UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File Number 0-22999

TARRAGON CORPORATION

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

Securities registered pursuant to Section 12 (b) of the Act:
NONE

Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 par value
10% Cumulative Preferred Stock, $.01 par value
8% Senior Convertible Notes due September 30, 2009

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. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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 an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o

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, 2004 (the last business day of registrant’s most recently completed second fiscal quarter) was an aggregate value of $87,750,656 based upon a total of 5,949,197 shares held as of June 30, 2004, 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 7, 2005, there were 24,286,440 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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INDEX TO
ANNUAL REPORT ON FORM 10-K

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PART I

FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-K are 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. The words “estimate,” “plan,” “intend,” “expect,” “anticipate,” “believe” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this Report and in the documents incorporated herein by reference. Tarragon disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that our expectations are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Important factors that could cause our actual results to differ from estimates or projections contained in any forward-looking statements are described under “Risks Related to Tarragon” beginning on page 10.

ITEM 1. BUSINESS

We are a real estate homebuilder and investor with over 30 years of experience in the real estate industry. During 2004, we delivered 818 homes with an average price of $259,000 per home and 126 single-family lots with an average price of $45,000 per lot. At December 31, 2004, we had 28 residential communities with 4,352 homes or home sites under development in four states and a backlog of signed contracts for 1,238 homes valued in excess of $340 million. As of December 31, 2004, we also had interests in 13,647 rental apartments units in 58 residential communities and 1.3 million square feet of office and retail space, located in 13 states, primarily in Florida, Connecticut, and Texas. For more detailed information about our rental and for-sale communities, please see ITEM 2. “PROPERTIES.”

History

We were incorporated in Nevada on April 2, 1997. We are the successor by merger to Vinland Property Trust, a public real estate investment trust that began operating in 1974, and National Income Realty Trust, a public real estate investment trust that began operations in 1978. We were managed by outside advisors until 1998, when we acquired our then advisor, Tarragon Realty Advisors, Inc.

On July 1, 2004, we changed our name to Tarragon Corporation from Tarragon Realty Investors, Inc. This change was intended to reflect our growing Homebuilding Division, which specializes in the development and marketing of urban high-density residential communities. Over the past seven years, we have continued to increase our investment in homebuilding.

Business Operations

     We operate two distinct businesses:

	•	the Homebuilding Division, which develops, renovates, builds, and markets homes in high-density, urban locations and in master-planned communities; and
	•	the Investment Division, which owns, develops, and operates residential and commercial rental properties, including almost 5,000 rental apartments we developed. We plan to divest a substantial portion of the Investment Division this year, and thereafter intend to acquire additional rental properties only for conversion to condominiums or joint venture transactions in which our partner invests substantially all capital required to consummate the purchase and any planned improvements.

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Financial information about our segments can be found in NOTE 14. “SEGMENT REPORTING” in the Notes to Consolidated Financial Statements found at ITEM 8. “FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.”

Homebuilding Division

Our homebuilding division concentrates on five distinct product types.

Luxury mid- and high-rise condominiums. These properties are designed from the ground up to offer a luxurious life-style to purchasers. For example, homes at Las Olas River House, a 42 story, 287-unit, 1.2 million square foot tower in downtown Ft. Lauderdale, Florida, feature high ceilings, oversized rooms, opulent bathrooms, and prices ranging from $600,000 to over $5,000,000. Development, construction, and sale of these projects generally take two to five years. Projects in this category also include The Upper Grand neighborhood of Hoboken, New Jersey, One Hudson Park in Edgewater, New Jersey, and Alta Mar, with 131 units and a marina in Ft. Myers, Florida, among others.

Condominium conversions. We may acquire an apartment property either from the Investment Division or from a third party in order to convert the property to condominiums and sell the individual apartments. Before selling, if necessary, we may renovate or rebuild the property to make it attractive to homebuyers. Our local property managers assist in identifying and evaluating conversion opportunities, and manage conversion properties until all tenants have moved out. Prices of homes in our condominium conversions range from $140,000 to $890,000, depending largely on size, location, and view. Currently, our active conversion projects include Waterstreet at Celebration, Florida, part of the Disney master-planned community near Orlando purchased in March 2004; Tuscany on the Intracoastal in Boynton Beach, Florida purchased in June 2003; Pine Crest in Ft. Lauderdale, Florida, previously a rental community in our Investment Division portfolio; The Hamptons, a 743-unit apartment community in Orlando, Florida acquired in November 2004; The Grande, a 364-unit mid-rise community in Orlando, Florida, acquired in September 2004; and Georgetown at Celebration, Florida, a 315-unit property acquired in January 2005; The Yacht Club at Hypoluxo, Florida, a 380 unit waterfront community with a 44 slip boat marina, acquired in January 2005, and The Montreaux at Deerwood, in Jacksonville, Florida, a 444 unit apartment community.

Townhomes, carriage houses, and low-rise condominiums. Our projects in this category typically involve locations adjacent to fully developed areas. Prices range from $179,000 for a three bedroom, fully furnished holiday villa at The Villas at Seven Dwarfs Lane near Disney World in Orlando, Florida, to $500,000 for homes in Warwick Grove, a 215-unit age-restricted traditional new development in Warwick, New York. We also include in this product type Cypress Grove, a 481-unit townhouse development in Pompano Beach, Florida; and, Arlington Park, 76 recently completed townhomes in Tampa, Florida.

Development of low- and mid-rise rental apartment communities. We also build rental properties to add to our Investment Division portfolio on completion and lease-up. These include luxury garden apartments, such as the 262-unit Cason Estates in Murfreesboro, Tennessee; the 328-unit Deerwood development in Ocala, Florida; and the 180-unit Newbury Village development in Meriden, Connecticut. We are also developing 1118 Adams, a 90-unit, mid-rise, low-income housing tax credit project in Hoboken, New Jersey.

