• Homelessness – an alternative opportunity

The covid-19 lockdown forced the issue of homelessness to the fore in many cities. Now, a group of investors is proposing the creation of a reit to focus specifically on providing supported accommodation suitable for this previously largely ignored group of people.
While local authorities are obliged to offer support for those who are homeless, the execution of this requirement is patchy, depending on location. Across Germany, 337,000 people are reckoned to be homeless, while in the UK the figure is estimated at 320,000.
The coronavirus lockdown forced many local authorities to make almost immediate provision to get homeless off the streets, in order to cut the spread of the disease. In several cases, emergency funding was used to lease locked-down hotels for a period, to house those moved from street living.
While envisaged as a temporary solution, there were immediately concerns about what happened at the end of lockdown, as properties were required once more for their previous uses. In at least one case, in Milton Keynes, local councillors made initial inquiries about potentially purchasing their local Travelodge hotel, having found that its use for the homeless actually worked well.
Elsewhere, Mike Matthews, owner of the Prince Rupert hotel in Shrewsbury, revealed in a radio interview that a request from the council to house local homeless had kept his hotel busy and had been a “humbling” project. Determined to maintain a four-star service for his unexpected guests, he had also experienced substantial support from the local community – and ended up asking at least one of his guests to start work with the hotel.
The lack of appropriate accommodation has prompted one group of investors to propose a reit, which will acquire and own suitable properties, and rent them out to service providers such as charities and housing associations. Home REIT will look to launch a UK share placing to raise an initial GBP250m. Based on acquiring suitable properties on a pre-let basis, it reckons it will be able to deliver dividends from September 2021, with a net shareholder return of at least 7.5%, “over the medium term”.
The project is backed by Alvarium, an investment advisory group that has previously assembled a social impact real estate fund with a net asset value of GBP430m. That fund owns 620 properties with 3,750 beds, across 55 UK local authority areas, and is delivering its pension fund backers a return of more than 5%.
A spokesman for the reit told Hotel Analyst that “it’s not short-term accommodation, and we have a big focus on training and rehabilitation. It’s crucial to have longer term security of tenure.” Likely acquisition targets include some existing purpose-built property, as well as suitable located existing assets that can be converted, while new build developments can also be funded.  “We are just the landlord, but will only prelet to suitable providers.”
Charities, which could provide far more support for the homeless, suffer from a lack of suitable supply, which Home REIT aims to solve. It has agreed a collaboration specifically with homeless charity Crisis.
Acquisition targets could well include hotels: “We certainly wouldn’t rule it out,” with the focus being on location and areas of need. The spokesman said they would be looking for low rise buildings: “These are not going to be tower blocks.” The backers say a GBP350m target list of off-market assets has already been identified.
Lynne Fennah, chairman of Home REIT plc, said: “The Alvarium team has capitalised and transacted over GBP1.5bn of real estate assets with a particular focus on accessing secure, long-let and index-linked UK real estate with extensive expertise in the homeless accommodation asset sector.
“We believe a significant investment opportunity now exists in the UK homeless accommodation asset market. We aim to be part of the solution to the homelessness crisis in the UK, drawing on the Alvarium team’s sector specialist expertise to achieve our objective of delivering secure inflation-protected income and capital returns to shareholders, whilst delivering a positive social impact.”
Gareth Jones, partner at Alvarium Home REIT Advisors added: “Local housing authorities are under a statutory duty to secure accommodation for individuals who are unintentionally homeless and in priority need but current accommodation for the homeless is limited in quantum and often sub-standard and uneconomical.”
“This is a natural evolution,” said David Batchelor, managing director of UK operational real estate at CBRE. “It picks up on the theme of responsible investment”, at the top of the private healthcare stack. He expects the reit to pick up assets from all parts of the real estate landscape.

HA Perspective [by Chris Bown]: Until covid-19 hit, in too many cities the problem of what to do with the homeless fell into the “important but not urgent” category, for too many public authorities. Then, forced by a public health crisis to actually accommodate them, the homeless issue suddenly became much more visible to the public at large. And, as a result, something is actually being done.
As CBRE’s Batchelor points out, this isn’t simply accommodation, it’s actually healthcare in some form. Homeless people are rarely homeless by choice; often, it is mental health or addiction that leads to this consequence. And, as such, any accommodation needs a rehabilitative component, to stop the cycle being repeated. The initiative of actually providing the right sort of purpose-built or converted spaces to enable rehabilitation to happen, is to be welcomed. If it delivers a return that encourages both institutional and private investors to back it, all the better.

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