Cannabis growing in a Derby property. October 2023.
Four properties owned by beleaguered investment trust Home REIT were utilised to grow cannabis in sophisticated operations across Derby and Scarborough, an Investment Week investigation has found.
The largest of the four properties is a 4,833 square foot semi-detached Victorian house set over four storeys, with more than 13 rooms, overlooking a cricket ground in the English seaside town of Scarborough in North Yorkshire.
According to documents reviewed by Investment Week, Home REIT paid £725,000 for this property in October 2021. The seller was Liverpool-based developer Pathway Homes Group, which paid £420,000 for it in the same month, Land Registry documents show.
Although the sale included legal and refurbishment costs, the transaction is in line with a consistent pattern of significant payments made by Home REIT for its properties and hefty profits for developers, as outlined in a previous Investment Week investigation.
As set out in the trust's IPO prospectus, the property was meant to provide high-quality accommodation to homeless and vulnerable individuals in need of housing, such as women fleeing domestic violence, prison leavers and people suffering from mental health issues.
However, images of scattered cannabis leaves on the floor, hundreds of pots filled with soil, wires dangling from the ceiling, blacked out windows and large ventilation pipes fed through the internal walls tell a starkly different story about how the property was used.
Investment Week gained access to the property, verified the footage and interviewed neighbours, who confirmed the operation went undetected until the North Yorkshire Police raided the property in the final months of 2023, after receiving a tip off.
Cultivating any part of a cannabis plant in the UK is illegal, as it falls under the classification of a class B drug, with a potential maximum penalty of 14 years in prison. The North Yorkshire Police and Derbyshire Police declined to comment.
Neither the Scarborough nor Derby properties had any tenants living in them, as they were awaiting renovation when they were unlawfully occupied by the cannabis growers.
The aggregator contractually responsible for the refurbishment of the properties was Pathway Homes Group.
Before Pathway Homes Group went into liquidation in April 2023, the company was one of the trust's largest aggregators, leasing properties to a number of tenant groups, which would then provide rooms to vulnerable people.
The four properties found to be cannabis farms were leased to Supportive Homes CIC by Pathway Homes Group. However, the charity gave up its leases in September 2023 upon entering into a creditors' voluntary liquidation.
Supportive Homes CIC, which was described by Home REIT as "non-performing", represented 11.3% of the rent demanded by the trust in August 2023.
In June 2023, an Investment Week investigation revealed several connections between the tenants' directors and Pathway Homes Group associates, outlining a complex web of conflicts of interest that Alvarium, the trust's investment adviser at the time, failed to detect.
Pathway Homes Group and Supportive Homes CIC declined to comment.
Properties auctioned
AEW UK Investment Management took over as Home REIT's new manager and alternative investment fund manager in August last year, after an internal investigation raised concerns about Alvarium's handling of the trust's property portfolio.
As part of the new manager's plan to turn around the fortunes of the trust and stabilise its property portfolio, AEW began selling properties at public auctions in August to reduce borrowings and provide working capital.
Since then, Home REIT has auctioned off more than 600 properties, with many sold for less than half the price it originally paid. In December 2023, the trust admitted its portfolio was worth less than half of the £977m it paid to acquire the properties.
Although the footage obtained by Investment Week of the former cannabis farms date back to the period when Home REIT was the owner, all the properties have since been auctioned and are no longer owned by the trust, with the sales managed by Allsop during the final quarter of 2023.
The first of the four cannabis farms that were discovered was found in Derby by a prospective bidder during a viewing in late October last year. Over November and December, they identified three more properties that had also been converted into cannabis farms of different scales.
The house in Scarborough was eventually sold at auction by Allsop in December, crystallising a loss of more than 70% for Home REIT once the deal was completed at the end of January.
Three of the four properties were removed from auctions on two occasions, with all of them experiencing at least one withdrawal. In emails reviewed by Investment Week, Allsop informed prospective buyers that the properties had to be "cleared and secured" by its client, Home REIT.
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"[Allsop] had no idea, they were learning about it as they went on. Ultimately, as an auctioneer, they sell so many properties that it is difficult for them to know exactly what they are selling," said the prospective bidder, who wished to remain anonymous.
"You would report it, and then two weeks later before the auction they would be withdrawn. Then the property would come back the month after that - that is what inevitably happened."
A spokesperson for Allsop told Investment Week it is "common" with all auctions for certain lots to be withdrawn during the marketing phase before the auction itself for a number of reasons including safety, cleanliness, access issues and legal issues.
The auctioneer said the properties were all cleared before they were sold at auction, noting that where there was any concern about prior criminal use of the properties, its process is to "alert the appropriate parties and/or authorities, who will then decide and take the most suitable course of action".
Home REIT and AEW declined to comment for this story.
The revelations will be a further blow to investors in the suspended trust, including some of the UK's largest asset managers, pension funds, charities and retail investors, who have committed over £850m to the vehicle since IPO in 2020 with the hope of helping some of society's most vulnerable people.
Last month, Home REIT said the Financial Conduct Authority had opened an investigation into the trust, focusing on the period between 22 September 2020, a few weeks before its float, and 3 January 2023, when its shares were suspended.
FCA opens investigation into Home REIT
The move comes more than a year after a scathing report published by short seller Viceroy Research raised questions over the valuation of Home REIT's properties and the ability of its tenants to pay rent, which the trust contested as "baseless and misleading allegations".
Shareholders are still awaiting the trust's long-overdue audited results, which the board aims to publish in the second quarter of this year. The entire board of directors has committed to step down once the results are published.
