Still, though, the fund has a contingency plan in place shouldit not receive the bank line of credit, according to principal EdAnsbro. "If we find deals we absolutely have to have and we haven'tgotten the debt sourced, we will buy in cash until the debt marketsturn around."

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He thinks debt will begin to move again, albeit slowly, at thebeginning of the year. Fairwood Hospitality Investors has beencapitalized by the principals of Fairwood Capital LLC, a newlyformed private equity fund, and two institutional investors.Fairwood's principals are Ansbro, who is a former SVP of EquityInns; Robert Solmson, the founder, former chairman and CEO of RFSHotel Investors; and Richard Reiss, chairman of GeorgicaAdvisors.

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GlobeSt.com: What will be the focus of thefund?

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Ansbro: Upscale select service Marriott andStarwood brands, as well as smaller scale, full service hotels. Theinvestment will be over a three-year period.

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GlobeSt.com: Tell me more about the investmentcriteria.

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Ansbro: Our view is there will be more dislocationin next 12 to 24 months -- we are looking to acquire properties atbelow replacement costs using underwriting based on realistic NOIs.Given what is going on in the economy and specifically hospitality,we are looking to come up with a realistic pro forma and underwriteoff that.

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GlobeSt.com: Tell me what you mean by a realisticNOI.

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Ansbro: Trailing 12 months is not realistic orrelevant any more. We are trying to get our arms around what 2009and 2010 will look like, which will be down significantly from the2007 and 08 numbers. We are developing a stabilized view based onwhat we think will happen over the next 24 months.

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GlobeSt.com: Could you elaborate on that a littlemore?

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Ansbro: We are discounting 15% to 20% topline offof 08 numbers for the next two years. We think it will be more onthe occupancy side than rates – those are the assumptions we areusing in the underwriting.We will be using a higher cap rate thanwhat a property has been trading for. Basically we are getting backto a more normalized view of where cap rates have been before allfrothiness in market. We think higher end select service hotelswill have cap rates of 10% to 12%. For full service it would be 50basis points lower.

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GlobeSt.com: Do you have anything in the pipelineright now?

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Ansbro: We are looking at a couple of one-offtransactions. Normally we would prefer to deal with smallportfolios because it takes as much work to process a single assetas it does a portfolio. But we like these deals. They are in the$15 million to $25 million range.

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GlobeSt.com: Where will you focus?

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Ansbro: We will stay in the top 35 MSAs; inaddition we like large state university markets. Also, capitalcities tend to be more resilient in downturns.

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GlobeSt.com: When did you start working on thisfund?

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Ansbro: Q1 2008.

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GlobeSt.com: Are you worried about launching inthis environment?

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Ansbro: Actually I think the opportunities will beeven greater than we first thought. We are taking a veryconservative view of what the economic landscape will look likeover next 24 months.

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GlobeSt.com: Do you see sellers finally startingto come down in price?

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Ansbro: There is still a disconnect out there.There are some sellers with assets that are conservativelycapitalized. Many of them will sit tight and ride the cycle out. Weare focused on investors who have to do something because of theirleverage.

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GlobeSt.com: What kind of returns are youtargeting for investors?

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Ansbro: Somewhere in the high teens to low 20s ona leveraged basis.

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