Renovation and repositioning of older rental apartments. Our senior management has specialized in the renovation and repositioning of older, rental apartments for several decades. Our Connecticut apartment portfolio exemplifies this type of activity. We acquired 11 apartment communities between 1997 and 1999, all of which suffered from neglect, poor management, or physical obsolescence. Through well-coordinated physical improvements, pro-active management, and aggressive marketing, these older properties have achieved a 54% increase in net operating income from their acquisition through December 31, 2004. We expect to continue to

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look for promising “turn around” properties for acquisition in our core markets. In February, we acquired 510 rental apartments in West Haven and Manchester, Connecticut. We expect substantially all the capital for any future acquisitions to be supplied by our joint venture partners.

Focus on High-density, Urban Markets

We believe urban homebuilding will continue to present attractive opportunities due to a number of factors. First, scarcity of suburban land for development and increased restrictions and controls on growth in many areas are channeling a large share of new construction into urban areas. Second, increased immigration, smaller households, and later marriages produce increased demand especially in the urban areas in which we operate. Finally, many young people in such areas as Hoboken, New Jersey, who might previously have rented are prospects for ownership because of the recent investment performance of residential real estate and the availability and low cost of mortgage financing.

We believe we have several competitive advantages in the urban markets in which we operate. First, our management is familiar with the greater complexity of doing business in these markets. Our homebuilding activities have grown out of the experience of our executives in commercial and residential development, real estate finance, and property management. For example, our four senior development executives, William S. Friedman, Robert C. Rohdie, Robert P. Rothenberg, and James M. Cauley, Jr., have collectively over 100 years of experience developing and repositioning residential and commercial properties. The expertise and industry contacts developed through these activities is particularly relevant to the development of high-density, urban residential communities which often requires a complex blend of political, design, construction, financial, and marketing skills.

Most of our developments in New Jersey, are part of a government redevelopment plan. Those projects and our projects in Ft. Lauderdale, Florida, and Warwick, New York, all involved extensive interaction with local officials whose approval was required for many different aspects of these developments. Such projects also involve substantial community input and review by many different governmental agencies. Our senior executives are committed to being personally involved in prospective projects from the outset, which we believe increases our effectiveness in dealing with sellers and political decision makers.

Finally, our experience in many different property types is often an advantage. In Hoboken, for example, the city council wanted to include affordable housing in the northwest Hoboken redevelopment zone. Our experience as owner of over 1,000 affordable apartment units gave us a decided advantage over other homebuilders who had no such experience. This was one factor that led to our official designation, along with our partners, as developer of a major portion of the northwest Hoboken redevelopment zone. Among other things, this designation entitles us to request the city to exercise eminent domain on our behalf. Increasingly, most large projects in urban areas involve a combination of uses. Our experience owning and occasionally developing retail and office properties is also valuable in evaluating opportunities to develop mixed-use projects and gives more credibility to our proposals.

Site Selection, Design, and Construction

We generally contract to 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 attractive.

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Our strategy is to use creativity and flexibility in design to produce the most marketable, cost-efficient and profitable homes for each location. We begin design and planning by conducting market research. Based on the research results, we organize an experienced team of architects, engineers, and specialty consultants, including our in-house marketing and sales professionals, to plan the development. We design our communities with amenity packages that meet the lifestyle needs of our targeted market.

We also contract for the services of an experienced third party general contractor during the early stages of design to assist in value engineering and the estimation of construction costs. We retain bonded general contractors under fixed-price contracts and assign full-time, on-site project supervisors to monitor construction progress and quality. Property management is involved in each rental project from its planning stages to facilitate a smooth transition to leasing and operations.

Target Marketing and Sale Strategy

Our urban communities are targeted at highly defined market segments, including first-time, move-up, retirement, empty-nester, and affluent second-home buyers. For example, our Warwick, New York, community is designed for and marketed to adults, age 55 or older, presently residing within 15 miles of Warwick. Our condominiums in Hoboken are marketed to young professionals primarily under age 30. We expect that future communities will continue to be targeted toward specific markets in keeping with the more varied lifestyles often associated with the urban areas in which our homebuilding is concentrated.

We use a variety of techniques to sell our homes. We develop and execute multi-media marketing plans for each of our communities. Furthermore, we employ marketing professionals who supervise and coordinate the design and development of most of our marketing materials and advertising messages, including newspaper and magazine print, direct mail, and billboards. Much of our traffic is generated from property-specific web sites that offer complete information about our communities.

We normally begin sales before completion of construction. Home purchase contracts require a deposit of 10% 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 their deposit in the event of default.

We have developed and are expanding a complementary financial services business. In 2003, we formed Home Finance Group (formerly Tarragon Mortgage Company) to provide competitive financing to our homebuyers and in 2004 began closing loans. Home Finance Group acts as a mortgage broker and agent of various lenders, but does not fund or hold any mortgages itself. Revenues from these activities consist primarily of origination and premium fee income. Our mortgage brokerage services are currently offered only to buyers of our homes, although we intend to extend this service to tenants moving out of our rental properties to purchase a home.

Financing

We generally finance our development activities through acquisition, development, and construction loans, with the required equity investment coming from internally generated funds. These loans often require that we provide a payment guaranty, and may require a minimum number of executed sales contracts prior to funding. Mortgage financing proceeds and proceeds from the sale of properties generated by our Investment

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Division portfolio have also been significant sources of funding for our homebuilding activities to date. See the discussion below “Dispositions” for the Investment Division.

Joint Ventures

We often undertake homebuilding projects in partnership with third parties when our partner has either site control or a particular expertise in the proposed project, or both.

Our partners in our homebuilding projects in Hoboken, New Jersey, had both local market expertise and control of a number of attractive sites in a market with significant barriers to entry and very few sites available for development. We have two mid-rise luxury condominiums, XII Hundred Grand and XIII Hundred Grand, under development in Hoboken in joint venture with Ursa Development Group, LLC. As of March 1, 2005, we have entered into sales contracts for 276 of the 277 homes in these two projects. We have also started construction of 1100 Adams, a 76 unit, mid-rise luxury condominium project, and 1118 Adams, a 90 unit affordable housing project in separate joint ventures with Frank Raia.

