Kidnapped, Then He Bought Sears for the Land: The Eddie Lampert Story

Steven Weinstock (00:00) January tenth, two thousand and three. A parking garage in Greenwich, Connecticut. A hedge fund manager named Eddie Lampert is walking to his car after work when four men grab him. One of them is a twenty-three-year-old ex-marine. They force him into a vehicle and drive him to a motel of forty-nine dollar a night days inn Where they tie him up and leave him in the bathtub. Then they pick up the phone and call his wife. For the next twenty-eight hours, one of the most successful investors on Wall Street is sitting bound in a motel bathtub while his kidnappers try to figure out how to actually collect a ransom without getting caught. They are, it turns out, not very good at this. This is the story of Eddie Lampert, the man who survived that motel room, and then went on to buy one of the most iconic retailers in American history. Not because he believed in the stores, but because he believed in the dirt underneath them. This is another one of our deep dive episodes here on the Wealth Clock, where instead of a conversation with a guest, I dig into a person or a deal. That shape the industry we work in. Eddie Lambert grew up in Roslyn on Long Island to a Jewish family. His father, Floyd Lambert, was a senior partner in a New York City law firm, a comfortable, respected life, right up until it wasn't. When Eddie was just fourteen, his father died suddenly of a heart attack. His mother, who had never needed to work outside the home, went to work. stocking shelves at a Sax Fifth Avenue to keep the family afloat. Here's a detail nobody brings up when they tell this story. Before any of that, it was Eddie's grandmother who planted the seed. She was a passive stock investor, the kind of person who never missed an episode of Wall Street Week on television, and she used to sit with young Eddie going through her stock picks in the newspaper together. That's where it started. Not Yale Not Goldman Sachs, a grandmother and a newspaper stock table. He was sharp enough and poor enough for financial aid to get into Yale, where he majored in economics and was tapped for Skull and Bones, the university's famously secretive society. His roommate there was a young man named Steve Minuchin, who decades later would become the United States Treasury Secretary. and would later sit on Lampert's board. Lampert got into both Yale and Harvard Law Schools. He didn't go to either. Instead he took a job in a risk arbitrage at Goldman Sachs, and by 1988, at just 25 years old, he'd started his own hedge fund, ESL Investments. He built a reputation as one of the sharpest value investors of his generation. Big concentrated bets On companies like AutoZone, Auto Nation, Honeywell. By his late thirties, Eddie Lampert was being called the next Warren Buffett. Which brings us back to that bathtub. The kidnappers had grabbed Lampert with no real plan for what came next. At some point during the ordeal, Lampert, according to the story he'd tell, spearingly for years afterward, talked one of them into letting him go. And then the kidnappers made a mistake that would make this story famous. While holding one of the wealthiest men in Connecticut hostage, they got hungry. They ordered a pizza and they paid for it using one of Lampert's own credit cards. It took police almost no time to trace the charge and roll up the entire crew. Lampert survived. By most accounts, he was back at his desk within days. He rarely spoke publicly about kidnapping for the next fifteen years, but less than two months before it happened, he had already quietly started making one of the biggest bets of his career. In late 2002, Kmart filed for bankruptcy. Everyone on Wall Street saw a dying discount retailer. Eddie Lampert saw something else. He started quietly buying up Kmart's distressed debt for pennies on the dollar. Bankruptcy has a strange mechanic buried inside it. When a company can't pay its debts, its bondholders, the people it owes money to, can end up owning the company once it emerges from chapter eleven. Lambert wasn't betting on Kmart's turnaround as a retailer. He was betting on Kmart's debt was cheaper than the land underneath its doors was actually worth. It worked. He emerged from the bankruptcy in control of the company for a fraction of the year. of what it would cost to buy it outright. Then in 2004, he went bigger. He merged Kmart with Sears, Roebuck and Company. At the time, still one of the most recognizable names in American retail in an $11 billion deal, creating Sears Holdings. Here's the thing almost nobody outside Wall Street understood at the time. Sears didn't just sell tools and appliances. Sears owned enormous amounts of real estate, thousands of store locations, many of them anchor positions in malls across the country, built up over more than a century as one of America's original retail giants. Lambert's thesis, the one he really says out loud, was that real estate alone was worth