and in the possession or control of Assignor; and

     (d) any and all, if any, architectural, electrical, mechanical, plumbing and other plans and specifications and soil reports, grading plans and topographical maps produced in connection with the construction, repair and maintenance of the Property (including all revisions and supplements thereto), which are not owned by any of the tenants and are in the possession or control of Assignor.

     This Assignment is made subject to the permitted encumbrances set forth in Exhibit “B” hereto, to the extent the same are valid and subsisting and affect the Assigned Properties (the “Permitted Encumbrances”).

     TO HAVE AND TO HOLD the Assigned Properties unto Assignee, and Assignee’s successors and assigns forever, and Assignor does hereby bind Assignor, and Assignor’s successors and assigns, to WARRANT and FOREVER DEFEND, all and singular the Assigned Properties unto Assignee, and Assignee’s successors and assigns, against every person whomsoever lawfully claiming or to claim the same, or any part thereof, by, through or under Assignor, but not otherwise; subject, however, to the Permitted Encumbrances.

     Assignor hereby represents, warrants, covenants and agrees with Assignee that Assignor is the owner of the personal property described on Exhibit “C” attached hereto and incorporated by reference, which personal property is free and clear of any and all liens, security interests or encumbrances, except as described on Exhibit “B” attached hereto and incorporated herein by reference.

EXCEPT AS OTHERWISE PROVIDED IN THE AGREEMENT, ASSIGNEE TAKES THE ASSIGNED PROPERTIES “AS IS”, “WHERE IS” AND WITH “ALL FAULTS”. EXCEPT AS OTHERWISE SET FORTH HEREIN AND IN THE AGREEMENT, ASSIGNOR HAS NOT MADE AND DOES NOT MAKE ANY REPRESENTATIONS AS TO THE PHYSICAL CONDITION, OPERATION OR ANY OTHER MATTER AFFECTING OR RELATED TO THE ASSIGNED PROPERTIES, AND BY ITS ACCEPTANCE OF THIS ASSIGNMENT, ASSIGNEE HEREBY EXPRESSLY ACKNOWLEDGES THAT NO SUCH REPRESENTATIONS HAVE BEEN MADE. ASSIGNOR EXPRESSLY DISCLAIMS AND BY ITS ACCEPTANCE OF THIS ASSIGNMENT, ASSIGNEE ACKNOWLEDGES AND ACCEPTS THAT ASSIGNOR HAS DISCLAIMED TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY AND ALL REPRESENTATIONS, WARRANTIES OR GUARANTIES OF ANY KIND, ORAL OR WRITTEN, EXPRESS OR IMPLIED, EXCEPT AS OTHERWISE SET FORTH HEREIN AND IN THE AGREEMENT, CONCERNING THE ASSIGNED PROPERTIES, INCLUDING WITHOUT LIMITATION: (I) THE VALUE, CONDITION, MERCHANTABILITY, MARKETABILITY, PROFITABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE OF THE ASSIGNED PROPERTIES, (ii) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS INCORPORATED INTO ANY OF THE ASSIGNED PROPERTIES AND (iii) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE

Exhibit 10.23 (Continued)

ASSIGNED PROPERTIES. EXCEPT AS OTHERWISE PROVIDED IN THE AGREEMENT, ASSIGNOR IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN STATEMENTS, REPRESENTATIONS, OR INFORMATION PERTAINING TO THE ASSIGNED PROPERTIES FURNISHED BY ANY REAL ESTATE BROKER, AGENT, EMPLOYEE, SERVANT OR OTHER PERSON.

     If any term, covenant or condition of this Assignment shall be held to be invalid, illegal or unenforceable in any respect, this Assignment shall be construed without such provision. This Assignment shall be governed by and construed under the laws of the state in which the Property is located without regard to the principles of conflicts of law.

     EXECUTED this ___ day of October, 2007.

ASSIGNOR:	OCALA TARRAGON, LLC
	By:	Tarragon Ocala Development Corp., manager
		By:
			Charles D. Rubenstein,
			Executive Vice President
ASSIGNEE:
	By:
	Name:
	Title:

Exhibit 10.23 (Continued)

EXHIBIT “F”

GENERAL ASSIGNMENT AND ASSUMPTION

     THIS GENERAL ASSIGNMENT AND ASSUMPTION (the “Assignment”) is made as of                     , 2007 by and between OCALA TARRAGON, LLC, a Florida limited liability company (“Assignor”), whose address is 423 West 55th Street, 12th Floor, New York, New York 10019, and                     , an                      (“Assignee”), whose mailing address is                                         .

W I T N E S S E T H :

     WHEREAS, Assignor and Assignee are parties to that certain Purchase and Sale Agreement dated as of October ___, 2007 (the “Agreement”), which provides, among other things, for the sale by Assignor to Assignee of that certain tract of land located in Florida, as more particularly described on Exhibit “A” attached hereto and made part hereof for all purposes together with the Apartment Complex located thereon (the “Property”), and the execution and delivery of this Assignment; and

     WHEREAS, the Agreement requires Assignor to assign to Assignee all of Assignor’s rights, titles and interests in all Contracts, Licenses and Permits and Warranties and Guaranties (as such terms are defined below in this Assignment) owned by Assignor and requires Assignee to assume Assignor’s obligations thereunder;

     THEREFORE, in consideration of the foregoing and the agreements and covenants herein set forth, together with the sum of Ten Dollars ($10.00) and other good and valuable consideration this day paid and delivered by Assignee to Assignor, the receipt and sufficiency of all of which are hereby acknowledged by Assignor, Assignor does hereby ASSIGN, TRANSFER, CONVEY, SET OVER and DELIVER unto Assignee all of Assignor’s right, title and interest in and to the following (collectively, the “Assigned Properties”):

     (a) any and all agreements between Assignor and any third party affecting the Property, as more particularly described on Exhibit “C” attached hereto and made a part hereof for all purposes (the “Contracts”);

     (b) any and all building, construction, land use, environmental, zoning and other certificates, licenses, certificates of compliance, certificates of occupancy, consents, authorizations, permits and building inspection approvals issued or granted by any Governmental Entity (as such term is defined in the Agreement) running to the benefit of the Property, Assignor and/or Assignor’s predecessors in interest and any covenants, conditions and restrictions, reciprocal easement agreements, access easement agreements and other common or planned development agreements or documents necessary for or in connection with the use, construction, ownership or operation of any of the Property (collectively, the “Licenses and Permits”); and

Exhibit 10.23 (Continued)

     (c) any and all unexpired warranties and guaranties and payment and/or performance bonds required to be provided under the Contracts and run to the benefit of Assignor in connection with the construction, renovation and/or operation of the Property (the “Warranties and Guaranties”).

     This Assignment is made subject to the permitted encumbrances set forth in Exhibit “B” hereto, to the extent the same are valid and subsisting and affect the Assigned Properties (the “Permitted Encumbrances”).

     TO HAVE AND TO HOLD all and singular the Assigned Properties unto Assignee, and Assignee’s successors, and assigns forever, and Assignor does hereby bind Assignor, and Assignor’s successors and assigns, to warrant and forever defend all and singular the Assigned Properties unto Assignee, and Assignee’s successors and assigns, against every person whomsoever lawfully claiming or to claim the same, or any part thereof, by, through or under Assignor, but not otherwise; subject, however, to the Permitted Encumbrances.

     Assignee hereby assumes all of the obligations of Assignor arising under the Contracts, Licenses and Permits and Warranties and Guaranties required to be performed from and after the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable (but not those required to be performed prior thereto).

     Assignee hereby agrees to indemnify and hold harmless Assignor from and against any and all loss, liability, cost, claim, damage or expense incurred to enforce any rights and/or secure any remedies under this Assignment resulting by reason of the failure of Assignee to perform its obligations arising under the Assigned Properties from and after the Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable, and/or Assignee’s failure to perform its obligations under this Assignment. Assignor hereby agrees to indemnify and hold harmless Assignee from and against any and all loss, liability, cost, claim, damage or expense incurred to enforce any rights and/or secure any remedies under this Assignment resulting by reason of the failure of Assignor to perform its obligations arising under the Assigned Properties prior to Closing Date, the Villa Tuscany Closing Date or the Deerwood Village Closing Date, as applicable, and/or Assignor’s failure to perform its obligations under this Assignment. Assignor will cooperate with Assignee to secure performance by any warrantor or guarantor for any work Assignee believes should be performed pursuant to any of the Warranties and Guaranties. The foregoing indemnification shall survive for a period of twelve months after the date hereof and shall thereafter expire.

EXCEPT AS OTHERWISE PROVIDED IN THE AGREEMENT, ASSIGNEE TAKES THE ASSIGNED PROPERTIES “AS IS”, “WHERE IS” AND WITH “ALL FAULTS”. EXCEPT AS OTHERWISE SET FORTH HEREIN AND IN THE AGREEMENT, ASSIGNOR HAS NOT MADE AND DOES NOT MAKE ANY REPRESENTATIONS AS TO THE PHYSICAL CONDITION, OPERATION OR ANY OTHER MATTER AFFECTING OR RELATED TO THE PERSONAL PROPERTY AND/ OR THE ASSIGNED PROPERTIES, AND BY ITS ACCEPTANCE OF THIS ASSIGNMENT, ASSIGNEE HEREBY EXPRESSLY ACKNOWLEDGES THAT NO SUCH REPRESENTATIONS HAVE BEEN MADE.

Exhibit 10.23 (Continued)

ASSIGNOR EXPRESSLY DISCLAIMS AND BY ITS ACCEPTANCE OF THIS ASSIGNMENT, ASSIGNEE ACKNOWLEDGES AND ACCEPTS THAT ASSIGNOR HAS DISCLAIMED TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY AND ALL REPRESENTATIONS, WARRANTIES OR GUARANTIES OF ANY KIND, ORAL OR WRITTEN, EXPRESS OR IMPLIED, CONCERNING THE ASSIGNED PROPERTIES, EXCEPT AS OTHERWISE SET FORTH HEREIN AND IN THE AGREEMENT, INCLUDING WITHOUT LIMITATION: (i) THE VALUE, CONDITION, MERCHANTABILITY, MARKETABILITY, PROFITABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE OF THE ASSIGNED PROPERTIES, (ii) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS INCORPORATED INTO ANY OF THE ASSIGNED PROPERTIES AND (iii) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE ASSIGNED PROPERTIES. EXCEPT AS OTHERWISE SET FORTH IN THE AGREEMENT, ASSIGNOR IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN STATEMENTS, REPRESENTATIONS, OR INFORMATION PERTAINING TO THE ASSIGNED PROPERTIES FURNISHED BY ANY REAL ESTATE BROKER, AGENT, EMPLOYEE, SERVANT OR OTHER PERSON.

     All of the covenants, terms and conditions set forth herein shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. This Assignment may only be modified, altered, amended, or terminated by the written agreement of Assignor and Assignee. If any term, covenant or condition of this Assignment shall be held to be invalid, illegal or unenforceable in any respect, this Assignment shall be construed without such provision. This Assignment shall be governed by and construed under the laws of the state in which the Property is located without regard to principles of conflicts of law.

     IN WITNESS WHEREOF, Assignor and Assignee have duly executed this Assignment as of the day and year first above written.

ASSIGNOR:	OCALA TARRAGON, LLC
	By:	Tarragon Ocala Development Corp., manager
		By:
			Charles D. Rubenstein,
			Executive Vice President
ASSIGNEE:
	By:
	Name:
	Title:

Exhibit 10.23 (Continued)

EXHIBIT “G”

Ocala Tarragon, LLC
423 West 55th Street
12th Floor
New York, New York 10019
	, 2007

To:

     RE: Your apartment leased at Deerwood Village,_Ocala, Florida (the “Property”)

Gentlemen:

     This is to inform you that on                     , 2007                      (“Purchaser”) purchased the Property from (“Seller”), and that as of such date Purchaser has succeeded to the rights and assumed the obligations of Seller, as Landlord, under your Lease. The deposit under your Lease has been transferred to and received by Purchaser.

     Kindly make all future rent payments under the Lease payable to the order of                     . All rent payments will be collected by the resident manager and delivered to Purchaser. Formal communications and all inquiries (including any request for return of security) should be sent to                                         .

Very truly yours,
OCALA TARRAGON, LLC
By:	Tarragon Ocala Development Corp., manager
	By:
		Charles D. Rubenstein,
		Executive Vice President

Exhibit 10.23 (Continued)

EXHIBIT “H”

RENT ROLL

Exhibit 10.23 (Continued)

EXHIBIT “I”
LEGAL PROCEEDINGS

Vista Grande

None

Villa Tuscany

Fannie Mae foreclosure action, which will be dismissed prior to Closing.

Midway Mills

None.

Deerwood Ocala

Wachovia bank foreclosure action, threatened but not yet served. If filed, this will be dismissed prior to Closing.

Exhibit 10.23 (Continued)

EXHIBIT “J”

PERSONAL PROPERTY INVENTORY

Exhibit 10.23 (Continued)

EXHIBIT “K”

STANDARD FORM OF APARTMENT LEASE

Exhibit 10.23 (Continued)

EXHIBIT “L”

AMENDMENTS TO LEASES

None

Exhibit 10.23 (Continued)

EXHIBIT “M”

FORM OF MANAGEMENT AGREEMENT

EX-10.24

Exhibit 10.24

MEMBERSHIP INTEREST PURCHASE AND SALE AGREEMENT
(Ballantrae, Reflection Lakes, Monterra at Bonita Springs,
Ybor City, Via Lugano and Madison at Park West)

     THIS MEMBERSHIP INTEREST PURCHASE AND SALE AGREEMENT (this “Agreement”) is made as of this 28^th day of December, 2007 by and between BALLANTRAE MANAGER INC., a Nevada corporation (“BMI”), REFLECTION LAKES MANAGER, INC. a Nevada corporation (“RLM”), MONTERRA TARRAGON, INC., a Nevada corporation (“MTI”), MADISON TARRAGON MANAGER, INC., a Nevada corporation (“MTM”), TARRAGON SOUTH DEVELOPMENT CORPORATION, a Nevada corporation (“TSD”), and TARRAGON CORPORATION, a Nevada corporation (“Tarragon”; Tarragon, together with BMI, RLM, MTI, MTM and TSD shall collectively be referred to herein as “Seller”) whose address is 423 West 55^th Street, 12^th Floor, New York, New York 10019, and NORTHLAND FUND II, L.P., a Delaware limited partnership (“Purchaser”) whose address is 2150 Washington Street, Newton, MA 02462.

WITNESSETH:

     WHEREAS, BMI and Tarragon are the owners of 100% of the membership interests in BALLANTRAE TARRAGON, LLC, a Florida limited liability company (the “Ballantrae Company”), representing economic, voting and other rights in the Company, as more particularly set forth in that certain Operating Agreement dated as of February 16, 2006 (as the same may be amended or modified, the “Ballantrae Operating Agreement”)

     WHEREAS, RLM and Tarragon are the owners of 100% of the membership interests in REFLECTION LAKES TARRAGON, LLC, a Florida limited liability company (the “Reflection Lakes Company”), representing economic, voting and other rights in the Company, as more particularly set forth in that certain Operating Agreement dated as of January 6, 2006 (as the same may be amended or modified, the “Reflection Lakes Operating Agreement”);

     WHEREAS, MTI and Tarragon are the owners of 100% of the membership interests in OMNI MONTERRA LLC, a Florida limited liability company (the “Monterra Company”), representing economic, voting and other rights in the Company, as more particularly set forth in that certain Operating Agreement dated as of August 17, 2005 (as the same may be amended or modified, the “Monterra Operating Agreement”);

     WHEREAS, MTM and Tarragon are the owners of 100% of the membership interests in MADISON AT PARKWEST TARRAGON, LLC, a South Carolina limited liability company (the “Madison Company”), representing economic, voting and other rights in the Company, as more particularly set forth in that certain Operating Agreement dated as of November ___, 2005, as amended by that certain First Amendment to Limited Liability Company Agreement dated as of September 12, 2006 (as the same may be amended or modified, the “Madison Operating Agreement”);

Exhibit 10.24 (Continued)

     WHEREAS, TSD is the owner of 100% of the membership interests in YBOR CITY TARRAGON, LLC, a Delaware limited liability company (the “Ybor City Company”), representing economic, voting and other rights in the Company, as more particularly set forth in that certain Operating Agreement dated as of April 13, 2005 (as the same may be amended or modified, the “Ybor City Operating Agreement”);

     WHEREAS, Tarragon is the owner of 100% of the membership interests in TARRAGON LUGANO LLC, a Delaware limited liability company (the “Lugano Company”; the Lugano Company, together with the Ballantrae Company, the Reflection Lakes Company, the Monterra Company, the Madison Company and the Ybor City Company shall collectively be referred to herein as the “Company”), representing economic, voting and other rights in the Company, as more particularly set forth in that certain Amended and Restated Limited Liability Company Agreement dated as of June 12, 2006 (as the same may be amended or modified, the “Via Lugano Operating Agreement”; the Via Lugano Operating Agreement, together with the Ballantrae Operating Agreement, the Reflection Lakes Operating Agreement, the Monterra Operating Agreement, the Madison Operating Agreement and the Ybor City Operating Agreement shall collectively be referred to herein as the “Operating Agreement”);

     WHEREAS, the (i) Ballantrae Company is the owner of the real property and the apartment complex thereon in Sanford, Florida known as “Ballantrae”, as more particularly described on Exhibit “A-1”, (ii) Reflection Lakes Company is the owner of the real property and the apartment complex thereon in Fort Myers, Florida known as “The Promenade at Reflection Lakes”, as more particularly described on Exhibit “A-2”, and (iii) Monterra Company is the owner of the real property and the apartment complex thereon in Bonita Springs, Florida known as “Monterra at Bonita Springs”, as more particularly described on Exhibit “A-3” (each, an “Apartment Complex” and collectively, the “Apartment Complexes”);

     WHEREAS, the (i) Madison Company is the owner of the unsold condominium units (the “Madison Units”) in that certain condominium known as Madison at Park West, a Condominium, located in Mt. Pleasant, South Carolina (the “Madison Condominium”), as more particularly described herein and on Exhibit “A-4”; (ii) Ybor City Company is the owner of the unsold condominium units (the “Ybor City Units”) in that certain condominium known as Quarter at Ybor City, a Condominium, located in Tampa, Florida (the “Ybor City Condominium”), as more particularly described herein and on Exhibit “A-5” and (vi) the Lugano Company is the owner of the unsold condominium units (the “Lugano Units”) in that certain condominium known as Via Lugano, a Condominium, located in Boynton Beach, Florida (the “Lugano Condominium”), as more particularly described herein and on Exhibit “A-6”;

     WHEREAS, Seller wishes to sell to Purchaser all of Seller’s entire right, title and interest in and to the Company under the Operating Agreement, including its membership interests therein (the “Interests”), and Purchaser wishes to purchase the Interests, all upon the terms and subject to the conditions set forth in this Agreement.

