The year 2020 will not be soon forgotten as the spread of COVID-19 and society's reaction to the virus have combined to devastate the global economy. U.S. GDP in the second quarter declined by 32.9 percent on an annualized basis, the most significant quarterly decline observed since the 1940's. While the stock market has rebounded considerably from its lows and seems to be reflecting an optimistic view regarding an economic recovery, base case will be a slow and very bumpy re-opening of the economy. Legislators and their public health advisors struggle to balance the desire to get people back to their lives with the fear of causing a second and possibly third wave of illness and death. With those concerns, and as long as the federal government is willing to print and distribute money, it would seem reasonable that the choice will be to opt to err on the side of preventing further spread of the virus, which will augur for a slower re-opening.

Many believe that a full return to pre-COVID-19 behavior may not occur until a vaccine that the mainstream media, policymakers, and medical society have blessed and is broadly disseminated. Even taking a more optimistic approach – that most people regain confidence only after a staged economic re-opening that averts triggering a disastrous second wave outbreak, would still not lead to a full return to normalcy for a year or longer. In either case, the reversal of economic devastation will most likely be measured in years, and that does not begin to factor in the unknowable implications that will need to be dealt with as a result of massive government stimulus programs (both past and future) and inflation of its debt levels.

There have been some significant economic downturns over the past forty years, and with the benefit of hindsight, each has presented wonderful investment opportunities. It appears that this downturn may very well produce a period that rivals the very best in both returns and depth of opportunity. Hotels have been one of the hardest hit sectors by the coronavirus pandemic given the widespread reduction in corporate, group, and leisure travel across the U.S. Many property owners, seduced by historically low interest rates, entered this era with healthy levels of leverage. Now with severely impacted net incomes for most property types (specifically larger, full-service hotels), the seeds for broad distress are now planted.  Like prior downturns, many anticipate deep distress will produce increasing levels of loan defaults, which will likely continue for some time.