Division Management

The Homebuilding Division is divided into two regions – the Northeast and the Southeast. Robert Rohdie, who has 34 years in the residential construction industry and has built over 25,000 multi-family homes in his career, heads the Homebuilding Division management team, and oversees the Northeast operations from our New York office. James M. Cauley, Jr., with over 20 years of residential real estate experience, oversees Tarragon South Development Corp. based in Fort Lauderdale, Florida. Each region has a team of developers, project managers, attorneys, and marketers.

Investment Division

Our Investment Division portfolio includes 13,431 apartments in 57 stabilized communities, including 3,868 apartments owned through unconsolidated partnerships and joint ventures, located primarily in Florida, Connecticut, and Texas. Over the past seven years, we have developed nearly 5,000 new market- rate apartments in 16 communities for our investment portfolio. Amenities in these communities include clubhouses, swimming pools, and indoor recreational courts, fitness centers and community business centers. Our Investment Division also includes approximately 1.3 million square feet of commercial space, in seven office buildings and ten retail properties.

Funds generated by the operation, sale, or refinancing of our Investment Division portfolio have been used to finance the expansion of our homebuilding operations and, to a much lesser extent, to enhance the value of our investment portfolio through consistent capital improvements. In accordance with our goals, we continue to invest capital in our portfolio to improve the performance of our properties.

Acquisitions

Over the last five years, we have used capital generated by the Investment Division primarily to finance Homebuilding activities. During 2002, 2003, and 2004, we purchased only one apartment community for investment. In February 2005, we acquired two additional properties with 510 apartments for our investment portfolio.

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Dispositions

In the past, selective dispositions have been a part of our strategy to create an efficient investment portfolio and to provide another source of capital for homebuilding activities. We sold properties that are located in markets where we have only a small number of assets or where we believe that reinvestment of the sale proceeds should produce better returns. Please see the discussion under “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. In 2005, we plan to divest a major portion of our Investment Portfolio to generate capital to employ in expanding our Homebuilding, to reduce debt and to take advantage of favorable prices for investment properties.

Property Management

We manage our apartment communities with a focus on adding value. We have implemented programs to optimize revenue generated by our properties, including daily value pricing and lease inventory management. We have also developed programs to enhance ancillary income from cable television, telephone and high-speed internet services, upgraded laundry facilities, and vending machines. In addition, training through our Tarragon University and mentoring through our Tarragon Ambassador Program has significantly reduced employee turnover, which is one of the major challenges of a real estate management company. We also manage rental properties that are in the process of being converted to condominiums in cooperation with our Homebuilding Division. We expect to provide management services to the buyer or buyers of all of Connecticut and most of our Florida properties.

Rental Apartment Joint Ventures

In 1997 and 1998, we acquired 11 properties in Connecticut with partners who had identified and, in some cases, contracted for these properties. In exchange for their services, they received an interest in the joint venture. While we no longer acquire existing properties in this manner, we continue to form joint ventures to develop new rental apartment properties with individuals who control sites where such developments appear desirable. Over the past five years, we have formed six such joint ventures which resulted in the development of 1,644 rental apartments.

Division Management

Eileen Swenson heads the Investment Division. Ms. Swenson, a Certified Property Manager, has been in the multi-family property management industry for over 20 years. She has two Regional Vice Presidents, with 40 years of multi-family experience, reporting to her. They, in turn, have several Regional Property Managers who are responsible for portfolios of six to eight properties each. In addition, we use independent management firms to manage our rental apartment properties located in the southwest and in those locations where we do not have a sufficient number of communities and/or apartments to warrant a satellite office, and for our portfolio of commercial properties.

Information Systems and Controls

We assign a high priority to the development and maintenance of our budget and cost control systems and procedures. Our regional offices are connected to corporate headquarters through an integrated accounting, financial, and operational management information system. Through this system, our management regularly evaluates the operations of our rental communities and the status of our development projects in relation to budgets to determine the cause of any variances and, where appropriate, to adjust our operations to capitalize on favorable variances or to limit adverse financial impacts.

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Competition

The homebuilding industry and real estate development 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. Nevertheless, our size permits our most senior and experienced executives to participate directly in acquisition negotiations and decisions. Contact with ultimate decision makers is particularly important in convincing sellers that their acceptance of an offer from us will result in a completed transaction. Moreover, the speed with which we are able to act is often a factor in closing a purchase.

Compliance with Environmental Regulations

In 2003, in connection with the condominium conversion of Pine Crest Village at Victoria Park, we began and completed remediation of asbestos-containing materials for a total cost of $795,000.

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, acquisition of additional properties, and development of currently planned or future projects, or in private transactions in exchange for property. In July 2003, Tarragon issued 195,815 shares of 10% Cumulative Preferred Stock in connection with the purchase of land and homebuilding inventory. See NOTE 6. “10% CUMULATIVE PREFERRED STOCK” in the Notes to Consolidated Financial Statements for more information about the preferred stock. In September and November 2004, we issued $62 million of senior convertibles notes. See NOTE 4. “NOTES AND INTEREST PAYABLE” in the Notes to Consolidated Financial Statements for more information.

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 investment policies. We do not intend to underwrite securities of other issuers. We do not intend that our investment activity 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 NOTE 5. “COMMON STOCK REPURCHASE PROGRAM” in the Notes to Consolidated Financial Statement for a discussion of common stock repurchases during the past three years and authorization for repurchases as of December 31, 2004.

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 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.

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Employees

As of December 31, 2004, we employed 495 people of whom 472 were full-time and 23 were part-time employees. This includes 294 site-level property employees, who operate the Investment Division apartment properties, and 201 corporate staff, 36 of whom were employed in the Investment Division, 99 of whom were employed in the Homebuilding Division and 66 of whom serve both divisions in areas such as accounting, human resources, and information technology. We do not have any union employees. We believe we have a good relationship with our employees.

