Why Hotels, Why Now?
We have lived through our fair share of business cycles, including the dot-com bust in the early 2000’s and the Great Recession, which peaked in 2008. Now, in the wake of COVID-19 and on the heels of a protracted bull market, we are witnessing the largest decline in hotel demand in modern history, which is exacerbated by significant, ill-timed, new supply.
Additionally, $11 billion of hotel CMBS debt matures from April to October 2020, presenting challenges to owners seeking to refinance their loans in the midst of weak credit markets and declining asset values. We see a tremendous buying opportunity forming — not only from a pricing perspective, but in terms of the availability of high-quality, durable real estate for acquisition.
The Fed has been doing everything it can to stimulate growth, including lowering short-term rates to a target range of 0% to 0.25%, a record low. Additionally, since February 2020, the Fed has injected approximately $3 trillion into the economy with an unprecedented series of asset purchases. Even prior to COVID-19, the Fed was already injecting billions into our economy via the repo market. Since hotel rates are adjusted daily, lodging is an excellent hedge for the inflationary pressures that may result from the protracted expansionary monetary policy we have seen in recent years. The U.S. economy has been primed with rocket fuel, and when this crisis is behind us, Gemini will be ready for lift-off.
It is important for us to note that these conditions are not required for us to generate top-tier returns for our investors. In fact, when back-tested over the past 40 years, our investment approach has proven to be successful regardless of market timing.