Every year, the largest shareholder of Inditex SA, owner of Zara, the world’s largest fashion chain, must invest the billions of euros it receives from the company, or face the possibility of having to pay a portion of that income in taxes on the heritage As Zara’s continued success increases Ortega’s coffers with ever-increasing dividend streams, reinvesting that money within 12 months is becoming a challenge. Last week, Inditex announced a 29% increase in its dividendswhich mean nearly €2,000 million (US$2,110 million) for Ortega, who is 86 years old.
Ortega, I own 59% of Inditexmust invest this amount within one year due to the legal and fiscal rules that govern the family offices like theirs, Pontegadea, which they describe as a “family business”.
Spain is the only country in the European Union that has one wealth tax in full force and, under national law, residents are exempt from this politically contentious levy only if their family businesses invest their income within 12 months and in assets considered “economic activity”.
“It is quite unique, because there are not many other similar examples in Spain with this level of wealth,” says León Fernando Del Canto, a London-based lawyer who works with wealthy Spanish individuals.
Over the years, the tax structure has led Pontegadea to invest Ortega’s dividends from Inditex — more than $12 billion since the company’s 2001 IPO, according to data compiled by Bloomberg — into assets carefully. selected, for the most part urban properties.
Thus, Ortega has acquired emblematic buildings such as the Haughwout and the Southeast Financial Center in New York, the Royal Bank Plaza in Toronto and the Post Building in London. And it has done so with prime residential and commercial properties in cities from Barcelona to Seattle, whose tenants include Facebook and Amazon.com, Zara and even rival H&M.
All this has turned the entrepreneur into one of the largest owners of real estate portfolios in Europe. His properties were valued at €15.3 billion in 2021, according to the latest available data, above those of British real estate billionaires Hugh Grosvenor and Charles Cadogan. Since then, Pontegadea has invested more than $2 billion in at least 10 properties in North America and Britain, according to data compiled by Bloomberg.
Although it has diversified its investments in other types of assets that meet the tax requirements, sources close to the management of Pontegadea claim that the challenge of finding suitable targets with the growing income is increasingly complex.
Several opposition-led Spanish regions, including Galicia, where Ortega resides, have offsets that reduce or eliminate tax on heritage. Even so, the marginal rate in Galicia is up to 2.5%. In addition, there are other taxes such as income, companies and VAT.
In order to avoid paying wealth tax, family offices like Pontegadea can buy assets such as real estate and energy infrastructure or holdings of at least 5% in publicly traded companies. Mutual funds and cash are not considered “economic activity” and do not qualify. Failure to invest all dividends within the year may force an investor to have to negotiate an extension if he can show that he is close to closing a deal for some of them.
For Ortega, who declined to be interviewed for this article, the problems he faces now are a far cry from those he faced when he started in the 1960s. The son of a railway worker, Ortega and his then wife, a seamstress, began to make bats and sell them door to door. Later, he made one of the world’s largest fortunes by quickly spotting catwalk trends and turning them into affordable parts worldwide. It has stores all over the world and a market value of around €91 billion. Inditex’s revenues for the financial year ended January 31 amounted to €32.6 billion.
The businessman, famous for avoid the media, continues to be closely involved in management decisions both in Inditex, where he has a desk in the Zara Women plant, and in Pontegadea. He is a member of the boards of both. Her daughter Marta39 years old and the result of a second marriage, is non-executive president of Inditex. Sandrahis eldest daughter, is the richest woman in Spain thanks to her stake in Inditex.
Although Pontegadea has increased its investments in recent years, the bulk of Ortega’s fortune continues to come from his majority stake in Inditex, whose shares have fluctuated since reaching an all-time high in 2017, when Ortega became the second richest person in the world. With a net worth of around US$65 billion, he is the seventeenth richest person in the world, according to the Bloomberg Billionaires Index.
“It’s not easy in Spain to do what he’s done when you don’t come from a traditional Madrid family,” said Del Canto, whose namesake law firm has an office near the rainy coastal city of A Coruña. in northwestern Spain where Ortega founded his textile empire.
The diversification of Pontegadea
The enormous growth of Pontegadea’s real estate portfolio over the past decade and its drive to diversify have transformed the small boutique company. Led by its CEO, Roberto Cibeira, who joined Pontegadea in 2003 from the auditing company Arthur Andersen, it has 80 employeesmost of them in the center of A Coruña.
The rest of Pontegadea’s staff is spread around the world, including the United States and South Korea, and most of them focus on the real estate sector, although now a small team deals with the infrastructure and energy businesses. The headquarters of Inditex is in Arteixo, on the outskirts of the city.
At first, Pontegadea’s employees had to actively search for potential deals. But now, an incessant amount of investment bankers are knocking on its doors, pitching ideas and forcing the company’s original advisers to go head-to-head with major US investment banks, according to sources close to them.
As part of diversification, in 2018, Pontegadea invested in a telecommunications infrastructure company. Then came a gas pipeline operator, power transmission companies and logistics centers.
The diversification it has not been an easy road. Less than three years after Pontegadea acquired 10% of telecom tower operator Telefónica SA, the telecom company and KKR decided to sell the company, forcing Pontegadea to divest as well. The family office goes double his money, but he wasn’t happy to be left with added capital that needed to be invested, according to two people familiar with the matter. Pontegadea officials declined to comment.
Then, in 2022, it disbursed about US$700 million in American logistics centers. It was Pontegadea’s first investment in logistics and it was ill-timed, as it came at the peak of the sector’s economic cycle, according to two people with direct knowledge. But it was done because Pontegadea needed work with a strict schedule.
This year, the company tried to acquire a stake in the Spanish renewable energy company Iberdrola SA, but did not make it off the long list, according to two people familiar with the matter. Due to the lack of specialized staff, their offer was too low.
With more money pouring in, Pontegadea’s spending problems will likely continue to mount, although Ortega is unlikely to complain, at least in public.
“Ortega takes care of his affairs,” says Del Canto. “Politically he remains silent.”