Other Information

Tarragon’s common stock is traded on the NASDAQ National Market System under the symbol “TARR.” Our principal executive offices are located at 1775 Broadway, 23^rd Floor, New York, New York 10019, and our telephone number is 212-949-5000.

Our internet website address is www.tarragoncorp.com. We make available free of charge on our website our Annual Reports on Forms 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Forms 8-K, reports filed pursuant to Section 16 and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission. 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 principles are not incorporated in this report by reference. We will also provide a copy of these documents free of charge to stockholders upon written request. Tarragon issues annual reports containing audited financial statements to its common stockholders.

Risks Related to Tarragon

Risks Related to Our Capital Structure

Our substantial indebtedness and high leverage could adversely affect our financial health and prevent us from fulfilling our obligations under the notes.

We have substantial indebtedness and debt service requirements. As of December 31, 2004:

	•	our total consolidated indebtedness was $766 million;
	•	our total indebtedness in unconsolidated partnerships and joint ventures was $328.7 million;
	•	we had approximately $49 million available for borrowing under various revolving credit facilities.

Our high degree of leverage could have important consequences to you, including the following:

	•	a substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes;
	•	our ability to obtain additional financing for working capital, capital expenditures, acquisitions, or general corporate or other purposes may be impaired in the future;

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	•	certain of our borrowings are and will continue to be at variable rates of interest, which will expose us to the risk of increased interest rates; and
	•	it may limit our flexibility to adjust to changing economic or market conditions, reduce our ability to withstand competitive pressures and make us more vulnerable to a downturn in general economic conditions.

Our secured credit facilities and the agreements governing our other indebtedness limit, but do not prohibit, us or our subsidiaries from incurring significant additional indebtedness in the future. Therefore, these risks may intensify as we incur additional indebtedness.

We may not be able to generate sufficient cash flow to meet our debt service obligations.

Our ability to make scheduled payments of principal or interest on our indebtedness will depend on our future performance, which, to a certain extent, is subject to general economic conditions, financial, competitive, legislative, regulatory, political, business, and other factors. We believe that cash generated by our business will be sufficient to enable us to make our debt payments as they become due. However, if our business does not generate sufficient cash flow, or future borrowings are not available in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs, we may not be able to fulfill our debt service obligations.

The restrictive covenants associated with our outstanding indebtedness may limit our ability to operate our business.

Our existing indebtedness contains various covenants that may limit or restrict, among other things, subject to certain exceptions, creation of liens, mergers, consolidations, dispositions of assets, dividends, redemptions of capital stock, changes in business or accounting, transactions with affiliates, and certain other transactions or business activities. In addition, a number of our debt agreements contain covenants that require us to maintain financial ratios. If we fail to comply with these covenants, we may be in default, and that existing indebtedness can be accelerated so it becomes immediately due and payable.

The market price for our common stock may be highly volatile.

The market price for our common stock may be highly volatile. A variety of factors may have a significant impact on the market price of our common stock, including:

	•	the publication of earnings estimates or other research reports and speculation in the press or investment community;
	•	changes in our industry and competitors;
	•	our financial condition, results of operations, and prospects;
	•	any 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 from time to time;
	•	general market and economic conditions; and
	•	any outbreak or escalation of hostilities.

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In addition, the NASDAQ National Market can experience extreme price and volume fluctuations that can be unrelated or disproportionate to the operating performance of the companies listed on NASDAQ. Broad market and industry factors may negatively affect the market price of our common stock regardless of actual operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against companies. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which would harm our business.

The holders of our common stock may experience a dilution in the value of their equity interest as a result of the issuance and sale of additional shares of our common stock.

A substantial number of shares of our common stock may be issued by us in future public and private transactions and upon any conversion of our senior convertible notes. No predictions can be made as to the effect, if any, that the issuance and availability for future issuance of shares of our common stock will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of our common stock (including shares issued upon the exercise of stock options or conversion of the senior convertible notes), or the perception that such issuance or sales could occur, could adversely affect the prevailing market price for our common stock and could impair our future ability to raise capital through an offering of equity securities.

Shares of our 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 of a large number of shares in the market or market perception that such sales could occur, including sales or distributions of shares by one or more of our large stockholders or by our controlling stockholders. As of December 31, 2004, there were 15,322,892 shares of our common stock outstanding. Of those shares, 7,158,948 were held by our controlling stockholders, Mr. and Mrs. William S. Friedman and their affiliated entities and a further 506,870 were held by our other executive officers and directors. The number of shares that could be offered for sale by holders of our senior convertible notes, assuming conversion of all of the outstanding notes, is 3,376,904 (5,065,356 adjusted for the February 2005 three-for-two stock split) based upon a conversion factor of 54.4662 (81.6993 adjusted for the February 2005 three-for-two stock split) shares per $1000 in principal amount of notes. Upon issuance, such shares would constitute approximately 22% of the then issued and outstanding shares of our common stock which, if all were made available for sale at the same time, would likely affect the market price of our common stock.

We have a substantial number of stock options exercisable into our common stock outstanding and have the ability to grant a substantial number of stock options in the future under currently effective benefit plans.

As of December 31, 2004, we had granted options to purchase approximately 4.1 million shares (as adjusted for the February 2005 three-for-two stock split) of our common stock under our equity participation plans to our directors, officers, key employees, and consultants and had approximately 2.5 million shares available for future grant. The exercise of outstanding options or the future issuance of options (and the exercise of those options) or restricted stock could dilute the beneficial ownership of holders of our common stock.

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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 which otherwise might appear to be in your best interests as a stockholder could be delayed, deferred, or prevented altogether, and you may be deprived of an opportunity to receive a premium for your shares over prevailing market prices. The provisions contained in our Articles of Incorporation include:

	•	the requirement of an 80% 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 66.66% super-majority 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, 2004, our Board of Directors and management beneficially own approximately 50% of our outstanding common stock. In light of this, these anti-takeover provisions could help entrench the Board of Directors and may effectively give our management the power to block any attempted change in control.

