What's REALLY up with the Lennar deal with Morgan Stanley?

One reason new housing remains relatively expensive even with price cuts and incentives is the high cost of land, and most landowners have refused to sell their holdings off at deep discounts -- at least until now. While industry veterans such as Jeff Gault (now CEO of LandCap Partners) and Steve Cameron (Foremost Communities) have launched land development companies to take these assets off of builders' balance sheets, this Lennar deal with Morgan Stanley has effectively discounted the land holdings by 60%. What will that do to the valuations of other land holdings being held by owners who've refused to discount?

According to analyst Carl Weichart at Wachovia, "The deal generates immediate cash for Miami-based Lennar and is a continuation of the company's strategy of seeking to become a 'near assetless homebuilder,' Wachovia Capital Markets analyst Carl Reichardt wrote in a Monday report. 'Such business models tend to post higher returns on capital, inventory turns and free cash flow relative to peers,' the report said. In the near term, however, the bold strategy comes in 'a far second to market conditions in housing that continue to wither,' such as low margins, bloated inventories and falling prices.

Over at JP Morgan, "research analyst Michael Rehaut wrote that the $775 million loss on the deal as a 'net negative' for Lennar and the homebuilding industry because it points to more impairment charges on assets such as land into 2008. 'We believe the loss on the sale is a major negative, as it shows charges are far from over,' Rehaut wrote."

And, according to the blog authored by CNBC Realty Check host Diana Olick, one unnamed analyst simply called the news "terrifying," but is it? From today's Wall Street Journal article, it seems that the best way for banks and investors to get a non-performing asset like land to pay off is to partner with an expert -- meaning the builder -- to develop the land and either sell it off to other builders or build it out themselves.