2

Exhibit 10.24 (Continued)

     NOW, THEREFORE, in consideration of the mutual covenants and representations herein contained, Seller and Purchaser agree as follows:

ARTICLE 1.
DEFINITIONS

     1.1 In this Agreement, and in the Exhibits and Schedules attached hereto, the following words and phrases shall have the following meanings:

     “Amendment” means an amendment, renewal, supplement, modification, expansion, restatement, extension, or any other change or revision.

     “Appurtenance” means all easements, rights-of-way, covenants, restrictions, tenements, rights and appurtenances benefiting or appertaining to the Property and the land lying in the streets and roads in front of and adjoining the Property.

     “Ballantrae Existing Loan” means that certain loan in the original principal amount of $40,393,000, as evidenced by that certain Promissory Note dated as of October 10, 2006, from Ballantrae Tarragon, LLC to the order of Holder, which Note is secured by that certain Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of October 10, 2006, which is a lien encumbering the Apartment Complexes and the Condominium Parcels.

     “Books and Records” means copies of the 2006 and 2007 year-to-date operating statements for the Property, and, to the extent in Seller’s possession, copies of all real estate and personal property tax statements and assessments notices for 2006 and 2007.

     “Broker” is defined in Section 13.1

     “Business Day” means any day other than (a) a Saturday or Sunday, (b) a Federal, State of Florida banking holiday or (c) a day on which the county recorder’s office in the county where the Property is located is closed.

     “Casualty” is defined in Section 10.1.

     “Casualty Notice” is defined in Section 10.1

     “Casualty Termination Notice” is defined in Section 10.1 (a)

     “Closing” means the closing of the transactions contemplated under this Agreement.

     “Closing Date” is defined in Section 6.1.

     “Closing Documents” is defined in Section 6.2.

3

Exhibit 10.24 (Continued)

     “Closing Statement” is defined in Section 6.2 (o)

     “Commitment” is defined in Section 4.2

     “Condemnation” is defined in Section 10.2.

     “Condemnation Notice” is defined in Section 10.2.

     “Condominiums” means, collectively, the Madison Condominium, the Ybor City Condominium and the Lugano Condominium.

     “Condominium Declarations” means that certain (i) Declaration of Condominium of MADISON AT PARK WEST, a Condominium, and any amendments thereto, as recorded in the Public Records of Charleston County, South Carolina, as amended from time to time, and other documents furnished pursuant to South Carolina condominium statutes, (ii) Declaration of Condominium of THE QUARTER AT YBOR CITY, a Condominium, and any amendments thereto, as recorded in the public records of Hillsborough County, Florida, as amended from time to time, and other documents furnished pursuant to Florida condominium statutes and (iii) Declaration of Condominium of VIA LUGANO, a Condominium, and any amendments thereto, as recorded in the Public Records of Palm Beach County, Florida, as amended from time to time, and other documents furnished pursuant to the Florida condominium statutes.

     “Condominium Parcel Contracts” means all agreements between the Company and a third party for the purchase and sale of one or more Units in a Condominium Parcel.

     “Condominium Parcels” means (i) the Units, (ii) a percentage of undivided ownership interest in the common elements attributable to the Units, (iii) any other appurtenances as described in and subject to the percentage of undivided ownership interest in the common elements attributable to the Units and (iv) any other appurtenances as described in and subject to the Condominium Declarations.

     “Contracts” means all agreements between the Company and any third party which are described on Exhibit “B” hereto, but shall exclude the Condominium Parcel Contracts.

     “Deposits” means all refundable security deposits, expense deposits and/or prepaid rentals received from a Tenant under a Tenant Lease and in the possession or control of the Seller or the Company.

     “Development Rights” means all rights of the Company’s to the air space above the Land, if any, and all zoning entitlements, development rights and appurtenances accruing to the Property under, or by reason of, any applicable zoning ordinance or other laws.

     “Due Diligence Review” is defined in Section 14.1

4

Exhibit 10.24 (Continued)

     “Earnest Money” is defined in Section 3.2(a).

     “Encumbrances” means any and all liens, mortgages, deeds of trust, security agreements, security interests, options, rights of purchase or first refusal, rights-of-way, restrictive covenants, reservations, judgments, leases, subleases, licenses, assignments, restrictions, or other encumbrances affecting title to the Property.

     “Escrow Holder” means Stewart Title Guaranty Company, and/or its affiliated title insurance companies.

     “Existing Title” means the current commitments to issue title insurance, a schedule of which is attached hereto as Exhibit “I”.

     “Existing Loans” means, collectively, the Ballantrae Existing Loan, the Reflection Lakes Existing Loan, the Monterra Existing Loan, the Madison Existing Loan, the Ybor City Existing Loan and the Lugano Existing Loan.

     “Existing Loan Documents” means all material loan documents executed by the Company and/or Holder with respect to the Existing Loans, excluding any and all documents relating to the Seller’s and/or the Company’s purchase of a rate cap with respect to the Existing Loans.

     “Governmental Entity” means the United States, the State, the County, the Town or the City where the Property is located and any other State in which a party to this Agreement is incorporated or organized.

     “Holder” means Barclays Capital Real Estate Inc.

     “Holder Consent” is defined in Section 15.1.

     “Improvements” means Apartment Complexes and the Condominium Parcels and all buildings, structures, and improvements located on the Land.

     “Land” means the real property more particularly described on Exhibits “A-1” - “A-3” attached hereto.

     “Legal Proceeding” means any litigation, arbitration, administrative proceeding, or other legal proceeding of any kind.

     “Licenses and Permits” means all certificates, licenses, permits and approvals issued by any Governmental Entity with respect to the Property.

     “Lugano Existing Loan” means that certain loan in the original principal amount of $53,300,000, as evidenced by that certain Promissory Note dated as of October 10, 2006, from the Lugano Company to the order of Holder, which Note is secured by that certain Amended and

5

Exhibit 10.24 (Continued)

Restated Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of October 10, 2006, which is a lien encumbering the Apartment Complexes and the Condominium Parcels.

     “Madison Existing Loan” means that certain loan in the original principal amount of $22,860,000, as evidenced by that certain Amended and Restated Promissory Note dated as of October 10, 2006, from the Madison Company to the order of Holder, which Note is secured by that certain Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of October 10, 2006, which is a lien encumbering the Apartment Complex, the Apartment Complexes and the Condominium Parcels.

     “Monterra Existing Loan” means that certain loan in the original principal amount of $41,200,000, as evidenced by that certain Amended and Restated Promissory Note dated as of October 10, 2006, from the Monterra Company to the order of Holder, which Note is secured by that certain Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of October 10, 2006, which is a lien encumbering the Apartment Complexes and the Condominium Parcels.

     “Notice of Termination” is defined in Section 14.2.

     “Objections” is defined in Section 4.3

     “Objection Notice” is defined in Section 4.3.

     “Permitted Encumbrances” is defined in Section 4.1.

     “Permitted Termination” is defined in Section 11.1

     “Person” means an individual person, a corporation, partnership, trust, joint venture, proprietorship, estate, association, Governmental Entity or other incorporated or unincorporated enterprise, entity or organization of any kind.

     “Personal Property” means all equipment, machinery and other tangible and intangible personal property of every nature and description (including, without limitation, the personal property described on Exhibit “G” attached hereto) used in connection with the Property (excluding computer hardware, software and peripherals), which are not owned by the Tenants, which are owned by the Company and in the possession of Seller or the Company, and also including any rights the Company may have, if any, with respect to the use of the name of the Apartment Complexes or the Condominiums or any variation thereof, including, without limitation, any domain names (provided, however, the content of the Company’s website for the Property shall be specifically excluded).

     “Plans” means all architectural, electrical, mechanical or plumbing plans and specifications and any environmental, engineering and geotechnical studies or reports, including without limitation, any Phase I environmental report, performed in connection with the Property

6

Exhibit 10.24 (Continued)

or any portion thereof, which are not owned by the Tenants and which are owned by the Company and in the possession of Seller.

     “Property” means the Land and the Condominium Parcels and all Appurtenances, Improvements, Personal Property, Development Rights, Contracts, Licenses and Permits, Plans, and Warranties and Guaranties on, to or in connection with the Land and the Condominium Parcels.

     “Rent Roll” is defined in Section 4.1(a).

     “Reflection Lakes Existing Loan” means that certain loan in the original principal amount of $50,076,000, as evidenced by that certain Amended and Restated Promissory Note dated as of October 10, 2006, from the Reflection Lakes Company to the order of Holder, which Note is secured by that certain Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of October 10, 2006, which is a lien encumbering the Apartment Complexes and the Condominium Parcels.

     “Response Notice” is defined in Section 4.4.

     “Seller Party” is defined in Section 8.1 (c).

     “Survey” is defined in Section 4.1 (b).

     “Tenant” means all tenants and other parties having the right to use or occupy all or any portions of the Property.

     “Tenant Lease” means all leases, rental agreements, subleases, or other agreements which permit or authorize the use and occupancy of the Property, together with any and all, if any, guaranties, security deposits, or other security for performance of a Tenant’s obligations thereunder, all Amendments and/or other agreements forming a part thereof.

     “Termination Deadline” means 4:00 P.M. (EST) on December 11, 2007.

     “Title Company” means Stewart Title Guaranty Company, and/or its affiliated title insurance companies.

     “Title Policy” means one or more ALTA Owner’s policies of Title Insurance, insuring Purchaser’s right, title and interest in the Property in the aggregate amount of the Purchase Price, allocated among the Apartment Complexes and the Condominium Parcels, subject only to the Permitted Encumbrances.

     “Units” means, collectively, the Madison Units, the Ybor City Units and the Lugano Units.

7

Exhibit 10.24 (Continued)

     “Warranties and Guaranties” means all unexpired warranties and guaranties and payment and/or performance bonds required to be provided under the Contracts which run to the benefit of the Company in connection with the construction, renovation and/or operation of the Property.

     “Ybor Existing Loan” means that certain loan in the original principal amount of $7,142,000, as evidenced by that certain Amended and Restated Promissory Note A in the amount of $7,079,295 dated as of October 10, 2006 and that certain Amended and Restated Promissory Note B in the amount of $62,705, each from the Ybor City Company to the order of Holder, which Notes are secured by that certain Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of October 10, 2006, which is a lien encumbering the Apartment Complexes and the Condominium Parcels.

     1.2 Unless specified to the contrary, references to Sections, Exhibits and Schedules mean the particular Section, Exhibit or Schedule in or to this Agreement, all of which Exhibits and Schedules are made a part hereof for all purposes the same as if set forth herein verbatim; it being expressly understood that if any Exhibit attached hereto which is to be executed and delivered at Closing contains blanks, such Exhibit attached hereto shall be deemed completed in the form executed.

     1.3 Wherever used in this Agreement:

          1. the words “include” or “including” shall be construed as incorporating, also, “but not limited to” or “without limitation”;

          2. the word “day” means a calendar day unless otherwise specified;

          3. the word “party” means each of Seller and Purchaser;

          4. the word “law” (or “laws”) means any statute, ordinance, resolution, regulation, code, rule, order, decree, judgment, injunction, mandate or other legally binding requirement of a Governmental Entity;

          5. each reference to the Property shall be deemed to include “and/or any portion thereof”; and

          6. each reference to $ or dollars means United States dollars.

     1.4 Certain other words and phrases are defined or described elsewhere in this Agreement.

ARTICLE 2.
PURCHASE AND SALE

8

Exhibit 10.24 (Continued)

     2.1 Purchase and Sale. Subject to the terms and conditions of this Agreement, Seller hereby agrees to sell and convey to Purchaser, and Purchaser hereby agrees to purchase from Seller, the Interests.

ARTICLE 3.
PURCHASE PRICE AND EARNEST MONEY

     3.1 Purchase Price. The purchase price (the “Purchase Price”) for the Interests shall be in the amount of ONE HUNDRED FIFTY-SIX MILLION SEVENTY-FIVE THOUSAND DOLLARS ($156,075,000), which represents the outstanding principal balance of the Existing Loans as of the Closing Date. The Purchase Price shall be deemed paid at Closing by Purchaser’s acquisition of the Property, subject to the Existing Loans in accordance with Article 15 below, by means of the purchase of the Interests as contemplated herein.

     3.2 Earnest Money.

          (a) Within one (1) Business Day of the date hereof, Purchaser shall deliver to the Escrow Holder the sum of $5,000,000 by federal funds wire transfer (the “Earnest Money”). This Agreement shall terminate and be deemed void ab initio if the Earnest Money is not timely deposited with Escrow Holder. After the Termination Deadline, if this Agreement is then in effect, the Earnest Money shall be non-refundable to Purchaser except in the event of (i) the failure of a condition precedent, as provided in Section 5.1, (ii) a default by Seller, as provided in Section 11.2 or (iii) the Holder Consent is not issued in accordance with Section 15.1 hereof. The Earnest Money shall be held in escrow and invested by the Escrow Holder in an interest-bearing account, with interest accruing for the benefit of the party entitled to the payment or return of the Earnest Money. The Earnest Money shall be paid to Holder and applied toward the paydown of the Existing Loans as provided in Article 15, and shall otherwise be paid or applied in accordance with this Agreement.

          (b) The Escrow Holder shall hold the Earnest Money pursuant to the following provisions:

               (i) The Escrow Holder is not a party to, and is not bound by, or charged with notice of any agreement out of which this escrow may arise, other than the terms and provisions of this Section 3.2 as well as Sections 4.3 and 14.2 of this Agreement.

               (ii) The Escrow Holder shall deliver the Earnest Money to the party so designated on written notice from both the Purchaser and Seller specifying the time and the place where the Earnest Money is to be delivered, provided, however that the Escrow Holder shall have received such written instructions at least one (1) Business Day prior to the date designated for delivery.

               (iii) The Escrow Holder is acting solely as a stakeholder and depository as an accommodation to Purchaser and Seller, and is not responsible or liable for any matter or

9

Exhibit 10.24 (Continued)

loss arising out of the Escrow Holder’s conduct hereunder, except for its gross negligence or willful misfeasance. The Escrow Holder shall not be responsible or liable for the sufficiency, correctness, genuineness, or validity of the subject matter of this Agreement, or for the identity or authority of any person executing any documents or instruments in connection herewith.

               (iv) Purchaser and Seller agree to jointly and severally, indemnify, defend and hold harmless the Escrow Holder from and against any loss, cost, claims, damage or expense, including, without limitation, any and all court costs and reasonable attorney’s fees and expenses, collectively called “Expenses”, incurred by the Escrow Holder in connection with or in any way arising out of this Agreement, other than Expenses resulting from the Escrow Holder’s gross negligence or willful misconduct, provided that as between Purchaser and Seller any costs or expenses incurred as a result of any dispute between Seller and Purchaser shall be the responsibility of the non-prevailing party in such dispute. The Escrow Holder may, at its own expense, consult with legal counsel in the event of any dispute or questions as to the construction of any provisions hereof or its duties hereunder, and it shall be fully protected in acting in accordance with the written opinion or instructions of such counsel.

               (v) The Escrow Holder shall be entitled to act or rely upon, and the Escrow Holder shall be protected in acting or relying upon, the genuineness and validity of any written notice, request, waiver, consent, certificate, receipt, authorization, power of attorney or other document the Escrow Holder shall receive from any party hereto that it reasonably believes to be authentic.

               (vi) In the event that (a) the Escrow Holder receives contradictory instructions from the parties hereto, or (b) there shall be any dispute between Seller and Purchaser as to any matter arising under this Agreement, or (c) there shall be any uncertainty as to the meaning or applicability of the provisions hereof or any written instructions received by the Escrow Holder pursuant hereto, the Escrow Holder shall continue to hold the Earnest Money pending resolution of the matter if so instructed by written notification from both Seller and Purchaser or if not so instructed shall deposit the Earnest Money with any appropriate court in the State of Florida at the cost and expense of Purchaser and Seller jointly and severally, and, upon making such deposit, the Escrow Holder shall thereupon be discharged and released from any and all liability with respect to the Earnest Money. The Escrow Holder may dispose of the escrowed funds in accordance with a court order, and shall be fully protected if it acts in accordance with any such court order.

               (vii) Deposits made pursuant to these instructions may be invested on behalf of any party or parties hereto, provided that any direction to the Escrow Holder for such investment shall be in writing and contain the consent of all other parties to this Agreement together with a completed, signed W-9 Form. The Escrow Holder is not to be held responsible for the loss of principal or interest on any investment made pursuant to the aforesaid instruction or in the redemption thereof.

10

Exhibit 10.24 (Continued)

               (viii) Except as to deposits of funds for which the Escrow Holder has received written instructions as set forth in paragraph (vii) above, the Earnest Money may be commingled with other escrowed funds in a non-segregated escrow account; and

               (ix) Upon delivery of the Earnest Money in accordance with the terms hereof, the Escrow Holder shall be discharged and released from any and all liability with respect to the Earnest Money.

               (x) Escrow Holder may resign as Escrow Holder hereunder at any time upon written notice to Purchaser and Seller, provided that such resignation shall not be effective unless and until a replacement escrow agent acceptable to Purchaser and Seller shall have been identified and such replacement escrow agent shall have agreed in writing to serve as Escrow Holder hereunder pursuant to the terms and conditions of this Agreement.

               (xi) Purchaser and Seller may jointly terminate the services of Escrow Holder hereunder at any time upon written notice to Escrow Holder, provided that such termination shall not be effective unless and until a replacement escrow agent acceptable to Purchaser and Seller shall have been identified and such replacement escrow agent shall have agreed in writing to serve as Escrow Holder hereunder pursuant to the terms and conditions of this Agreement.

     3.3 Tax Elections. The Company’s tax year is from December 1^st through November 30^th. Since the Closing shall occur after November 30, 2007, the responsibility for filing the Company return for federal and state income tax from December 1, 2007 through the Closing Date shall be Seller’s responsibility, and Purchaser shall reasonably cooperate with Seller in connection therewith. Further, should any returns for 2007 or prior years be audited, the responsibility for dealing with, settling and paying any such tax liability shall be Seller’s responsibility. Should Purchaser or the Company be included in such audits, Seller shall furnish Purchaser or the Company with all necessary information to permit Purchaser or the Company to respond to the appropriate authorities in a timely and responsive manner. Notwithstanding anything to the contrary contained herein, if it is not required under the Internal Revenue Code to file separate income tax returns for the Company for the period prior to the Closing and the period on and after the Closing, each party shall prepare the same for its respective period of ownership and the parties shall cooperate with each other so as to cause the Company’s tax returns for calendar year 2007 to be filed in a timely manner and shall make such elections and/or allocations as may be required so as to allocate to Seller for income tax purposes all income, expenses and tax credits relating to the period of time prior to the Closing and to allocate to Purchaser all income, expenses and, if permissible, tax credits for the period on and after the Closing.

