Building transformation: how investors can reduce risk and protect value

The structure is there. The land has already been developed. Materials and embodied carbon are locked into the building, and a well-located office or commercial property may have the potential for an entirely new life.

Can the structure carry the new loads? Is there enough daylight? Are hazardous materials hiding behind walls or beneath floors? Can the building meet fire, acoustic, and accessibility requirements? Will its dimensions work for the new use? And how long will planning and approvals take?

Each unanswered question matters because the building continues to cost money while investors wait for answers.

New Danish research from Ramboll, Nykredit, Ejendomsselskabet Olav de Linde, and Freja Ejendomme examines what this uncertainty means for the investment case. The study forms part of Preserve More, or Bevar Mere in Danish, an initiative exploring how more homes can be created within existing buildings.

The market data comes from Denmark, while the investment logic reaches much further. Building transformation can create significant value, yet unresolved questions around an existing property can make that value difficult to price, finance, and compare with new construction.

Investors live with risk. Construction costs move. Programmes slip. Market conditions change.

Where previous projects and historical data provide a reasonable guide, those risks can be estimated and reflected in contingencies, financing, and expected returns.

Existing buildings bring another category of uncertainty. Some of the conditions that could determine the entire project may still be unknown when an investor has to decide whether to commit capital.

“Investors can generally accept risk when they can estimate and price it. The real difficulty comes when decisive conditions remain unresolved at the point when capital must be committed, such as structural capacity, contamination, planning permission, building-code requirements, or the building’s actual suitability for housing,” says Daniel Veenboer, Chief Consultant in Sustainability Consultancy at Ramboll and main author of the investment case.

He adds: “Until those questions are clarified, the project cannot be modelled, financed, or compared reliably with alternative investments. Transformation may offer comparable or even greater value, yet new construction often wins because it presents a more familiar and predictable range of outcomes.”

That difference matters

A new building can be designed around what the market wants. Developers can choose structural systems, layouts, dimensions, circulation, and building services from the beginning.

With transformation, somebody else made many of those decisions decades ago.

The investor therefore needs to find out, early enough, whether the building can support the new ambition and at what cost.

One case from the research shows just how much difference time can make.

The anonymized and simplified example concerned the proposed conversion of a medium-complexity industrial building into housing. The first calculation indicated a gross value potential of approximately DKK 6.32 million.

Then the development timeline was added.

The model included two years for planning and approvals, followed by around 18 months of construction. During that period, financing costs, property tax, maintenance, and other holding costs continued to accumulate.

The calculated value gain fell from approximately DKK 6.32 million to just DKK 0.31 million.

Around 95% of the original value potential had been consumed.

The figure belongs to this particular case, so it cannot be used as a general benchmark for transformation projects. The economic mechanism is much broader.

A building still needs to be financed and maintained while approvals are pending. Security, heating, professional fees, taxes, and other expenses continue. Income may be delayed. Every additional month has a financial consequence.

For projects with relatively narrow margins, time can therefore become one of the factors that decides whether an investment works at all.

This places considerable value on early multidisciplinary assessment.

Architects can test whether the depth of the building, façade, structural grid, daylight conditions, and circulation can produce spaces people will actually want to use.

Engineers can investigate structural capacity, reinforcement requirements, fire and acoustic performance, building services, contamination, and the quality of existing documentation.

Contractors can test constructability and provide early insight into logistics, temporary works, selective demolition, programme, and cost.

“The key contribution is the ability to identify the small number of conditions that disproportionately influence the outcome,” says Veenboer, and he adds:

“That allows investors to distinguish manageable challenges from potential showstoppers before significant time and money have been committed.”

The point is to focus early effort on the issues capable of changing the investment decision.

The research has translated that thinking into the BEVAR, or PRESERVE, framework, an early-stage screening model for investors, developers, and advisers.

It focuses attention on five questions:

Building condition and structural capacity: Can the existing building technically accommodate its proposed new use?

Existing contamination: Are contamination and remediation requirements understood?

Value and demand: Will the new use create enough market value to support the investment?

Area efficiency: Can the building’s dimensions and geometry produce competitive, usable space?

Regulatory pathway: Is there a credible and commercially viable route through planning and approvals?

The framework can be used when screening a portfolio, considering an acquisition, or organising due diligence. It helps identify missing information and allows investors to commit capital progressively as the picture becomes clearer.

The answers will vary from market to market. Building regulations, planning systems, financing conditions, taxation, rent levels, and investor expectations are local.

The five questions travel remarkably well.

Ramboll’s international work on adaptive reuse points to many of the same issues: structural integrity, spatial suitability, regulatory requirements, financial viability, and the value of bringing different disciplines into the project early.

The research ultimately points towards a different way of approaching building transformation.

An existing building will always contain uncertainties. The investment opportunity depends on discovering which ones matter, how quickly they can be resolved, and what they mean for cost, time, and value.

Once those questions have answers, uncertainty begins to turn into something investors understand very well: risk that can be assessed, priced, and managed.

And that can make the difference between seeing an existing building as a problem to remove and recognising it as an asset with another life ahead of it.