Risks Related to Our Homebuilding Business

We are subject to risks associated with construction and development.

Development and construction activities, with respect to both for-sale and rental communities, entail a number of risks, including but not limited to the following:

	•	we may abandon a project after spending non-recoverable time and money determining its feasibility or obtaining regulatory clearance;
	•	we may encounter opposition from local community or political groups with respect to development or construction at a particular site;
	•	we may not be able to obtain, or may be delayed in obtaining, necessary zoning, occupancy, and other required governmental permits and authorizations;
	•	we may not be able to obtain sufficient financing on favorable terms, if at all;
	•	construction costs may materially exceed our original estimates;
	•	we may encounter shortages of lumber or other materials, shortages of labor, labor disputes, unforeseen environmental or engineering problems, work stoppages, or natural disasters which could delay construction and result in substantial cost overruns; and
	•	we may not complete construction and lease up on schedule.

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The occurrence of any one or more of the above could result in lower than expected returns or cash flows from properties under development, and we could lose some or all of our investment in those properties, which could have a material, adverse effect on our growth, our business, and our results of operations.

The homebuilding industry is highly competitive.

Homebuilders compete for, among other things, desirable properties, financing, raw materials, and skilled labor. We compete both with large homebuilding companies, some of which have greater financial, marketing, and sales resources than we do, and with smaller local builders. The consolidation of some homebuilding companies may create competitors that have greater financial, marketing, and sales resources than we do and thus are able to compete more effectively against us. In addition, there may be new entrants in the markets in which we currently conduct business. We also compete for sales with individual resales of existing homes and with available rental housing.

Our future cash flows from our homebuilding division may be lower than expected.

In the year ended December 31, 2004, under the percentage-of-completion method of revenue recognition, we recognized $155.9 million of revenues from sales of homes of which only $54.7 million represented sales that had closed. Due to various contingencies, including delayed construction, cost overruns, or buyer defaults, it is possible that 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, which could affect our profitability and ability to pay our debts. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Revenue Recognition.”

Governmental laws and regulations may increase our expenses, limit the number of homes that we can build, or delay completion of our projects.

We are subject to numerous local, state, federal, and other statutes, ordinances, rules, and regulations concerning zoning, development, building design, construction, and similar matters which impose restrictive zoning and density requirements in order to limit the number of homes that can eventually be built within the boundaries of a particular area. Projects that are not entitled may be subjected to periodic delays, changes in use, less intensive development, or elimination of development in certain specific areas due to government regulations. We may also be subject to periodic delays or may be precluded entirely from developing in certain communities due to building moratoriums or “slow-growth” or “no-growth” initiatives that could be implemented in the future in the states in which we operate. Local and state governments also have broad discretion regarding the imposition of development fees for projects in their jurisdiction. Projects for which we have received land use and development entitlements or approvals may still require a variety of other governmental approvals and permits during the development process and can also be impacted adversely by unforeseen health, safety, and welfare issues, which can further delay these projects or prevent their development. As a result, our sales could decline and our costs could increase, which could negatively affect our results of operations.

Our homebuilding activities and condominium conversions expose us to risks associated with the sale of residential units.

Our homebuilding and condominium conversion businesses entail risks in addition to those associated with development and construction activities, including:

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	•	market conditions in our target markets may change due to competitive, economic, demographic, geopolitical, or other factors, most of which are outside of our control, that may affect demand for homes;
	•	we may not be able to achieve desired sales levels at our homebuilding projects;
	•	we are exposed to additional credit risk with respect to the individuals to whom we sell homes;
	•	condominium conversions may require substantial legal process and costs, which may not be recovered;
	•	customers may be dissatisfied with the homes we sell, which may result in remediation costs or warranty expenses;
	•	we may be left with unsold inventory, which may result in additional losses due to write-downs in inventory, additional costs associated with carrying inventory, costs and inefficiencies associated with conversion of unsold units into rental units, or sales of units for a significantly lower price than projected; and
	•	the long lead-time of homebuilding projects and condominium conversion projects may result in delayed revenue recognition and difficulty in predicting whether there will be sufficient demand for our homes.

Risks Related to Our Business Generally

We are subject to all of the risks that affect homebuilders and real estate investors generally.

General factors that may adversely affect our homebuilding business, and the value of and our income from, our real estate investment portfolio include:

	•	a decline in the economic conditions in one or more of our primary markets;
	•	an increase in competition for tenants and customers or a decrease in demand by tenants and customers;
	•	increases in interest rates;
	•	general restrictions on the availability of credit;
	•	an increase in supply of our property types in our primary markets;
	•	terrorist activities or other acts of violence or war in the United States or the occurrence of such activities or acts that impact properties in our real estate portfolios or that may impact the general economy;
	•	possible losses from fire, flood, hurricane, or other catastrophe;
	•	the continuation or escalation of world geopolitical tensions; and

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•

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.

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

As of December 31, 2004, we had approximately $529 million of variable rate debt. In addition, we had $152 million of variable rate debt in unconsolidated partnerships and joint ventures. We may incur additional variable rate indebtedness in the future. Accordingly, increases in interest rates could materially increase our interest expense, which could adversely affect our results of operations and financial condition.

In addition, many purchasers of our homes obtain mortgage loans to finance a substantial portion of the purchase price. 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 be required to sell a home prior to purchasing one of our homes, and buyers for those homes will often 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. Because of the often long-term nature of any development project, condominium conversion, or any other real estate investment, it may be difficult for us to adjust our business strategy quickly to compensate for changes in effective mortgage interest rates. If effective mortgage interest rates increase and the ability or willingness of prospective buyers to finance home purchases is adversely affected, our operating results may also be negatively affected.

Our net income has fluctuated in the past and may continue to do so in the future.

As reflected in our historical financial statements, our net income has fluctuated from year to year during such five-year period. Our homebuilding revenues may fluctuate as a result of the timing of the completion of projects and unit closings, 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 require significant additional financing that may not be available on commercially favorable terms, if at all.

