Defying the expectations of many, the U.S economy has demonstrated resilience driven in part by a solid employment report with stronger than expected wage growth during June, along with continued healthy levels of consumer spending. With this said, the U.S. economy has been slowed by the Federal Reserve's aggressive drive to tame inflation through a series of interest rate hikes that began early last year. Although trending downward, with inflation remaining above its two percent target, the Federal Reserve is on track to raise interest rates again this month and mull another hike as soon as September.  Despite elevated inflation, which is now easing, and ongoing fears of impending economic recession, unemployment rates remain low, and Americans continue to spend money on goods, services, and experiences.

Stress in the U.S. banking system and financial market volatility continue to slow commercial real estate lending activity and rising numbers of failing commercial real estate loans are beginning to weigh down the nation's banks. The recent collapse of several regional banks has resulted in tightening credit and relatively high borrowings costs which has driven down prices of all types of commercial real estate assets particularly in downtown urban cores. Upon loan maturities, numerous sponsors, many of whom are highly respected large well capitalized investors, are refusing to "throw good money after bad," and considering surrendering properties to lenders. Within the decimated office and retail sectors BentallGreenOak, Brookfield Asset Management, Blackstone, Columbia Property Trust, Related Fund Management, RXR Realty, Vornado Realty Trust (NYSE: VNO), and Westfield Group are examples of institutional investment platforms that have defaulted on high profile assets across the nation.  Although U.S. hotel sector operating fundamentals remain strong, lodging centric institutional investors including Ashford Hospitality Trust (NYSE: AHT) and Park Hotels & Resorts Inc. (NYSE: PK) have announced plans to "hand back the keys" on assets whose loans have matured. Time will tell if these maneuvers are a positioning tactic to negotiate workouts with lenders who may very well not be interested in foreclosure of any of the assets.

During the current inflationary environment, the U.S. hotel industry has proven to be a defensive sector, exhibiting strength and the ability to weather economic challenges. Robust leisure demand and the resurgence of group and corporate travel have fueled Average Daily Rate (ADR) growth that is outpacing the rise of overall U.S. inflation.  This recent phenomenon, which like long term averages, further reinforces the notion that investment in lodging is a hedge against inflation.