In simple words, when a person or business needs immediate cash and wants to sell an asset at less than its value, it becomes a distressed asset. Distressed assets belong to individuals or companies having major financial difficulties, and in default, or close to it. Distressed assets can occur due to a variety of reasons such as economic slowdown, market fluctuations and poor management.
Some people invest in distressed assets as they can often be purchased at a significant discount to their true value, with the potential for an upside if the asset is successfully turned around. However, investing in distressed assets also carries a higher level of risk as there is no guarantee that the asset will be successfully turned around or that the investor will be able to recoup the investment.