11

Exhibit 10.24 (Continued)

ARTICLE 4.
DELIVERY OF DOCUMENTS/TITLE

     4.1 Within two (2) Business Days after a fully executed counterpart of this Agreement is delivered to Purchaser (except as otherwise provided), Seller shall deliver the following information and documents to Purchaser:

          (a) Tenant Leases relating to the Property (which shall be made available for inspection at the applicable Apartment Complex or Condominium, and not delivered to Purchaser), a current rent roll concerning the Property (the “Rent Roll”) setting forth, with respect to each apartment unit and condominium unit: (i) the name of the Tenant, (ii) the rent payable, (iii) the expiration date of each lease and the status of the rental payments payable thereunder, (iv) the security or other deposit(s) held by Seller, (v) delinquencies and (vi) free rent and/or other concessions.

          (b) The most recent surveys of the Property in Seller’s possession (the “Survey”). Any updated Survey required by Purchaser shall be ordered and paid for by Purchaser.

          (c) Copies of all Books and Records, Contracts, Licenses and Permits, Plans (which may be made available for inspection at the applicable Apartment Complex or Condominium, and not delivered to Purchaser), and Warranties and Guaranties.

          (d) Copies of the most recent title commitments and owner’s title policies for the Property in Seller’s possession, if any.

          (e) Copies of 2006 tax returns for the Ballantrae Company, the Reflection Lakes Company, the Monterra Company and the Madison at Park West Company. Purchaser acknowledges and agrees that Seller shall not provide copies of the 2006 tax returns for the Lugano Company or the Ybor City Company.

          (f) Copies of the Condominium Declarations, and all other condominium-related documents relating to the Condominium Parcels, including without limitation, condominium by-laws, condominium association minutes, notices of special assessments, if any, budgets and the like in the possession or control of Seller.

          (g) Copies of the Existing Loans Documents.

     Seller’s failure to deliver to Purchaser items (a) through (g) above within two (2) Business Days after a fully executed copy of this Agreement is delivered to Purchaser shall not result in the extension of the Termination Deadline, and Purchaser’s sole remedy therefor shall be Purchaser’s right to terminate this Agreement by delivering written notice thereof to Seller prior to the Termination Deadline, in which event neither party shall have any further rights or obligations hereunder (except as otherwise provided herein).

12

Exhibit 10.24 (Continued)

     4.2 Purchaser shall request the Title Company to deliver to Purchaser and Seller: (a) a current commitment for a Title Policy to be issued by the Title Company, whereby said Title Company commits to insure title to the Property for the benefit of Purchaser in accordance with this Agreement (the “Commitment”); and (b) copies of all instruments shown on Schedule B of the Commitment. The Commitment shall describe the Property; shall list the Company as the prospective named insured; shall show as the policy amount the Purchase Price; and shall contain the commitment of the Title Company to insure the Company’s fee simple interest in the Property upon the Closing. The Commitment shall show the status of the title of the Property and all exceptions which would appear in the Title Policy. Any items or exceptions to title which are accepted or waived in writing or deemed to have been accepted or waived by Purchaser pursuant to the terms of this Agreement are hereinafter referred to as “Permitted Encumbrances”. Seller makes no representations or warranties with respect to the accuracy of the Commitment.

     4.3 As of the date of this Agreement, Purchaser (i) acknowledges receipt of the Existing Title, (ii) acknowledges its approval of the Existing Title and (iii) confirms that all exceptions to title set forth in the Existing Title (including all existing liens and encumbrances) shall be deemed Permitted Encumbrances, except for those matters to be addressed by the title clearing items set forth on Exhibit “K”, which will be delivered by Seller on or before the Closing Date. Purchaser shall be entitled to raise Objections (as hereinafter defined) within two (2) Business Days after Purchaser receives an update or bringdown to the Existing Title which contains exceptions to title that did not previously appear in the Existing Title to the extent that any such exception is monetary in nature or, in Purchaser’s reasonable opinion, will adversely interfere with the Company’s title to or use, operation or financing of the Property, and which Purchaser is unwilling to take title to the Property subject to any such matter (the “Objections”), separately specifying and setting forth each of such Objections and the reasons therefor. Within two (2) Business Days after Purchaser provides written notice (the “Objection Notice”) of the Objections, Seller shall give Purchaser notice (the “Response Notice”) if Seller is unable or unwilling to cure any of Purchaser’s Objections (and if Seller fails to timely deliver a Response Notice, Seller shall be deemed to have elected not to cure Purchaser’s Objections). If Seller’s Response Notice indicates that Seller is unwilling or unable to cure Purchaser’s Objections, then Purchaser may, as its exclusive remedy, elect by written notice given to Seller within two (2) Business Days after the Response Notice is given (or if deemed given, within three (3) Business Days of the giving of Purchaser’s Objection Notice), either (a) to accept such title as Seller is able to convey without any reduction or abatement of the Purchase Price, or (b) to terminate this Agreement, in which event the Earnest Money and all interest thereon shall be paid to Purchaser, Escrow Holder being unconditionally authorized to immediately release same to Purchaser. If Purchaser fails to deliver any such notice, Purchaser will be deemed to have elected to proceed under clause (a). If Seller elects to cure the Objections, the cure shall be effected on or before the Closing Date. If Purchaser gives Seller an Objection Notice as set forth above, then all matters disclosed on the updated title which are not objected to in such Objection Notice shall be deemed to be Permitted Encumbrances. If Purchaser fails to give Seller an Objection Notice within the period set forth above, then all matters disclosed on the updated title shall be deemed to be Permitted Encumbrances.

13

Exhibit 10.24 (Continued)

     4.4 Seller shall not be required to expend any money or bring any action or proceeding to cure such Objections. Notwithstanding anything to the contrary contained herein: (a) the standard preprinted exceptions set forth in the Commitment shall not constitute Permitted Encumbrances for purposes hereof to the extent they can be omitted in the State of Florida or South Carolina (as applicable) by Seller’s affidavit without payment of additional premium by Purchaser; (b) all mortgages and other encumbrances evidencing or securing indebtedness arising by, through or under Seller (excluding the Existing Loan Documents) shall not constitute Permitted Encumbrances and shall be discharged and satisfied by Seller prior to Closing; (c) Seller shall be required to expend up to $10,000 in the aggregate to satisfy, discharge or bond over liens or other monetary or non-monetary items which can be satisfied by the expenditure of less than $10,000 in the aggregate; and (d) Seller shall use its reasonable good faith efforts (without cost to Seller) to cure any objections to Seller’s title raised by Purchaser or the Title Company with respect to affidavits or consents of stockholders, directors and officers approving any acts of affiliated corporations in the chain of title, and proof of payment of franchise or dissolution taxes thereof.

ARTICLE 5.
CONDITIONS TO CLOSING

     5.1 Conditions to Obligations of Purchaser. The obligations of Purchaser to execute and deliver the applicable Closing Documents, to pay the Purchase Price and to perform Purchaser’s other obligations at the Closing under this Agreement are and shall be subject to the satisfaction of each of the following conditions at or prior to the Closing, unless otherwise specified:

          (a) Title to the Property shall be free of Encumbrances other than Permitted Encumbrances.

          (b) Seller shall have executed (where applicable) and delivered to Escrow Holder the Closing Documents to be executed and delivered by Seller.

          (c) All of the representations and warranties of Seller contained in this Agreement shall have been true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same effect as if made on and as of such date.

          (d) Seller shall have performed, observed, and complied in all material respects with all covenants, agreements, and conditions required by this Agreement to be performed, observed, and complied with on Seller’s part prior to or as of the Closing Date.

          (e) Other than in the event of a Casualty or a Condemnation, the physical condition of the Property shall be substantially the same on the Closing Date as on the date hereof, reasonable wear and tear excepted.

14

Exhibit 10.24 (Continued)

          (f) The Holder Consent shall have been issued.

In the event that any one of the above conditions precedent to the obligations of Purchaser shall not occur by the Closing Date and the occurrence of such condition is not due to a default by Seller and is not waived by Purchaser (in Purchaser’s sole discretion), and provided Purchaser is not then in default under the terms of the Agreement, then upon written notice from Purchaser to Seller and Escrow Agent delivered on or prior to the Closing Date, this Agreement shall terminate, the Earnest Money shall be returned to Purchaser and neither party shall have any further obligation to the other.

     5.2 Conditions to Obligations of Seller. The obligations of Seller to execute and deliver the applicable Closing Documents and to perform Seller’s other obligations at the Closing under this Agreement are and shall be subject to the satisfaction of each of the following conditions at or prior to the Closing:

          (a) Intentionally deleted.

          (b) Purchaser shall have executed (where applicable) and delivered to Escrow Holder the Closing Documents to be executed and delivered by Purchaser.

          (c) All of the representations and warranties of Purchaser contained in this Agreement shall have been true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same effect as if made on and as of such date.

          (d) Purchaser shall have performed, observed, and complied in all material respects with all covenants, agreements, and conditions required by this Agreement to be performed, observed, and complied with on Purchaser’s part prior to or as of the Closing Date.

          (e) The Holder Consent shall have been issued, and Seller and all of its affiliates shall have been released by Holder from any obligation under the Existing Loans from and after the Closing Date, except as otherwise provided in Article 15 below.

In the event that any one of the above conditions precedent to the obligations of Seller shall not occur by the Closing Date and the occurrence is not waived by Seller (in its sole discretion), and provided Seller is not then in default under the terms of the Agreement, then upon written notice from Seller to Purchaser and Escrow Agent delivered on or prior to the Closing Date, this Agreement shall terminate, the Earnest Money shall be paid to the Seller, and neither party shall have any further obligation to the other. Notwithstanding the foregoing, Purchaser shall be entitled to the return of the Earnest Money if the condition set forth in (e) above does not occur for reasons other than a default by Purchaser.

15

Exhibit 10.24 (Continued)

ARTICLE 6.
CLOSING

     6.1 Closing. The Closing shall occur through an escrow at the Title Company on (or, if Seller and Purchaser mutually agree, before) December 31, 2007 (the “Closing Date”), time being of the essence to such date. The parties will deliver required closing documents and funds to the Escrow Holder by overnight delivery service, fax and wire transfers.

     6.2 Seller’s Obligations at Closing. At the Closing, Seller shall deliver to Escrow Holder the following documents (the “Closing Documents”):

          (a) An Assignment and Assumption of Membership Interests, in form and substance as set forth on Exhibit “C” attached hereto, duly executed and acknowledged by Seller, with respect to each of the Interests;

          (b) Intentionally deleted;

          (c) an affidavit originally executed by Seller to the effect that Seller is not a foreign person for purposes of 26 U.S.C. 1445 (b) (2);

          (d) such affidavits executed by Seller as the Title Company shall reasonably require in order to omit from the Title Policy all exceptions for (i) rights of parties in possession (other than Tenants under the Tenant Leases, as tenants only), (ii) notices of commencement for work conducted by or on the Company’s behalf or (iii) matters arising between the date of the Commitment and the Closing Date, along with a “no change” affidavit stating that to Seller’s knowledge there have been no changes to the existing surveys and, with respect to the Madison Condominium Parcels, a non-imputation affidavit in the form attached hereto as Exhibit “M”;

          (e) such corporate, partnership and/or limited liability company certificates and resolutions as the Purchaser and the Title Company may reasonably request in order to confirm the authorization of (i) the actions to be taken by Seller under this Agreement and (ii) the execution and delivery of this Agreement, the Closing Documents and all other documents required to be executed and delivered by Seller pursuant to this Agreement;

          (f) all Tenant Leases, Books and Records (originals when available or photocopies if not available) in the possession or control of Seller;

          (g) all keys and master keys to all locks at the Property which are in the possession or control of Seller;

          (h) all Licenses and Permits in Seller’s possession or control;

          (i) all Plans in Seller’s possession or control;

16

Exhibit 10.24 (Continued)

          (j) all Contracts and Condominium Parcel Contracts, if any, in Seller’s possession or control;

          (k) an update of the Rent Roll, dated as of the Closing Date and represented and certified by Seller to be true and correct;

          (l) original counterparts of a management agreement for each Apartment Complex and the rental portion of each Condominium Parcel (collectively, the “Rental Management Agreements”), pursuant to which Tarragon Management, Inc. will manage such Apartment Complexes and rental portion of each Condominium Parcel on a month-to-month basis, for a management fee equal to 3% of gross revenues, which Rental Management Agreements shall be negotiated in good faith and in a commercially reasonable manner by the parties prior to Closing;

          (m) original counterparts of an agreement for the Condominium Parcels (the “Condominium Project Management Agreement”), pursuant to which Tarragon Development Corporation will coordinate all sales and marketing efforts for the Condominium Parcels on a month to month basis, for a fee equal to the reasonable costs for personnel and services, which Condominium Project Management Agreement shall be negotiated in good faith and in a commercially reasonable manner by the parties prior to Closing;

          (n) a closing statement prepared by Seller and approved by Purchaser (the “Closing Statement”); and

          (o) resignations from all employees, officers, directors or agents of Seller that are either members of the Board of Directors of the condominium associations or officers of such associations with respect to the Condominiums (collectively, the “Seller Board Members”).

     6.3 Purchaser’s Obligations at Closing. At Closing, Purchaser shall deliver to Escrow Holder the following:

          (a) the balance of the Purchase Price, by wire transfer of immediately available funds to the account of the Title Company;

          (b) executed counterparts of all of the Assignment and Assumption of Membership Interests and Notice Letters, originally executed and acknowledged (where applicable) by Purchaser;

          (c) such corporate, partnership and/or limited liability company certificates and resolutions as the Seller and the Title Company may reasonably request in order to confirm the authorization of (i) the actions to be taken by Purchaser under this Agreement and (ii) the execution and delivery of this Agreement, the Closing Documents and all other documents to be executed and delivered by Purchaser pursuant to this Agreement and/or as customarily required by the Title Company;

17

Exhibit 10.24 (Continued)

          (d) the Closing Statement; and

          (e) a document in form and substance reasonably acceptable to Seller and Purchaser evidencing the appointment of substitute members of the Board of Directors of the condominium associations replacing the Seller Board Members.

     6.4 Closing Costs. Except as otherwise expressly provided herein, Purchaser shall pay (i) all sales taxes on personal property, if any, (ii) the title premiums and the cost of any endorsements to the Title Policy required by Purchaser or Existing Lender and the search and examination fees, (iii) Purchaser’s share of prorations, (iv) the cost of updating the Survey, (v) all recording charges (other than for discharges of mortgages and related documents), (vi) all documentary stamps and intangible taxes in connection with Purchaser’s financing, (vii) legal fees and disbursements of attorneys of Holder in connection with he assumption of the Existing Loans, and (viii) one-half of any escrow fees and other customary charges of the Escrow Holder (if any). Seller shall pay Seller’s share of prorations and one-half of any escrow fees and other customary charges of the Escrow Holder (if any). Except as otherwise provided herein, each party shall pay its own attorneys’ fees.

ARTICLE 7.
PRORATIONS

     7.1 The following shall be apportioned and adjusted between Seller and Purchaser as of 11:59 p.m. (Florida time) the day preceding the Closing Date, except as otherwise specified:

          (a) rents and additional rents under or in respect of the Tenant Leases, as, when and to the extent actually collected, on the basis of the period for which payable under the applicable Tenant Lease and apportioned on the basis of the actual number of days in such period, along with security, pet, key and any other deposits held by Seller under Tenant Leases;

          (b) any real property taxes, water and sewer rents and charges; any tax credit or refund collected as a result of any real property tax appeal; vault taxes or charges, elevator inspection charges and other like and similar municipal taxes and charges, each on the basis of the fiscal year or other period for which assessed, and apportioned upon the basis of the actual number of days in such year or period. If actual tax bills are not available, taxes shall be apportioned based on the most recent tax bills available, with a post-Closing adjustment to be made as soon as tax bills for the fiscal year during which the Closing occurs become available;

          (c) subject to Section 7.5, electric, gas, steam and other public utility charges for services furnished to the Property, on the basis of the actual number of days in any period covered by the charge being apportioned (except that no apportionment shall be made for any of such items as are furnished and charged by the applicable utility company directly to Tenants under the Tenant Leases);

18

Exhibit 10.24 (Continued)

          (d) all charges under the Contracts, on the basis of the actual number of days in any period covered by the charge being apportioned. Seller shall pay, at or prior to the Closing, all installments or amounts of items which are being apportioned under this Section which became due and payable prior to the Closing Date;

          (f) such other items as are customarily apportioned between sellers and purchasers of real properties of a type similar to the Apartment Complexes and Condominium Parcels (including, without limitation, fees and special assessments due and owing to the Condominium Associations); and

          (g) any excess deficit funding obligations due and owing from the Condominium Associations to the “developer” of such Condominium at the time of “turnover” of each Condominiums if and to the extent paid by the Associations.

     7.2 Seller shall pay all unpaid commissions, fees and other charges due on or prior to the Closing to real estate brokers or other Persons with respect to (i) any Tenant Lease beginning prior to the Closing Date or (ii) any Condominium Parcel Contract entered into prior to the Closing Date. If the Closing occurs, then Purchaser shall be responsible for commissions, fees, or other charges due to real estate brokers or other Persons with respect to Tenant Leases, and any renewals, extensions and expansions thereof beginning after the Closing Date. Purchaser will receive either a cash payment for all Deposits or, if applicable, a credit against any amounts due and owing to Seller hereunder.

     7.3 If the Closing occurs before a new real property or other applicable tax rate or charge of a Governmental Entity is fixed, then the apportionment of such tax or charge at the Closing shall be based upon the tax rate for the immediately preceding fiscal period applied to the latest assessed valuation. Promptly after the new tax rate has been fixed, the apportionment of such tax or charge made at the Closing shall be recalculated and any reimbursement owed by Purchaser to Seller or Seller to Purchaser, as the case may be, shall be paid promptly after such recalculation.

     7.4 If any Tenant under a Tenant Lease is in arrears in the payment of rent, or other charges, payments received from such Tenant after the Closing shall be applied in the following order of priority: first, to current rents and other sums due Purchaser as the current owner of the Property and landlord under the Tenant Leases, and the balance to any delinquent sums owing to Seller under the Tenant Leases. If any payments from a Tenant received by Purchaser or Seller after the Closing are payable to the other party by reason of this Section, then the appropriate sum shall be promptly paid to the other party.

