March 19 (Bloomberg) -- Amancio Ortega Gaona, already the world’s fourth-richest person based on the success of his Zara fashion retail stores, has quietly amassed a real estate empire worth as much as $10 billion and is emerging as a formidable competitor for prime properties from London to Beverly Hills.
Relying on all-cash offers, he has outbid the world’s biggest institutional funds and professional property investors, such as Tishman Speyer Properties LP.
“He’s at the very highest levels of high net worth investment and competing with some of the biggest sovereign wealth funds for the primest properties in the market,” said Joseph Kelly, director of market analysis for Real Capital Analytics in London, a real estate research firm.
In the past four months alone, Ortega has spent almost $1 billion purchasing properties in Manhattan’s meatpacking district, London’s West End, Beverly Hills’ Rodeo Drive and Barcelona’s main shopping drag, Passeig de Gracia. He recently paid one of the highest prices per square foot ever for a London office building.
In late 2011, Manhattan-based Tishman Speyer, which owns Rockefeller Center, the Chrysler Building and London’s Tower Place, was close to finalizing the purchase of Madrid’s most famous skyscraper, the 43-story Picasso Tower office building. At the last minute, the building’s owner instead accepted a 400 million-euro ($556 million) bid from Ortega, according to two people familiar with the deal who asked not to be identified because the negotiations weren’t public. Unlike Tishman Speyer’s offer, Ortega’s was all-cash.
Ortega, the founder and majority shareholder of Inditex SA, the world’s largest fashion retailer, is taking refuge in real estate as a safe long-term investment, particularly with U.S. Treasury yields near record lows, according to real estate professionals. By comparison, the fashion industry is notoriously fickle. Inditex has suffered recent downgrades in ratings by analysts as a result of slowing growth.
Ortega’s personal real estate portfolio may be closing the gap with Donald Bren, chairman of Irvine Co. of southern California, often cited as the world’s wealthiest real estate investor. Bren’s properties are worth $14.4 billion, according to the Bloomberg Billionaires Index.
A handful of other billionaires tap their personal fortunes to compete on such deals. They include Mexican telecommunications magnate Carlos Slim, Brazilian banker Moise Safra, the Conley and Otto families of Germany and Chinese real estate developer Zhang Xin, said Kelly.
Half the Price
While Ortega, 77, has sunk billions into premier locations in some cities at the top of the market, in Spain he’s taken advantage of the country’s economic woes to acquire buildings for deep discounts. The 400 million euros he paid for the Picasso Tower was less than half of its value four years earlier, according to a 2007 filing by the building’s former owner valuing the entire property at 850 million euros.
Spanish property prices have collapsed since its real estate boom ended in 2007 and the country plunged into the worst economic slump of the past 40 years. Home prices and prime office rents have both fallen more than 40 percent since 2007.
“He’s clearly making a big bet on office space in the center of the city at a time when all the big Spanish companies with offices in the centers of Madrid, Barcelona and Bilbao, sold out and moved out to middle of nowhere,” said Ken Dubin, a professor at IE Business School in Madrid and the Lord Ashcroft International Business School in Cambridge.
“To the extent corporate flight can lead to the collapse not just of property values but lots of other things in a city, it’s important he’s making these big investments,” Dubin said. “And the fact he’s making them obviously gets other people into the game and attracts attention.”
Madrid’s Picasso Tower -- so named because of its proximity to the Plaza de Pablo Ruiz Picasso -- is one of many properties Ortega has purchased near or on the Paseo De La Castellana, Madrid’s main commercial drag.
Elsewhere in Spain, he recently paid $60 million to buy the remaining stake in a building that houses Barcelona’s flagship Apple store, a property he had already invested $105 million in during 2012. In Valencia, he bought another Apple store building for $30 million late last year.
“It’s an enormous consolidation of power,” Dubin said. “The percentage of square feet of prime space that is in the possession of this one man in this country, there are few parallels in other countries the size and wealth of Spain.”
Ortega’s properties worldwide generated rental income of at least $290 million during 2012, the most recent year records are available.
Roberto Cibeira Moreiras, investment director of Ortega’s main holding company, declined to comment. “Our policy, given we are a private company, doesn’t contemplate interviews,” he said.
Ortega rents some of his properties to his Zara stores. By effectively becoming his own landlord, he benefits two ways. He gains a tenant who is unlikely to leave or make exorbitant demands, while Inditex enjoys a friendly owner unlikely to impose big rent increases.
