RIL makes Billion-Dollar Realty Foray with Vornado

In what could mark its foray into the real estate and hospitality sectors,
Reliance Industries has sealed a $1-billion joint venture with the New
York Stock Exchange-listed Vornado Realty Trust to set up a real estate
fund that will develop a network of mega malls and highway shopping
centers in India, not just for Reliance Retail (RRL) but also others.
Reliance is also in talks with the Canada-based Four Seasons Hotels
and French group Accor to set up hotels at some of its properties in
Mumbai and Ahmedabad. The RRL spokesperson, however, declined to comment.

The joint venture with Vornado is Reliance’s fifth global partnership
in three months-the other four being with Marks & Spencer, Vision
Express, Miss Sixty and Office Depot. However, the latest partnership
is important as it would deal with real estate acquisition and management,
which is crucial for the viability of any retail company.

Most retailers are bleeding because they have acquired properties mindlessly
to cash in on the consumer boom. While some like RRL and AV Birla Group
have the staying power, others want quick returns, which are clearly
not coming through.

Meanwhile, a source said the group’s big-buck real estate foray may
also see it tapping a synergistic foray into hospitality. "The
group is looking at the possibility of setting up hotels to take advantage
of the excess floor space index (real estate space) available at some
of its existing properties," a source explained. But it is learnt
that the group has not yet taken a final call on the hospitality project,
given the vastly different skill sets required for the same.

At Mumbai’s Bandra-Kurla Complex, Reliance is developing an integrated
project, including corporate offices, shopping mall and five-star hotels,
on a 25-acre plot. However, it is not clear whether the real estate
joint venture with Vornado would extend to hotel projects, even though
the US realty major has an asset like Hotel Pennsylvania in its portfolio.

Reliance, which was averse to global partnerships in the past, has
now adopted a more pragmatic approach to form joint ventures with the
world’s best to capitalize on their domain expertise and brand power.
Since the group is a green horn in retail and has never dealt with a
consumer business on such a large scale, it wants to learn the systems
and processes from experienced global companies so that it can apply
them on its own retail venture.
So, Reliance didn’t think too much when it had to relent majority control
to global apparel and food company Marks & Spencer. Even in its
JV with Vornado, Reliance may be a minority player, but the shareholding
structure could not be confirmed.

Sources said the real estate assets of Reliance Retail will now be
parked with this realty fund, thus transferring a high cost base from
the retail company’s balance sheet. With this, the fund becomes the
official real estate supplier to RRL, a role hitherto performed by the
Mukesh Ambani-backed Urban Infrastructure Opportunities Fund and others.

Vornado, the $14-billion market cap company, develops and manages retail
properties and office spaces in Washington and New York. In India, it
is likely to give the much-needed push to RRL’s expansion plans, which
have slowed down in recent months. It will also develop seamless malls,
which will house global brands with which RRL is signing up joint ventures.

It is believed that besides this particular project, the Reliance-Vornado
JV will look at catering to other retailers and corporate houses. Vornado-owned
and managed malls in the US have Wal-Mart, JC Penny and Macy’s as anchor
tenants and the same could happen in India, with the realty fund offering
space to multiple retailers. The JV is close to appointing an independent
CEO but he is unlikely to be from Reliance.