NIC Chats Podcast with Sarah Duggan

Beth Mace: (00:04)
Hello and welcome to the NIC Chats podcast. My name is Beth Mace and I am NIC's Chief Economist. Thank you for joining us.

Beth Mace: (00:14)
The focus of the NIC Chats podcast is talking to interesting people that have ideas that I think you'd like to hear about. As you listen today, I hope that you'll find some humor, insights, inspiration, and hopefully what I call an "aha moment" when something pithy or insightful is said and the light bulb may go off for you. Let me tell you a bit about the structure of today's event. First, I will tell you three statements about my guest, two of which will be true throughout the podcast. You'll learn, which is true and which is false. Second, there are three standard questions with in each podcast for each speaker. The first is, what's the largest challenge facing our industry? Followed by a question about one thing we can do to grow talent in our industry. And third, what is one innovative way or idea to strengthen our industry. Now as they say I went to show?

Beth Mace: (01:01)
So I'm delighted that our NIC Chats podcast discussion today is with Sarah Duggan. Sarah is the Executive Director of Wholesale Banking, Seniors Housing Healthcare Lending at Synovus Bank. Sarah, thanks so much for joining us today.

Sarah Duggan: (01:16)
Thank you, Beth. I'm thrilled to be able to have an opportunity to do this. I don't know how interesting this will be for me. It's my first podcast. Oh. So I'm excited. I can add that now for my resume.

Beth Mace: (01:30)
That's right. Absolutely. So, as I mentioned, I have three statements about Sarah. Two are true and one is not. And during the podcast we'll find out which is which. So one is at TCU's quarterback Max Duggan is in fact Sarah's son, or that Sarah worked at Disney World when she was younger for an entire summer, or that she's taking guided bike tours across 14 states and six countries. So we'll find out more as we go on. But as we start, Sarah, let me ask you a little bit about yourself in your role at Synovus and about a little bit more about Synovus. So as I understand, you've been at Synovus for about 11 years, and you're currently the executive director of wholesale banking, seniors housing, healthcare lending. Can you tell us a little bit about that and what you do?

Sarah Duggan: (02:21)
Yes, Beth, I can. And to be honest, sometimes titles don't always explain what you do, do they?

Beth Mace: (02:29)
That's for sure.

Sarah Duggan: (02:30)
Realistically, I'm a combination gatekeeper, traffic cop and internal negotiator with our credit department on the senior housing industry. In addition, I oftentimes externally am the spokesperson for the performance of the senior housing portfolio here at Synovus.

Beth Mace: (02:51)
Ah, great. Okay. How large is Synovus and how large a book of business does it have in the senior housing?

Sarah Duggan: (02:58)
Sure. Well, first of all, Synovus is a large regional bank based in Columbus, Georgia. And currently the overall bank's total assets is 58.6 billion. The senior housing portfolio, which as you alluded we started 11 years ago when we came and joined Synovus is now 4 billion. And consists of independent living, assisted living facility combinations and skilled nursing.

Beth Mace: (03:30)
And what types of financing does your team provide to senior housing operators? In equity providers,

Sarah Duggan: (03:35)
We've traditionally provided more bridge type financing, three to five year term loans, primarily on a floating rate basis for acquisitions, refinance, and development.

Beth Mace: (03:48)
So I would imagine right now you're pretty busy. There's a lot of bridge lending going on. I'll get more into that in a minute, but I would imagine you're pretty busy. So tell us a little bit about what you look for at a good sponsor or borrower.

Sarah Duggan: (04:01)
Well, and I really thought about this question, Beth, cause it's especially right now, very important and we've really tried to always focus on the track record of the sponsor and the operator. Cause sometimes that's a dual role, the reputation of the individuals and the folks we're dealing with their liquidity and access to capitals.

Beth Mace: (04:25)
Have you, do you have occasion to turn away borrowers? Has that happened?

Sarah Duggan: (04:31)
It happens quite frequently actually. And that hasn't been necessarily of recent. We've always received a lot of looks on transactions from a lot of different sources. And so sometimes those sources might be local developers in smaller markets that are just trying to find a lender. And that's really not the type of profile of owner operator and equity source that we deal with. We focus on the larger transactions oftentimes and most particular with those entities that have a very good track record and a lot of experience.