On Madrid’s Calle Serrano, an upscale shopping street, a building he purchased in 2011 is being renovated. It will soon reopen as Zara’s flagship store for Madrid, one of more than 1,800 Inditex stores across the country.
To be sure, Ortega has been shedding some assets. In January, he sold his 4.05 percent stake in NH Hoteles SA, the Spanish hotel company. And he and his fellow investors in another hotelier, Occidental Hotels & Resorts, are in talks to sell their stake for as much as $700 million, according to people familiar with the matter.
Ortega is Spain’s version of Sam Walton, who established in rural Arkansas what would become the world’s largest retailer. Ortega similarly created a multi-billion-euro fortune in Arteixo, Spain, a tiny industrial town far from any major metropolitan area.
The son of a railway worker from northern Spain, he opened his first Zara store in 1975. Its parent company, Inditex, now generates almost $21 billion in annual sales. The company earned $3 billion in fiscal year 2013, operating more than 6,200 stores around the world under Zara and other brands, including Massimo Dutti, Oysho, Bershka and Pull & Bear.
Ortega, who is worth $61.1 billion, stepped down as chairman of the company in 2011. Famously press shy, he retains a 59 percent ownership stake in Inditex. His tiny real estate staff operates from a glass office building on Inditex’s campus in Arteixo.
Real Estate Empire
The precise value of his empire is unclear. He has spent at least $6 billion over the past decade in cities including Berlin, Paris, Chicago, Boston, Miami, Washington and San Francisco, according to Real Capital Analytics and public records. The purchases were mostly made through subsidiaries of Pontegadea Inversiones SL, the bigger of his two main real estate holding companies.
According to the Bloomberg Billionaires Index, Ortega’s real estate businesses are valued at $5.8 billion, based on their 2012 financial results and the price-to-book value of four publicly traded comparable real estate investment trusts: Utrecht, Netherlands-based Corio NV, Paris-based Societe Fonciere Lyonnaise, Amsterdam-based Eurocommercial Properties NV and Escondido, California-based Realty Income Corp. Including his $1 billion in property acquisitions since 2012, the ranking values Ortega’s holdings at $6.8 billion.
The $10 billion estimate comes from a person familiar with Ortega’s assets. The person said Ortega owns other properties outside the two main property holding vehicles. The Bloomberg ranking doesn’t include those assets because they couldn’t be documented.
London’s West End
Like billionaires from Russia, China, Singapore, Abu Dhabi and India, Ortega has been buying up properties in one of the hottest real estate markets, London. In the past three years, he has spent $1.3 billion there, concentrating on the West End, one of Europe’s most expensive neighborhoods.
“London is the only real global market in the world,” said Andrew Langton, a high-end residential real estate agent there. “Every single nationality is here buying property.”
Lenient Tax Rules
At least two of Ortega’s London properties are owned through Luxembourg entities, which he inherited from the previous owners, records show. Using subsidiaries in Luxembourg, which has lenient capital gains tax rules, is a common tactic among investors.
Inditex also uses tax-haven subsidiaries. As reported by Bloomberg News in February, the retailer has shifted $2 billion of profits into a low-tax unit in the Netherlands and Switzerland, helping cut its income tax bill around the world.
Ortega’s most recent high profile London deal was a 410 million pound ($680 million) purchase in December of the Devonshire House, a 1920s office building in the city’s Mayfair district across from the Ritz Hotel. At $3,641 a square foot, the price was among the highest ever paid for an office building of that size anywhere in the world, according to Real Capital Analytics.
The building, on the site of the residence of the Dukes of Devonshire in the 18th and 19th centuries, has retail space on the ground floor, including a Marks & Spencer store.
“It’s a very sound place to put 410 million,” Langton said. He called the location “prime and probably the best option outside of The City,” referring to London’s financial district.
Ortega has also been expanding his portfolio in high-priced U.S. markets. In November, he purchased from a partnership including private equity firm Carlyle Group a 56,000-square-foot office and retail building on Manhattan’s West 14th Street for $94 million. He had already spent at least $220 million on office buildings in midtown Manhattan. And in January, Pontegadea closed on its purchase of a Beverly Hills property on North Rodeo Drive containing a Gucci store for almost $108 million.
Like the Picasso Tower acquisition, the deal was all-cash.
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