The .Net Framework 3.5 is not in the Windows SDK path. If the .Net Framework 3.5 is installed on a machine, its components (e.g. MSBuild) will not be found in the Windows SDK build environment by default. To workaround this issue, add the following to your path.
On an X86 machine:
C:\Windows\Microsoft.NET\Framework\v3.5
On an X64 or IA64 machine:
C:\Windows\Microsoft.NET\Framework64\v3.5