Beth Mace: (05:10)
Okay. That makes, that makes sense. So what distinguishes Synovus from other lending institutions? Could be banks, but also life insurance companies or smaller regional banks, or even non-bank banks.

Sarah Duggan: (05:25)
You know, when I think about what kind of distinguishes us, I think in the past it's really been our reputation as a fair and reasonable lender and our certainty of execution. During the pandemic, we really distinguished ourselves by continuing to lend and also in our approach with borrowers during that time and our ability to really work with folks on modification of covenants.

Beth Mace: (05:54)
So as we, as we alluded to a moment ago, there's been a lot of changes that have gone on in the lending environment in 2022. The Federal Reserve has just you know, has raised interest rates. In fact, just moments ago before our call today, they raised interest rates yet again, seventh time this year by a lesser 50 basis point increase, but still, you know, a pretty significant increase in terms of historical patterns. So this has been happening since March of 2022. So how has this interest rate environment really affected your lending activity?

Sarah Duggan: (06:24)
Well, I would be lying to say it has not affected our lending activity, right? Because in this type of market, there is definitely a heightened focus on liquidity, leverage and valuation. I mean, the combination of pressure space by this space first, the occupancy with the pandemic, then the labor shortage and the cost increases now just of sheer labor and staffing. And now the higher interest rates have definitely cast a shadow on consistent performance. It's made it much more difficult. The underlying need and demand for the services provided by our owners and operators is strong and projected only to increase in the future. But how you balance that now with your credit partners and with your external examiners becomes a little tricky.

Beth Mace: (07:15)
Yeah. So do you imagine that this will continue into 2023 and, and how, how differently are you looking at borrowers today in terms of requirements or when you make an assessment?

Sarah Duggan: (07:28)
Well, to answer the first part of your question, yes. We expect 23 to be what I've described as bumpy. You know, although there is an optimistic forecast that there's going to be a trending downward of rates, they're still going to be higher than they've been in the LA almost in the last 20 years. Right. And so we've got a definite different interest rate environment. You know, with uncertainty and interest rate. The lending environment is, it's going to be be tight and as predicted the transaction flow will continue to be slower.

Beth Mace: (08:05)
Right. I've heard some people talk about like banks starting to like ration some of their money. They, you only have so much money to, to sort of parse out there. In terms of, I don't know if rationing would be a word that you would use or not, but, but I'm sure you're looking at your existing relationships and borrowers in one way that might be different than you might be looking at someone who's new who you don't have a relationship with. Is that an accurate statement?

Sarah Duggan: (08:30)
That is, although we have added quite a number of new relationships this year, and it kind of goes back to the track record, the reputation, their liquidity and their access to capital. So when you have those strong elements, all a plus, a plus, a plus, a plus, you will, I mean, we will look at new transactions and we will make new loans in '23. So wildcard are really our payoff. And I think that's probably the same for most banks because we've had a significant slowdown and pay downs because everyone is sitting on the sidelines and the transaction flow is slower. So the anticipated payoffs that were scheduled haven't happened.

Beth Mace: (09:16)
Explain that a little bit. How does, how does that affect, so you have to have money back into bank, so to speak, before you can lend it back out again.

Sarah Duggan: (09:23)
A little bit. I mean, at some point in a loan position or in a bank's bucket of what they might say they're comfortable with senior housing. And say for example, Synovus is at 4 billion we'll grow our portfolio some but are we going to be be looking to add just another 1 billion? We've closed over a billion loans this year. We've had about 500 million of payoff. So maybe a net growth of 500. You can't continue at that clip necessarily. You know, I think without expanding the group, and again, that goes back to talent and resources and, and all sorts of things. So it's, it's a little bit of a domino effect.

Beth Mace: (10:03)
Right. So maybe this might be beyond 2023, but what's your, what are you most bullish about for your team in particular?

