Which leading franchisor doesn't have a record pipeline? Private equity, banks, institutions, developers, high-net-worth individuals and existing franchisees hungry for a piece of the hotel industry's action are pushing big brands' development logs past the six-figure mark. “The cost of capital is still reasonable. Land costs generally are in line with revPAR and ADR. We are in a good cycle,” says S. Kirk Kinsell, newly named president of Europe, Middle East, Africa for InterContinental Hotels Group (IHG). Given the range of new directions for franchising, Kinsell and others aren't ruling out the possibility of another record-setting year.

One reason for optimism stems from the fact that franchise deals are getting bigger, more complex and becoming more of a standard option for sophisticated investors. Anyone with doubts only has to look as far as Blackstone's acquisition of Hilton Hotels Corp. “Merger and acquisition activity has had positive impact on growth. It has shone a bright light on the value and long-term viability of the franchising concept,” says Rajiv Trivedi, La Quinta's executive vice president for franchising.

Consolidation should continue to narrow the number of franchisors—but not their pipelines. “Further acquisitions are possible for companies that are missing a sector in their house of brands. Acquiring a brand with a good reputation is easier than trying to create a brand,” says Dorraine Lallani, senior vice president, Jones Lang LaSalle Hotels Select Service Division. “It remains to be seen what the implications of transactions such as Blackstone/Hilton will mean to franchisees. It should be interesting viewing.”

Closer to ground level, Chip Ohlsson, Starwood Hotels & Resorts' vice president of development, says more franchisees are developing “a portfolio of business in a specific segment and a specific region.” The rationale: “It allows them to market strategically to a specific exit strategy,” he says.

David Pepper, Choice Hotels International's senior vice president, franchise, development and emerging brands, reports an uptick in the number of developers interested in putting together regional development packages for five or more hotels and increased activity by mixed-use developers looking to anchor projects with hotels, particularly upper-end select-service brands.

Adds Jim Chu, Global Hyatt Corp.'s senior vice president of owner relations and franchise support, “New franchisees tend to have more development experience. They are multiple-property owners interested in upscale service brands.”

Savvy owners are leveraging their real estate expertise to create fresh options for franchising. Special-purpose concepts, such as a Holiday Inn waterpark fusion, are making the numbers work in areas such as Middle America, which otherwise would be below the development radar. Master-planned communities are making room for lifestyle hotels and all-suite hotels. “We've heard some mall developers and owners talking about monetizing surface parking by building hotels that will redefine the mall experience,” says Thomas Keltner, Hilton's executive vice president and CEO, Americas and global brands. “Diversity investors” are drilling deeper into underserved markets from the Carolinas to northern Florida and Texas.

Gas prices, the need to be near family and environmental issues are generating more opportunities in Los Angeles and other large urban areas, says Roger Bloss, CEO, Vantage Hospitality. “People don't want to commute as far today. If they move back to the cities, hotels will follow.” Developers reflagging failed boutiques or converting empty office space already are bringing mid-tier and even select-service offers to cities from New York to Chicago and Los Angeles.

Al Calhoun, managing director, Jones Lang LaSalle Hotels' Select-Service Division, says it is still more likely that secondary markets will keep brands' franchise pipelines flowing. “In the United States, given the difficulty in securing the top tier brands in the 'Top 25' markets, owners will be looking seriously at secondary markets that have long-term potential. The feeling is that they can be successful with superior brands in smaller markets,” Calhoun says. For the most part, that means site hunting in the Southeast and Southwest, as well as both coasts.

According to Jones Lang LaSalle Hotels' recent Hotel Investor Sentiment Survey, 40% of investors listed upscale hotels as their preferred asset class, while 20% expressed interest in luxury and mid-scale assets. This trend is also impacting franchising growth. “More franchisees want to migrate upstream. Chains that don't have offers to address that demand are going to lose owners from their systems,” says Tony Berger, COO, Wyndham Hotel Group.

Steve Belmonte, CEO of Vantage Hospitality's Lexington Collection, sees the same trend. “The generation of owners coming online are not building their parents' motels. They are focused on high-end hotels and new construction,” he says.

The flood of new prototypes and new brands plays directly to this demand. Few concepts are as hot as lifestyle. “Some developers have come to us asking about lifestyle concepts,” Keltner says. “Blackstone is doing some interesting things in that area. There is room for that kind of approach. But 15 boutique hotels aren't going to move the needle. And, too, there's the question of what is meant by lifestyle. A bar scene? High style? There are a lot of different lifestyles.”

Franchisees such as Marshall Management CEO Michael Marshall see the pros and cons of pioneering concepts. His concern is that new brands will weaken the distribution of brand-delivered room nights for a specific market. That said, however, “We will manage the aloft, Hyatt Summerfield, Staybridge and Indigo flags. Over time, these new brands will drive the older brands out of the market or seriously weaken them,” he says.

Not everyone is on board that trend. Dean Savas, Accor North America's senior vice president of franchising, is tracking more multi-unit developers who are considering developing in the economy segment, “where competition is not so great.” New construction “has increased significantly,” but conversion opportunities are also driving the pipeline, he says.