On Wednesday, July 15, 2020, CREWBaltimore hosted a virtual panel discussion on Feds, Meds, and Eds. The panelists that were featured were Steve Ramaley of Miles & Stockbridge and a member of their Government Practice, Emily Perl, Associate Vice President of Goucher College, and Adam Kleeman a partner at Cohn Reznick currently focusing on the Cannabis Industry.
Steve Ramaley led the discussion specifically regarding how COVID has changed the trajectory of Congress and Government in general. As Congress is poised to introduce another stimulus package, other safeguards and changes were made to the FLEX and CARES Act including audits on those that took assistance. That said, Government Contractors in general have not been affected as much as other industries. Government spending is up, current funding is being repurposed, and contractors are typically not defaulting on leases. There are a number of programs designed to help government contractors, including section 3610 of the CARES Act that allows for the government to continue to pay contractors employees even if they aren’t doing anything to maintain a “ready to go” status. However, those funds do come with red tape that means many contractors will not qualify. Overall GSA commercial real estate is a bright spot for landlords as these types of offices likely will not convert to a work from home model.
As far as the state of Higher Education, Emily Perl described it in one word. Chaos. As the second main source of income for most institutions is room and board, there is a real concern on the loss of income due to campuses choosing to go virtual for the near future. Institutions are being forced to balance their financial health versus the physical health of their students and staff. For those considering a hybrid in-person/virtual model, many institutions are considering changing their academic calendar – removing previously scheduled breaks and holidays in order to end the semester at Thanksgiving. Doing this would eliminate the risk of students traveling around the country just to return a week later. While COVID-19 is having a huge financial impact on higher education, small, private institutions are at the most risk. The threat to enrollment is not totally to blame on COVID-19, as there has been a declining rate of (students?) 18 years going to college in the past few years. For the time being, most capital projects are on hold, but the long-term outlook for higher education is still positive.
As it relates to Meds, the Cannabis industry has gained enormous momentum over the past several years and entered many metropolitan markets. However, many Cannabis growers have run into road blocks as their business may be legal locally, but not federally thus creating challenges for leasing and banking. For example, Cannabis growers cannot enter into a lease with a landlord that has debt on their books. As a result, the industry has shifted towards Cannabis REITS of mostly larger growth facilities, resulting in sale/leasebacks becoming a popular way to acquire their needed space. Overall, COVID-19 has not slowed the momentum of the Cannabis business and in fact has bolstered it. Arguments are being made to ease restrictions on the industry by legalizing it federally and thereby giving the government the opportunity to tax it during these difficult economic times.
Overall, the Feds/Meds/Eds industry dynamics are shifting as a result of COVID-19 and an ever-changing cultural view of the world. While Eds appears to sustain the worst of effects of the pandemic overall, the outlook stays positive as the need for higher education will not disappear, just change. Feds has seen little impact to their industry to date, however as more measures and safeguards are put into place the resilience of some contractors could come into question. Cannabis shocked the Meds world a decade ago, but it is becoming more accepted the main stream medical community. If federal restrictions were eased, there could be an opportunity for both Feds and Meds to gain financially, but to date that remains to be seen.