Still, though, the fund has a contingency plan in place should it not receive the bank line of credit, according to principal Ed Ansbro. "If we find deals we absolutely have to have and we haven't gotten the debt sourced, we will buy in cash until the debt markets turn around."

He thinks debt will begin to move again, albeit slowly, at the beginning of the year. Fairwood Hospitality Investors has been capitalized by the principals of Fairwood Capital LLC, a newly formed private equity fund, and two institutional investors. Fairwood's principals are Ansbro, who is a former SVP of Equity Inns; Robert Solmson, the founder, former chairman and CEO of RFS Hotel Investors; and Richard Reiss, chairman of Georgica Advisors.

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

Ansbro: Upscale select service Marriott and Starwood brands, as well as smaller scale, full service hotels. The investment will be over a three-year period.

GlobeSt.com: Tell me more about the investment criteria.

Ansbro: Our view is there will be more dislocation in next 12 to 24 months -- we are looking to acquire properties at below 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 underwrite off that.

GlobeSt.com: Tell me what you mean by a realistic NOI.

Ansbro: Trailing 12 months is not realistic or relevant any more. We are trying to get our arms around what 2009 and 2010 will look like, which will be down significantly from the 2007 and 08 numbers. We are developing a stabilized view based on what we think will happen over the next 24 months.

GlobeSt.com: Could you elaborate on that a little more?

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

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

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

GlobeSt.com: Where will you focus?

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

GlobeSt.com: When did you start working on this fund?

Ansbro: Q1 2008.

GlobeSt.com: Are you worried about launching in this environment?

Ansbro: Actually I think the opportunities will be even greater than we first thought. We are taking a very conservative view of what the economic landscape will look like over next 24 months.

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

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

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

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