RUTH SUNDERLAND tells investors the truth: Trying to cash in on services for vulnerable people looks like a recipe for disaster
- Investors have invested in areas such as elderly care and children’s homes
- Companies created to invest in real estate for homeless and struggling adults
- The ethics of caring for the vulnerable should be one of support, warmth and empathy
Trying to cash in on services for vulnerable people sounds like a recipe for disaster.
In recent years, however, private sector investors have moved into areas such as elderly care and children’s homes. And a number of companies have been set up to invest in real estate for homeless and struggling adults.
This is sometimes encouraged, based on the theory that private investment can produce higher quality and cheaper supply. But, as real estate investment firm Home REIT shows, it’s a minefield.
Minefield: Home REIT was floated two years ago by two managers from wealth management firm Alvarium, who promoted it as a socially responsible company
Home REIT was floated two years ago by two managers at wealth management firm Alvarium, who touted it as a socially responsible company that would alleviate the homelessness crisis.
The company is now in serious trouble after being attacked by short sellers betting that the shares 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 because big business BDO is following “enhanced audit procedures” and cannot sign its accounts. Shareholders, including retail investors, have seen the value of their holdings plummet.
Home REIT says it is “fully confident” in the integrity and financial strength of its business and its “beneficial impact” on reducing homelessness.
The case worries taxpayers. Home REIT’s business model is based on leasing properties to charities, housing associations and community benefit corporations. These tenant organizations are meant to provide safe housing and additional care for residents, including many vulnerable groups.
The housing benefit to which these residents are entitled is exempt from the usual ceilings, in order to cover their additional care costs.
However, a number of charities are behind on rent payments to Home REIT, which amounts to millions of pounds.
One of the biggest, Lotus Sanctuary, which provides accommodation for women fleeing domestic abuse, is £2.7million in debt.
Home REIT appoints specialist manager to assist with rent collection.
There have been previous episodes where the involvement of for-profit investors in caregiving has come under scrutiny. Ten years ago, the UK’s largest aged care company, Southern Cross, went bankrupt after a period of private ownership.
In 2021, the Competition and Markets Authority warned that companies owned by investment barons were charging taxpayers excessive fees to run children’s homes.
Failures in privately owned facilities resulted in the sexual exploitation of children, while others lived in homes whose walls were covered in excrement.
Home REIT is not a private equity vehicle, but a real estate investment trust. These real estate rental companies have been popular with investors because they offer attractive returns and tax advantages.
The investment trust industry as a whole has been plagued by scandals over the years, including the so-called capital split case in the 1990s. Yet most are reputable savings vehicles. Financiers seeking to profit from providing services to some of society’s most vulnerable people are on morally sensitive ground.
They may aim to be responsible, but there is a glaring clash of values and culture.
The philosophy of caring for the vulnerable should be one of support, warmth and empathy. It is the other end of the emotional spectrum of keen calculation that makes investing successful.