     7.5 The apportionment of utility charges shall be made upon the basis of charges shown on the latest available bills of such utilities. The charges shown on such available bills for periods prior to the Closing Date shall be paid by Seller, and for the period from the date of each such last available utility bill to the Closing Date an apportionment shall be made based on the amount charged for the period covered by such last available bill. Notwithstanding the foregoing, Seller will use reasonable efforts to cause the respective utility companies to read

19

Exhibit 10.24 (Continued)

their meters or fix their charges to the Closing Date, in which event Seller shall pay such charges, when billed, to the Closing Date, and Purchaser shall pay such charges from and after the Closing Date and/or promptly reimburse Seller for any such charges paid by Seller for any period subsequent to the Closing Date.

     7.6 At the Closing if requested by Purchaser, Seller shall assign to Purchaser, as part of the Assignment, all deposits or escrows held for Seller’s account at or by any public utility company in connection with the utility services furnished to the Property; and in such case Purchaser shall pay Seller, at the Closing, for the amount of deposits, or escrows so assigned. Prior to the Closing Date, Seller shall notify all such public utilities in writing of the applicable transfer of service.

     7.7 If any item covered by this Article cannot be apportioned because the same has not been (or cannot be) fully ascertained on the Closing Date, or if any error has been made with respect to any apportionment, then such item shall be apportioned (or corrected, as applicable) as soon as the same is fully ascertained and shall be paid within twenty (20) days thereafter by the appropriate party. Any Property-related bills received after Closing related to the period prior to Closing shall be promptly paid by Seller.

     7.8 Real estate tax refunds and credits received after the Closing which are attributable to the fiscal tax year during which the Closing Date occurs shall be apportioned between Seller and Purchaser, pursuant to this Article.

     7.9 If, as of the Closing Date, the Property shall be (or shall have become) subject to a special or local assessment or charge of any kind (whether or not yet a lien), then (to the extent not payable by the tenants) Seller shall pay all installments thereof due and payable prior to the Closing Date; provided, however, any installment thereof attributable to a period from and after the Closing Date shall be apportioned at the Closing in the same manner as for taxes under Section 7.1(b). Purchaser shall be responsible for all installments of such assessment attributable to the period from and after the Closing Date.

     7.10 Except as otherwise provided herein, it is the intention of the parties that Seller be responsible for all costs and expenses of the Company relating to the period up to the Closing Date, and that Purchaser be responsible for such costs and expenses from and after the Closing Date. In the event either Purchaser or Seller shall owe the other any money as a result of the terms of this Article 7 (whether at Closing or thereafter), then the party owing such money shall pay the other party such money promptly, as soon as the amount is finally determined.

     7.11 If and to the extent that any adjustment hereunder shall result in an amount due and owing to Purchaser that is not offset by amounts due and owing to Seller, Seller shall make a payment by wire transfer to Purchaser’s account or as otherwise directed by Purchaser on the Closing Date.

     7.12 This Article 7, and all rights and duties of the parties hereunder, shall survive the Closing.

20

Exhibit 10.24 (Continued)

ARTICLE 8.
REPRESENTATIONS AND WARRANTIES OF SELLER

     8.1 Disclaimer of Seller.

          (a) Except as expressly set forth in this Agreement, including Section 8.2, Purchaser acknowledges and agrees that Seller, or any member, shareholder, partner, director, officer, manager, person, firm, agent, employee or representative of, or acting or purporting to act on behalf of, Seller has not made, does not make and specifically negates and disclaims any representations, warranties, promises, covenants, agreements or guaranties of any kind or character whatsoever, whether express or implied, oral or written, past, present or future, of, as to, concerning or with respect to the Interests or the Property. Seller is not liable or bound in any manner by any verbal or written statements, representations or information pertaining to the Interests or the Property, or the operation thereof, furnished by any real estate broker or any agent or employee of Seller (other than as expressly set forth in the Agreement). Purchaser further acknowledges and agrees that except as expressly set forth in this Agreement, to the maximum extent permitted by law, that should the Closing occur, then the sale of the Interests and the Property as provided for herein will be made on an “AS IS” condition and basis “WITH ALL FAULTS”. It is understood and agreed that the Purchase Price has been adjusted by prior negotiation to reflect that the Interests and the Property are sold by Seller and purchased by Purchaser subject to the foregoing.

          (b) Except as expressly set forth in Section 8.2 below, Seller makes no representations or warranties as to the truth, accuracy or completeness of any materials, data or other information supplied to Purchaser in connection with Purchaser’s inspection of the Interests or the Property (e.g., that such materials are complete, accurate or the final version thereof, or that all such materials are in Seller’s possession). It is the parties express understanding and agreement that such materials are provided only for Purchaser’s convenience in making its own examination and determination as to whether it wishes to purchase the Interests, and, in doing so, Purchaser shall rely exclusively on its own independent investigation and evaluation of every aspect of the Interests or the Property and not on any materials supplied by Seller, except as may be expressly set forth below in Section 8.2.

          (c) Each party comprising Seller and its shareholders, officers, directors, agents, employees, property manager and affiliates (individually a “Seller Party” and collectively the “Seller Parties”) are hereby released from all responsibility and liability regarding the condition (including the presence in the soil, air, structures and surface and subsurface waters, of any and all materials or substances that have been or may in the future be determined to be toxic, hazardous, undesirable or subject to regulation and that may need to be specially treated, handled and/or removed from the Property under current or future federal, state and local laws, regulations or guidelines), valuation, salability or utility of the Property, or its suitability for any purpose whatsoever, except to the extent liability is based on an alleged breach of a representation or warranty in Section 8.2(i) below. Without limitation, Purchaser specifically

21

Exhibit 10.24 (Continued)

releases Seller from any claims it may have against Seller now or in the future under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601 et seq., as amended; the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., as amended; any other analogous state or federal statute; and common law arising from the environmental conditions of the Property or the presence of hazardous materials, solid wastes, or any other pollutants or contamination the Property.

          (d) Except as otherwise expressly provided in Section 8.2 below, Purchaser acknowledges that any information of any type which Purchaser has received or may receive from any Seller Party, including, without limitation, any environmental reports and surveys, is furnished on the express condition that Purchaser shall make an independent verification of the accuracy of such information, all such information being furnished without any representations or warranty of Seller whatsoever, whether as to the completeness of such information, its accuracy or otherwise.

          (e) THE PROVISIONS OF THIS SECTION ARE A MATERIAL PART OF THE CONSIDERATION FOR SELLER’S ENTERING INTO THIS AGREEMENT, AND SHALL SURVIVE CLOSING.

     8.2 Representations and Warranties of Seller. Seller represents and warrants to Purchaser as follows, which representations and warranties shall be true and correct as of the date hereof and as of the Closing Date, subject to changes in facts permitted hereunder and occurring in the ordinary course of Seller’s business:

          (a) Rent Roll. Attached hereto as Exhibit “E” is a true, correct and complete copy of the Rent Roll for the Apartment Complexes and the Condominium Parcels, and the information set forth therein is true and correct in all material respects as of the date thereof. An updated Rent Roll for the Apartment Complexes and the Condominium Parcels will be provided at Closing. There are no Tenant Leases (written or oral) between Seller and any other party for any space in the Property, other than those relating to tenants set forth in the Rent Roll. Except as set forth on the Rent Roll, no Tenant is in arrears in the payment of rent due under a Tenant Lease beyond any applicable notice and cure periods.

          (b) Authority, Actions of Seller, Authorization and Consents.

               (i) The execution and delivery by Seller of this Agreement and the Closing Documents, and the consummation by Seller of the transactions contemplated thereby, have been duly authorized by all necessary action of Seller. Except for the approval of Holder as provided herein, there are no other approvals, authorizations, consents or other actions by or filings with any Person which are required to be obtained or completed by Seller in connection with the execution and delivery of this Agreement or any of the Closing Documents (or any other agreement or instrument required hereunder) or the sale or assignment of the Interests or the Property or in connection with any other action required to be taken by Seller hereunder at or before the Closing.

22

Exhibit 10.24 (Continued)

               (ii) Except with respect to the Existing Loan, neither the execution and delivery of this Agreement or the Closing Documents by Seller nor the consummation of the transaction contemplated hereby will: (A) violate any provision of Seller’s or the Company’s articles of organization or operating agreements; (B) violate, conflict with or result in a breach or termination of, or give any other party the right to terminate, or constitute a default under the terms of, any agreement to which Seller or the Company is a party or by which it is bound; (C) violate any judgment, order, injunction, award or decree of any Governmental Entity against or binding upon Seller, the Company or the Property or business of Seller or the Company; or (D) constitute a violation by Seller of any applicable law or regulation to which Seller, the Company or the Property is subject.

          (c) Legal Proceedings. Except as may be set forth on Exhibit “F”, neither Seller nor the Company has received any written notice of any pending or, to Seller’s knowledge, threatened Legal Proceedings against the Interests, the Company or the Property.

          (d) FIRPTA. Seller is not a foreign person within the meaning of Section 1445(b) (2) of the Internal Revenue Code of 1986, as amended.

          (h) Documents Delivered. The Tenants Leases, Plans, Books and Records, Condominium Parcel Contracts, Contracts and Condominium Declarations delivered or made available by Seller to Purchaser for inspection pursuant to Section 4.1 are true and correct copies of the originals thereof in Seller’s files in all material respects. Attached hereto as Exhibit “G” is a true, correct and complete copy of the current inventory of the Personal Property at the Property, and the information set forth therein is true and correct in all material respects as of the date thereof.

          (i) Other Agreements. Seller is not a party to any outstanding contracts or options to purchase the Property or any portion thereof in favor of any third party other than the Condominium Parcel Contracts. Attached hereto as Exhibit “L” is a true, correct and complete list of all Condominium Parcel Contracts as of the date hereof.

          (j) Licenses and Permits. To Seller’s knowledge, there are no conditions to the Licenses and Permits, or other agreements or obligations associated therewith, which are not expressly set forth in such Licenses and Permits, in the publicly adopted resolutions pursuant to which the Licenses and Permits were issued, or elsewhere in this Agreement.

          (k) Hazardous Materials. Except as may otherwise be specified in any environmental reports delivered to Purchaser pursuant to Section 4.1, Seller has no actual knowledge, without independent inquiry, of the presence on or under the Property of any hazardous materials or hazardous substances, as such terms are defined in applicable federal and state environmental laws, in a manner which violates any such laws.

          (l) Violations. Seller has not received written notice of any violations of any state, federal or local law or ordinance against the Property or any written complaints or notices issued with respect thereto.

23

Exhibit 10.24 (Continued)

          (m) Deposits. Seller has not received written notice of any violations of the requirements of chapter 83 of the Florida Statutes, including without limitation, all requirements with respect to the holding of security deposits.

          (n) Employees. The Company has no employees.

          (o) Patriot Act. Neither Seller, nor any member, partner or shareholder of Seller, nor, to Seller’s knowledge, any person or entity with actual authority to direct the actions of any member, partner or shareholder of Seller, (i) are named on any list of persons, entities and governments issued by the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) pursuant to Executive Order 13224 — Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism (“Executive Order 13224”), as in effect on the date hereof, or any similar list known to Seller or publicly issued by OFAC or any other department or agency of the United States of America (collectively, the “OFAC Lists”), (ii) are included in, owned by, controlled by, knowingly acting for or on behalf of, knowingly providing assistance, support, sponsorship, or services of any kind to, or otherwise knowingly associated with any of the persons, entities or governments referred to or described in the OFAC Lists, or (iii) has knowingly conducted business with or knowingly engaged in any transaction with any person, entity or government named on any of the OFAC Lists or any person, entity or government included in, owned by, controlled by, acting for or on behalf of, providing assistance, support, sponsorship, or services of any kind to, or, to Sellers’ knowledge, otherwise associated with any of the persons, entities or governments referred to or described in the OFAC Lists.

          (p) Condominium. Except as set forth on Exhibit F, there are no outstanding obligations of any kind arising out of or in connection with Seller’s proposed conversion of an Apartment Complex to a regime of condominium (or the abandonment of such proposed conversion) that will be binding on Purchaser after the Closing, including without limitation, any obligations under any condominium prospectuses, any filings or payment obligations with or to the Division of Florida Land Sales, Condominiums and Mobile Homes or any other Governmental Entity, and/or any obligations of any kind in connection with any proposed condominium unit purchasers. None of the Condominium Parcels have been “turned-over”. Neither Seller nor its affiliates currently manage the condominium associations at the Condominium. The Company has no further obligations with respect to the Condominiums in its capacity as developer other than those set forth in the Condominium Declaration or those that exist as a matter of law.

          (q) Intentionally deleted.

          (r) At Closing, Seller shall be the sole legal and beneficial owner of the Interests free and clear of all liens, pledges, mortgages, claims, charges or other encumbrances of any kind or nature whatsoever.

24

Exhibit 10.24 (Continued)

          (s) The Company is a limited liability company, duly organized and validly existing under the laws of the State of its organization and its status is active. The only activities conducted by the Company since its inception have been the construction, ownership and operation of the Property. The Company has no liabilities or obligations other than as set forth on Exhibit “N” attached hereto (the “Disclosed Liabilities”).

          (t) All tax returns required by law to be filed by the Company prior to Closing will be filed (or extensions to file will be obtained and such returns will be filed before the expiration of such extensions), and all taxes, if any, shown on such returns or otherwise determined to be due, together with any interest or penalties thereon, will be paid.

          (u) Intentionally deleted.

          (v) There is not currently pending, and Seller knows of no threatened (i) audit or investigation of the Company with respect to any liability for income taxes relating to the Company for which the Company may be liable or (ii) claims or assessments for income taxes against or relating to the Company.

     8.3 Knowledge. As used herein, the term “to Seller’s knowledge” shall mean only the “current actual knowledge” (as defined below) of the following designees of Seller: with respect to (i) the Apartment Complexes, Joyce Marshall and Terri Bridenbaugh, and (ii) with respect to the Condominium Parcels, Jamie Helman and Chris Cobbs, who are the persons with the most knowledge and experience in connection with the ownership and operation of the Property by Seller. As used herein, the term “current actual knowledge” shall mean only the actual, current, conscious and not constructive, imputed or implied knowledge of such designee without having made a review of the files or other inquiry. Anything herein to the contrary notwithstanding, such designee shall not have any personal liability or obligation whatsoever with respect to any of the matters set forth in this Agreement or any of the Seller’s representations herein being or becoming untrue, inaccurate or incomplete in any respect.

     8.4 Survival. The representations and warranties of Seller set forth in this Article 8 and anywhere else in this Agreement (unless expressly stated otherwise) shall survive the Closing of the transaction contemplated in this Agreement and the delivery of the Assignment and Assumption of Membership Interests from Seller to Purchaser for a period of twelve (12) months from and after the Closing Date. Consequently, Purchaser stipulates and agrees that from and after such twelve (12) month period, it is entitled to and agrees to claim no damages of any kind with respect to any alleged breach and/or violation of any of such representations and/or warranties of Seller. In the event Purchaser obtains actual knowledge of any breach and/or violation of any Seller’s representations and warranties prior to Closing and following notice thereof to Seller, Seller fails or is unable to cure any such breach or violation to the reasonable satisfaction of Purchaser, Purchaser’s sole remedy for any such breach or violation shall be to terminate this Agreement by delivering written notice of such termination to Seller on or before the Closing Date in which event the Earnest Money will be returned to Purchaser, and neither party shall have any obligation hereunder. Purchaser hereby waives any right Purchaser may have to commence any action(s) to enforce any alleged breach and/or violation of any of the

25

Exhibit 10.24 (Continued)

representations of Seller as set forth in this Agreement or to seek damages in connection therewith in the event that Purchaser obtains actual knowledge of any such alleged breach and/or violation prior to Closing and fails to give Seller notice thereof on or before the Closing Date.

     8.5 Indemnification. A. Seller agrees that, if the Closing occurs, Seller (meaning each constituent entity of Seller, jointly and severally) shall indemnify, defend and hold harmless Purchaser from and against any claim by a third-party and related loss, damage, liability, obligation, suit, cause of action, judgment, settlement, penalty, fine, cost or expense (including reasonable fees and disbursements of attorneys and other professionals and court costs) to the extent arising out of or related to (1) any act, omission, activity or event in any way involving the Company or the Property and occurring before the Closing Date (including, without limitation, the threatened litigation listed on Exhibit F), (2) any failure of the Company to perform any obligation prior to the Closing Date, 3) any violation of law by the Company alleged to have occurred prior to the Closing Date other than any matters pertaining to the physical condition of the Property or (4) any liability of the Company for which Seller is liable as provided in Section 7.10 above. The foregoing indemnification obligation shall survive for a period of four (4) years after the Closing Date.

          B. Purchaser agrees that, if the Closing occurs, it will indemnify, defend and hold harmless Seller from and against any claim by a third-party and related loss, damage, liability, obligation, suit, cause of action, judgment, settlement, penalty, fine, cost or expense (including reasonable fees and disbursements of attorneys and other professionals and court costs) to the extent arising out of or related to (1) any act, omission, activity or event involving the Company or the Property and occurring on or after the Closing Date, (2) any failure of the Company or Purchaser to perform any obligation after the Closing Date, (3) any violation of law by the Company alleged to have occurred on or after the Closing Date and (4) any liability of the Company for which Purchaser is liable as provided in Section 7.10 above. The foregoing indemnification obligation shall survive for a period of four (4) years after the Closing Date.

          C. Notwithstanding anything herein to the contrary, (i) Seller’s aggregate liability under Sections 8.4 and 8.5A above shall not exceed $6,000,000 in the aggregate (except that Seller’s liability for the threatened litigation set forth on Exhibit F shall not be subject to or apply to the foregoing limitation) and (ii) Purchaser’s liability under Section 8.5B above shall not exceed $6,000,000.

ARTICLE 9.
REPRESENTATIONS AND WARRANTIES OF PURCHASER

     9.1 Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to Seller as follows, which representations and warranties shall be true and correct as of the date hereof and as of the Closing Date:

          (a) Authority, Actions of Purchaser and Authorization. Purchaser has all necessary power and lawful authority to own and operate its assets and properties, including, but

26

Exhibit 10.24 (Continued)

not limited to the Property, and to carry on its business (including all business contemplated under this Agreement and the Closing Documents). The execution and delivery by Purchaser of this Agreement and the Closing Documents, and the consummation by Purchaser of the transactions contemplated thereby, have been duly authorized by all necessary action of Purchaser. There are no other approvals, authorizations, consents or other actions by or filings with any Person which are required to be obtained or completed by Purchaser in connection with the execution and delivery of this Agreement or any of the Closing Documents (or any other agreement or instrument required hereunder) or the sale or purchase of the Interests or in connection with any other action required to be taken by Purchaser hereunder at or before the Closing.

