Money From Misery

Winning the Refugee Crisis

ARCHIV - Zwei Flüchtlinge aus Syrien sitzt am 30.03.2015 in der Flüchtlingsunterkunft in Schönebeck (Sachsen-Anhalt) auf einem Bett. Foto: Jens Wolf/dpa (zu dpa «Asylbewerberzahlen im ersten Quartal verdreifacht» vom 03.04.2015) +++(c) dpa - Bildfunk+++
Two Syrians in their bedroom in EHC-run refugee housing in Schönebeck in the state of Saxony-Anhalt.
  • Why it matters

    Why it matters

    The refugee crisis is costing Germany much, both in terms of money and political agency, while firms like European Homecare profit. Despite some scandals, the company, under CEO Sascha Korte, has benefited and has also expanded into the ownership of subcontractors that service its refugee homes.

  • Facts

    Facts

    • Housing and integration services for refugees have cost German states an estimated €20 billion, or $22 billion, so far.
    • European Homecare is the market leader among refugee housing providers, employing 2,000 people and operating 100 facilities, with potential to house 20,000 refugees; profits grew to €5.3 million in 2014.
    • During the huge influx of refugees, European Homecare appears to have had city councils over a barrel. The Essen council says they paid what they had to, to prevent “mass homelessness”.
  • Audio

    Audio

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There’s a children’s playroom at the refugee village in Karnap, a suburb of the western German city of Essen. The space is sparsely decorated: Some carpet, some Ikea shelves stacked with picture books and a rubber dinosaur. But as Essen city council member Michael Schwamborn remarked, it’s better than nothing.

“Before, the TV was the only kind of childcare here,” he said. European Homecare, or EHC, the Essen-based company that provides the accommodations, saves money where it can, Mr. Schwamborn notes wryly.

Almost 700 people have called this tent city home. They’ve lived in close quarters, using bathrooms inside modified shipping containers. The complex is fenced in, with security keeping watch around the clock.

EHC operates ten of these facilities across the city, with space for 4,000 people. As the company grows, its chief executive Sascha Korte has set up a series of separate firms to provide services to European Homecare. It may be controversial in political circles but the refugee crisis has been a boon for Korte’s business.

More than a million people sought refuge in Germany last year, catching many communities off-guard. With nowhere else to house asylum-seekers, authorities set up temporary accommodation in sports halls and tent cities.

According to state premiers’ offices, housing and integration services have cost Germany’s states an estimated €20 billion ($22 billion) so far. The state government in North Rhine-Westphalia, where Essen is located, spent €2 billion on refugees in 2015 and expects costs to balloon to €4.6 billion this year.

 

Between September 2015 and this June, EHC's tent cities in Essen generated more than €30 million in revenue. Meanwhile Essen's treasurer said the city's budget deficit had ballooned from €3.4 million to €37.3 million.

Though new arrivals have decreased since their peak in the summer of 2015, the companies that local governments rely on to provide refugees with services – from housing and security to food and sanitation – are still reaping the rewards.

Mr. Korte’s EHC is the market leader among refugee housing providers. According to the company’s own data, it employs 2,000 people and operates 100 facilities, with potential to house 20,000 refugees.

Yet he eschews publicity and has hired public relations advisor, Klaus Kocks, instead. Mr. Kocks portrays the company as a low-cost services provider, once describing it in an interview with Handelsblatt as “the Aldi” – a popular budget supermarket – in its field. Relative to its annual revenues, EHC’s average daily allowance per refugee was just €14 in 2014.

Currently, the city of Essen pays the company a flat fee of €1,706 per month, per refugee in the tent city – or a daily allowance of just under €57, which is quadruple the average daily price from two years ago. Mr. Kocks said prices are pegged to the company’s overheads, which fluctuate. “If EHC got the contract, then EHC was the lowest-cost provider,” he said.

Essen officials saw the situation a little differently, stating that, at the time they contracted EHC, “it was about preventing mass homelessness.” To stave off that crisis, the city opted to pay the prices set by companies like EHC.