We depend primarily on external financing to fund the growth of our business. We intend to use substantial portions for:

	•	new construction and development;
	•	condominium conversions;
	•	property acquisitions; and
	•	working capital.

In addition, when we develop a property as a rental property for our Investment Division, we will be required to obtain permanent financing to repay outstanding construction loans at the time the property is completed. We cannot predict whether additional sources of financing will be available in the future or the cost of such financing. Our access to debt or equity financing depends on lenders’ willingness to lend and on conditions in the capital markets, and we may not be able to secure additional sources of financing on commercially

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acceptable terms, if at all. A failure to obtain needed additional financing could have a material, adverse effect on the growth of our business and our results of operations and may force us to curtail our development activities or dispose of properties.

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

We invest in a number of consolidated and unconsolidated joint ventures and partnerships in which our outside partners may have significant decision making power and voting rights. Partnership or joint venture investments involve risks not otherwise present for investments made solely by us, including the possibility that our partners might become bankrupt, might have or develop different interests or goals than we do, or might take action contrary to our instructions, requests, policies, or investment objectives. Another risk of partnership investments is the possibility of an impasse on decisions, such as a sale or refinance, or disputes with our partners over the appropriate pricing and timing of any sale or refinance. In addition, joint venture and partnership agreements typically contain provisions restricting the ability to transfer the interests in the joint venture or partnership and often 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 such provisions. There is no limitation under our organizational documents or loan agreements as to the amount of funds that may be invested in partnerships or joint ventures.

The rental activities of our Investment Division expose us to a number of risks associated with owning, managing and operating rental real estate.

Our Investment Division’s rental real estate business entails a number of risks, including:

	•	we are sensitive to market conditions in our rental markets, which may be affected by local or regional economic and demographic factors that affect demand for rental housing;
	•	we may not be able to achieve sufficient occupancy levels to maintain profitability and service any indebtedness associated with our rental properties;
	•	we are exposed to tenant credit risk;
	•	we could be subject to the imposition of rent control or rent stabilization programs;
	•	we are sensitive to competition within our markets, both from other rental properties and housing alternatives, including condominiums and single-family homes;
	•	market conditions may force us to offer additional rental concessions and amenities in order to attract or retain tenants; and
	•	our failure to comply with Americans with Disabilities Act and other similar laws could result in substantial costs.

We may not be able to sell our properties 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 investments generally cannot be sold quickly. In the event that we

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must sell assets to generate cash flow or to service indebtedness, we cannot predict whether there will be a market for those assets in the time period we desire or need to sell them, or whether we will be able to sell them 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 assets, and we may incur costs related to the early pay-off of the debt secured by such assets.

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 four core markets: Florida, the Northeast, Texas, and Tennessee. Deterioration in economic conditions in any of these specific markets, including business layoffs and downsizing, industry slowdowns, relocations or closings of businesses, geopolitical factors, changing demographics, or oversupply of or reduced demand for real estate, may impair:

	•	occupancy levels and rental rates in our investment portfolio;
	•	our ability to attract new tenants and to collect rent from existing tenants;
	•	our sales prices at homebuilding projects in those markets; and
	•	our results of operations and cash flows.

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

Partially as a result of the September 11 terrorist attacks, the cost of insurance has risen, deductibles and retentions have increased, and the availability of insurance has diminished. Significant increases in our cost of insurance coverage or significant limitations on coverage could have a material adverse effect on our business, financial condition, and results of operations from such increased costs or from liability for significant uninsurable or underinsured claims.

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 insurable, and other losses, such as those arising from terrorism or from the presence of mold in our rental properties or for-sale homes, may not be economically insurable. A sizeable uninsured loss could adversely affect our business, results of operations, and financial condition.

We acquire new properties from time to time.

We regularly consider acquiring additional properties for our investment portfolio or for conversion to condominiums. Acquisitions involve several risks, including but not limited to the following:

	•	acquired properties may not perform as well as we expected or ever become profitable;
	•	improvements to the properties may ultimately cost significantly more than we had estimated; and
	•	the costs of evaluating properties that are not acquired cannot be recovered.

If one or more property acquisitions are unsuccessful due to the above or other reasons, it may have a material adverse effect on our business and results of operations.

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Fluctuations in real estate values may require us to write down the book value of our real estate assets.

We are required under GAAP to assess the impairment of our long-lived assets and our homebuilding inventory whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors management considers that could trigger an impairment review include significant underperformance relative to minimum future operating results, significant change in the manner of use of the assets, significant technological or industry changes, or changes in the strategy for our overall business. When we determine that the carrying value of certain long-lived assets or homebuilding inventory is impaired, an impairment loss equal to the excess of the carrying value of the asset over its estimated fair value is recognized. Any such impairment charges will be recorded as operating losses. See “Management’s Discussion and Analysis of Financial Condition and Result of Operations — Critical Accounting Policies and Estimates — Asset Impairment.” Any material write-downs of assets could have a material adverse effect on our financial condition and earnings.

It may be difficult to succeed in new markets.

We may make investments outside of our existing markets if appropriate opportunities arise. Impediments to our success in new markets include:

	•	an inability to evaluate accurately local market conditions and local demand trends;
	•	an inability to obtain land for development or appropriate acquisition opportunities;
	•	an inability to hire and retain key local personnel; and
	•	a lack of familiarity with local and regional regulatory processes and bodies.

Failed projects as a result of expanding into new markets could have a material, adverse effect on our business and results of operations. Our historical experience in our existing markets does not ensure that we will be able to operate successfully in new markets.

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

Various federal, state, and local environmental laws, ordinances, and regulations subject property owners or operators to liability for the costs of removal or remediation of hazardous or toxic substances on real property. These laws often impose liability 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, such substances may adversely affect the value of a property, as well as our ability to sell or rent it or to borrow using that property as collateral. In addition, the particular environmental laws which apply to any given homebuilding site vary according to the site’s location, its environmental conditions, 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 homebuilding activity in environmentally sensitive regions or areas, which could negatively affect our results of operations.

