BACK when he was a major Wall Street deal maker, Mark A. Walsh, the former head of the global real estate group at Lehman Brothers, had a running joke with Carmine Visone, one of his managing directors. Mr. Visone, 10 years older than his boss, would lecture Mr. Walsh about the importance of fundamentals: land values, construction cost and rents.

As Mr. Visone remembers it, Mr. Walsh would wave his hand dismissively and would argue just as emphatically that the best way to make office buildings spew cash was through the magic of financial engineering. Typically, Mr. Visone gave in. “He was too smart for me,” Mr. Visone recalls.
Many others were equally in awe of Mr. Walsh’s intellect. Until Lehman Brothers collapsed last September, Mr. Walsh was considered the most brilliant real estate financier on Wall Street. In the ’90s, he pioneered the art of lending to office building developers and then slicing up and repackaging the debt for investors.
Less risky pieces went to institutional investors; the lower-rated chunks to hedge funds and others hungry for juicier returns. Lehman pocketed a fee every step of the way, and it often retained a risky piece or two to give its own earnings a kick.
“That was one of Lehman’s strengths,” says Brad Hintz, a former chief financial officer at Lehman who is now an analyst at Sanford C. Bernstein. “In fact, a lot of Wall Street firms tried to duplicate Lehman’s commercial real estate strategy.”
Mr. Walsh, who wore rumpled Brooks Brothers suits and could be painfully awkward in front of crowds, was one of Lehman’s biggest profit producers. Former Lehman executives say Richard S. Fuld Jr., the bank’s chief, relied on Mr. Walsh to bankroll the firm’s swanlike transformation from a second-tier bond trading shop into a full-service investment bank. Former members of his unit, who requested anonymity because they were concerned about being swept up in lawsuits and investigations surrounding Lehman’s collapse, say it generated more than 20 percent of Lehman’s $4 billion in profits at the peak of the real estate boom in 2006.
Many factors, of course, contributed to Lehman’s demise last fall. Near the end, it carried $25 billion in toxic residential mortgages. It was wildly overleveraged. And the federal government made the fateful decision not to rescue Lehman from its mistakes. But when real estate overheated in the years before Lehman’s implosion, Mr. Walsh made billions of dollars in loans and equity investments that also ultimately helped bring down the bank.
Lehman’s bankruptcy hasn’t quelled the controversy about Mr. Walsh’s activities. Last fall, the United States attorney’s office in Manhattan subpoenaed him and other former Lehman executives as part of an investigation into whether the firm improperly valued its commercial real estate holdings, among other things. In March in a civil complaint, Anne Milgram, the New Jersey attorney general, accused Mr. Walsh and 17 other former Lehman officials of defrauding the state’s pension funds by misrepresenting Lehman’s real estate exposure. Mr. Walsh, 49, declined to be interviewed for this article.
His former co-workers and clients remain staunchly loyal. “I have the greatest respect for him personally and professionally,” says Richard S. Ziman, the former C.E.O. of Arden Realty, a company based in Los Angeles that Mr. Walsh helped take public in 1996 and sell in 2006. “I’d testify in court if that was necessary.”
But even among Mr. Walsh’s supporters, a nagging question remains: How could a real estate wizard who built a thriving business by creating new ways of managing risk by sweeping loans off Lehman’s balance sheet end up doing deals that contradicted everything he seemed to stand for — and contribute to the collapse of one of Wall Street’s most venerable firms?
MR. WALSH grew up in Yonkers, the son of a lawyer who once served as chairman of the New York City Housing Authority. He attended Iona Preparatory School in New Rochelle; the College of the Holy Cross, where he majored in economics; and, finally, the Fordham University School of Law.
After receiving his law degree in 1984, he worked as a real estate lawyer in Miami and handled a lot of foreclosures. That came in handy when he took a job at Lehman in 1988, at the end of an earlier real estate boom that left banks and insurers saddled with mountains of bad loans.
Mr. Walsh bought and sold loans on properties that were often in foreclosure. There were bargains galore. He generated hundreds of millions of profits for the firm and won the confidence of Mr. Fuld, who gave him the authority to make huge loans. Then, along with Ethan Penner of Nomura Securities and Andrew D. Stone of Credit Suisse First Boston, Mr. Walsh discovered securitization. This created an entirely new market for commercial real estate debt. No longer would lenders have to shoulder all the risk from real estate lending. Wall Street could make the same loans and sell them off. The challenge then became lassoing the right kind of developers to back.
The three men marketed their services very differently. Mr. Penner hired Bob Dylan, Stevie Nicks and the Eagles to serenade clients, while Mr. Stone jetted around the country with the likes of Donald Trump. The publicity-shy Mr. Walsh was more understated. Mr. Ziman says Mr. Walsh went fly-fishing with clients in Colorado and Montana.
Developers also loved the fact that Mr. Walsh was willing to lend them enormous sums. In 1997, Barry Sternlicht, then the chief executive of Starwood Hotels and Resorts, needed $7 billion to buy ITT.
“I called up Mark and Goldman Sachs and said, ‘Would you be interested?’” he recalls. “Goldman said they were. They came to see us. But we needed to get it done really quickly. Mark said, ‘Yeah, we’ll do it.’ I said, ‘Really? You are going to do it yourselves?’ He said, ‘Yup.’ ”
Mr. Sternlicht says Mr. Walsh brought Mr. Fuld himself to a meeting at the hotelier’s home to assure him that Lehman would back his acquisition. “Dick Fuld sat there in my living room and said: ‘You have our word. We’ll get this done,’ ” Mr. Sternlicht recalls. “We paid a $20 million fee. I was never so happy paying a fee.” Mr. Fuld declined to be interviewed for this article.
During the late ’90s, Mr. Walsh forged close ties with many of the most prominent developers in New York. He bankrolled Tishman Speyer in its purchase of the Chrysler Building in 1997. He backed Steven C. Witkoff in his purchase of the Woolworth Building in 1998. And he financed the acquisitions by the German real estate developers Aby Rosen and Michael Fuchs of the landmark Lever House and Seagram Building.
(Source: The NYT