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.
Okay so they get to take the loss and still maintain some control over the land. In addition, because of the tax refund, they really don't have a loss. They sold the land for $525 million and get an $800 million tax refund which is basically what they were carrying the land for on the balance sheet. That is a smart deal and one that other homebuilders will likely emulate. The current stimulus bill would allow companies to apply the loss against taxes paid over the last five years rather than the two years in the Lennar deal.