Long Must Read: How Lehman Brothers Got Its Real Estate Fix

[UpInArms]

http://www.nytimes.com/2009/05/03/business/03real.html?em=&pagewanted=all

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.

...more...

[DJ13]

1. Love the photo in that article!