Inside Starwood Capital's massive China JV

(The joint venture plans to focus on developing, operating and branding assets in China's rapidly-growing hotel market via management contracts and leasing agreements.)

Shimao Property Holdings, a Shanghai-based property developer, is establishing a new hotel joint venture in China with Starwood Capital. Under the terms of the agreement, Shimao will hold a 51-percent stake in the joint venture, while Starwood will own the remaining 49 percent. 

The joint venture plans to focus on developing, operating and branding assets in China's rapidly growing hotel market via management contracts and leasing agreements. 

Tyrone Tang, GM of Shimao Hotels and Resorts—a subsidiary of Shimao Property Holdings Limited that operates, manages and develops hotels and resorts—said the JV would consolidate the group's sustainable commercial development while ensuring profitability and providing the most effective support for partners. "We believe that a combination of Shimao Hotels and Resorts' strong management and comprehensive understanding of the Chinese hospitality industry, together with Starwood Capital Group's financial strength and global lodging experience, will create win-win results," Tang said in a statement.

Starwood, meanwhile, will provide financial and operational support for Shimao Hotels and Resorts' future hotel expansion plans in China and the Asia Pacific region. The two companies together will prioritize generating returns for third-party owners and develop recognizable hotel companies in China.

The Shimao Hot Spring Resort Dalian

Starwood Capital in Asia

Starwood Capital has previously invested in around 2,900 hotels globally, and it is increasingly focused on investment opportunities in Asia.

"As one of the world's fastest-growing economies, with a large and growing middle class with increasing disposable income, China represents an exciting market for us," Kevin Colket, senior VP and head of hotels for Asia at Starwood Capital Group, said in a statement.

The JV follows several partnerships Starwood Capital has made with Asian companies. In October, China Life Insurance, China's largest life insurance company, invested approximately $2 billion in select-service hotels in the United States with Starwood Capital.

In December, South Korea's National Pension Service, the third-largest pension fund in the world with some $452 billion of assets under management, invested $300 million in a hotel fund managed by Starwood Capital. The fund, dubbed the SCG Hotel Investors Fund, is "dedicated to small- and medium-size hotels in the outskirts of major cities in the U.S."

The Yuluxe Hotel Suifenhe

This new JV offers the group a strong opportunity for an improved foothold in China, where the 8-year-old Shimao Hotels and Resorts' hotel portfolio consists of 6,500 rooms across 20 properties, and includes the MiniMax, MiniMax Premier and Yu family of brands, which encompasses the Yu Resort, Yuluxe Hotel, Yu Hotel and Yu Residence brands. Shimao previously partnered with other global brands including Starwood Hotels & Resorts Worldwide (now Marriott), Hyatt Hotels & Resorts, InterContinental Hotels Group and Hilton Hotels and Resorts.

Colket said in a statement that China’s growing middle class and increasing pool of disposable income places an enormous target on its back for future hotel development. China’s hotel industry earned $145 billion in 2016, largely due to the aforementioned middle class flexing its newfound disposable income. On top of this, infamous industry disruptor Airbnb is having a difficult time acclimating to Chinese business laws, and may struggle to capture a local market already enamored with its own home-sharing services, opening up more opportunities for hotels to gain further market share.