Reliance Industries (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 centres in India, not just for Reliance Retail (RRL) but also others. The joint venture with Vornado is Reliance’s fifth global partnership in three monthsthe 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.

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 capitalise 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.

Now the real estate assets of Reliance Retail will 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. 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.