Sarah Duggan: (10:12)
You know, I thought that was a very interesting question. And I think we have to look at the current economic environment and the stresses that we're seeing to figure out how to make it a win-win and how to make it a positive experience. And so I'm really most bullish on their opportunity to learn from an economic downturn because our group today that we have, many of them have not been through a bad cycle, right? Some of us more experienced individuals have had that opportunity. It's truly an opportunity to learn and you, you become a better lender, you become a better asset manager. You learn mistakes and structure that you wish had been there and that then you might incorporate going forward. And so I really am excited in some respects for members of our team to kind of have this experience and learn from this because it will make them much better lenders in the future.

Beth Mace: (11:17)
So having said that, what would be a lesson that you learned from going through prior cycles? We certainly had the GFC. We had a number of recessions, certainly in my career and I've spent a lot of time thinking about that too. What lessons can be learned? I mean, certainly the economic cycle is not dead. The business cycle is not dead. And when things are really good, people say, oh yeah, you know, we're never going to be have another downturn. But there's always something that, you know, that causes a downturn to occur. So if you think back on it, what, as a banker, as a lender, what's a lesson or piece of advice you might give to someone who's new at this higher rate environment?

Sarah Duggan: (11:56)
Well, cash is king, right? That is a lesson learned from many years ago on different cycles. Liquidity and cash are what you want to focus on and in, in a fair manner of course. But that is important in ensuring up loans in mitigating risk and ensuring that your debt service payments will be made.

Beth Mace: (12:25)
Yeah. Okay. So let's switch topics a little bit and we're going to be play with one of their truths or lies right now. So have you in fact worked when you were in, when you were in college? I think, did you in fact work at Disney World for a summer?

Sarah Duggan: (12:44)
I did. And I, as I mentioned in my response to you, it was probably one of my favorite college summer gigs. I had several. I always had a lot of fun during summertime during college and working at Disney World was a trip. I mean absolutely. You know, cause we mingled with the permanent staff. It was truly a whole different world when you got there. And it taught you really good customer service though. And from a business management standpoint, Disney was right on it from a liability standpoint. I mean, you were trained on how to handle any misstep, report things, so you kind of learned the risk of liability that companies undertake when they serve the public and especially you know, from a liability standpoint.

Beth Mace: (13:35)
Well, it's interesting because there's been a lot of stories written in the Wall Street Journal and other journals lately about the change in management recently at Disney. And one of the comments that they made was that the, the culture had changed under the prior leadership. And whether you agreed with it or didn't agree with it, the point was really that culture matters. And there was a different culture and, and what the pick, pick of that culture is within the organization. And I know that's something that senior housing operators, especially during COVID, focused a lot on what is the culture of the organization to try to retain staff. So that's an interesting takeaway.

Sarah Duggan: (14:09)
Well, and especially for senior housing operators, knowing that retaining staff now is probably one of their biggest challenges. And if you can really exhibit your culture and it, it's evident in the day to day and it's real. It's not just to pretend. I think it would make a difference as an employee on whether or not I want to stay or not.

Beth Mace: (14:32)
I totally agree. I focus on that for sure. So let's talk a little bit more about your personal story. So tell us a little bit about your career path in any lessons that you've learned along the way in terms of you wish I could have or should have or should have at a different time in your life or that you might want to share with some younger people that might be listening to this call today.

Sarah Duggan: (14:54)
Well, I'll make the first part of this pretty brief cause it's not very exciting You know, to be honest, I mean I was an accounting major, started at what was then Ernst and Winnie is no longer, right? But it was a little bit of foreshadowing because they had me going out to all these small towns across Alabama auditing Blue Cross Blue Shield cost reports for small hospitals. And so at the time, you know, your, one of your questions, how did you pick the space? Well, it was all luck. I was unhappy doing what I was doing. I went to South Trust Bank. I was in the credit department for about a year and Bill Shine kinda recruited me to come down to the lending floor and the team, he was managing, which was a CNI group.

