For Frank, a former soldier who has fallen on hard times, home is a dilapidated Edwardian end-of-terrace house in a Midlands town. The accommodation, which he shares with five other men, is not exactly a des res.
The tiny front garden is littered with broken glass and the décor is spartan, but it is better than the street.
Frank – whose name has been changed – has enough troubles, but unbeknownst to him, he is also caught up in a City fiasco involving Home REIT, a property investment company.
Home REIT – standing for Real Estate Investment Trust – seeks to profit from accommodation for the homeless, those fleeing domestic abuse, ex-service people and prison leavers.
The house where Frank lives is owned by the company, along with some 2,400 other properties across the UK.
Taking a battering: Home REIT seeks to profit from accommodation for the homeless, those fleeing domestic abuse, ex-service people and prison leavers
But trading in its shares has been halted by the authorities since January. Auditors from accountancy firm BDO are investigating allegations, denied by Home REIT, of unpaid rents, inflated property values and questions surrounding the fees for the firm’s investment adviser Alvarium, a London wealth management company.
BDO has not signed off on the accounts, so the firm will hold its annual shareholder meeting on Monday without them – a highly unusual situation.
To add to the woes, a law firm is claiming Home REIT misled its shareholders, who have seen the value of their holdings sink by around 60 per cent, and is trying to recruit disgruntled investors to its cause. The lawyer leading the claim described the company, and others like it, as ‘profiteering’ at the expense of the vulnerable. All the accusations are denied by Home REIT.
The company said it had collected only 23 per cent of its quarterly rent roll in the three months to November, leaving a shortfall of more than £11.4m, and that there were ‘serious challenges’ with rents for December and January.
Home REIT admitted that around a quarter of its property portfolio needed refurbishment at a cost of between £15m and £20m.
It said it is considering a sale of the company and that it had received an unsolicited offer from a firm called Bluestar Group, which has links to Alvarium.
Home REIT has been dumped by Alvarium and its other advisers 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 those ultimately at risk include vulnerable individuals like Frank.
It casts a light on an industry that aims to make money from the taxpayer-funded housing benefit system whilst claiming to be a socially responsible investment.
Now MPs and homeless campaigners are calling for stronger oversight of such companies.
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 was launched on the London stock market to huge fanfare that year, raising £240m from investors. A year later, it hauled in another £350m to buy more property. But shares sank like a stone last year, losing around 60 per cent of their value in 2022 before dealings were halted.
When they set up Home REIT, Jones and Beale touted their venture as a paragon of ethical capitalism. They claimed the firm would help solve Britain’s homeless problem as well as make a profit for investors.
But the affair is an embarrassment for Alvarium, which looks after the wealth of some of the world’s richest families.
Jones and Beale continued to be on its payroll until recently, but both have now left Home REIT. Beale stepped back for ‘personal reasons’ and Jones because of his health. But it also spells an uncertain future for vulnerable residents. Local authorities are under an obligation to rehouse them, but those like Frank could be forced to scramble for alternative accommodation if properties have to be sold in a hurry.
The debacle is unfolding as politicians and campaigners call for tighter regulation of such ventures, which critics say is flawed.
It is supposed to work like this. Home REIT buys up property and then lets it out to charities, housing associations and community groups, which provide accommodation for the vulnerable.
The charities are then expected to hand over rent – which is meant to come from taxpayer-funded housing benefit – to Home REIT.
However, charities entered into long-term inflation-linked leases lasting over decades. Critics claim they were ill-placed to be able to meet such commitments. Some charities have withheld millions of pounds in rent and are in dispute with Home REIT over the state of the properties.
The business model is also based on so-called ‘exempt accommodation’ (EA). Normally, the amount of housing benefit people can claim is capped in order to prevent rapacious landlords from ripping off the state. But this ceiling does not apply to EA, which covers the cost of additional care to help residents rebuild their lives.
This is a major cost to taxpayers of at least £884m a year based on 2021 figures. The true bill is much higher, as the data is incomplete.
Some of Home REIT’s critics are themselves unashamedly out to make a profit. These include hedge fund manager Fraser Perring, Home REIT’s nemesis.
Shares in the company tanked after Perring’s firm, Viceroy Research, issued a critical report late last year. Perring said the sector has been ‘breeding a plethora of for-profit vultures who have limited ability to actually run a charity or social enterprise’.
Perring took out a highly profitable ‘short’ bet that Home REIT shares would fall, which netted him an estimated £4m. Many will see his windfall as morally dubious. However, the concerns he airs are being investigated by Home REIT’s auditors, BDO. Home REIT has denied the claims, saying the hedge fund’s statements ‘misunderstand’ the way it acquires properties and ‘misinterprets figures’ while relying on ‘misleading’ data from the Land Registry.
Perring is not the only one gunning for Home REIT.
Lawyer Jenny Morrissey is a partner at legal firm Harcus Parker, which has been investigating Home REIT for months and is recruiting claimants for a possible lawsuit against the firm for allegedly misleading 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 accusations are ‘baseless and misleading’ and that its investment advisers undertook ‘extensive due diligence’ before entering deals with tenants.
The group has also said its financial position has been misrepresented, based on ‘incorrect conclusions’ from previous results.
Meanwhile, former backer Alvarium, which has just floated in New York, appears to be trying to distance itself by selling the division that was involved with Home REIT to its managers.
Alvarium has pocketed £4.1m in fees from the firm since it was set up, according to its accounts.
But how could the provision of exempt accommodation for vulnerable adults have become a playground for Home REIT and similar companies?
The answer is that it falls between the cracks of social services, housing and City watchdogs. MPs and housing charities are calling for tighter control.
‘It’s a Wild West show – there’s no regulation at all,’ said Tory MP Bob Blackman, co-chairman of the All Party Parliamentary Group for Ending Homelessness.
Labour MP Clive Betts, chairman of the Commons Levelling Up, Housing and Communities Committee, said: ‘It’s a complete mess and not properly regulated.’
In a report on the sector published in October, the committee called on the Government to close loopholes that, it said, offered ‘a licence to print money’ for those exploiting the system. It did not reference Home REIT directly.
Housing campaigners have voiced concerns about the role of profit-making companies in providing housing for the homeless.
Matt Downie, chief executive 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’s frankly abhorrent that they are being exploited for profit.’
Many will find it distasteful that City fund managers seek to profit from the vulnerable and from taxpayer-funded housing benefits.
Even if they genuinely believed themselves to be making a socially responsible investment, the resulting mess at Home REIT has provoked deep unease.
Particularly so, as the cost estimated to have ballooned to around £23billion last year – more than the combined budgets of the Home Office, the Ministry of Justice and the Department for Transport.
As for Frank, who pays £25 a week for his en suite bedsit after it was found for him by a local hospital, he is just hoping to get on with his life. Showing a reporter around the two-storey building with its grimy grey carpets, he said: ‘It’s all right 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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