In recent years there has been a widely-publicized proliferation of mold-related claims by tenants, employees, and other occupants of buildings against the owners of those buildings. Mold-related claims are generally not covered by our insurance programs. 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. For example, in our Vintage at Fenwick Plantation project in Charleston, South Carolina, shortly after project completion, we discovered certain water intrusion conditions which resulted in mold growth. As part of its

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warranty obligations, our general contractor is paying for a remediation specialist to remove all living mold and prevent the future occurrence of water intrusion. 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, it may be several years before definitive standards are available to property owners against which to evaluate risk and design remediation practices. We cannot predict the outcome of any future regulatory requirements to deal with mold-related matters.

Our success depends on key executive officers and personnel.

Our success is dependent upon the efforts and abilities of our executive officers and other key employees, many of whom have significant experience in developing and repositioning residential and commercial properties. In particular, we are dependent upon the services of William S. Friedman, our Chairman of the Board of Directors and Chief Executive Officer, Robert C. Rohdie, a director and President and Chief Executive Officer of Tarragon Development Corporation, our wholly-owned subsidiary, which runs our Homebuilding operations, Robert P. Rothenberg, a director and our President and Chief Operating Officer, and James M. Cauley, Jr., President of Tarragon South Development Corp., which, as a subsidiary of Tarragon Development Corporation, runs our Homebuilding operations in South Florida and Texas. The loss of the services of any of these executives or other key personnel, for any reason, could have a material adverse effect upon our business, operating results, and financial condition.

Our principal stockholders effectively control corporate actions, and their interests may differ from yours.

William S. Friedman, our Chairman of the Board and Chief Executive Officer, and his wife, Lucy N. Friedman, together with their affiliated entities beneficially own approximately 46.7% of our outstanding common stock. Accordingly, Mr. and Mrs. Friedman are in a position to elect a number of the members of our Board of Directors and have substantial influence over our management and affairs. In addition, they effectively have veto power over a broad range of corporate actions requiring more than a simple majority vote presently contained in 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 properties.

We have and continue to engage in transactions with related parties.

We have engaged in the past, and continue to engage currently, in transactions with related parties. These related party transactions include ongoing financial arrangements with several members of our Board and senior management, including a $20 million unsecured line of credit facility extended to us by affiliates of Mr. and Mrs. Friedman, which was approved by our Board of Directors. In addition, Mr. and Mrs. Friedman have pledged shares of our common stock that they hold to secure two of our outstanding credit facilities, and we have agreed to indemnify them for any loss, cost, or liability associated with the pledges.

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Executive Officers of the Registrant

Part III of this 10-K is incorporated by reference to a proxy statement to be filed with the SEC in connection with our annual meeting of stockholders to be held in June 2005. Information required by Item 10. “DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT” with respect to Directors will be included in our proxy statement. The following discussion sets for the information required by Item 10. “DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT” with respect to Tarragon’s executive officers.

William S. Friedman (61) has been Chief Executive Officer and a director of Tarragon since April 1997, and as Chairman of the Board of Directors since December 2000. He also served as President from April 1997 through June 2004. He previously 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 Vinland Property Trust (until July 1997) and National Income Realty Trust (until November 1998).

Robert C. Rohdie (64) has been director of Tarragon and President and Chief Executive Officer of Tarragon Development Corporation, a wholly owned subsidiary of Tarragon responsible for real estate development and renovation projects, since February 2000. Since 1988, Mr. Rohdie also served as President of Rohdhouse Investments, Inc., his wholly owned real estate development company, which acted as Tarragon’s joint venture partner in new construction and development projects from 1997 through 2000. Mr. Rohdie has been an attorney at law since 1965.

Robert P. Rothenberg (46) has been a director and the Chief Operating Officer of Tarragon since September 2000, and has served as President of Tarragon since June 2004. Mr. Rothenberg has been the managing member of APA Management LLC, a real estate investment and management company, since 1994. He is also a Managing Member of Ansonia LLC, which together with Tarragon has acquired over 2,600 apartments in the State of Connecticut since 1997. Mr. Rothenberg was a co-managing member of Accord Properties Associates, LLC, which managed the Ansonia portfolio in Connecticut and was acquired by Tarragon in January 2001.

James M. Cauley, Jr. (42) joined Tarragon as President of Tarragon South Development Corp., a wholly-owned subsidiary of Tarragon Corporation responsible for the development of for-sale communities in Florida, in January 2004. Mr. Cauley previously served as President and Managing Partner of The Altman Companies, a regional owner, developer, and manager of luxury apartment communities, from December 2001 through February 2003, and as President of Altman Management Company from September 1996 through December 2001.

Chris Clinton (58) has been Senior Vice President — Commercial Asset Management of Tarragon and its predecessors, Vinland Property Trust and National Income Realty Trust, since March 1994. He also served as Vice President of Vinland Property Trust and National Income Realty Trust from October 1988 to March 1994.

Ron Leichtner (43) was appointed Vice President of Tarragon in March 2004. Mr. Leichtner previously served as a Managing Director of Tarragon from September 2002 through March 2004. Mr. Leichtner served as the chief financial officer of Batiz.com, a sales, marketing, and web design firm, and as the Managing Member of WHB Tennis and Sport LLC from July 2001 through September 2002. He served as Senior Vice President of Omni Development and its affiliate, Omni Funding Corporation, a privately held finance and real estate development group, from January 1985 through June 2001.

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Kathryn Mansfield (44) has been Executive Vice President of Tarragon since December 1998 and Secretary since May 1998. She was appointed the General Counsel of Tarragon in June 2004. She previously served as Vice President of Tarragon and its predecessor, National Income Realty Trust, from May 1998 to December 1998. Ms. Mansfield has been an attorney at law since 1984.

