With the first half of the year now in the books, 2022 has thus far provided an unexpected and tumultuous ride. It was only six months ago when the S&P 500 reached all-time highs in a world where lingering supply chain pressures and potential COVID outbreaks seemed to be the two most pressing risks to economies across the globe. While those two dangers are abating, a refreshed slate of macro-overhangs may be more daunting than ever. Included are the ongoing war in Ukraine, rising interest rates and soaring levels of inflation. 

Although the U.S. is not technically in an economic recession yet, many feel angst due to effects of a decline in activity coupled with rapid increases in prices, resulting in an erosion of consumer purchasing power. On the other hand, the bull case against a recession is well-anchored by a labor market at near historical low unemployment rates. The U.S. Federal Reserve (Fed) has clearly telegraphed a commitment to curbing inflation, and while the central bank may be agnostic to declining prices of equities, a faltering jobs market may be the domino that leads the Fed to blink. Although weekly jobless claims have yet to raise any cause for alarm as of late, increasing numbers of businesses have announced plans to slow hiring or make headcount reductions including several of the major tech companies such as Google, Apple, and Meta. 

Recently many U.S. commercial real estate markets and/or assets have begun to experience a downward shift in values, as numerous buyers have paused due to soaring costs resulting in businesses re-examining expansion plans.  Further dampening of demand has been caused by interest rate spikes, which feed through into higher costs for financing. Within the lodging sector, a continued imbalance of hotel assets for sale and demand for investment opportunities has in many cases resulted in competitive deal pricing, and a dampening of anticipated equity returns. In fact, some investors now perceive enhanced risk/return prospects in subordinate and/or mezzanine debt compared with equity opportunities.