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Demolition Costs in Commercial Real Estate

What Does It Cost to Demolish a Commercial Building?

If you’re interested in demolishing a commercial building in order to make way for new development, it’s essential to understand the costs of commercial demolition. Right now, commercial demolition costs between $4 to $8 per sq. ft., with the average per building demolition cost in the U.S. currently sitting at $30,500. This makes perfect sense, as the median size of commercial buildings in the U.S. is about 5,000 sq. ft. (5,000 *6 = 30,000). However, it’s also important to note that for especially large buildings, demolition costs per square foot may fall slightly.

Steps in the Commercial Demolition Process

  • Measuring the Building: For developers or investors who are set on demolishing a commercial building, the first step is to measure the building. Buildings can typically be measured traditionally, with a tape measure, however, for large projects, one may want to hire a surveyor to ensure that they can accurately plan and account for demolition costs. In addition, prior to demolition, a building needs to be professionally inspected for asbestos and other potentially toxic environmental contaminants.

  • Asbestos/Radon Inspection and Removal: If asbestos are discovered, a developer must call a specialized asbestos removal contractor, who will need to remove the material in compliance with EPA guidelines. Removal generally costs about $3/sq. ft., though this can vary significantly based on a variety of factors. In some areas, developers may also need to test for high levels of radon prior to demolition. If dangerous levels are found, certain safety measures must be put into place.

  • Selecting a Demolition Contractor: Just like any costly construction-related service, owners/developers should generally solicit bids from several contractors in order to see which companies offer the highest levels of service at the lowest price. Developers should also make sure that any bid is broken down by specific costs (i.e. labor, equipment, etc.) so that they do not overpay. In addition, demolition services often need to be licensed by a state, county, or city authority, and (like general contractors) should also be bonded and insured. Owner/developers should be careful to determine whether a demolition service includes permit and site cleanup costs.

  • Obtaining Demolition Permits: Perhaps most importantly, an owner or developer will need to obtain the proper permits before attempting the demolition of a commercial property. While this expensive is often covered by a demolition contractor, this is not always the case. Typically, demolition permits cost no more than a few hundred dollars, but in some places they can be quite expensive. In fact, in certain areas that attempt to discourage demolition in favor of property rehabilitation, permit fees can rise as high as $10,000.

  • Site Cleanup: Site cleanup is an essential part of the demolition process, since, if a site remains covered in debris, a developer will not be able to begin their new project. As previously mentioned, some demolition firms cover this in their overall demolition fee, while others may charge additional costs, or may not offer site cleanup services at all. If the demolition company does not include this in their general fee, developers should make sure to budget for these additional costs, which generally consist of:

    • Hauling costs: These costs will be quite a bit higher for projects that are located further from a landfill, but can often cost over $1,000, with costs rising for larger jobs.

    • Landfill costs: On average, landfill waste disposal costs approximately $50/ton, however, this varies based on location-- and certain types of materials generally cost more to dispose of than others.

    • Dumpster rental: Depending on the exact arrangement you have with your hauling company, you may also need to rent a dumpster separately from them. These costs can also vary greatly from company to company, with dumpsters costing anywhere from $250 to $1000 to rent for 3-4 days. Larger jobs, of course, will require multiple dumpsters.

Financing the Commercial Demolition Process

In most cases, developers will take out a commercial construction loan in order to fund the development process for commercial property. Construction loans generally have terms of 1-3 years, are interest-only (I/O), and require a borrower to already have a takeout commitment from a permanent lender that will allow them to refinance and repay the principal of their loan when their term is up. Since commercial demolition is a core part of the development process, it will often be funded directly from construction loan proceeds, but not always.

The Importance of Preparation in the Commercial Demolition Process

Overall, commercial demolition isn’t necessarily an extremely expensive or time consuming process-- as long as you prepare carefully and make sure to shop around for the highest quality services for the lowest cost. In addition, preparing in advance will help you make sure you understand the costs of a demolition project and can factor these into your overall development expenses. Otherwise, unexpected costs, such as sky-high permit fees or excessive hauling expenses could begin to derail your development budget.

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