          (b) Consents. Neither the execution and delivery of this Agreement or the Closing Documents by Purchaser nor the consummation of the transaction contemplated hereby will: (i) violate, conflict with or result in a breach or termination of, or give any other party the right to terminate, or constitute a default under the terms of, any agreement to which Purchaser is a party or by which it is bound; (ii) violate any judgment, order, injunction, award or decree of any Governmental Entity against or binding upon Purchaser or upon the Property or business of Purchaser; or (iii) constitute a violation by Purchaser of any applicable law or regulation to which Purchaser is subject.

          (c) Patriot Act. Neither Purchaser, nor any member, partner or shareholder of Purchaser, nor, to Purchaser’s knowledge, any person or entity with actual authority to direct the actions of any member, partner or shareholder of Purchaser, (i) are named on any list of persons, entities and governments issued by OFAC pursuant to Executive Order 13224, as in effect on the date hereof, or the OFAC Lists, (ii) are included in, owned by, controlled by, knowingly acting for or on behalf of, knowingly providing assistance, support, sponsorship, or services of any kind to, or otherwise knowingly associated with any of the persons, entities or governments referred to or described in the OFAC Lists, or (iii) has knowingly conducted business with or knowingly engaged in any transaction with any person, entity or government named on any of the OFAC Lists or any person, entity or government included in, owned by, controlled by, acting for or on behalf of, providing assistance, support, sponsorship, or services of any kind to, or, to Purchaser’s knowledge, otherwise associated with any of the persons, entities or governments referred to or described in the OFAC Lists.

     9.2 Survival. The representations and warranties of Purchaser set forth in this Article 9 and anywhere else in this Agreement (unless expressly stated otherwise) shall survive the Closing of the transaction contemplated in this Agreement and delivery of the Special Warranty Deed from Seller to Purchaser for a period of twelve (12) months from and after the Closing Date. Consequently, Seller stipulates and agrees if from and after such twelve (12) month period it is entitled to and agrees to claim no damages of any kind with respect to any alleged breach and/or violation of such representations or warranties of Purchaser.

27

Exhibit 10.24 (Continued)

ARTICLE 10.
RISK OF LOSS

     10.1 Casualty. Seller assumes all risks for damage to or injury occurring to the Property by fire, storm, accident, or any other casualty or cause (a “Casualty”) until the Closing. Immediately after Seller has received notice of the occurrence of any Casualty between the date hereof and the Closing, Seller shall give Purchaser written notice thereof (a “Casualty Notice”), which Casualty Notice shall state the type, location and amount of damage to any of the Apartment Complex and Seller’s good faith estimate of the cost to complete repairs of such Casualty.

          (a) If prior to the Closing such a Casualty shall occur and the cost to complete repairs of such Casualty shall be greater than or equal to $500,000 with respect to any one Apartment Complex or Condominium, or greater than $2,500,000 in the aggregate with respect to all Apartment Complexes and all Condominium Parcels, then in any such event, Purchaser may, at its sole option, terminate this Agreement by written notice to Seller (the “Casualty Termination Notice”) within ten (10) Business Days after Purchaser has received the Casualty Notice (provided, however, if the Closing is scheduled for a date which is less than ten days after Purchaser’s receipt of the Casualty Notice the Closing shall be postponed until ten days after Purchaser’s receipt of the Casualty Notice), in which event if Purchaser so elects to terminate, this Agreement shall be null and void, the Earnest Money shall be returned to Purchaser and neither party shall have any further liability or obligations to the other (except as specifically provided in this Agreement).

          (b) If (i) Purchaser has the right but does not elect to terminate this Agreement as set forth in Section 10.1(a) above, or (ii) the cost to complete repairs of such Casualty shall be less than the threshold amounts provided in Section 10.1(a) above, then the Closing shall take place as provided herein, and at the Closing there shall be assigned to Purchaser all of Seller’s rights, titles and interest in and to any insurance policies covering such Casualty (including rental interruption insurance) and all proceeds to be paid thereunder as may be then uncollected. Seller shall credit against the Purchase Price, at Closing, an amount equal to the deductible under such policy applicable to such casualty. Subject to the rights of Holder, so long as this Agreement has not been terminated, Seller shall not consent to any insurance award concerning the Property without first having obtained Purchaser’s consent, which consent shall not be unreasonably withheld, conditioned or delayed

     10.2 Condemnation. If, prior to the Closing, an action is initiated to take all or any portion of any Apartment Complex by eminent domain proceedings or by deed in lieu thereof (a “Condemnation”), Seller, upon receipt of written notice of such action from any Governmental Entity, shall immediately give Purchaser written notice of such Condemnation stating the amount, type and location of such Condemnation (a “Condemnation Notice”) and, if the proceeds to be paid under such Condemnation equal or exceed $500,000 with respect to any one Apartment Complex or Condominium, or $2,500,000 in the aggregate with respect to all Apartment Complexes and Condominium Parcels, or if any material part of the Property, including parking spaces or access to the Property is to be condemned, then Purchaser may, at its

28

Exhibit 10.24 (Continued)

sole option, either (a) terminate this Agreement by written notification, within ten (10) Business Days after Purchaser has received the Condemnation Notice (provided, however, if the Closing is scheduled for a date which is less than ten (10) days after Purchaser’s receipt of the Condemnation Notice the Closing shall be adjourned until ten (10) days after Purchaser’s receipt of the Condemnation Notice), or (b) consummate the Closing, in which latter event the award of the condemning authority shall be assigned to Purchaser at the Closing, in form and substance reasonably satisfactory to Seller and Purchaser. If the proceeds to be paid under such Condemnation are less than the threshold amounts provided above, and the condemnation action only applies to an immaterial portion of the Property, then the Closing shall take place as provided herein and the award of the condemning authority shall be assigned to Purchaser at the Closing, in form and substance reasonably satisfactory to Seller and Purchaser. So long as this Agreement has not been terminated, Seller shall not consent to any condemnation award concerning the Property without first having obtained Purchaser’s consent, which consent shall not be unreasonably withheld or delayed.

ARTICLE 11.
DEFAULT

     11.1 Permitted Termination. If this Agreement is terminated by either party pursuant to a right expressly given to it hereunder (a “Permitted Termination”), neither party shall have any further obligation to the other party except as expressly provided in the Agreement.

     11.2 Default Remedies of Purchaser.

          (a) Seller shall be in default hereunder upon the occurrence of any one or more of the following events:

               (i) any of Seller’s warranties or representations set forth herein are untrue or inaccurate in any material respect and Seller fails to cure the condition rendering such representation or warranty untrue or inaccurate within two (2) Business Days after notice from Purchaser of such untruth or inaccuracy; or

               (ii) Seller shall fail to meet, comply with or perform in any material respect any covenant, agreement, or obligation on its part required, within the time limits and in the manner required in this Agreement, for any reason other than a Permitted Termination.

          (b) In the event of a default by Seller under this Section 11.2, Purchaser may, at Purchaser’s sole option, do any of the following:

               (i) terminate this Agreement by written notice delivered to Seller and Escrow Agent at or prior to the Closing, in which event the Earnest Money and all interest earned thereon shall be returned to Purchaser and thereafter neither Seller nor Purchaser shall have any obligations to the other under this Agreement, except as specifically set forth herein; provided that in the event of a willful default by Seller, Purchaser shall be entitled to pursue an

29

Exhibit 10.24 (Continued)

action for damages solely for the recovery of Purchaser’s reasonable out-of-pocket fees, costs and expenses incurred in connection with the transactions described herein; or

               (ii) enforce specific performance of this Agreement against Seller; provided, that if specific performance is not available due to the fact that Seller has conveyed the Property to a third party, Purchaser shall be entitled to pursue an action for damages (excluding punitive damages).

     11.3 Default Remedies of Seller.

          (a) Purchaser shall be in default hereunder upon the occurrence of any one or more of the following events:

               (i) any of Purchaser’s warranties or representations set forth herein are untrue or inaccurate in any material respect and Purchaser fails to cure the condition rendering such representation or warranty untrue in any material respect within two (2) Business Days after the earlier to occur of notice from Seller of such untruth or inaccuracy; or

               (ii) Purchaser shall fail to meet, comply with or perform in any material respect any covenant, agreement, or obligation on its part required, within the time limits and in the manner required in this Agreement, for any reason other than a Permitted Termination.

          (b) In the event of a default by Purchaser under this Section 11.3, Seller may terminate this Agreement by written notice delivered to Purchaser at or prior to the Closing, in which event Seller shall, as Seller’s sole and exclusive remedy, retain all of the Earnest Money actually deposited (plus all interest accrued thereon), it being agreed between Purchaser and Seller that such sum shall be liquidated damages for a default by Purchaser hereunder because of the difficulty, inconvenience and uncertainty of ascertaining actual damages for such default and thereafter neither Seller nor Purchaser shall have any obligations to the other under this Agreement, except as specifically set forth herein.

ARTICLE 12.
FUTURE OPERATIONS

     12.1 Operations. Seller hereby agrees and covenants that from the date hereof through the Closing or earlier termination of this Agreement:

     (a) Seller shall not sell, encumber, further pledge, or otherwise transfer or dispose of all or any part of the Interests or the Property without the prior consent of Purchaser.

     (b) Seller shall not permit the Company to enter into any contract, agreement or other arrangement with regards to the Property which will be binding on the Company or the Property after the Closing and which cannot be terminated by Purchaser after Closing on 30 or fewer days

30

Exhibit 10.24 (Continued)

notice without any cancellation fee or penalty and without approval of Purchaser. Seller agrees to terminate all Contracts designated by Purchaser prior to the Closing Date, at Seller’s sole cost, on or before the Closing Date unless Purchaser otherwise elects, by written notice prior to the Termination Deadline, to assume same; provided, however, Seller has no obligation to terminate any Contracts which cannot be terminated by Seller, without cause and without any payment or other penalty, on thirty (30) or less days notice.

     (c) Seller shall not initiate or consent to (or permit the Company to initiate or consent to) any zoning changes, liens or encumbrances of or against the Property without the prior written consent of Purchaser, and shall give Purchaser copies of all notices received by Seller with respect to any such matters.

     (d) Seller shall cause the Company to continue to manage, lease, market and operate the Property in the ordinary course of business in accordance with the management, leasing and operation standards and practices currently in effect at the Property, and shall continue to perform all of its obligations with respect to the Tenant Leases, the Contracts and the Condominium Parcel Contracts.

     (e) Seller shall cause the Company to repair and maintain the Property in its present condition, normal wear and tear excluded.

     (f) Seller shall not permit the Company to enter into any new lease or amend any existing Lease, without Purchaser’s consent, not to be unreasonably withheld, conditioned or delayed, unless (i) same is on the current standard lease form for the Property; (ii) provides for payment of monthly rent at the rates currently in effect for the Property; (iii) is for a term of no less than one year nor more than 15 months; and (iv) does not provide any “free rent” or other concessions beyond those currently in effect with respect to the Property.

     (g) Seller shall not enter into any new Condominium Parcel Contract without Purchaser’s consent, not to be unreasonably withheld, conditioned or delayed. Purchaser acknowledges and agrees that if Purchaser fails to respond to Seller’s request for consent to the terms of a proposed Condominium Parcel Contract within one (1) Business Day after such request is sent via e-mail to the attention of Suzanne Abair at “sabair@northland.com”, such request shall be deemed granted and Seller shall be permitted to enter into such Condominium Parcel Contract on behalf of the Company. Seller shall include the following material deal terms in any such e-mail notification to Purchaser: (i) purchase price; (ii) seller incentives; (iii) the amount of the contract deposit; and (iv) the closing date.

ARTICLE 13.
BROKERS

     13.1 Except for CB Richard Ellis (“Broker”), Seller represents and warrants to Purchaser, and Purchaser represents and warrants to Seller, that they know of no broker or finder who has claimed or who has the right to claim any fee, commission or other similar

31

Exhibit 10.24 (Continued)

compensation in connection with the transaction contemplated by this Agreement, and that they have taken no actions which would form the basis for such a claim. In the event that the transactions herein contemplated close, and only in such event, Seller shall pay a commission to the Broker pursuant to a separate agreement.

     13.2 Seller shall indemnify, hold harmless and defend Purchaser against all liability, loss, cost, claim or expense arising out of any breach of Seller’s obligation or representation in Sections 13.1. Purchaser shall indemnify, hold harmless, and defend Seller against all liability, loss, cost, claim or expense arising out of any breach of Purchaser’s obligations or representations in Sections 13.1.

     13.3 This Article shall survive the Closing (or, if the Closing does not occur, the earlier termination of this Agreement).

ARTICLE 14.
DUE DILIGENCE REVIEW

     14.1 Purchaser’s Right to Inspect the Property. Purchaser, at Purchaser’s sole cost and expense, shall be entitled, on and after the date hereof, to inspect and review the Property and all matters relating to the Property, the Company and the Interests (the “Due Diligence Review”), including without limitation the physical condition of the Property, Contracts, Leases, Books and Records, Plans, surveys and title examinations. During the Due Diligence Review, Purchaser, at Purchaser’s sole cost, shall also have the right to make such inspections, investigations and tests as Purchaser may elect to make or obtain, subject to the rights of the Tenants and the terms and provisions of this Agreement. Seller will provide access to Purchaser and Purchaser’s agents to the Property during normal business hours provided that Purchaser shall provide reasonable advance notice. Purchaser and Purchaser’s representatives, agents, designees and contractors have the right during the term of this Agreement upon twenty four hours prior notice (by telephone and electronic mail) to Seller, at Purchaser’s sole cost, to enter the Property to conduct any environmental, soils, seismic, hydro geologic, geologic and engineering tests and studies with respect to the Property, provided that any environmental testing other than a standard Phase I (ASTM) assessment shall require the prior written consent of Seller, not be unreasonably withheld. Purchaser shall have the right, at Purchaser’s sole cost and expense, to conduct a final walk-through and inspection of the Property the day of or immediately prior to Closing.

     14.2 Termination of This Agreement. If Purchaser, at its sole discretion, chooses to terminate this Agreement pursuant to this Article, then Purchaser shall, on or prior to the Termination Deadline, give written notice (“ Notice of Termination”) to Seller and the Escrow Holder of such fact and this Agreement shall terminate. If the Notice of Termination is not timely given, this Agreement shall remain in full force and effect, and all obligations of each party hereunder shall continue. If Purchaser timely elects not to proceed with the purchase for any reason or no reason in its sole discretion, then Seller and Purchaser hereby specifically agree and acknowledge that the Escrow Holder is and shall be immediately and unconditionally

32

Exhibit 10.24 (Continued)

authorized to return the Earnest Money and all interest which has accrued thereon to Purchaser, less and with the exception of Ten Dollars ($10) (the “Independent Contract Consideration”) of the Earnest Money, which shall be delivered to Seller as independent consideration for Seller’s entering into this Agreement, and all rights and obligations of Purchaser and Seller shall terminate and this Agreement shall be null and void and of no further force and effect. Purchaser’s failure to give a Notice of Termination on or before the Termination Deadline shall cause the Agreement to continue in full force and effect.

     14.3 Purchaser’s Responsibility and Indemnity. Purchaser’s right to inspect the Property and conduct the tests referred to in Section 14.1 is subject to the condition that such inspection and tests shall not materially interfere with the use and occupancy of any Tenant at the Property. Purchaser shall be responsible for and shall indemnify and hold Seller harmless from and against all damages, liabilities, losses, costs or expenses, together with reasonable attorney’s fees and disbursements, which may arise as a result of the acts or omissions of Purchaser or its representatives or agents in connection with any tests conducted by any such parties in connection with Purchaser’s inspection rights under Section 14.1, and in the event the sale of the Property fails to close, Purchaser shall repair any such damage to the condition that the Property was prior to such tests; provided however, Purchaser shall not have any liability arising from mere discovery of any condition on the Property. Purchaser shall carry not less than One Million and 00/100 Dollars ($1,000,000) comprehensive general liability insurance which insures against Purchaser’s indemnity obligations under this Section, naming Seller as additional insured, and, prior to any entry onto the Property, Purchaser shall deliver to Seller a certificate of insurance evidencing the required coverages and insureds.

     14.4 Confidentiality of Results. Purchaser agrees that, prior to the Closing, it shall not disclose the results of any environmental investigation or other due diligence results to any Person or Governmental Entity without the prior written consent of Seller, except (1) to Purchaser’s representatives (including, without limitation, attorneys, accountants, investment advisors, contractors, employees and agents) who need to know the information for the purpose of evaluating the Property and who are informed by the Purchaser of the confidential nature of the information; (2) as may be necessary for Purchaser or Purchaser’s representatives to comply with applicable laws, including, without limitation, governmental, regulatory, disclosure, tax and reporting requirements; to comply with other requirements and requests of regulatory and supervisory authorities and self-regulatory organizations having jurisdiction over Purchaser or Purchaser’s representatives; to comply with regulatory or judicial processes; or to satisfy reporting procedures and inquiries of credit rating agencies in accordance with customary practices of Purchaser or its affiliates; and (3) to Holder and its representatives. Purchaser shall have no obligation to preserve the confidential or proprietary nature of any Property information which: (a) was already known to Purchaser; (b) is a matter of public record; or (c) is approved for release in writing by Seller.

     14.5 Survival. The provisions of this Article 14 shall survive the Closing.

ARTICLE 15.

33

Exhibit 10.24 (Continued)

LOAN ASSUMPTION CONTINGENCY

     15.1 Holder Consent. A. This Agreement is subject to and conditioned upon the approval by the Holder of the transfer of the Interests to Purchaser, the amendment and restatement of the Existing Loan Documents in a manner reasonably acceptable to Seller, Purchaser and Holder, the dismissal of all actions and discharge of all liens relating to the foreclosure of the Existing Loan, the release of Seller and its affiliates (except as otherwise provided below) from all liability and obligations thereunder that arise from and after the Closing Date (the “Holder Consent”) and the execution and delivery by Holder and Purchaser of the documents reasonably required by Holder to evidence the foregoing. In addition, the Holder Consent shall provide that Holder shall release Tarragon Corporation from its obligations under that certain Amended and Restated Payment and Performance Guaranty dated as of October 10, 2006 (as the same may be amended, the “Tarragon Guaranty”) on a pro-rata basis as Purchaser prepays the Existing Loans. Purchaser shall apply for the Holder Consent, in good faith, on or before the date hereof, and shall thereafter diligently take such actions and deliver such information and documents as the Holder may require. Purchaser agrees to (i) make a partial prepayment of the Existing Loans in the amount of $18,000,000 at the Closing ($5,000,000 of which shall be paid by application of the Earnest Money, which partial prepayment shall result in the outstanding principal amount as of Closing being $138,075,000, (ii) provide a “Key Principal” or limited guarantor satisfactory to Purchaser and Holder to guarantee the “non-recourse carve-outs” and provide environmental indemnifications under the Existing Loan, if so required by Holder, and (iii) to continue to provide escrows as reasonably required by Holder. Purchaser shall keep Seller reasonably apprised as to the status of Purchaser’s negotiations with Holder regarding the Holder Consent and Seller shall reasonably cooperate with Purchaser and Holder, to the extent reasonably necessary.

