March 25, 2023

For Frank, an ex-soldier who has fallen on hard times, home is a dilapidated Edwardian terraced house in a Midlands town. The accommodation, which he shares with five other men, is not exactly a des res.

The small front lawn is full of broken glass and the decor is spartan, but better than the street.

Frank, whose name has been changed, is in enough trouble, but unbeknownst to him, he’s also caught up in a town fiasco involving the Home REIT, a real estate investment company.

Home REIT, which stands for Real Estate Investment Trust, seeks to benefit from housing for the homeless, people fleeing domestic abuse, ex-military and those released from prison.

The house where Frank lives is owned by the company, along with 2,400 other properties across the UK.

Taking a beating: Home REIT seeks to profit from housing for the homeless, those fleeing domestic abuse, people who have been in the service and those coming out of prison

But trading in its shares has been suspended by authorities since January. Auditors from accounting firm BDO are investigating allegations, denied by the Home REIT, of unpaid rent, inflated property values ​​and questions about the fees of the firm’s investment adviser, Alvarium, a London wealth management firm.

BDO has not signed off on the accounts, so the company will hold its annual shareholder meeting on Monday without them, a highly unusual situation.

Making matters worse, a law firm claims the Home REIT misled its shareholders, who have seen the value of their holdings fall by around 60 percent, and is trying to recruit disgruntled investors to its cause. The lawyer who led the claim described the company, and others like it, as ‘speculating’ at the expense of the vulnerable. All allegations are denied by Home REIT.

The company said it had collected just 23 per cent of its quarterly rent in the three months to November, leaving a deficit of more than £11.4m, and that there were “serious difficulties” with December and January rents. .

The Home REIT admitted that around a quarter of its property portfolio needed renovation at a cost of between £15m and £20m.

He said he is considering selling the company and has received an unsolicited offer from a firm called Bluestar Group, which has ties to Alvarium.

Home REIT has been abandoned by Alvarium and its other advisors, Jefferies International, and has appointed independent forensic accounting experts from Alvarez & Marsal to investigate allegations of wrongdoing.

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The debacle has repercussions beyond the Square Mile, as those at ultimate risk include vulnerable people like Frank.

It sheds light on an industry that aims to make money off the taxpayer-funded housing benefit system while claiming to be a socially responsible investment.

Now parliamentarians and homeless activists are calling for stricter supervision of such businesses.

The Home REIT was founded in 2020 by financiers Gareth Jones, 40, and Jamie Beale, 39. They both worked for Alvarium, which now appears to be distancing itself from the company. It launched on the London stock market to great fanfare that year, raising £240 million from investors. A year later, he raised another £350 million to buy more property. But the shares plunged like a stone last year, losing about 60 percent of their value in 2022 before trading halted.

When they established the Home REIT, Jones and Beale promoted their company as a model of ethical capitalism. They claimed the company would help solve Britain’s homelessness problem and generate profits for investors.

But the affair is an embarrassment to Alvarium, which looks after the wealth of some of the richest families in the world.

Jones and Beale continued on their payroll until recently, but have now both left the Home REIT. Beale stepped back for “personal reasons” and Jones for his health. But he also portends an uncertain future for vulnerable residents. Local authorities have an obligation to rehouse them, but those like Frank could be forced to find alternative accommodation if properties have to be sold quickly.

The debacle is unfolding as politicians and activists call for stricter regulation of such companies, which critics say is flawed.

It’s supposed to work like that. Home REITs buy properties and then lease them to charities, housing associations and community groups, which provide housing for the vulnerable.

The charities are then expected to turn over the rent, which must come from the taxpayer-funded housing benefit, to the Home REIT.

However, charities entered into long-term, inflation-linked leases that lasted for decades. Critics say they were misplaced to deliver on such commitments. Some charities have withheld millions of pounds in rent and are in dispute with the Home REIT over the status of the properties.

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The business model is also based on the so-called ‘exempt accommodation’ (EA). Normally, the amount of housing benefits that people can claim is capped to prevent predatory landlords from ripping off the state. But this cap does not apply to EA, which covers the cost of additional care to help residents rebuild their lives.

This is a significant cost to taxpayers of at least £884 million a year based on 2021 figures. The actual bill is much higher, as the data is incomplete.

Some of the Home REIT’s critics are unabashedly looking to make a profit. These include hedge fund manager Fraser Perring, the Home REIT’s nemesis.

Shares of the company plunged after Perring’s firm, Viceroy Research, issued a critical report late last year. Perring said the sector has been “breeding a lot of for-profit vultures who have limited ability to run a charitable or social enterprise.”

Perring made a highly profitable ‘short’ bet that Home REIT shares would fall, bringing him an estimated £4m net profit. Many will view the windfall from him as morally dubious. However, the concerns she expresses are being investigated by the auditors of Home REIT, BDO. Home REIT has denied the claims, saying the hedge fund’s statements “misrepresent” the way it acquires property and “misrepresent the numbers” while relying on “misleading” data from the Land Registry.

Perring isn’t the only one targeting Home REITs.

Attorney Jenny Morrissey is a partner at the law firm Harcus Parker, which has been investigating Home REITs for months and is recruiting plaintiffs for a possible lawsuit against the firm for allegedly misleading its shareholders.

She believes there may be “fundamental issues with the Home REIT’s business model and the valuation of its assets.”

Home REIT says the allegations are “baseless and misleading” and that its investment advisers conducted “extensive due diligence” before entering into agreements with tenants.

The group has also said its financial position has been misrepresented, based on “incorrect conclusions” from past results.

Meanwhile, former backer Alvarium, which just floated in New York, seems to be trying to distance itself by selling the division that was involved with the Home REIT to its managers.

Alvarium has pocketed £4.1m in fees from the company since it was set up, according to its accounts.

But how is it possible that the provision of exempt housing for vulnerable adults has become a playground for Home REITs and similar businesses?

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The answer is that it falls between the cracks of social services, housing and City watchmen. Parliamentarians and housing charities are calling for tighter control.

“It’s a Wild West show – there’s no regulation at all,” said Conservative MP Bob Blackman, co-chairman of the All Party Parliamentary Group to End Homelessness.

Labor MP Clive Betts, chairman of the Communities, Housing and Commons Leveling Committee, said: “It’s a complete disaster and not properly regulated.”

In a report on the sector published in October, the committee urged the government to close loopholes that it said offered “a license to print money” to those who exploited the system. It made no direct reference to the Home REIT.

Housing advocates have raised concerns about the role of for-profit corporations in providing housing for the homeless.

Matt Downie, executive director of Crisis, said: “These are vulnerable people, often people who may have had to flee domestic abuse, have a serious mental health condition or are dealing with trauma.” It is frankly abominable that they are being exploited for profit.”

Many will find it distasteful that City fund managers seek to profit from the vulnerable and taxpayer-funded housing benefits.

Even if they truly believed they were making a socially responsible investment, the resulting mess at the Home REIT has raised deep unease.

Particularly as the cost was estimated to have ballooned to around £23bn last year, more than the combined budgets of the Home Office, Justice Ministry and Department of Transport.

As for Frank, who pays £25 a week for his en-suite bedroom after a local hospital found it for him, he just hopes to get on with his life. Showing a reporter the two-story building with its grimy gray carpets, he said: ‘Everything is fine here. I keep to myself, but I want to be left alone.

The last thing he and others like him need is to be collateral damage in a city disaster.

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