Builders, developers, and private equity investors are circling the knotted tangle of the largest bankruptcy case in U.S. history, looking to extract a portfolio of more than 43,000 lots of discounted residential land in California.

"I think they have some of the best land in America" remaining for residential development, said Gadi Kauffman, CEO of Robert Charles Lesser and Co.

The "they" is Lehman Brothers Holdings and SunCal Companies, which partnered in various ways to buy and develop nearly 26,000 acres stretching from San Francisco Bay nearly to San Diego. When Lehman filed for bankruptcy protection two years ago, most of the projects went with it. SunCal put the rest into voluntary bankruptcy because its Lehman partner stopped funding them.

The 22 projects include a couple hundred rare lots overlooking the Pacific in San Clemente and thousands of not-so-rare plots stretching across the exurbs of the Inland Empire. There's a former military hospital in Oakland, a mall parking lot in Torrance, and a swanky Century City condo site also in the mix.

And they're all likely to be worth considerably less than what Lehman and SunCal paid for them. Smelling opportunity to refill their lot supplies with land that might never be cheaper in entitled land-strapped California, builders, developers and private equity investors have been calling those managing and controlling the lots, expressing interest. In fact, so many movers and shakers in the industry are scouting the assets that many won't talk about the opportunity, citing non-disclosures or the desire to keep what they know about the state of the lots to themselves.

Noting the demand for the land and worrying that it needs to be managed better while in bankruptcy, the judge for the Lehman case approved a spin-off from Lehman named LAMCO in March to actively manage and market the real estate assets. LAMCO is being run, for the most part, by the same people who managed the assets for Lehman before bankruptcy, but under the supervision of Bryan Marsal, CEO of Alvarez & Marsal, which is managing Lehman in bankruptcy.

But Lehman isn't the only entity that has an interest in having a say in what happens to the assets. SunCal, the developer, title holder of some and current hands-on manager of the assets, also has an interest. It has actively battled Lehman in bankruptcy court in New York and in California, where some of the individual project cases are filed, seeking to get vendors, who are owed considerable sums for planning, site work, and maintenance on the land, paid first, ahead of Lehman.

"The case is about paying people, subs, that did work that Lehman instructed be done," said Frank Faye, SunCal's chief operating officer. "We have quite literally been fighting the fight to get the right thing done here, which is to get people paid."

SunCal, which early on in the bankruptcy was turned down when it asked the court to let it continue moving some of the land toward development, said it would like to finish the developments it started years ago.

"These are properties that we believe in they are projects that we started and we like to finish," Faye said.

All the complicated squabbling and the uncertainty about when the land can be freed to be sold have turned some potential buyers of the land away, say some involved in the case. There are others who say there's little incentive for Alvarez & Marsal, which is collecting fees to manage the assets, to push through a sale in the short term.

Yet, strong arguments have been made in bankruptcy filings that the land should be sold soon.

"Over the past year, third-party interest in the Properties has increased, and the Trustee is receiving higher all-cash offers now than at any other point of the SunCal Master Bankruptcy Cases," wrote Alfred Siegel, the bankruptcy court trustee in California overseeing the bankruptcy cases of three properties where Lehman was an investor as well as a lender in the projects. "With several potential purchasers, an overbid process, and the current state of the market, the SunCal Master Estates will be severely prejudiced if the Trustee is not permitted to reduce the Properties to cash at this point in time."

Learn more about markets featured in this article: San Francisco, CA.