          B. Notwithstanding any provision herein to the contrary, Purchaser hereby reserves the right to make arrangements with Holder to release the Ballantrae Apartment Complex from the lien of the Existing Loan Documents at Closing, in which event (i) the Purchase Price hereunder shall be deemed modified to reflect a reduction of $30,250,000 in the amount debt being assumed and a corresponding increase in the cash payable to the Holder at Closing under Section 15.1A; (ii) at Closing, title to the Ballantrae Apartment Complex shall be free of any liens securing the Existing Loan; (iii) Tarragon’s liability under the Tarragon Guaranty shall be reduced on a pro-rata basis to reflect the reduced outstanding principal balance of the Existing Loans; and (iv) the provisions of this Agreement shall otherwise remain in full force and effect with respect to the Ballantrae Company, the Ballantrae Apartment Complex and the transfer of the Ballantrae Interests.

     15.2 Purchaser shall endeavor to provide Tarragon with copies of all notices, if any, received by Purchaser (or its affiliates) from Holder after the Closing Date which purport to assert that an Event of Default, or a default which with the passage of time, the giving of notice, or both, would constitute as an Event of Default, has occurred under the Existing Loan Documents, as amended and restated as of the Closing Date. The provisions of this Section 15.2 shall survive the Closing.

34

Exhibit 10.24 (Continued)

ARTICLE 16.
MISCELLANEOUS

     16.1 Notices. All notices, demands and requests which may be given or which are required to be given by either party to the other, and any exercise of a right of termination provided by this Agreement, shall be in writing and shall be deemed effective when (a) personally delivered to the address of the party to receive such notice set forth below, (b) transmitted if sent via facsimile (with confirmation of successful transmission), (c) the next succeeding Business Day after deposit with a nationally recognized overnight courier service (e.g., Federal Express) and addressed to the party as set forth below, or (d) three days after when deposited in any post office or mail receptacle regularly maintained by the United States Government, certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

If to Seller:	TARRAGON CORPORATION 423 West 55th Street — 12th Floor New York, New York 10019 Attn: William S. Friedman &           Charles D. Rubenstein, Esq. Phone: (212) 949-5000 Fax: (646) 354-2171
	E-mail: crubenstein@tarragoncorp.com
With a copy to:	TARRAGON CORPORATION 423 West 55th Street — 12th Floor New York, New York 10019 Attn: David Goldban Phone: (212) 949-5000 Fax: (646) 354-2171 E-mail: dgoldban@tarragoncorp.com
If to Purchaser:	Northland Fund II, L.P. c/o Northland Investment Corporation
	2150 Washington Street
	Newton, MA 02462
	Attn: Steven P. Rosenthal
	Phone: (617) 630-7240
	Fax: (617) 630-7201
	E-mail: srosenthal@northland.com

35

Exhibit 10.24 (Continued)

With a copy to:	Northland Investment Corporation
	2150 Washington Street
	Newton, MA 02462
	Attn: Suzanne Abair, Esquire
	Phone: (617) 630-7275
	Fax: (617) 630-7201
	E-mail: sabair@northland.com
and	Mary Lee Moore, Esquire
	Mintz Levin Cohn Ferris Glovsky & Popeo, P.C.
	One Financial Center
	Boston, MA 02111
	Phone: 617-348-1697
	Fax: 617-542-2241
	E-mail: mlmoore@mintz.com
If to Title Company	Stewart Title Guaranty Company
Or Escrow Holder:	3402 West Cyprus, Suite 100
	Tampa, Florida 33607
	Attn: Kristin Konecy, CLA
	Phone: 813-801-9090 x3203
	Fax: 813-769-3336
	E-mail: kkonecy@stewart.com

or such other place as Seller or Purchaser or Title Company, respectively, may from time to time designate by written notice to the other. A notice may be given by a party or by a party’s attorney at law. Any notice given by facsimile shall be followed within one (1) day by a second notice given by one of the other methods specified above.

     16.2 Entire Agreement. This Agreement embodies the entire agreement between the parties relative to the subject matter hereof, and there are no oral or written agreements between the parties, nor any representations made by either party relative to the subject matter hereof, which are not expressly set forth herein. The parties hereto do not intend to confer any benefit hereunder on any Person other than the parties hereto.

     16.3 Amendment. This Agreement may be amended only by a written instrument executed by the party or parties to be bound thereby.

     16.4 Headings. The captions and headings used in this Agreement are for convenience only and do not in any way limit, amplify, or otherwise modify the provisions of this Agreement.

     16.5 Governing Law. This Agreement shall be governed by the laws of the State of New York.

36

Exhibit 10.24 (Continued)

     16.6 Successors and Assigns. This Agreement shall bind and inure to the benefit of Seller and Purchaser and their respective successors and permitted assigns.

     16.7 Invalid Provision. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement; and, the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by such illegal, invalid, or unenforceable provision or by its severance from this Agreement.

     16.8 Multiple Counterparts. This Agreement may be executed in a number of identical counterparts, each of which for all purposes is deemed an original, and all of which constitute collectively one agreement; but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.

     16.9 Construction. The words “herein” “hereof “hereunder” and other similar compounds of the words “here” when used in this Agreement shall refer to the entire Agreement and not to any particular provision or section. Whenever used in this Agreement, the singular shall include the plural, the plural the singular, and the use of any gender shall be applicable to all genders. Marginal notes are inserted for convenience only and shall not form part of the text of this Agreement. This Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. Each party acknowledges that such party’s obligations with respect to any covenant, indemnity, representation or warranty under this Agreement which expressly survives the Closing shall be considered a “liability” for purposes of any distribution limitation imposed under the organizational laws applicable to such party, its members and/or their respective partners, members and shareholders.

     16.10 Waivers. No waiver of any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act.

     16.11 Time of Essence. Seller and Purchaser hereby acknowledge and agree that time is strictly of the essence with respect to each and every term, condition, obligation and provision hereof and that failure to timely perform any of the terms, conditions, obligations or provisions hereof by either party shall constitute a material breach of and a non-curable default under this Agreement by the party so failing to perform.

     16.12 No Joint Venture. This Agreement shall not create a partnership or joint venture relationship between Purchaser and Seller.

     16.13 Assignment. Except as provided in this Section, this Agreement may not be assigned by Purchaser without the prior written consent of Seller. The foregoing sentence to the

37

Exhibit 10.24 (Continued)

contrary notwithstanding, Purchaser may assign this Agreement to an entity or entities which control, are owned and controlled by or are under common control with Purchaser, provided that Purchaser delivers to Seller not less than three (3) Business Days prior to the Closing Date a draft instrument or instruments evidencing such assignment. No assignment of this Agreement shall release the original Purchaser named herein from its obligations hereunder without the express written consent of Seller.

     16.14 Timing. If the final date of any period which is set out in any provision of this Agreement falls on a day which is not a Business Day, in such event, the time of such period shall be extended to the next Business Day.

     16.15 Attorney’s Fees. In the event of any dispute between the parties concerning this Agreement, the non-prevailing party in such dispute shall reimburse the prevailing party for its reasonable attorneys fees incurred in connection with such dispute.

     16.16 Section 1031 Exchange. Each party agrees to cooperate reasonably with the other in effecting an exchange transaction which includes the Property pursuant to Section 1031 of the United States Internal Revenue Code, provided that any exchange initiated by either shall be at that party’s sole cost and expense, not cause the other party to actually take title to any property other than the Property and not delay the Closing. In addition, the requesting party shall indemnify and hold the other harmless from any and all cost, expense or liability incurred solely as a result of the other accommodating such tax deferred exchange. The provisions of this paragraph shall survive the Closing indefinitely

[Remainder of Page Left Intentionally Blank]

38

Exhibit 10.24 (Continued)

     IN WITNESS WHEREOF, the undersigned parties have executed this Agreement on the date first written above.

SELLER:	BALLANTRAE MANAGER, INC., a Nevada corporation
	By:	/s/ Charles D. Rubenstein
		Name:	Charles D. Rubenstein
		Title:	Executive Vice President
	REFLECTION LAKES MANAGER, INC., A Nevada corporation
	By:	/s/ Charles D. Rubenstein
		Name:	Charles D. Rubenstein
		Title:	Executive Vice President
	MONTERRA TARRAGON, INC., a Nevada corporation
	By:	/s/ Charles D. Rubenstein
		Name:	Charles D. Rubenstein
		Title:	Executive Vice President
	MADISON TARRAGON MANAGER, INC., a Nevada corporation
	By:	/s/ Charles D. Rubenstein
		Name:	Charles D. Rubenstein
		Title:	Executive Vice President

[ADDITIONAL SIGNATURES PAGES FOLLOW]

39

Exhibit 10.24 (Continued)

TARRAGON SOUTH DEVELOPMENT CORPORATION, a Nevada corporation
By:	/s/ Charles D. Rubenstein
	Name:	Charles D. Rubenstein
	Title:	Executive Vice President
TARRAGON CORPORATION, a Nevada corporation
By:	/s/ Charles D. Rubenstein
	Name:	Charles D. Rubenstein
	Title:	Executive Vice President

[ADDITIONAL SIGNATURES PAGES FOLLOW]

40

Exhibit 10.24 (Continued)

PURCHASER:	NORTHLAND FUND II, L.P., a Delaware limited partnership
	By:	Northland Fund II Partners LLC, its general partner
	By:	/s/ Mark P. Consoli
		Name:	Mark P. Consoli
		Title:	Treasurer

[ADDITIONAL SIGNATURE PAGE FOLLOWS]

41

Exhibit 10.24 (Continued)

ESCROW HOLDER:	STEWART TITLE GUARANTY COMPANY
	By:
		Name:
		Title:

42

Exhibit 10.24 (Continued)

EXHIBIT “A-1”

LEGAL DESCRIPTION — BALLANTRAE

43

Exhibit 10.24 (Continued)

EXHIBIT “A-2”

LEGAL DESCRIPTION — REFLECTION LAKES

44

Exhibit 10.24 (Continued)

EXHIBIT “A-3”

LEGAL DESCRIPTION — MONTERRA

45

Exhibit 10.24 (Continued)

EXHIBIT “A-4”

46

Exhibit 10.24 (Continued)

EXHIBIT “A-5”

47

Exhibit 10.24 (Continued)

EXHIBIT “A-6”

48

Exhibit 10.24 (Continued)

EXHIBIT “B”

CONTRACTS

49

Exhibit 10.24 (Continued)

EXHIBIT “C”

ASSIGNMENT AND ASSUMPTION OF MEMBERSHIP INTERESTS

ASSIGNMENT AND ASSUMPTION OF MEMBERSHIP INTEREST

     THIS ASSIGNMENT, ASSUMPTION AND SALE OF MEMBERSHIP INTEREST (this “Assignment”) is made this          day of December, 2007 by and between                     , a                      limited liability company (“Assignor”), and                     , a                      (“Assignee”).

RECITALS:

     WHEREAS, Assignor entered into that certain                      dated as of                     , as amended by                     , dated as of                      (as so amended, the “Operating Agreement”), pursuant to which a limited liability company known as                      (the “Company”), was formed;

     WHEREAS, Assignor owns                      percent (                    %) of the membership interests in the Company (the “Interest”);

     WHEREAS, Assignor and Assignee have entered into that certain Membership Interest Purchase and Sale Agreement dated as of                      as amended to date; and

     WHEREAS, Assignor desires to assign and transfer its Interest to Assignee, and Assignee desires to acquire Assignor’s Interest.

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

     1. Assignment of Membership Interest. Assignor hereby forever irrevocably sells, assigns, transfers, conveys and sets over to Assignee, its successors and assigns, forever, all of its right, title and interest in and to the Interest, whether pursuant to the Operating Agreement or otherwise. This assignment includes all rights in and claims to any Company profits and losses, undistributed allocations of any Company profits and losses, undistributed distributions of any kind and any other benefits of any nature allocable under the Operating Agreement or otherwise to the Interest hereby assigned, arising on or after the date hereof. In order to induce the Assignee to enter into this Agreement, the Assignor represents and warrants to the Assignee that it (i) is the record and beneficial owner of the Interest, (ii) has good and marketable title to the Interest, free and clear of all liens, claims, charges, pledges, security interests and encumbrances

50

Exhibit 10.24 (Continued)

of every kind and nature and (ii) has the absolute right to sell, assign and transfer the same to the Assignee.

     2. Assumption of Membership Interest. Assignee hereby accepts the foregoing assignment and agrees to assume and perform each and every one of the obligations and be bound by all of the terms and provisions set forth in the Membership Agreement arising from and after the date hereof, and agrees that it hereby is a member of the Company.

     3. Governing Law. This Assignment shall be governed by, and construed in accordance with, the laws of the State of                     .

     4. Miscellaneous. This Assignment shall bind and inure to the benefit of the parties hereto and their respective heirs, successors and assigns. This Assignment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The parties hereto agree that they will execute such other and further instruments and documents that may be necessary to effectuate this Assignment.

     IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of the day and year first above written.

ASSIGNOR:

ASSIGNEE:

51

Exhibit 10.24 (Continued)

EXHIBIT “D”

Intentionally deleted

52

Exhibit 10.24 (Continued)

EXHIBIT “E”

RENT ROLL

53

Exhibit 10.24 (Continued)

EXHIBIT “F”

LEGAL PROCEEDINGS

     Barclays Capital Real Estate Inc. v Tarragon Lugano LLC, Ballantrae Tarragon LLC, Reflection Lakes Tarragon, LLC, Omni Monterra LLC, Tarragon Corporation, Ybor City Tarragon, LLC, Via Lugano Condominium Association, Inc. and The Quarter at Ybor Condominium Association, Inc., in the Circuit Court of the15th Judicial Circuit, in and for Palm Beach County, Florida, Foreclosure Division, Case No. 2007 CA 01 4548).

THREATENED LEGAL PROCEEDINGS

     Threatened litigation as set forth in that certain correspondence dated May 29, 2007 from Holland & Knight to Ballantrae Tarragon LLC, with respect to Strategery Group, LLC vMCZ/Centrum Florida XII, LLC, a copy of which was provided to Purchaser

54

Exhibit 10.24

EXHIBIT “G”

PERSONAL PROPERTY

Exhibit 10.24 (Continued)

EXHIBIT “H”

Intentionally deleted

56

Exhibit 10.24 (Continued)

EXHIBIT “I”

TITLE UPDATES

57

Exhibit 10.24 (Continued)

EXHIBIT J

Intentionally deleted

58

Exhibit 10.24 (Continued)

EXHIBIT K

TITLE CLEARING ITEMS

59

Exhibit 10.24 (Continued)

EXHIBIT L

CONDOMINIUM PARCEL CONTRACTS

60

Exhibit 10.24 (Continued)

EXHIBIT M

NON-IMPUTATION AFFIDAVIT

State of South Carolina	)
	)	ss.
County of	)

Affidavit and Indemnity

The undersigned, being first duly sworn, on oath, deposes and says the following:

1. The undersigned is (i) Executive Vice President of Tarragon Corporation, a Nevada corporation and (ii) Executive Vice President of Madison Tarragon Manager, Inc., a Nevada corporation.

2. To the best knowledge of the undersigned,

a.

there are presently no defects in or liens, encumbrances or other claims against the title to the property described in the Commitment for Title Insurance No.                                         , having an effective date of                     , issued by Fidelity National Title Insurance Company (hereinafter referred to as “the Company”) other than as disclosed in exceptions nos.                      on Schedule B — Section 2 of said commitment, other than the following: (if none, state “None”); and;

b.

There are presently no inchoate rights which may ripen into any defect, lien, encumbrance or claim against the title to said property except as may be created by an instrument or action required in Schedule B — Section 1 of said commitment, other than the following: (If none, state “None”)

3.

The undersigned hereby indemnifies the Company and agrees to hold it harmless against any loss which the Company may suffer by virtue of any valid claim made under the said endorsement based on the existence of any defect in or lien, encumbrance, right or claim against or with respect to the title to the aforesaid property which was not disclosed above but which should have been so disclosed in order to make all statements above true and correct.

The undersigned understands such losses may include court costs and attorney’s fees expended by the Company in defending the title or interest of the insured against such lien, encumbrance, right or claim.

4. The undersigned makes these statements and gives the aforesaid indemnity for the purpose of inducing the Company to issue the endorsement attached hereto as Exhibit A to one or more of the owner’s or loan policies issued pursuant to the said Commitment for Title Insurance.

61

Exhibit 10.24 (Continued)

The undersigned further agrees to pay all court costs and reasonable attorney’s fees which the Company may expend in enforcing the terms of this indemnity agreement.

Dated:

                                                                      
Name of Affiant & Indemnitor

62

Exhibit 10.24 (Continued)

EXHIBIT N

DISCLOSED LIAIBILITIES

     1. The obligations of the Company with respect to the Existing Loan Documents.

     2. The obligations of the Company under the Tenant Leases and Condominium Parcel Contracts (including, without limitation, any incentives provided to third party purchasers as provided in the Condominium Parcel Contracts).

     3. The obligations of the Company under or with respect to the Permitted Exceptions, Licenses, Permits, Warranties and Guaranties and Contracts.

     4. The obligations of the Company with respect to taxes relating to the Company and the Property.

     5. The obligations relating to the maintenance of the status of the Company as a limited liability company in accordance with Holder’s requirements.

     6. Customary unsecured trade debt.

     7. The obligations of the Company under the Condominium Declarations (including, without limitation, the Company’s obligation to provide deficit funding to the condominium associations for the Condominiums).

63

EX-10.28

Exhibit 10.28

SETTLEMENT AGREEMENT

     This Settlement Agreement (the “Agreement”) is entered into as of January 24, 2008, by and among Tarragon Corporation, having an address of 423 West 55th St., 12th Floor, New York, NY 10019 (“Tarragon” or, the “Company”) and PNC Equity Securities, LLC having an address of One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707 (“PNC”).