more than what he paid for the entire company. He wasn't a retailer, he was a real estate investor. wearing a retailer's name tag. For years, Sears kept losing money as a retail business. Store sales declined. Customers left for Walmart, then for Amazon. But Lamford didn't need the stores to succeed. He needed the real estate to be worth what he thought it was. In twenty fifteen he found a way to prove it. He spun off roughly two hundred and thirty five of Sears' best properties into a new separate company. called Seritage Growth Properties, a real estate investment trust. Sears sold the buildings to Ceritage, then signed leases to keep operating stores inside them, paying rent on real estate that he used to simply own. It was, in a strange way, brilliant. Lampert and his Hutch Fund were major owners of Ceritage too, which meant that even as Sears, the retailer, kept shrinking, The real estate could be developed, released to other tenants at market rates, and made valuable on its own, separate from whether anyone was still buying refrigerators at Sears. But a retailer still needs customers, and Sears kept losing them. In 2009, Sears Holdings operated close to 3,900 stores. By 2018, that number had fallen to fewer than 800. In October of twenty eighteen, Sears Holdings filed for Chapter 11 bankruptcy, the same fate that had once handed Lampert control of Kmart, now closing in on the company he had built. In January 2019, Lampert did something almost nobody expected. Through an affiliate of his hedge fund, he bought Sears out of its own bankruptcy, bidding more than five billion dollars to keep roughly four hundred and twenty-five stores alive. Rather than let the whole company be liquidated. To some, that made him the man who saved what was left of the American institution. To Sears creditors and to a lot of its former employees, it looked like something else entirely. Later that same year, Sears itself, through the creditors left holding the bag, filed a lawsuit against Eddie Lamper. Steve Minuchin, his old Yell roommate, turned board member, was named too. So were several other former directors. The allegation that Lampert used his control of the Sears board to move more than two billion dollars in assets, including the Saritage real estate deal and an earlier spinoff of the lands and clothing brand out of Sears and toward himself and other shareholders. At the exact time the company's ability to pay its own creditors was collapsing. Lampert maintained that every one of those deals was done at fair value. reviewed by independent directors and helped keep Sears alive longer than it otherwise would have survived. The case dragged on for four years. In 2022, both sides settled. Lampert and his fellow investors agreed to pay $175 million, a fraction of the two billion originally alleged. Closing out Sears' bankruptcy case for good. A smaller related fight Over a Sears affiliate dragged on even longer and only wrapped up after six years of litigation in late twenty twenty five. The man who Wall Street once called the next Warren Buffett had become, for a lot of Americans, the name attached to the death of Sears, and for years, the name attached to the lawsuit. So what do we take from a story like this? First, Lambert's core insight was real and it wasn't crazy. Operating businesses often sit on real estate more than the business itself. Recognizing that and structuring a deal to unlock it is a legitimate, well-worn strategy. It's the same instinct behind sale lease banks and commercial real estate everywhere, including deals a lot smaller and a lot less con controversial than this one. Second, and this is the part worth sitting for the moment you are simultaneously the landlord. The controlling shareholder and the person making the decisions for the operating business, every deal you do starts looking like it might be serving one hat at the expense of another. Even if it isn't, even if every transaction really was done with fair value, the appearance of a conflict can do almost as much damage as an actual one. And once creditors, employees, and the public stop trusting the structure, no amount. Of technically correct gets that trust back. If you're ever one wearing multiple hats in a deal, the operator, the landlord, the capital source, the governance around that has to be airtight and it has to be visible, not just legally defensible after the fact. Eddie Lampert survived 28 hours tied up in a motel bathtub over a botch kidnapping and went on to run one of the boldest real estate plays in modern retail history. Whether you think he's the man who correctly saw the value everyone else missed, or the man who hollowed out an American icon together, probably depends on which side of the deal you were standing on. If you enjoyed this one, comment the word awesome so I know you watched or listened to the end. And let me know who do you want me to do a dig into next. This has been the Wealth Clock Podcast. I'm Steven Weinstock. I'll see you next time.