RUTH SUNDERLAND: Home truth for investors

Trying to make a profit from services for the vulnerable sounds like a recipe for disaster.

In recent years, however, private investors have focused, among other things, on elderly care and children’s homes. And a number of companies have been formed to invest in real estate for the homeless and troubled adults.

This is sometimes encouraged, based on the theory that private investments can provide better quality and cheaper facilities. But as real estate investment company Home REIT shows, it’s a minefield.

Home REIT was launched on the stock exchange two years ago by two managers of asset manager Alvarium, who promoted it as a socially responsible company that would alleviate the homeless crisis.

The company is now in serious trouble after being attacked by short sellers betting that the stock will fall. Hedge fund managers have their own agenda, but they can serve as a canary in the coal mine.

Trading in Home REIT shares has been suspended as top firm BDO is conducting enhanced audit procedures and unable to sign its accounts. Shareholders, including small investors, have seen the value of their shares plummet.

Home REIT says it has “full confidence” in the integrity and financial soundness of its company and its “beneficial impact” in reducing homelessness.

The affair worries taxpayers. Home REIT’s business model is based on renting real estate to charities, housing corporations and community organizations. These tenant organizations must provide safe housing and extra care for residents, including many vulnerable groups.

The rent allowance to which these residents are entitled is exempt from the usual maximums to cover their extra healthcare costs.

However, a number of charities are in arrears with rent payments to Home REIT, amounting to millions of pounds.

One of the largest, Lotus Sanctuary, which shelters women fleeing domestic violence, is £2.7 million in debt.

Home REIT appoints a specialized administrator to help collect rent.

There have been previous installments examining the involvement of for-profit investors in healthcare delivery. Ten years ago, Southern Cross, the UK’s largest aged care company at the time, went bankrupt after a period in private equity ownership.

In 2021, the Competition and Markets Authority warned that companies owned by investment barons were charging taxpayers exorbitant fees to run children’s homes.

Failures in private equity-owned facilities resulted in the sexual exploitation of children, while others lived in residences with walls covered in feces.

Home REIT is not a private equity vehicle, but a Real Estate Investment Trust. These real estate rental companies are popular with investors because they offer attractive returns and tax benefits.

The investment trust industry as a whole has been a victim of scandal over the years, including the so-called split capital affair of the 1990s. Still, most are reputable savings vehicles. Funders seeking to profit from providing services to some of society’s most vulnerable individuals are in morally sensitive territory.

They may strive for responsibility, but there is a blatant clash of values ​​and culture.

The ethos of caring for the vulnerable should revolve around support, warmth and empathy. That’s the other end of the emotional spectrum of the beady-eyed calculation that drives investment success.