Imagine you’re looking at a building with a dilapidated façade, empty shops and rubbish skips piled up behind it. A pleasant sight? Welcome to the world of stranded assets.
What are stranded assets?
Stranded assets are assets whose market value or earning power has unexpectedly fallen sharply, often to the point of being virtually worthless. In the world of property, this means that a once-lucrative property could suddenly incur more costs than it generates in income – in other words, it no longer yields a return.
Why do properties become stranded assets?
The reasons for this are varied and often linked to environmental and climate factors. New climate protection rules and regulations, for example, can drive up operating costs. If prices for green technologies such as solar panels fall, the use of conventional technologies becomes unattractive. Changing social norms and consumer habits also play a role – many people are increasingly doing without their own cars and turning to renewable energy.
How should one deal with stranded assets? Identifying opportunities
The first thought that might come to mind with a stranded asset could be: demolition and new build. However, this often requires significant investment, and such properties are frequently located in less attractive areas. An alternative strategy could be to find an investor who recognises the property’s hidden potential and is prepared to acquire it at a very low price.
Potential return: More than just a risk
Such an investment looks not only at the property’s current condition, but also at the opportunities that a change of use or comprehensive renovation might offer. Returns in excess of 20 per cent could be possible here. However, it is important to bear in mind that without equity and a willingness to engage intensively with the project, it will be difficult. A negative valuation can often lead to the bank refusing to provide financing.
Conclusion: Have the courage to invest
Anyone prepared to take on the challenge and who has the necessary financial resources could make a real profit from stranded assets. The property sector certainly offers opportunities for risk-taking investors who are prepared to find creative solutions and overcome challenges. So why not transform a run-down building into a profitable project? At OFFMARKET24, we’re happy to support you.
