LAKEWOOD RANCH - Starwood Land Ventures LLC does not like to think of itself as the 800-pound vulture in the residential real estate room.

"We're an opportunity fund," said Mike Moser, the Lakewood Ranch-based company's East Coast president. "We're trying to invest in very, very high-risk, high-reward properties."

Even so, the vulture analogy is an apt one for the two-year-old company, an affiliate of Connecticut Starwood Capital Group, best known for launching the successful Westin hotel chain, lender iStar Financial and links operator Troon Golf.

With roughly $500 million available to sop up distressed residential lots, soured real estate loans and undeveloped property, Starwood Land is in an enviable position to capitalize on what it believes will be a significant change in the way home builders operate from now on.

To date, Starwood Land has bought $55 million worth of real estate or debt that represents 2,500 lots, in California, Arizona and Florida.

But a funny thing has happened to Starwood and competitors like Vanguard Land LLC, Walton Street Capital, D.E. Shaw & Co. and Paulson & Co. on the way to cashing in on the overheated, devastated residential real estate industry: Publicly held, national home builders, though staggered, have recovered -- somewhat.

Despite the lack of new sticks and bricks in many markets -- and hundreds of millions of dollars in land position write-downs -- builders like NVR Ltd., Lennar Corp., Toll Bros., Pulte Homes Inc. and others are active, and have managed to hoard cash. Lots of it. Nor do they appear afraid to spend it.

NVR, of Virginia, recently spent about $40 million to buy land around Washington, D.C., that was being shed from WCI Communities Inc.'s federal bankruptcy case.

Miami-based Lennar, for instance, has $1.44 billion on hand, according to filings with the U.S. Securities and Exchange Commission. Pulte, a Michigan company that in August won shareholder approval to merge with giant Texas-based builder Centex Corp., had $3.4 billion in cash on hand as of March 31, company data shows.

"Everybody in the industry has been amazed at how the public builders have come back into the market in the past 90 days," said Marc Perrin, a Starwood Capital managing director who oversees the Starwood Land.

"They've been much more aggressive in buying up lots," Perrin said. "Certainly no one in January thought they'd be there and be active."

'Disconnected

from the value'

Lenders have not exactly fallen in line with Starwood Land's business plan, either.

When the company formed, its principals believed beleaguered banks -- fat with unwanted, foreclosed properties and inundated with bad real estate loans -- would be eager sellers.

But that has not occurred.

In addition to not lending for real estate these days, many banks still are not selling their seized properties, and those that are selling have yet to fully re-evaluate the assets or debt on their books.

"Nine out of 10 times, the price banks are selling at are disconnected from the value of what the property is today," said John R. Peshkin, chief executive of Taylor Woodrow North America until August 2006 and Starwood Land's founder, who left the company after a year.

Meanwhile, the commodity Starwood Land is after -- land -- has fallen more than any other real estate asset class, experts say.

"Undeveloped land seems to have no economic value," said Peshkin, who now runs Vanguard Land, a private equity firm that is buying property in Venice and elsewhere.

"It's a pretty sad state of affairs," said Peshkin, whose firm includes his son, Daniel, and Taylor Woodrow's former director of acquisitions. "Land has gone down in price to where it was 15 years ago. It's a unique time."

As a result, Starwood Land has rewritten its playbook a bit.

"Our business plan has changed somewhat," said Moser, who was Taylor Woodrow's tower division president before joining Starwood Land in January 2008. "We originally thought we'd spend $1 billion on acquisitions. That may have been a bit ambitious."

"We've concluded the opportune buying time will be a year or two years from now, whereas we'd originally thought we'd have everything acquired by now," Moser said.

Staying lean

What Starwood Land has not done, however, is change its focus. The company has stayed lean -- it has just seven employees -- and still searches for only top-tier land deals of $5 million and above, in select markets.

To gain a further advantage, Starwood Land has partnered with seven builders or residential developers in markets like the Mid-Atlantic, California, the Carolinas, Texas and elsewhere.

Nor has Starwood Land compromised on its profit expectations. It still expects to reap at least a 20 percent gain on every deal.

"We have to underwrite tremendous risk associated with the deals we do," Moser said.

Decidedly in Starwood Land's factor going forward, Moser and others say, is what is expected to be a long-term, fundamental change in the way home builders buy and hold land.

In the past, builders would buy up large tracts of land at a time, and then sell them along with their homes. During the nationwide real estate boom, from 2003 to 2006, competition forced many builders to snap up larger and larger tracts of property.

But holding land cost builders and developers dearly when values fell and home sales stalled beginning in 2006.

Toll Bros., one of the nation's largest builders, was forced earlier this year to write down more than $450 million worth of land it could not build on.

"I think for some time to come, builders will still take the posture that they'll want someone else to take the land risk in deals," said Peshkin, who has been named to a new board at Bonita Springs-based WCI Communities, which is emerging from bankruptcy protection.

Moser and others believe builders will want to acquire only a few lots at a time and build on them before buying more land. Publicly-traded builders, especially, are likely to be under intense pressure to keep land holdings to a minimum, Moser and others said.

If that holds true, Starwood Land's and Vanguard's buy-and-hold philosophy could reap huge rewards -- especially since Starwood Land also plans to provide equity financing and enter into joint ventures with builders on new projects.

Until that happens, Moser said, Starwood Land will continue hunting for quality deals in top markets like Orlando, where the company hopes to complete a purchase of 500 home lots before year-end.

"Deal flow is still a little slow at this point, but we believe it'll come," Moser said. "We believe in two years, actually, there will be a lot shortage in the better markets -- places like Orlando, Dallas and Atlanta. And that's because inventory is getting chewed up a lot faster than most people realize."

• STARWOOD LAND VENTURES:

A Lakewood Ranch affiliate of Starwood Capital Group, founder of the Westin Hotel chain and other companies, Starwood Land began in 2007 with the aim of acquiring $500 million in residential land in states like Florida, Arizona and California. To date, it has purchased $55 million in assets.

• VANGUARD LAND LLC:

This Sarasota firm was created last year by John Peshkin, a former Taylor Woodrow chief executive and founder of Starwood Land. Vanguard is focusing on acquiring residential land in Florida, and to date has bought lots in Venice's Pennington Place community and elsewhere.

• ROCKWOOD CAPITAL LLC:

Rockwood Capital is a New York-based private real estate investment company that now manages roughly $2.7 billion of equity commitments. Since 1980, the company has invested $11.6 billion in all, including office towers in New York City and the Reston community of Virginia.

• D.E. SHAW & CO.:

Started by a former Columbia University computer science professor in 1988, D.E. Shaw & Co. is among the nation's largest private equity firms now hunting for real estate deals. In all, the company now has $29 billion in assets and 1,600 employees worldwide.

• PAULSON & CO. INC.:

A New York-based hedge fund with some $36 billion in assets under management, Paulson & Co. has aggressively purchased foreclosed real estate, troubled loans and mortgage backed securities. The firm, run by John A. Paulson and begun in 1994, has also begun lending capital to other hedge funds and banks. In January 2008, it announced that former Fed chief Alan Greenspan was joining the company's advisory board.

• WALTON STREET CAPITAL LLC:

Walton Street Capital LLC is a private equity firm founded in 1994 to invest primarily in real estate. To date, Walton has invested or has committed to invest roughly
$3 billion of equity in about 150 separate transactions.