Todd C. Minor (46) has been Executive Vice President of Tarragon since November 2001 and Treasurer of Tarragon and its predecessors, Vinland Property Trust and National Income Realty Trust, since December 1996. He also served as Senior Vice President (from March 1994 to December 1998) and Vice President (from April 1991 to July 1993) of Tarragon and its predecessors.

Erin D. Pickens (43) has been Executive Vice President and Chief Financial Officer of Tarragon since December 1998. She previously served as Vice President and Chief Accounting Officer for Tarragon and its predecessors, Vinland Property Trust and National Income Realty Trust, from September 1996 to November 1998. She served as Accounting Manager of Vinland Property Trust and National Income Realty Trust from June 1995 to August 1996. Ms. Pickens has been a Certified Public Accountant since 1990.

Charles Rubenstein (46) has been Executive Vice President of Tarragon since December 1998. He is also General Counsel to Tarragon Development Corporation. He also served as General Counsel of Tarragon from September 1998 to June 2004. He served as Senior Vice President for Tarragon and its predecessor, National Income Realty Trust, from September 1998 to December 1998. Mr. Rubenstein has been an attorney at law since 1984.

Todd M. Schefler (48) has been Executive Vice President — Development for Tarragon since January 2003. He previously served as Senior Vice President — Development of Tarragon from May 2001 to December 2002, and as Vice President — Structured Transactions from January 2000 through May 2001.

Saul Spitz (53) joined Tarragon as Executive Vice President of Acquisitions in September 2000. He has been a member of APA Management LLC, a real estate investment and management company, since September 1994. He has also been a member of Ansonia LLC, which together with Tarragon has acquired close to 2600 apartments in the state of Connecticut, since November 1997. Mr. Spitz was a co-managing member of Accord Properties Associates, LLC, which managed the Ansonia portfolio in Connecticut, from 1998 through January 2001, when it was acquired by Tarragon.

Eileen A. Swenson (54) joined Tarragon as President of Tarragon Management, Inc. in September 2000. Ms. Swenson founded and served as President of Accord Properties Associates, LLC and its predecessor, Accord Ventures, Inc., from August 1994 through January 2001, when it was acquired by Tarragon. Ms. Swenson has been a Certified Property Manager since 1987.

William M. Thompson (45) became Executive Vice President — Operations in March 2003. He joined Tarragon as Executive Vice President and Chief Information Officer in September 2000. He served as Chief Financial Officer of Accord Properties Associates, LLC from August 1998 through January 2001, when it was acquired by Tarragon. Mr. Thompson has been a Certified Public Accountant since 1982.

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ITEM 2. PROPERTIES

At December 31, 2004, our real estate portfolio had 85 properties, including 58 apartment communities, seven office buildings, ten retail properties, six tracts of land, and four rental apartment communities currently under development. Unconsolidated joint ventures owned 19 of the 85 properties. We also had 15 consolidated and six unconsolidated active for-sale communities and seven consolidated single-family home site developments. Tarragon, or the consolidated or unconsolidated subsidiaries, partnerships, or joint ventures that own the properties, generally have fee simple title to these properties, and most of them are pledged to secure mortgages. For a detailed listing of these mortgages, see the table below entitled “Mortgage Loans Secured by Owned Properties.” We believe our properties are adequately covered by liability and casualty insurance, consistent with industry standards.

The following tables summarize information about our rental apartment and for-sale communities. Tarragon’s ownership interest is presented for communities owned through unconsolidated joint ventures. Dollar amounts are in thousands.

Tarragon Corporation
Communities Summarized by Market
December 31, 2004

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TARRAGON CORPORATION
RENTAL APARTMENT COMMUNITIES
DECEMBER 31, 2004

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TARRAGON CORPORATION
RENTAL APARTMENT COMMUNITIES
DECEMBER 31, 2004

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TARRAGON CORPORATION
RENTAL APARTMENT COMMUNITIES
DECEMBER 31, 2004

(5)		These properties were sold in January 2005. The net carrying value of Woodcreek Garden Apartments is presented in Assets Held for Sale in the Consolidated Balance Sheet as of December 31, 2004.
(6)		Average physical occupancy for the year ended December 31, 2003, and average monthly rent per unit as of December 31, 2003 for the Investment Division Apartments and All Rental Apartments exclude 200 Fountain Apartment Homes because it was acquired in May 2004.

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TARRAGON CORPORATION
PLANNED RENTAL APARTMENT COMMUNITIES
DECEMBER 31, 2004

Our development program includes the construction of the rental communities presented below. We expect to acquire the land in Ocala, Florida, for Deerwood in the first quarter of 2005. 1118 Adams will be an affordable apartment community, and we will utilize capital grants and loans from the New Jersey Housing Finance Agency to pay for 25% of the costs of this project. We plan to use a construction loan and the sale of Federal tax credits to finance the remaining costs of this project. We have a $14.3 million construction loan with a balance of $3.1 million as of December 31, 2004, to finance the construction of Cason Estates. We expect the first apartments in this property to be ready for occupancy in April 2005. We closed a $21.4 million construction loan in January 2005 to finance the construction of Newbury Village. We expect the first apartments in this property to be ready for occupancy in the fourth quarter of 2005. We plan to finance eighty-five percent of the cost of Deerwood with a construction loan. We will use internally generated funds to pay for the remainder of the costs of these properties.

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TARRAGON CORPORATION
ACTIVE FOR-SALE COMMUNITIES
DECEMBER 31, 2004

Tarragon’s Development Program includes construction or renovation of the above for-sale communities. Costs to complete in excess of construction financing available will be paid for with internally generated funds.

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TARRAGON CORPORATION
MORTGAGE LOANS SECURED BY OWNED PROPERTIES
DECEMBER 31, 2004
(Dollars in thousands)

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TARRAGON CORPORATION
MORTGAGE LOANS SECURED BY OWNED PROPERTIES
DECEMBER 31, 2004
(Dollars in thousands)

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TARRAGON CORPORATION
MORTGAGE LOANS SECURED BY OWNED PROPERTIES
DECEMBER 31, 2004
(Dollars in thousands)