RECITALS

A. Tarragon and U.S. Bank National Association (the “Trustee”) are parties to that certain Indenture dated as of September 16, 2004 (the “Indenture”)¹ with respect to the 8.00% Senior Convertible Notes due 2009 (the “Notes”) issued by the Company, in the original principal amount of $62,000,000, of which $5,750,000 in principal amount is presently outstanding.

B. PNC is a Holder of $5,750,000 in principal amount of the Notes, which constitute all of the outstanding notes under the Indenture (the “Outstanding Notes” and, collectively with the Indenture, the “Loan Documents”).

C. Section 2 of the Outstanding Notes provides that Interest thereon shall be due and payable at the rate of 8.00% per annum on March 15 and September 15 of each year until the earlier to occur of payment in full of the outstanding principal amount thereof or upon the maturity of the Outstanding Notes on September 16, 2009.

D. In its form 8-K dated August 17, 2007, Tarragon disclosed that National City Bank had notified Tarragon that it had accelerated approximately $75.1 million of principal obligations, unrelated to the Company’s obligations under the Indenture and the Notes, the payment of which is guaranteed by Tarragon (the “National City Acceleration”).

E. By Notice of Default, dated August 27, 2007 (the “August 27 Default Notice”), PNC notified Tarragon and the Trustee that the National City Acceleration constituted a Default under Section 4.1(f) of the Indenture (the “National City Default”) and that if the National City Default was not cured, waived, rescinded or annulled within thirty (30) days of the August 27 Default Notice, then an Event of Default would come into existence under Section 4.1(f) of the Indenture.

F. In a Notice of Event of Default, Acceleration and Demand for Payment dated September 28, 2007 (the “September 28 Acceleration Notice”), PNC notified Tarragon and the Trustee that an Event of Default had occurred under the Indenture because the National City Acceleration was not cured, waived, rescinded or annulled within thirty (30) days of the date of the August 27 Default Notice (the “National City Event of Default”).

G. In a Notice of Default dated October 4, 2007 (the “October 4 Default Notice”), the

¹ Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms by the Indenture.

Exhibit 10.28 (Continued)

Trustee notified Tarragon that Tarragon failed to make payment on September 15, 2007 of interest due on the Outstanding Notes in the amount of $230,000 and that such failure to make timely payment of Interest due constituted a default under Section 4.1 of the Indenture (the “Interest Payment Default”).

H. The October 4 Default Notice further notified Tarragon that the continuance of the Interest Payment Default through October 15, 2007 would result in the occurrence of an Event of Default pursuant to Section 4.1(c) of the Indenture.

I. In a Notice of Acceleration dated November 14, 2007 (the “November 14 Acceleration Notice”), the Trustee notified Tarragon that Tarragon failed to cure the Interest Payment Default within the time allotted by Section 4.1(c) of the Indenture and declared the entire amount of the Outstanding Notes to be due and payable, together with all accrued and unpaid Interest, Additional Interest and Liquidated Damages payable under the Indenture through the date of payment.

J. In an Additional Notice of Event of Default, Acceleration and Demand for Payment dated October 18, 2007 (the “October 18 Acceleration Notice”), PNC notified Tarragon and the Trustee that, inter alia, an Event of Default had occurred under the Indenture as a result of the continuance of the Interest Payment Default for thirty (30) days.

K. By the October 18 Acceleration Notice, PNC further notified Tarragon that PNC declared the Outstanding Notes to be due and payable in full and made demand for the immediate payment of all amounts owing under the Outstanding Notes.

L. As of January 15, 2008, the total outstanding balance of Principal, Interest and Defaulted Interest owed to PNC by Tarragon under the Loan Documents is $6,141,594 (the “P&I Balance Due”). In addition to the P&I Balance Due, certain additional amounts are due to PNC by Tarragon under the Loan Documents including, without limitation, PNC’s costs of collection and attorneys’ fees, reimbursement of the Trustee’s fees and reimbursement of the Trustee’s attorneys’ fees (“PNC’s Costs of Collection” and, together with the P&I Balance Due, the “Total Indebtedness”).

M. Tarragon and PNC have agreed to settle Tarragon’s liability under the Loan Documents in accordance with and subject to the terms and conditions set forth herein.

     THEREFORE, the parties agree as follows:

     1. INCORPORATION OF RECITALS. The recitals set forth above are true and correct.

     2. AFFIRMATION OF P&I BALANCE DUE. Tarragon affirms and ratifies that the P&I Balance Due as of January 15, 2008 is $6,141,594.

     3. SETTLEMENT PAYMENT. Within twenty-four (24) hours of the execution

2

Exhibit 10.28 (Continued)

of this Agreement by PNC and Tarragon (the “Settlement Date”), as a condition precedent to PNC’s obligations under this Agreement, Tarragon shall pay to PNC the sum of Three Million Five Hundred Ninety-Three Thousand Seven Hundred and Fifty Dollars ($3,593,750) (“Settlement Payment”) in immediately available funds by wire transfer or certified check, made payable originally to PNC without intervening endorsements. TIME IS OF THE ESSENCE FOR THIS OBLIGATION.

     4. CONDITIONAL RELEASE OF TARRAGON. Upon receipt of the Settlement Payment on or before the Settlement Date, and subject to Section 9 of this Agreement, PNC, on behalf of itself and each of PNC’s successors, assigns, parents, subsidiaries, affiliates, predecessors, officers, directors, employees, agents, attorneys, heirs and executors, as applicable, both present and former (collectively, “PNC Affiliates”), jointly and severally, releases, acquits and forever discharges Tarragon and each of its successors, assigns, parents, subsidiaries, affiliates, predecessors, officers, directors, employees, agents, attorneys, heirs and executors, as applicable, both present and former (collectively, the “Tarragon Parties”) of and from any and all manner of action and actions, cause and causes of action, suits, debts, controversies, damages, judgments, executions, claims and demands whatsoever, asserted or unasserted, in contract, tort, law or in equity which PNC has or ever had against Tarragon under the Loan Documents.

     5. [INTENTIONALLY OMITTED].

     6. RELEASE OF PNC. In consideration of PNC’s agreement to the provisions herein, to the extent that Tarragon may have any offsets, defenses, claims or counterclaims against PNC or any PNC Affiliate, Tarragon, on behalf of itself and each of the Tarragon Parties, jointly and severally, releases, acquits and forever discharges PNC and all PNC Affiliates of and from any and all manner of action and actions, cause and causes of action, suits, debts, controversies, damages, judgments, executions, claims and demands whatsoever, asserted or unasserted, in contract, tort, law or in equity against PNC or any PNC Affiliate which Tarragon or any Tarragon Party now has or ever had upon or by reason of any matter, cause, causes or thing whatsoever, including, without limitation, any presently existing claim or defense whether or not presently suspected, contemplated or anticipated including, without limitation, (i) any claim arising under or related to the Loan Documents, (ii) any actions or omissions of PNC or any PNC Affiliate in connection with the initiation or continuing exercise of any right or remedy contained in the Loan Documents or at law or in equity or (iii) any actions or omissions of PNC with respect to the August 27 Default Notice, September 28 Acceleration Notice or the October 18 Acceleration Notice.

     7. CONFIDENTIALITY. Tarragon agrees that the terms of this Agreement and any terms that may have been previously discussed among Tarragon and PNC are and shall remain confidential and Tarragon agrees that such terms shall not be disclosed by Tarragon or any Tarragon Party to any other person unless otherwise authorized by PNC in writing or required by law or regulation.

     8. COVENANT NOT TO SUE. Subject to the full and complete performance of

3

Exhibit 10.28 (Continued)

Tarragon’s obligations under this Agreement, and subject to the terms and conditions of Section 9 below, PNC covenants not to sue Tarragon with respect to Tarragon’s defaults under the Loan Documents during the ninety-five (95) day period following the Settlement Date. Notwithstanding anything to the contrary herein, Tarragon acknowledges that it may have other obligations to PNC Affiliates incurred in connection with transactions other than the Loan Documents and that such obligations are not released or impaired by this Agreement.

     9. CONDITIONS SUBSEQUENT. Notwithstanding the foregoing, if any one or more of the “Conditions Subsequent” as defined in subsections 9.1 — 9.5 of this Agreement (“Conditions Subsequent”) occurs, the following provisions shall apply: (a) the provisions of Sections 4 and 8 of this Agreement shall be deemed void ab initio and shall be of no force or effect; (b) Tarragon’s obligations under the Loan Documents shall continue to be effective, or be reinstated, as the case may be; and (c) the full amount of the Total Indebtedness shall be due and payable immediately by Tarragon, all as though PNC’s conditional agreement to accept the Settlement Payment in satisfaction of Tarragon’s obligations under the Loan Documents had not been made and PNC may immediately pursue all of its rights and remedies to collect such amounts, together with interest thereon at the highest rate provided in the Notes and Indenture following a default accruing from January 15, 2008, and all other amounts which PNC may lawfully recover in connection therewith, including attorneys’ fees (including allocable costs of staff counsel) and expenses incurred to date or which may be hereafter incurred, provided, however, that in any such event, the release of PNC and the PNC Affiliates set forth in Section 6 of this Agreement and all other obligations and agreements of Tarragon under this Agreement shall not be avoided, set aside or undone and shall remain in full force and effect.

          The Conditions Subsequent are as follows:

          9.1. Litigation. Tarragon or any person claiming by or through Tarragon commences, joins in, assists, cooperates in or participates as an adverse party or as an adverse witness (subject to compulsory legal process which requires testimony) in any suit or other proceeding against PNC or any PNC Affiliate relating to the Outstanding Notes, Indenture or this Agreement; or

          9.2. Avoidance. The Settlement Payment or any portion thereof, or any transfer of property to PNC or any portion of such property, whether paid or transferred to PNC pursuant to this Agreement or otherwise, is rescinded, avoided, set aside, rendered void or undone or otherwise restored by PNC or any PNC Affiliate to Tarragon, or to any of the creditors of Tarragon, any representative of Tarragon, any representative of any of Tarragon’s creditors, any trustee, liquidating trust, liquidating committee or other representative of an estate created under title 11 of the United States Code, upon the insolvency, bankruptcy or reorganization of Tarragon, or otherwise; or

4

Exhibit 10.28 (Continued)

          9.3. Representations, Warranties, Covenants and Other Agreements. Any of the representations, warranties, covenants or other agreements of Tarragon contained in this Agreement shall have been false or incorrect in any material respect as of the Settlement Date; or

          9.4. Release of PNC Challenged. The release of PNC or any PNC Affiliate set forth in Section 6 is alleged to be invalid or unenforceable by any claim or proceeding initiated or commenced in favor of, through or by Tarragon or any Tarragon Party; or

          9.5. Unauthorized Disclosure. Any breach by Tarragon or any Tarragon Party to keep the terms of this Agreement confidential pursuant to Section 7 of this Agreement.

     10. AGREEMENTS, ACKNOWLEDGMENTS, REPRESENTATIONS AND WARRANTIES. Tarragon acknowledges, represents, warrants, affirms and confirms the following:

     A. Tarragon has read this Agreement, understands the effect and scope of this Agreement and has had the assistance of separate legal counsel of its choice in carefully reviewing, discussing and considering all terms of this Agreement or has elected to enter into this Agreement without consulting legal counsel.

     B. Tarragon’s execution and delivery of this Agreement is not based upon reliance upon any representation, understanding or agreement not expressly set forth in this Agreement. Neither PNC nor any PNC Affiliate have made any representations to any other party (or such party’s agent) not expressly set forth in this Agreement.

     C. Tarragon does execute and deliver this Agreement as its free and voluntary act, without any duress, coercion or undue influence exerted by or on behalf of any other party.

     D. Tarragon has full and complete authorization and power to execute this Agreement in the capacity herein stated. This Agreement is a valid, binding and enforceable obligation of Tarragon and does not violate any law, rule or regulation, or any contract or agreement to which Tarragon is a party.

     E. Tarragon has not conveyed, transferred, assigned, pledged or otherwise encumbered any claim or causes of action covered by the release set forth in Section 6 of this Agreement.

     11. SEVERABILITY. If any term, provision, covenant or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. This Agreement is, and shall be deemed to be, the product

5

Exhibit 10.28 (Continued)

of joint drafting by the parties hereto and shall not be construed against any of them as the drafter hereof.

     12. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania without regard to such jurisdiction’s principles of conflicts of law. Tarragon agrees that all claims, disputes, and other matters arising out of or relating to this Agreement, or the breach thereof, will be decided by proceedings instituted and litigated in a court of competent jurisdiction sitting in the County of Allegheny or the United States District Court for the Western District of Pennsylvania.

     13. COUNTERPARTS. This Agreement may be executed in multiple identical counterparts, each of which when duly executed shall be deemed an original, and all of which shall be construed together as one agreement.

     14. TIME IS OF THE ESSENCE. Time shall be of the essence with respect to each and every of the various undertakings and obligations of Tarragon as set forth in the Agreement.

     15. NO MODIFICATION OR WAIVER. None of the terms or provisions of this Agreement may be changed, waived, modified, discharged, or terminated except by an instrument in writing executed by the party against which enforcement of the change, waiver, modification, discharge or termination is asserted. None of the terms or provisions of this Agreement shall be deemed to have been abrogated or waived by reason of any failure or failures to enforce the same.

     16. SUCCESSORS AND ASSIGNS. All rights and obligations of PNC under this Agreement shall inure to the benefit of, and bind, PNC’s successors and assigns, and all rights and obligations of Tarragon hereunder shall inure to the benefit of, and bind, the successors, assigns, heirs, administrators, executors and legal representatives and estate of Tarragon.

     17. COOPERATION. Prior to and at all times following the date of this Agreement, Tarragon agrees to execute and deliver, or to cause to be executed and delivered, such documents and to do, or cause to be done, such other acts and things as might reasonably be requested by the PNC to assure that the benefits of this Agreement are realized by the parties.

     18. WAIVER OF JURY TRIAL. TARRAGON KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE UNDERLYING TRANSACTIONS. TARRAGON CERTIFIES THAT NEITHER PNC NOR ANY PNC AFFILIATE HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT PNC WOULD NOT IN

6

Exhibit 10.28 (Continued)

THE EVENT OF ANY SUCH SUIT, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY.

     IN WITNESS WHEREOF, the parties have executed this Agreement as an instrument under seal as of the date first above written.

Tarragon Corporation
By:	/s/ Willian S. Friedman
	Title:	CEO
PNC Equity Securities, LLC
By:	/s/ James S. Bernier
	Title:	President

7

EX-21.1

Exhibit 21.1

Tarragon Corporation
Subsidiaries of the Registrant

The following is a list of all subsidiaries and partnership interests of Tarragon Corporation and the state or other jurisdiction of organization or incorporation.

Entity Name	Ownership				State of Origin
1118 Adams Parking, Inc.		100.00	%		TX
5600 GP, Inc.		100.00	%		FL
National Omni Associates, L.P.		46.00	%	General Partner	DE
Silver Creek Apartments, Ltd.		90.00	%	General Partner	FL
900 Monroe Development LLC		50.00	%	Managing Member	NJ
900 Monroe Street Urban Renewal, LLC		55.00	%	Managing Member	NJ
999 Madison Street Urban Renewal, LLC		55.00	%	Managing Member	NJ
Acadian Place Apartments, L.L.C.		99.00	%	Member	LA
Acadian Place Holdings, L.L.C.		100.00	%	ManagingMember	LA
Acadian Place Apartments, L.L.C.		1.00	%	Managing Member	LA
Adams Street Development, L.L.C.		55.00	%	Member	NJ
1100 Adams Street Urban Renewal, LLC		100.00	%	Managing Member	NJ
1118 Adams Street Urban Renewal, LLC		0.01	%	Managing Member	NJ
Alta Marina, LLC		100.00	%	Managing Member	FL
AltaMar Development, LLC		100.00	%	Managing Member	FL
Balsam Acquisitions, L.L.C.		100.00	%	Managing Member	DE
Bermuda Island Tarragon LLC		100.00	%	Managing Member	FL
Block 103 Development, LLC		47.50	%	Managing Member	NJ
Block 114 Development, LLC		47.50	%	Managing Member	NJ
Hoboken Cinema, LLC		100.00	%	Managing Member	NJ
Block 88 Development, L.L.C.		40.00	%	Managing Member	NJ
800 Madison Street Urban Renewal, LLC		100.00	%	Managing Member	NJ
Bradenton Tarragon, LLC		100.00	%	Managing Member	FL
Capitol Ave. Tarragon, LLC		100.00	%	Managing Member	CT
Carlyle Tower National Associates Limited Partnership		99.00	%	General Partner	MI
Celebration Tarragon LLC		100.00	%	Managing Member	FL
Central Square Tarragon LLC		100.00	%	Managing Member	FL
Cliffside Tarragon, LLC		100.00	%	Managing Member	NJ
Collegewood Property, Inc.		100.00	%		FL
North Property Tarragon, Ltd.		1.00	%	General Partner	FL
100 East Las Olas, Ltd.,		99.00	%	Limited Partner	FL
East Las Olas, Ltd., a Florida limited partnership		99.00	%	Limited Partner	FL
Consolidated Capital Properties II, a Texas limited partnership		0.50	%	General Partner	TX
Creekwood Apartment Owners, LLC		100.00	%	Managing Member	FL
English Village Partners, a California limited partnership		90.00	%	Limited Partner	CA
Floresta Tarragon, LLC		100.00	%	Managing Member	FL
French Villa Apartments, L.L.C.		100.00	%	Managing Member	OK
French Villa National Associates Limited Partnership		99.00	%	General Partner	OK
Guardian Alexandria Pointe Holdings, LLC		80.00	%	Managing Member	FL
Alexandria Pointe, LC		50.00	%	Managing Member	FL
Guardian Rock Springs Road Holdings, LLC		80.00	%	Managing Member	FL
Rock Springs Road, LC		50.00	%	Managing Member	FL
Guardian Southridge Pointe Holdings, LLC		80.00	%	Managing Member	FL
Southridge Pointe, LC		50.00	%	Managing Member	FL
Guardian Wekiva Crest Holdings, LLC		80.00	%	Managing Member	FL
Wekiva Crest, LC		50.00	%	Managing Member	FL
Guardian Woods at Southridge Holdings, LLC		80.00	%	Managing Member	FL
Woods at Southridge, LC		50.00	%	Managing Member	FL
Kennesaw Tarragon LLC		100.00	%	Managing Member	TN
Keane Stud LLC		50.00	%	Managing Member	NY

Exhibit 21.1 (Continued)