Sarah Duggan: (15:40)
We happened to have two loans for skilled nursing homes in there. And they were handed over to me. It's only female in the group, you know, take the nursing home loans. But Bill had a true interest and curiosity about them, and it was pure luck. One, to get paired with Bill Shine and to sort of have this opportunity to start looking at nursing home loans. To kind of start from there. And so, you know, I did not have a plan to be in senior housing. I didn't have a plan, to be honest, to work to this age. But I enjoy what I do. I'm passionate about what I do. I love this industry and I was very lucky to be aligned with someone... So I think from advice, I would say for younger individuals, finding that mentor and aligning yourself with someone who you respect and who also takes an interest in you is very important. And to be really engaged in what you're doing, whatever it is. Ask questions. Be curious because if you can't find something interesting about it, you need to look somewhere else.

Beth Mace: (16:55)
Yeah. I wholeheartedly agree with that. Find a passion if you can. For sure. So you sort of happened upon skilled nursing and senior housing. Would you recommend it to someone in terms of the opportunities that are out there?

Sarah Duggan: (17:09)
Absolutely. With the forecast of the growth for this industry over the next five to 15 years, I think this is a great opportunity. And I still think one of the struggles for the space is that when younger individuals are looking at other sectors of commercial real estate, they may rather do industrial or multi-family or something with a little bit more sizzle to it. Right. But I think long term, this space even during economic cycles like what we're experiencing, there's opportunities to learn, there's opportunities to be engaged. You know, one of the things I think your question asked, you know, what would you recommend on, you know, finding, helping grow younger folks in this industry? You know, taking them out to sites. Right. You know, I think a lot of individuals are in the asset management world. They're looking at the screen, they're looking at the financial statements. They don't have a sense of what an assisted living facility, independent living facility, memory care property. They have no idea what really goes on in the property. And I think once you go on site visits and you meet operators and you tour with EDs and marketing people, the numbers make a lot more sense. You can start understanding concessions and start understanding agency labor and the impact. And I think that's really important in growing new talent in this industry.

Beth Mace: (18:49)
Yeah. I always talk about what's not my phrase, but, you know, doing well by doing good or doing good by doing well. I mean, it's an industry that I've been involved in the industry for 20 plus years and, you know, you can be passionate about because you're making a difference ultimately in people's lives in older people's, older American lives. And I think that's the piece that you come away with. And sometimes you, you step back and you go well my lending or by what I do research and things, how is that actually affecting change? But ultimately it does. Yeah. And it is influencing the, the very lives of our parents. So I always walk away with that when I talk to younger people about coming into the industry because as there's so much good that you can do and as the baby boomers are coming, there's even that many more people. And especially when you get into more the, what NIC calls a forgotten middle or the sort of affordable housing for in care options for seniors, there's like endless opportunities for that. So I know that you do some volunteering in some of the groups that trade associations were related to senior housing and skilled nursing. Can you tell us a little bit about that and why you think it's important to be a volunteer?

Sarah Duggan: (19:56)
Sure. Well, I have to admit, I've kinda probably dropped off some of my volunteering over the years. I was very involved in NIC for a long time and have also engaged into ASHA most recent years. You know, you can make volunteer work also a win-win for you professionally, which I think a lot of this has happened. I think that's the way it needs to work. So the networking is one, you know, amazing. When you volunteer and you engage in the top organizations in its industry, you will meet a lot of great people and form very good relationships with them. And I think that's very important in just continuing to learn and be educated as to what this industry... The challenges it faces and what it needs.

Beth Mace: (20:45)
Yeah, I agree. And as also a friend and fun aspect to it. There, there was a while I traveled a fair amount for my job and there's a while that I was seeing the volunteers of various trade groups as well as for NIC. I was seeing them as much as I was seeing like some of my own girlfriends. I created some really pretty strong female and male relationships over time just by volunteering. Cause I was a volunteer prior to working for NIC. I was a volunteer for a long time before NIC. But yeah. So, okay. So now let's switch again a little bit to more of the a broader industry perspective. So, you know, we were talking about the baby boomers and that's certainly an influencing factor for long-term positive growth for the sector. What else are you bullish and why else are you bullish about senior housing?

