Genius - Lennar makes lemonade out of lemon's

As reported in today's Wall Street Journal

Lennar’s $800 Million Tax Refund
By DAVID REILLY
February 6, 2008; Page C3

Lennar Corp. has found a way to salvage something from the huge losses it incurred by overpaying for land during the housing boom.

Late last year, the Miami-based home builder sold a big swath of land — about 11,000 home sites — for $525 million to a partnership that it formed with Morgan Stanley. At first glance, the deal seemed terrible for Lennar, which had the land valued on its books at about $1.3 billion.

But the deal’s structure allowed Lennar to recognize a big loss that it applied against taxes paid the previous two years. The result: Lennar is expecting a tax refund of more than $800 million, according to the company’s annual results filed in late January.

As an added bonus, because of the way Lennar and Morgan Stanley structured their partnership, Lennar still effectively owns 20% of the land, according to the company. It also has a 50% voting interest in the partnership, meaning it will have a say in how the land is developed.

‘The Holy Grail’

That means Lennar gets the tax loss, but still holds an interest in the land on its books. “That’s the holy grail,” said Robert Willens, president of tax and accounting advisory firm Robert Willens LLC. “The accounting is saying that they’re not really selling it, whereas the taxes are more formal in the way they look at it.”