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For Frank, a former soldier fallen on hard times, the home is a run-down Edwardian house at the end of a terrace in a Midlands town. The accommodation, which he shares with five other men, is not exactly des res.
The small front yard is littered with broken glass and the decor is spartan, but it’s better than the street.
Frank – whose name has been changed – has plenty of trouble, but unbeknownst to him, he’s also embroiled in a City fiasco involving Home REIT, a real estate investment company.
Home REIT – which stands for Real Estate Investment Trust – seeks to profit from housing for the homeless, those fleeing domestic violence, ex-servants and prison leavers.
The house where Frank lives is owned by the company, along with some 2,400 other properties in the UK.
Undergoing Abuse: Home REIT Tries to Profit Housing for the Homeless, Those Fleeing Domestic Violence, Ex-Militaries, and Prison Leavers
But trading in his shares has been halted since January by the authorities. Auditors from accounting firm BDO are investigating allegations, denied by Home REIT, of unpaid rents, high property values and questions surrounding fees for the firm’s investment advisor, Alvarium, a London-based asset manager.
BDO has not signed the bills, so the company will hold its annual shareholder meeting on Monday without them – a highly unusual situation.
To add to the misery, a law firm claims that Home REIT misled its shareholders, who have seen their asset values plummet by about 60 percent, and is trying to solicit disgruntled investors for its cause. The lawyer leading the claim described the company, and similar companies, as “profit making” 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 shortfall of more than £11.4 million, and that there were “serious challenges” with December and January rents .
Home REIT admitted that about a quarter of its property portfolio needed refurbishment at a cost of between £15m and £20m.
It said it was considering a sale of the company and had received an unsolicited offer from a company called Bluestar Group, which has ties to Alvarium.
Home REIT has been dumped by Alvarium and its other advisors Jefferies International, and has appointed independent forensic accounting experts from Alvarez & Marsal to investigate allegations of wrongdoing.
The debacle has repercussions beyond the Square Mile, as vulnerable individuals like Frank are ultimately at risk.
It shines a light on an industry that strives to monetize the taxpayer-funded housing benefit scheme while claiming to be a socially responsible investment.
Now MPs and activists for the homeless are calling for stronger supervision of such businesses.
Home REIT was founded in 2020 by financiers Gareth Jones, 40, and Jamie Beale, 39. Both worked for Alvarium, which now appears to be distancing itself from the company. It launched to much fanfare on the London stock market that year, raising £240 million from investors. A year later it raised a further £350 million to buy more properties. But the shares sank like a brick last year, losing about 60 percent of their value by 2022 before trading was halted.
When they founded Home REIT, Jones and Beale called their company a model of ethical capitalism. They claimed the company would help solve Britain’s homeless problem and make a profit for investors.
But the affair is an embarrassment to Alvarium, which manages the wealth of some of the world’s wealthiest families.
Jones and Beale remained on payroll until recently, but have now both left Home REIT. Beale stepped back for “personal reasons” and Jones because of his health. But it also means an uncertain future for vulnerable residents. Local authorities are required to relocate them, but people like Frank could be forced to look for alternative accommodation if properties need to be sold quickly.
The debacle unfolds as politicians and campaigners call for tighter regulation of such ventures, which critics say are flawed.
It’s supposed to work that way. Home REIT buys up real estate and then leases it to charities, housing associations and community groups, providing shelter for the vulnerable.
The charities are then expected to pay the rent — which is intended to come from taxpayer-funded rent subsidies — to Home REIT.
Charities, however, entered into long-term, inflation-linked leases that would last for decades. Critics argue that they were unable to fulfill such commitments. Some charities have withheld millions of pounds in rent and are in dispute with Home REIT over the condition of the properties.
The business model is also based on so-called ‘exempt housing’ (EA). Normally, the amount of housing benefit 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 major cost to the taxpayer of at least £884 million a year based on 2021 figures. The actual bill is much higher, as the data is incomplete.
Some critics of Home REIT are themselves unashamedly out for profit. These include hedge fund manager Fraser Perring, Home REIT’s nemesis.
Shares in the company plummeted after Perring’s company, Viceroy Research, released a critical report late last year. Perring said the industry has “bred an abundance of for-profit vultures with limited ability to actually run a charity or social enterprise.”
Perring took a highly profitable ‘short’ bet that Home REIT shares would fall, netting him an estimated £4 million. Many will view his windfall as morally questionable. However, the concerns he raises are being investigated by Home REIT’s accountant, BDO. Home REIT has rejected the claims, saying the hedge fund’s statements “misunderstand” the way it acquires real estate and “misinterpret numbers,” while relying on “misleading” Land Registry data.
Perring isn’t alone in targeting Home REIT.
Attorney Jenny Morrissey is a partner at law firm Harcus Parker, which has been investigating Home REIT for months and is recruiting plaintiffs for a potential lawsuit against the company alleging deception of its shareholders.
She believes there may be “fundamental issues with Home REIT’s business model and the valuation of its assets.”
Home REIT says the allegations are “baseless and misleading” and that its investment advisors conducted “extensive due diligence” before closing deals with tenants.
The group has also said its financial position has been misrepresented, based on “incorrect conclusions” from previous results.
Meanwhile, former lender Alvarium, which just went public in New York, appears to be looking to distance itself by selling the division involved in Home REIT to its managers.
According to accounts, Alvarium has pocketed £4.1 million in company fees since its inception.
But how could providing exempt lodging for vulnerable adults have become a playground for Home REIT and similar companies?
The answer is that it falls through the cracks of social services, housing and city guards. MPs and housing associations are calling for stricter control.
“It’s a Wild West show — there’s no regulation at all,” said Tory MP Bob Blackman, co-chair of the All Party Parliamentary Group for Ending Homelessness.
Labor MP Clive Betts, chair of the Commons Leveling Up, Housing and Communities Committee, said: ‘It’s a complete mess and not well regulated.’
In a report on the industry published in October, the commission called on the government to close loopholes that, it said, “provide a license to print money” for those exploiting the system. It did not refer directly to Home REIT.
Housing campaigners have expressed concern about the role of for-profit businesses in providing housing for the homeless.
Matt Downie, chief executive of Crisis, said: ‘These are vulnerable people – often those who have had to flee domestic violence, have serious mental illness or experience trauma. It is absolutely disgusting that they are being exploited for profit.’
Many will find it distasteful that city fund managers try to take advantage of the vulnerable and of taxpayer-funded rent subsidies.
Even if they really thought they were making a socially responsible investment, the resulting mess at Home REIT has left deep unrest.
Especially as costs are estimated to have risen to around £23bn last year – more than the combined budgets of the Home Office, Justice Department and Transport Department.
As for Frank, who pays £25 a week for his en-suite bedroom after it was found for him by a local hospital, he just hopes to get on with his life. He had a reporter take a tour of the two-story building with its dingy gray carpets and said, “Everything is fine here. I keep myself to myself, but 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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