Sarah Duggan: (21:31)
Well from a bullish standpoint you know, obviously when you look at the forecast as to the numbers over 85 going forward in such a short time period, I think that's where we all have to stay steady on. You know, I think there's going to be be opportunities short term, believe it or not, for some development because so many people are sitting on the sidelines for development. We don't have a lot of development activity going on. And so if you take the contrarian view, I think with certain owners and operators that have a long track record and have access to capital and liquidity pursuing some development opportunities, maybe in 23 that roll out in 25 may not be such a bad idea. Right. In certain markets. So I think there are pockets of opportunities, it's just who you align yourself with for those opportunities. That's, that's critical.

Beth Mace: (22:26)
Okay. Are you, as we, as I mentioned earlier, know NIC, we've been talking about what we call again the forgotten middle or the middle income seniors for a while since we did a big study in 2019 with NORC at the University of Chicago. have is this something that Synovus is lending to this sort of small but growing group of operators that are serving that market are not, not quite yet?

Sarah Duggan: (22:50)
Well, you know, I think we can all agree that there is a large percentage of the population who needs to be served by more affordable market in this space. You know, unfortunately I think in today's economic environment it's really hard to make that type of model work. And especially, you know, for a for-profit operator, you've got the staffing shortages, higher wages while then trying to balance and keep your rates affordable. It's hard to make the math work. And so I think that's unfortunate for that sector because it's important to serve those individuals. But I don't think the current economic environment is a friend. I think it's going to be make be hard to make that work.

Beth Mace: (23:38)
Yeah, I, I agree. It's a topic that NIC continues to pursue and will be continuing to pursue it in 2023 for sure. Trying to figure out how to get an affordable product just from a real estate point of view as well as the care portion, which is very challenging because of the labor intensity of the care portion. So more to follow on that for sure. How about the other big new emerging sectors active adult and NIC just issued a big white paper on that a couple months ago. Is that an area that Synovus is lending into active adult?

Sarah Duggan: (24:12)
It's not. We really have defined our mission here to be on properties that are more service oriented. And provide at least some minimal services such as independent living. So we are not pursuing that active adult at the moment. You know, we'll look at it, we've looked at it again this year and really decided it's not for us, but it will be interesting to see how it continues to perform. I've been, to be honest, I've been surprised at how well it's performed. I was very skeptical at first and so I'm glad to see such quality equity sponsors in the space and I think they've been aligned with good operators and developers who know what they're doing.

Beth Mace: (25:03)
I agree with that. And I'm curious, especially now again, cause we're in a, you know, a pretty significant economic cycle with probably some type of a, at least a mild recession I'm projecting for next year at least. And we'll see, because active adult is such a choice-based product, we'll see how that works when people don't have to or can't sell their homes because of the chain mortgage interest rate environment. So that's something that I'm trying to track a little bit on that. So as I mentioned, we always have three standing questions and you mentioned one of 'em a little bit ago about one way to grow talent in our sector. Do you have any other thoughts about that? You talked about finding a good mentor, for example.

Sarah Duggan: (25:46)
Yeah, and I think, you know, as I mentioned, providing individuals the opportunity to visit properties and really be able to see the mission that these providers are carrying out as they serve the elderly. I mean, they can, you can be a profitable model. You can make money in this industry while serving individuals in a very respectful, caring way. And I think we've got a large number of operators in this space who do exactly that.

Beth Mace: (26:16)
Totally agree. There might be a couple of these in terms of challenges facing our industry you had mentioned, you know, we've been through right COVID and then labor shortages and now inflation, interest rate changes, potential slow down the economy next year. That's some of a list, do you have a list of challenges?

Sarah Duggan: (26:42)
Yeah, know, I think if you try to zero in and at least in my opinion what the largest challenge is for the space, I would have to say labor. It's at all levels because we've seen properties here in our portfolio that have had a lot of turn in the ED position and that has had a huge negative impact on the property because of lack of leadership and direction and, you know, you can make some gains on agency and then you lose your ED and then all of a sudden you're back in the agency world. So it really matters to have a steady, very driven ED minding, you know, kind of the captain of the ship.