Entity Name	Ownership				State of Origin
Keane Stud Management LLC		50.00	%	Managing Member	NY
Las Olas River House Corp.		50.00	%		FL
Lopo Tarragon GP, Inc.		100.00	%		TX
Lopo, LP		0.10	%	General Partner	TX
Lopo Tarragon LP, Inc.		100.00	%		NV
Lopo, LP		49.90	%	Limited Partner	TX
M8CP, Inc.		100.00	%		CT
Merrit 8 Acquisitions, L.L.C.		1.00	%	Managing Member	CT
Manchester Tolland Development LLC		100.00	%	Managing Member	CT
Marina Park National Partners		90.00	%	General Partner	FL
Freesia Acquisitions, LLC		100.00	%	Managing Member	DE
Mariner’s Point Tarragon, LLC		100.00	%	Managing Member	CT
Middletown Tarragon LLC		100.00	%	Managing Member	RI
Mohegan Hill Tarragon, LLC		100.00	%	Managing Member	CT
Mohegan Hill Development, LLC		60.00	%	Managing Member	CT
Mohegan Hill Development/Wilson, LLC		100.00	%	Managing Member	CT
Morningside National, Inc.		100.00	%		FL
Murfreesboro Gateway Properties, LLC		100.00	%	Managing Member	TN
Tarragon Stonecrest LLC		100.00	%	Managing Member	TN
Mountain View National, Inc.		100.00	%		NV
RI Windsor, Ltd.		1.00	%	General Partner	FL
MSCP, Inc.		50.00	%		CT
Merritt Stratford, L.L.C.		1.00	%	Managing Member	CT
Mustang National, Inc.		100.00	%		TX
Mustang Creek National, L.P.		1.00	%	General Partner	TX
National Income Realty Investors, Inc.		100.00	%		NV
Carlyle Tower National Associates Limited Partnership		1.00	%	Limited Partner	MI
Consolidated Capital Properties II, a Texas ltd partnership		99.50	%	Limited Partner	TX
Creekwood Apartment Owners, LLC		100.00	%	Managing Member	FL
Marina Park National Partners		10.00	%	General Partner	FL
Freesia Acquisitions, LLC		100.00	%	Managing Member	DE
Regency Green National Corp.		100.00	%		NV
Houston Highway South, L.P.		99.00	%	Limited Partner	TX
Regent Circle, L.L.C.		1.00	%	Managing Member	FL
Summit on the Lake Associates, Ltd.		1.00	%	General Partner	TX
Tarragon Development Company LLC		18.47	%	Member	DE
Ansonia Apartments, L.P.		89.44	%	General Partner	DE
Ansonia MezzCo, LLC		100.00	%	Managing Member	DE
Ansonia Acquisitions I, L.L.C.		100.00	%	Managing Member	CT
Ansonia Liberty, LLC		100.00	%	Managing Member	CT
Autumn Ridge Apartments, LLC		100.00	%	Managing Member	CT
Danforth Apartment Owners, L.L.C.		100.00	%	Managing Member	FL
Dogwood Hills Apartments, L.L.C.		100.00	%	Managing Member	CT
Forest Park Tarragon, LLC		100.00	%	Managing Member	CT
Hamden Centre Apartments, L.L.C.		100.00	%	Managing Member	CT
Heather Limited Partnership		99.00	%	Limited Partner	MD
Ocean Beach Apartments, LLC		100.00	%	Managing Member	CT
Plantation Bay Apartments, L.L.C.		100.00	%	Managing Member	FL
Tarragon Huntsville Apartments, L.L.C.		100.00	%	Managing Member	AL
Tarragon Savannah I, L.L.C.		100.00	%	Managing Member	GA
Tarragon Savannah II, L.L.C.		100.00	%	Managing Member	GA
Vintage Legacy Lakes National, L.P.		99.00	%	Limited Partner	TX
West Dale National Associates, L.P.		99.00	%	Limited Partner	TX
Woodcreek Garden Apartments, a California LP		99.00	%	Limited Partner	CA
Manchester Tarragon, LLC		100.00	%	Managing Member	CT
Gull Harbor Apts, L.L.C.		100.00	%	Managing Member	CT
Gull Harbor MGR, Inc.		100.00	%		CT

Exhibit 21.1 (Continued)

Entity Name	Ownership				State of Origin
Lake Sherwood Partners, LLC		100.00	%	Managing Member	FL
Lake Lotta Apartments, L.L.C.		100.00	%	Managing Member	FL
RI Panama City LLC		100.00	%	Managing Member	FL
RI Windsor, Ltd.		99.00	%	Limited Partner	FL
Tarragon Stoneybrook Apartments, L.L.C.		100.00	%	Managing Member	FL
Vineyard at Eagle Harbor, L.L.C.		100.00	%	Managing Member	FL
National Omni Associates, L.P.		54.00	%	Limited Partner	DE
Newbury Village Development, LLC		100.00	%	Managing Member	CT
North Property Tarragon, Ltd.		99.00	%	Limited Partner	FL
100 East Las Olas, Ltd.		99.00	%	Limited Partner	FL
East Las Olas, Ltd., a Florida limited partnership		99.00	%	Limited Partner	FL
Orlando Central Park Tarragon, L.L.C.		100.00	%	Managing Member	FL
Pinecrest Village Condominium, Inc.		100.00	%		FL
Regent Circle, L.L.C.		99.00	%	Member	FL
River House Tarragon, LLC		100.00	%	Managing Member	DE
One Las Olas, Ltd.		99.00	%	Limited Partner	FL
Sage Residential Services, Inc.		100.00	%		NV
Sage Residential Connecticut, LLC		100.00	%	Managing Member	CT
Sage Residential Florida, Inc.		100.00	%		FL
Sage Residential New Jersey LLC		100.00	%	Managing Member	NJ
Sage Residential Rhode Island, LLC		100.00	%	Managing Member	RI
Sage Residential Texas, Inc.		100.00	%		TX
SO. Elms National Associates Limited Partnership		99.00	%	General Partner	OK
Stamford Tarragon I LLC		100.00	%	Managing Member	CT
Tarragon/Voloshin I LLC		75.00	%	Managing Member	CT
Stonington Tarragon, LLC		100.00	%	Managing Member	CT
Tarragon/Voloshin Stonington, LLC		75.00	%	Managing Member	CT
Summit on the Lake Associates, Ltd.		99.00	%	Limited Partner	TX
Tampa Palms Tarragon, L.L.C.		100.00	%	Managing Member	FL
Tarragon Calistoga, L.L.C.		80.00	%	Managing Member	NV
Calistoga Ranch Owners, L.L.C.		5.00	%	Member	CA
CR Tarragon Palm Springs, L.L.C.		25.00	%	Member	CA
Tarragon Development Company LLC		81.53	%	Managing Member	DE
Ansonia Apartments, L.P.		89.44	%	General Partner	DE
Ansonia MezzCo, LLC		100.00	%	Managing Member	DE
Ansonia Acquisitions I, L.L.C.		100.00	%	Managing Member	CT
Ansonia Liberty, LLC		100.00	%	Managing Member	CT
Autumn Ridge Apartments, LLC		100.00	%	Managing Member	CT
Danforth Apartment Owners, L.L.C.		100.00	%	Managing Member	FL
Dogwood Hills Apartments, L.L.C.		100.00	%	Managing Member	CT
Forest Park Tarragon, LLC		100.00	%	Managing Member	CT
Hamden Centre Apartments, L.L.C.		100.00	%	Managing Member	CT
Heather Limited Partnership		99.00	%	Limited Partner	MD
Ocean Beach Apartments, LLC		100.00	%	Managing Member	CT
Plantation Bay Apartments, L.L.C.		100.00	%	Managing Member	FL
Tarragon Huntsville Apartments, L.L.C.		100.00	%	Managing Member	AL
Tarragon Savannah I, L.L.C.		100.00	%	Managing Member	GA
Tarragon Savannah II, L.L.C.		100.00	%	Managing Member	GA
Vintage Legacy Lakes National, L.P.		99.00	%	Limited Partner	TX
West Dale National Associates, L.P.		99.00	%	Limited Partner	TX
Woodcreek Garden Apartments, a California LP		99.00	%	Limited Partner	CA
Manchester Tarragon, LLC		100.00	%	Managing Member	CT
Gull Harbor Apts, L.L.C.		100.00	%	Managing Member	CT
Gull Harbor MGR, Inc.		100.00	%		CT
Lake Sherwood Partners, LLC		100.00	%	Managing Member	FL
Lake Lotta Apartments, L.L.C.		100.00	%	Managing Member	FL
RI Panama City LLC		100.00	%	Managing Member	FL

Exhibit 21.1 (Continued)

Entity Name	Ownership				State of Origin
RI Windsor, Ltd.		99.00	%	Limited Partner	FL
Tarragon Stoneybrook Apartments, L.L.C.		100.00	%	Managing Member	FL
Vineyard at Eagle Harbor, L.L.C.		100.00	%	Managing Member	FL
Tarragon Development Corporation		100.00	%		NV
900 Monroe Development LLC		12.50	%	Member	NJ
900 Monroe Street Urban Renewal, LLC		100.00	%	Managing Member	NJ
999 Madison Street Urban Renewal, LLC		15.00	%	Member	NJ
Adams Street Development, L.L.C.		30.00	%	Managing Member	NJ
1100 Adams Street Urban Renewal, LLC		100.00	%	Managing Member	NJ
1118 Adams Street Urban Renewal, LLC		0.01	%	Managing Member	NJ
Block 102 Development LLC		47.50	%	Managing Member	NJ
Block 106 Development, LLC		62.50	%	Managing Member	NJ
Block 110 Development, LLC		62.50	%	Managing Member	NJ
Block 112 Development, LLC		62.50	%	Managing Member	NJ
Block 144 Development LLC		62.50	%	Managing Member	NJ
Block 150 Development, LLC		47.50	%	Managing Member	NJ
Block 88 Development, L.L.C.		30.00	%	Member	NJ
800 Madison Street Urban Renewal, LLC		100.00	%	Managing Member	NJ
Charleston Tarragon Manager, LLC		100.00	%	Managing Member	DE
Fenwick Plantation Tarragon, LLC		1.00	%	Managing Member	SC
Fenwick Plantation Tarragon, LLC		99.00	%	Member	SC
Jardin de Belle Development, LLC		100.00	%	Managing Member	NC
North Water Street Tarragon, LLC		100.00	%	Managing Member	CT
Palisades Park East Tarragon LLC		100.00	%	Managing Member	NJ
Park Development East, LLC		100.00	%	Managing Member	DE
Palisades Park West Tarragon LLC		100.00	%	Managing Member	NJ
Park Development West, LLC		100.00	%	Managing Member	DE
Rutherford Tarragon Development I, LLC		100.00	%	Managing Member	NJ
Rutherford LL Tarragon, LLC		100.00	%	Managing Member	NJ
Rutherford Tarragon Development II, LLC		100.00	%	Managing Member	NJ
Rutherford Tarragon Development III, LLC		100.00	%	Managing Member	NJ
Southampton Pointe Tarragon LLC		99.00	%	Member	SC
Southampton Tarragon Manager LLC		100.00	%	Managing Member	DE
Southampton Pointe Tarragon LLC		1.00	%	Managing Member	SC
Tarragon Edgewater Associates, LLC		100.00	%	Managing Member	NJ
Tarragon/URSA Redevelopment Partnership, LLC		62.50	%	Managing Member	NJ
TDC Hanover Holdings LLC		100.00	%	Managing Member	NJ
East Hanover Tarragon LLC		100.00	%	Managing Member	NJ
Tarragon Limited, Inc.		100.00	%		NV
Midway Mills Partners, L.P.		99.00	%	Limited Partner	TX
Mustang Creek National, L.P.		99.00	%	Limited Partner	TX
Parkdale Gardens National Corp.		100.00	%		TX
Tarragon University I, L.P.		99.90	%	Limited Partner	TX
Vinland Aspentree, Inc.		100.00	%		TX
Tarragon Management, Inc.		100.00	%		TX
Tarragon Mariner Plaza, Inc.		100.00	%		FL
Tarragon Merritt 8, Inc.		100.00	%		CT
Merritt 8 Acquisitions, L.L.C.		99.00	%	Member	CT
Tarragon Midway Mills, Inc.		100.00	%		TX
Midway Mills Partners, L.P.		1.00	%	General Partner	TX
Tarragon Mortgage Capital, LLC		100.00	%	Managing Member	NJ
Choice Home Financing, LLC		49.90	%	Member	DE
Tarragon Mortgage LLC		100.00	%	Managing Member	NJ
Tarragon Ocala Development Corp.		100.00	%		FL
Ocala Tarragon, LLC		50.00	%	Managing Member	FL
Tarragon South Development Corp.		100.00	%		NV
Arlington Tarragon, LLC		100.00	%	Managing Member	FL

Exhibit 21.1 (Continued)

Entity Name	Ownership				State of Origin
Aventura Tarragon GP, LLC		100.00	%	Managing Member	FL
Aventura Tarragon LP, LLC		100.00	%	Managing Member	FL
Shefaor/Tarragon, LLLP		29.33	%	Limited Partner	FL
Cordoba Manager, LLC		100.00	%	Managing Member	DE
Cordoba Tarragon, LLC		1.00	%	Managing Member	FL
Cordoba Tarragon, LLC		99.00	%	Member	FL
Delaney Square Tarragon, LLC		100.00	%	Managing Member	FL
Delaney Square, LLC		50.00	%	Managing Member	FL
Exchange Tarragon, LLC		100.00	%	Managing Member	FL
Montreux at Deerwood Lake, LLC		100.00	%	Managing Member	FL
North Village Tarragon, LLC		100.00	%	Managing Member	FL
Omni Equities Corporation		100.00	%		FL
One Las Olas, Ltd.		1.00	%	General Partner	FL
Omni Equities North Corporation		100.00	%		FL
100 East Las Olas, Ltd.		1.00	%	General Partner	FL
East Las Olas, Ltd., a Florida limited partnership		1.00	%	General Partner	FL
Omni-Tivoli, LLC		100.00	%	Managing Member	FL
Orion Tarragon GP, Inc.		100.00	%		TX
Orion Towers Tarragon, LLP		0.10	%	General Partner	TX
Orion Tarragon LP, Inc.		100.00	%		NV
Orion Towers Tarragon, LLP		69.90	%	Limited Partner	TX
Park Avenue Tarragon, LLC		100.00	%	Managing Member	FL
Park Avenue Metrowest LLC		50.00	%	Managing Member	FL
Park Avenue at Metrowest, Ltd.		99.00	%	Limited Partner	FL
Park Avenue GP, LLC		100.00	%	Managing Member	FL
Park Avenue at Metrowest, Ltd.		1.00	%	General Partner	FL
Tarragon Cypress Grove, LLC		100.00	%	Managing Member	FL
Orchid Grove, LLC		50.00	%	Member	FL
Tarragon Kissimmee, LLC		100.00	%	Managing Member	FL
Uptown Village Tarragon A, LLC		100.00	%	Managing Member	FL
Uptown Village Tarragon B, LLC		100.00	%	Managing Member	FL
Uptown Village Tarragon C, LLC		100.00	%	Managing Member	FL
Yacht Club Tarragon, LLC		100.00	%	Managing Member	FL
Tarragon Stratford, Inc.		100.00	%		CT
Merritt Stratford, L.L.C.		49.50	%	Member	CT
Tarragon University, Inc.		100.00	%		TX
Tarragon University I, L.P.		0.10	%	General Partner	TX
Tarragon Venetian Bay, Inc.		100.00	%		FL
Guardian Venetian Bay Holdings, LLC		80.00	%	Managing Member	FL
Venetian Bay Village, LLC		70.00	%	Managing Member	FL
TDC/Ursa Hoboken Sales Center, LLC		47.50	%	Managing Member	NJ
Texas National Construction, Inc.		100.00	%		TX
Houston Highway South, L.P.		1.00	%	General Partner	TX
Thirteenth Street Development, L.L.C.		50.00	%	Managing Member	NJ
1200 Grand Street Urban Renewal, LLC		100.00	%	Managing Member	NJ
1300 Grand Street Urban Renewal, LLC		100.00	%	Managing Member	NJ
Tradition Tarragon LLC		100.00	%	Managing Member	FL
Tuscany Tarragon, LLC		100.00	%	Managing Member	FL
Upper Grand Realty, LLC		50.00	%	Managing Member	NJ
Vinland Holly House, Inc.		100.00	%		FL
Silver Creek Apartments, Ltd.		10.00	%	Limited Partner	FL
Vinland Property Investors, Inc.		100.00	%		NV
French Villa National Associates Limited Partnership		1.00	%	Limited Partner	OK
SO. Elms National Associates Limited Partnership		1.00	%	Limited Partner	OK
Vista Lakes Tarragon, LLC		100.00	%	Managing Member	FL
Warwick Grove Company, LLC		50.00	%	Managing Member	NY
Woodcreek National, L.C.		100.00	%	Managing Member	FL

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated March 27, 2008, accompanying the consolidated financial statements and schedules (which includes explanatory paragraphs related to uncertainties that raise substantial doubt about the Company’s ability to continue as a going concern, the adoption of Financial Accounting Standards Board Statement Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” and the Company’s application of Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”) and management’s assessment of the effectiveness of internal control over financial reporting (which expresses an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of a material weakness) included in the Annual Report of Tarragon Corporation on Form 10-K for the year ended December 31, 2007. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Tarragon Corporation on Form S-3 (File Nos. 333-104749, effective March 5, 2004 and 333-121258, effective January 20, 2005) and Form S-8 (File Nos. 333-36582, effective May 9, 2000, 333-36576, effective May 9, 2000, and 333-123805, effective April 4, 2005).

/s/ GRANT THORNTON LLP

New York, New York
March 27, 2008

EX-31.1

Exhibit 31.1

Chief Executive Officer’s Certification

I, William S. Friedman, certify that:

     1. I have reviewed this Annual Report on Form 10-K of Tarragon Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 28, 2008	/s/ William S. Friedman
	Name:	William S. Friedman
	Title:	Chief Executive Officer

EX-31.2

Exhibit 31.2

Chief Financial Officer’s Certification

I, Erin D. Pickens, certify that:

     1. I have reviewed this Annual Report on Form 10-K of Tarragon Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 28, 2008	/s/ Erin D. Pickens
	Name:	Erin D. Pickens
	Title:	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Officers’ Section 1350 Certifications

     Each of the undersigned officers of Tarragon Corporation, a Nevada corporation (the “Company”), hereby certifies that (i) the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and (ii) the information contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, fairly presents, in all material respects, the financial condition and results of operations of the Company, at and for the periods indicated.

Date: March 28, 2008	/s/ William S. Friedman
	Name:	William S. Friedman
	Title:	Chief Executive Officer
	/s/ Erin D. Pickens
	Name:	Erin D. Pickens
	Title:	Executive Vice President and Chief Financial Officer