Mr. Kortes’ business saw profits grow from €1.4 million to €5.3 million in its 2014 results, which did not include the revenues from the refugee homes in Essen. European Homecare’s return on equity jumped from 66 percent to 111 percent – meaning that every euro invested in the company returned more than twice as much within a year.

 

Sascha Korte European Homecare EHC
Winner: Sascha Korte, CEO of European Homecare

 

EHC was founded in the late 1980s by Mr. Kortes’ father and his business partner in the central German state of Hesse. In 2003, it made headlines, not as a business success story, but as a crime scene: A man was beaten to death and 30 others were hurt in a brawl at one of EHC’s accommodation centers in Traiskirchen, Austria. A short time later, an asylum-seeker from Cameroon accused a guard at one EHC facility of rape.

The company survived those scandals, and in 2006, Sascha Korte became the sole CEO of the company. At the time, business was mostly stable, though EHC posted losses of about €500,000 in 2010.

Since then, it has turned those numbers around. EHC provides cities with a package deal; the price communities pay for the care for each person includes not just lodging, but meals, security and childcare. The company employs subcontractors to provide some of those services, such as catering and security.

For example, at the refugee center in Karnap, in northern Essen, the tents are provided by a firm called Cosmopolitent for the price of €435,000 each month. A subsidiary of the Stölting Service Group based in Gelsenkirchen – S.E.T. Security – deals with safety concerns at the facility, while the firm Apetito takes care of food.

EHC’s outsourcing system ran relatively smoothly until late September 2014, when there were revelations that guards from the security firm SKI had abused a refugee at one of the company’s housing centers in the central German city of Burbach.

Other problems have also come to light, from brawling to poor hygiene conditions. Because of the company’s reliance on subcontractors, however, it was difficult to establish accountability. In the Burbach case, state prosecutors opened a probe into Mr. Korte. Investigators raided EHC’s Essen headquarters in October of 2014, and have been combing through some 20,000 files.

At one stage it felt like the business had grown so rapidly that things were only just hanging together and that Korte didn’t quite have the required managerial experience. But since then, a learning curve has been evident.

Starting in 2015, Mr. Korte began to build up a network of companies, in which he himself is a stakeholder, to provide specific services for refugees. The European Homecare CEO founded a holding company with his business partner Hans Mosbacher, who owns the security firms Stölting and S.E.T.

 

18 p22 Homecare-01
European Homecare’s turnover, in millions of Euros

 

Through this holding company, Mr. Korte and Mr. Mosbacher have equal shares in Purax, a wholesaler of hygiene products. Mr. Korte is also CEO of Purax alongside Mr. Mosbacher’s son Sebastian. But Mr. Korte is not usually directly linked to these companies. Instead, it’s Maluko GmbH & Co. KG which is owned by Mr. Korte and his wife that holds a stake in the firms.

“Often such a complex corporate structure is created for tax reasons” said Carsten Wettich, a corporate law expert in Düsseldorf. It also makes it easier to keep a company’s ultimate owners more or less anonymous. Mr. Kocks, EHC’s erstwhile public relations representative, declined to comment on this aspect of the business.

Beyond EHC and Purax, Mr. Korte also holds management positions in a dozen other firms, including real estate and project developers. It’s a role he shares with the commercial manager of Essen’s university hospital at one company, which provides sanitation services to at least one of the refugee homes run by EHC in Essen.

Mr. Korte is also an executive in a small, Dortmund-based advertising agency, which developed websites for European Homecare, Stölting and Purax. Mr. Kocks also declined to comment on Mr. Kortes’ relationships with these other firms.

EHC also declined to comment on how much money its tent cities in Essen generated between September of last year and this June. At more than €30 million, those revenues amounted to nearly as much as the firm’s total turnover for 2014.

For Essen, which is planning to do away with the tent cities in the fall, the fees have been crippling. City treasurer Lars Martin Klieve said Essen’s budget deficit ballooned from €3.4 million to €37.3 million.

Meanwhile, Essen’s expensive refugee housing contracts have put it at risk of failing to meet the requirements for budget relief set by the state government in North-Rhine Westphalia. If that happens, it would mean that the city has to pay back some €90 million in loans.

Jakob Blume is a trainee journalist at Handelsblatt. To contact the author: blume@handelsblatt.com.

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