Jeffrey Gault, who ran Los Angeles-based KB's condominium division until June, is now at the helm of LandCap Partners. The Century City-based company has raised more than $350 million to acquire or provide loans for single-family house lots, or partner with builders.

The company hasn't yet closed any deals, Gault said.

With the U.S. home-building industry reeling from the housing slowdown, such investors see the chance to buy once-expensive land that current owners can no longer develop at a profit or to invest in projects that need additional capital to be completed.

"There's a lack of liquidity in the capital markets now, and some builders are long on lots," said Gault, who wants to seize the chance to buy at today's deflated prices.

"What dictates land prices is what Mr. and Mrs. Smith will pay for a house at 2007 prices," he said.

LandCap is one of several new real estate investment firms that seek to exploit the housing downturn by partnering with builders that are carrying too much overpriced land on their books.

The global credit crunch has affected builders' ability to recapitalize, and most of the publicly traded builders have taken millions of dollars in land-impairment costs and asset write-downs, adding to their woes.

Last summer, veteran investors Frank Zaccanelli and L.M. Cummings formed Scala Real Estate Partners in Irvine, raising $200 million from Lehman Bros. Holding Inc. and Canadian pension fund Oxford Properties Group to invest in California residential projects.

"The trick is to find the right projects in the submarkets where we can feel comfortable," Zaccanelli said. 

He cited California's coastal markets as the most likely locations for Scala's initial deals.

Zaccanelli, who ran financier Ross Perot's real estate investment business during the 1990s, said he expected 2008 to be worse for real estate than this year has been. 

Demand is down by half from a year earlier, and home prices declined in September in most Southern California markets.

Still, he said, in adversity "you find opportunity." 

He is betting that California's diverse economy will usher in a housing recovery by the end of the decade.

Unlike a vulture fund that seeks to buy assets for cents on the dollar, such land companies act more like a bridge to builders struggling to ride out the downturn, said Steve Johnson, a principal at Riverside-based consulting firm MetroStudy Inc.

"It's a brilliant move on their part to get between the downside of the market and the upside, and try to weather the storm," he said. "

There's definitely a huge opportunity here because there are so many assets available.

Gault, a licensed architect and a longtime local real estate executive, headed KB Urban from October 2005, when the division was formed to build mid- and high-rise housing developments in downtown areas. 

But the housing slowdown caused the division to start tabling projects.

Gault's strong reputation, coupled with the industry contraction, made it easy to recruit top talent to LandCap. Of the firm's initial 12 employees, seven are from KB Home, Gault said, including Steve Coniglio, who ran KB's mid-Atlantic division. 

He will do the same at LandCap, which also has offices in Washington, D.C., and South Florida.