Mark Walsh, Lehman’s Unluckiest Gambler

Mark Walsh entered 2008 as a Svengali of numbers. He headed Lehman Brothers’ commercial real estate investments, which put him at the helm of a chugging ship that spouted billions in liquid cash for deals locally and nationwide.

It was the pinnacle of a career that began 20 years before, just as Wall Street was recovering from the crash of late 1987, when Mr. Walsh, a young Fordham law school graduate, scored a job at Lehman.

Mr. Walsh had worked a few years as a lawyer before finding his way to the investment bank with pre-Civil War roots. But, once arrived, he rose quickly. Widely described as genial and smart, by the mid-1990s, Mr. Walsh saw his name regularly gracing the trade publications’ top commercial lender lists.

After the grossly overleveraged Long Term Capital Management hedge fund crumbled in 1998, sparking negative rumors about Lehman Brothers, the bank decided it would carry more of its mortgage and real estate positions off its balance sheet, thereby spawning its private-equity business. In the rising market, the move made the firm loads of money. As head of the private-equity business and commercial mortgage-backed securities, Mr. Walsh was in a particularly advantageous position.

In 2000, Shopping Center World ranked Mr. Walsh and partner Michael Mazzei No. 1 in its top retail lenders list, for organizing a staggering $5 billion worth of retail loans. Mr. Walsh didn’t stop there. His ascent at Lehman neatly coincided with the post-dot-com surge in the CMBS market, which was seen as a comparatively safer investment. By 2004, he had taken charge of Lehman’s Global Real Estate Group.

Mr. Walsh made big, headline-grabbing deals. His team underwrote Tishman Speyer’s $22.2 billion acquisition of the Archstone-Smith apartment portfolio–360 luxury apartment buildings in cities from Houston and Phoenix to Fairfax and New York. Mr. Walsh partnered with SunCal in the $110.2 million purchase of a 2.25-acre plot of land in Southern California. At the time, Forbes reported that SunCal had outbid Donald Trump for the parcel.

Mr. Walsh had, according to Eastern Consolidated’s Eric Michael Anton, risen to “the top of this country’s professional real estate pyramid.” He had also earned a reputation as one of the biggest risk-takers on Wall Street.

“When you contrast them to a Goldman or Morgan Stanley, it’s a very different way of doing business,” said one capital markets broker. “You talk to Morgan Stanley, they have $3 billion worth of [commercial mortgage-backed securities] exposure in the States. Lehman had $30 billion.”


AND MARK WALSH, AS a source close to Lehman put it, “held the keys to the kingdom.” By virtue of his skillful manuevering or by virtue of plain old happenstance–depends on whom you ask–Mr. Walsh, as one real estate financier who regularly worked with Lehman said, “had extraordinary authority to commit capital as he saw fit.”

“One of his signature products was high-risk, high-return bridge debt and equity financing for large acquisitions, such as Archstone,” continued the financier. “By quickly committing to fund required-debt and equity, Lehman was able to ‘bear hug’ deals with large profits as positions were securitized and longer-term equity capital was raised. The downside was large balance sheet positions when market conditions eroded and values dropped.”

“In Wall Street, Mark held an unusual position in that all the different aspects of real estate reported directly to him,” said one admirer, who has done billions of dollars worth of deals with Mr. Walsh. “In most other Wall Street firms, those responsibilities were divided among two or three other people. While it was working, Lehman was one of the best players out there. They were great as partners and great as lenders; they were very astute real estate people. And I think they really facilitated a lot of transactions in the market.”

Mr. Walsh declined to go on the record for this article. Even in good times, when his deals made headlines, his name never did, summoning scarcely anything but press releases on Lexis Nexis, or, for that matter, Google.

In these days of Internet overexposure, only one image of Mark Walsh exists online. It’s a head shot, his face reddish against a gray background, under a conservative cut of brownish hair, circular glasses framing blue eyes. He’s wearing a plain suit and tie. The photo is on the Web site of UCLA’s Ziman Center for Real Estate. Mr. Walsh, one of its founding members, helped raise its initial endowment.

The 48-year-old appears to think highly of real estate education. In 2005, he and his wife endowed the Fordham University Albert A. Walsh Chair for Real Estate, Land Use and Property Law, in honor of Mr. Walsh’s father, a prominent affordable housing advocate.

“Real estate law and related issues touch everyone’s life every day, particularly in New York City,” Mark Walsh said in a Fordham press release.

His words were prescient. The manipulation of the residential and commercial real estate markets–by investors, credit agencies, mortgage brokers and the lowly homeowner–have led to the destruction of Wall Street as we know it. Lehman ended up having to write down a number of its assets, including the Archstone-Smith and Suncal deals. The 158-year-old bank ended up declaring bankruptcy two weeks ago. Barclays has since gobbled up most of its American assets. And now that Lehman’s fate appears settled, the blame-mongering can begin.

Some former Lehman employees and observers have come out of the woodwork and laid the blame for Lehman’s demise at Mr. Walsh’s feet, including, most recently, deposed CFO Erin Callan, who this week told Fortune magazine that “the commercial real estate portfolio really was the albatross of the firm.” Critics in the real estate industry have criticized Mr. Walsh and his boss, Richard Fuld, for what they describe as a concentration of too much power, too much autonomy, and too much risk-taking in too few hands.

“He’s very calculating and political and was able to ingratiate himself with Dick Fuld and had incredible autonomy and was able to do things in the firm that no one else was able to do,” said the source close to Lehman. “There were reportedly capital committees and processes under way that everyone else had to go through, and Walsh didn’t have to go through them.”

Indeed, up until a few years ago, Mr. Walsh shared responsibility for Lehman’s commercial real estate operations with longtime executives like Ray Mikulich, Michael Mazzei and Robert Lieber. Once they left, sources say the risk-taking and bad bets increased, that Mr. Walsh consulted fewer experts about his decisions, and held his cards even closer to his chest. The firm, according to one developer, became known as the lender of last resort on Wall Street, willing to loan money to just about anyone.


FOR THEIR PART, SOME commercial real estate types take him and his counterparts at other banks to task for apparently forgetting that real estate, unlike fuel and wheat, is not a simple commodity.

“They were totally spreadsheet-oriented, analysis-oriented, with no understanding of the industry,” said a top commercial real estate broker of Lehman. “They were buying buildings they never even visited.”

“Real estate is not a commodity,” pointed out Jeff Baker, managing director at brokerage Savill’s. “It’s particular. Value is determined by location, quality and sponsorship.”

Yet Mr. Walsh, for sure, has many admirers. Rob Lapidus, president and COO of L&L Holding Company, calls him “about as good a human being as exists on the planet,” and John Gelband, Lehman’s global head of capital markets, says he’s “one of the highest-integrity gentlemen that I’ve known inside or outside the business.”

Under tremendous pressure from above, laboring within a culture that incentivized risk, working with credit agencies that had abandoned their mission, under a government that over-promoted homeownership, perhaps Lehman’s demise was close to inevitable.

“The CMBS market went away, the condo market’s going away,” said a veteran financier. “They’re caught with a huge position that is highly illiquid and very complicated. … His market timing couldn’t have been worse.”

For its part, Barcalys has quickly begun erasing Lehman’s brand presence in New York. It last week replaced “Lehman Brothers” on the scrolling displays on the building facade of 745 Seventh Avenue.

And a call this week to Lehman Brothers was answered with the following greeting, “Good afternoon, Barclays Capital.”

Mark Walsh, Lehman’s Unluckiest Gambler