Beth Mace: (27:27)
So some of your borrowers, have you seen any of them have interesting things that they're working on for EDs to sort of promote from within or train existing staff or any observations that you've made on the ED level for the operators?

Sarah Duggan: (27:44)
We're seeing that more. I think the first focus was at more the dietary level or the CNAs and, and that level of individuals is very important in the property. But I think there is now more focus on the ED level and just again, training sort of getting them the buy-in, making the commitment and compensation too. You know, I think that the more promotes being built into ED compensation as to performance at the property level is a good driver. So I think that's more common than it used to be.

Beth Mace: (28:23)
Yeah, I agree. Okay. How about an innovative idea on how to strengthen our industry?

Sarah Duggan: (28:30)
You know, I think one thing I've witnessed that I think continuing would be good for this industry is sharing of best practices among the operators. Because I felt like during the pandemic particularly, there was a lot more transparency among operators with each other on survival and what can we do to get through this? And there was more of united front together. And I do think that of course there's always going to be be competition in a particular market that you need to be careful about, but sharing best practices and approaches I think is a really healthy approach. And I think it would be more beneficial if we do it more often.

Beth Mace: (29:11)
Yeah. So I'm on the same wavelength with you on that as well. And in fact, honestly in our industry especially, you know, the tide lifts us all. And we want to be careful that there is a one you know, bad operator out there that also the tide comes down on us all the same.

Sarah Duggan: (29:28)
Well we've already seen what happens in the headlines, right. The New York Times or wherever when there's one bad situation, it cast a shadow on the entire industry. And I think trying to avoid that is a powerful thing

Beth Mace: (29:42)
It is indeed. Okay. So let's go back to your other two comments about your personal life. So have you taken guided bike tours in 14 states and also six countries?

Sarah Duggan: (29:57)
Well, I've probably gave myself away on that one because it was so specific, right. I love to cycle. I think cycling is a great way to see a new country or a new state. And so I've had some fun ones. I think domestically, Alaska was probably my most interesting one within United States, to cycle in Alaska. And then I think internationally probably my most enjoyable is probably France.

Beth Mace: (30:31)
Have you done that ride in Iowa?

Sarah Duggan: (30:33)
You know, I did go one year with LCS.

Beth Mace: (30:37)
Yeah.

Sarah Duggan: (30:38)
Desmoines and I was their guests and had a wonderful time. And that was 2019 and I was so fired up about it that I couldn't wait to do it in 2020.

Beth Mace: (30:51)
My husband did that. You probably met my husband at that ride.

Sarah Duggan: (30:53)
Oh, well I didn't do the whole thing. I think it was a two day experience, but it was so well worth it. And I'll have to maybe do it again sometime, but it's been put on the table for a while.

Beth Mace: (31:07)
Yeah. Well for those who don't know, that's a ride that goes from one end of Iowa to the other. I think a lot of people think of Iowa as flat and what I'm told it's not as flat as one might think.

Sarah Duggan: (31:19)
That's exactly right.

Beth Mace: (31:23)
Yep. All right, so that leaves your son and is your son, Max, in fact a quarterback at TCU.

Sarah Duggan: (31:30)
Well I threw that out there and that is my lie as those who might know me I have two daughters. I do not have a son. But I couldn't resist because when I've watched... We have a relationship manager in our team who went to TCU, so, you know, instead of it being all about Alabama this year, we've talked a little bit more about TCU. And so I focused on Max a little bit cause I feel like he's a talented quarterback.

Beth Mace: (31:58)
That's nice. Well that was good. I wondered about that. So that's awesome. So is there anything else you want to comment on before we close?

Sarah Duggan: (32:09)
No, just that I've enjoyed this experience and it's always nice to chat about the industry and here we are closing out 2022. It's been an interesting year. And you know, again, I think 23 is going to be be an interesting year and hopefully when we close it out in December of 23, I hope we'll be looking forward to a more positive 24.

Beth Mace: (32:35)
That's great. So thanks so much for your time. I appreciate it. And for those who are listening in today, thanks for joining us.

Sarah Duggan: (32:42)
Thanks Beth.

Beth Mace: (32:43)
Thank you.