The year 2020 will not be soonforgotten as the spread of COVID-19 and society's reaction to thevirus have combined to devastate the global economy. U.S. GDP inthe 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 andseems to be reflecting an optimistic view regarding an economicrecovery, base case will be a slow and very bumpy re-opening of theeconomy. Legislators and their public health advisors struggle tobalance the desire to get people back to their lives with the fearof causing a second and possibly third wave of illness and death.With those concerns, and as long as the federal government iswilling to print and distribute money, it would seem reasonablethat the choice will be to opt to err on the side of preventingfurther spread of the virus, which will augur for a slowerre-opening.

Many believe that a full returnto pre-COVID-19 behavior may not occur until a vaccine that themainstream media, policymakers, and medical society have blessedand is broadly disseminated. Even taking a more optimistic approach– that most people regain confidence only after a staged economicre-opening that averts triggering a disastrous second waveoutbreak, would still not lead to a full return to normalcy for ayear or longer. In either case, the reversal of economicdevastation will most likely be measured in years, and that doesnot begin to factor in the unknowable implications that will needto be dealt with as a result of massive government stimulusprograms (both past and future) and inflation of its debtlevels.

There have been some significanteconomic downturns over the past forty years, and with the benefitof hindsight, each has presented wonderful investmentopportunities. It appears that this downturn may very well producea period that rivals the very best in both returns and depth ofopportunity. Hotels have been one of the hardest hit sectors by thecoronavirus 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 withhealthy levels of leverage. Now with severely impacted net incomesfor most property types (specifically larger, full-service hotels),the seeds for broad distress are now planted.  Like priordownturns, many anticipate deep distress will produce increasinglevels of loan defaults, which will likely continue for sometime.