It is because есть is an affirmative state of being (=is), and doesn't inherently indicate possession. The wrong sentence you listed literally means "my friend is big house".
The preposition у is used to mark the possessor. Recall that есть (=is) and нет (=is no[t]) in this context are opposites; there can only be one.
If у A(gen.) есть B, you can sometimes omit есть to reduce emphasis on the possession itself. But if у A(gen.) нет B(gen.), нет cannot be omitted.
У моего знакомого большой дом = (Lit.) At/by my friend (—) big house.