Aug. 20 (Bloomberg) -- Wachovia Corp. sold land and construction loans secured by 2,900 housing lots for $40 million to a joint venture headed by residential land company LandCap Partners, a person with knowledge of the transaction said.

The loans have a book value of $75 million to $80 million, according to the person, who declined to be identified because terms weren't disclosed in a statement from Los Angeles-based LandCap. The agreement gives LandCap the right to buy more loans from Wachovia, which had almost $19 billion in commercial land loans.

Chief Executive Officer Robert Steel, 57, pledged to sell Wachovia's ``non-core assets'' after reporting an $8.9 billion second-quarter loss, the worst in its history. Banks are raising capital by selling loans and properties taken over from developers and home builders hit by the worst housing slump since the 1930s.

``Rather than holding on to properties in a market where values are declining and prospects of recovery are slim right now, Wachovia thinks it's a good opportunity to get rid of some of this real estate,'' said Keith Gumbinger, vice president of HSH Associates Inc., a Pompton Plains, New Jersey-based research firm. ``The fact the deal got done is a positive.''

The loans were issued for real estate in Arizona, California, Florida and Illinois, Jeffrey Gault, chief executive officer of LandCap, said in an interview. It's the first joint- venture with a bank since LandCap raised $350 million last year. Gault said his company is talking with many institutions trying to sell loans. The company bought Colorado property directly from a bank earlier this year, he said.

`Fair Market Value'

``We are paying fair market value for the loans, they retain a small percentage of the joint venture and they hand over special servicing of the loans, which in difficult times is a tough challenge,'' Gault said.

LandCap said it hopes for more transactions with Wachovia, which had $18.74 billion in commercial real estate loans as of June 30, according to its quarterly financial report. The company said it wasn't receiving interest on $2.2 billion of those loans.

Wachovia doesn't comment on transactions, spokeswoman Elise Wilkinson said.

Gault was president of KB Urban, a division of KB Home Inc. that developed high-rise condominium projects. Before joining KB he was president of Empire Companies, a land developer in southern California, according to the Web site.

Wachovia rose 60 cents to $14.90 in New York Stock Exchange trading composite trading today. The shares have declined 61 percent this year.

The transaction was reported earlier today by the Wall Street Journal.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: August 20, 2008 16:34 EDT