What Is Commercial Construction?
Commercial construction involves the designing, renovating and building of commercial structures. Projects use heavy equipment funded by developers, as well as local and national governments.
Developers and contractors compete for construction contracts by submitting proposal bids. The more detailed and accurate the plan, the better chances of winning the project. The size, budget and scope determine how much money it will cost to break ground and complete a build.
As of March 2020, the United States Census Bureau reported that $88,522 million was spent on the commercial construction sector so far this year. This is a $2,229 million (2.6 percent) increase from March of 2019.
An increase in spending means a greater need for building and maintaining commercial spaces. Let’s take a look at the three types of commercial construction and how they play a role in the industry.
What are the Types of Commercial Construction?
Commercial construction projects can be small-scale, medium-scale and large-scale in size. These projects are made up of everything from restaurants to office structures to high-rise buildings seen in major cities.
Type 1: Small-scale Construction
Small-scale construction involves fixing sewage systems, remodeling and renovating buildings’ interiors and exteriors. Projects are shorter in length and need less equipment and crew members.
What’s an Example of a Small-scale Project?
“Treehouse Masters” host, Pete Nelson, and his team design, fabricate and build customized treehouses. Their headquarters, Treehouse Point (in Fall City, Washington), is home to a treehouse bed and breakfast. Guests can hang out or stay overnight and live the high life.
Type 2: Medium-Scale Construction
Medium-scale construction involves upgrading, expanding space and building projects from the ground up. Projects are more complex than small-scale projects, like adding more stories to a building. This means that projects can take several months to a year to complete.
What’s an Example of a Medium-scale Project?
In 2019, the Mall of America (in Bloomington, Minnesota) approved plans for a $250 million water park project. Once completed, the 250,000 square-foot facilities will be the largest in North America.
Large scale construction projects develop hotels, airports, government buildings, roads and skyscrapers. Major commercial development companies and government agencies fund these “megaprojects.” Large teams use heavy equipment to add multiple stories and to develop large masses of land. The long-term projects can take several years to complete.
What’s an Example of a Large-scale Project?
John F. Kennedy International Airport (in Queens, New York) is undergoing a $3.8 billion expansion and renovation project for it’s Terminal 4. Slated for full completion by 2025, the project will add an extra 500,000 square feet and 16 domestic gates.
Now that we’ve covered the types of commercial construction, let’s explore the process for bidding on a contact.
What is the Construction Bidding Process?
The construction bidding process works through multiple developers submitting bids in order to win construction contracts. The bids are created by using construction bid templates or construction bidding software to create proposals. These proposals include things like building blueprints, budgets, material line items and projected time tables. Time and weather are also considered, as they can be two of the most expensive elements in the budget.
For example, if a winter storm hits Minnesota and stops production, this can add more time and costs to a project.
Let’s examine the differences in bidding and a few finance methods for funding a project.
What Is Included in a Construction Bid Template?
Construction bid templates include line item spreadsheets and scope of work documents. These documents outline project estimates like budgets, time tables and projected material costs.
For example, a plumbing line item sheet will break down and describe the number of bathrooms, drains and materials used.
You can download free printable bid templates online, or access them on software like Microsoft Office 360.
What Is Construction Bidding Software?
Bidding software can streamline the bid development process better than templates. The software can house job costs, payment tracking, build schedules and inspections costs in one place. This helps contractors build out bids at a faster rate.
For example, features like automatic updates report daily market costs for local materials.
Both bidding processes have the same end goal, so it comes down to whichever method the general contractor is most comfortable with. After the bidding process is complete, the next step is to fund the project.
Let’s look at a few options for financing a commercial construction loan.
How Do Commercial Construction Loans Work?
Construction loans cover the costs of land development, equipment rentals, materials and labor. When approved, funds from the loans dispense in scheduled increments. Contractors need to be accurate in budgeting enough money to cover soft costs like site inspections. Passing site inspections are crucial to receiving more loan money and completing the build.
Construction loans can be short-term and long-term in length. Here are two of the most popular types of construction loans developed by the Small Business Association (SBA)®.
SBA 504 Loan
The SBA 540 Loan helps small businesses grow. Borrowers put down 10 percent on a 10-year loan. This allows them to buy buildings, purchase land, rent equipment and cover soft costs like paying for site inspections.
SBA 7(a) Loan
The SBA 7 (a) Loan Guarantee Program offers borrowers up to $5 million on a 10-year loan length. It covers seven years of working capital and 25 years for real estate. Borrowers use collateral, assets, or equity to back the loan. Despite the investment, it guarantees 85 percent for loans up to $150,000 and 75 percent for loans greater than $150,000.
Commercial construction loans help fund building projects and get the ball rolling. Next, we’ll take a look at some of the costs that the loans go towards.
What Costs Do Construction Loans Pay For?
Earlier in the post, we discussed how construction plans estimate costs for a commercial build. Money from the loans helps fund the project. Careful planning goes into estimating these costs. After a project breaks ground, it can take several months to years before completion.
In the next section, we’ll look at what makes up commercial construction and compare it to the residential construction sector.
How Is Commercial Construction Different From Residential Construction?
Commercial construction and residential construction are a part of the private construction infrastructure. But, they have different financial backing, job site sizes and equipment needs.
Commercial construction developers and private investors bid on contracts for hospitals, office spaces or various types of infrastructure projects. Worksites can range from small to large in size. Projects can be several stories in height and use steel frames for the skeleton for support. Heavy construction equipment like bulldozers and excavators allow operators to move materials.
Residential construction develops houses, condos, co-ops and townhomes funded by homeowners and developers. These buildings are designed and built for residential living once complete.
Projects generally use wood to frame smaller structures like houses and large steel beams for condominiums. They vary in size and use small to medium-sized equipment like compact loaders, front loaders and mini excavators.
Residential and commercial construction companies use different equipment to get the job done. At the same time, they are vital parts of the construction industry. The need for both is crucial for developing cities.
Commercial Construction at a Glance
The commercial construction industry involves more than meets the eye. Plans, bids, equipment and technology keep the industry running like a well-oiled machine.
Construction industry predictions for 2020 suggest that public transportation upgrades and smart city projects will keep the commercial construction sector busy.
This means that there will be a need for new commercial properties in greater quantities. With smart cities on the horizon, construction companies are breaking new ground and have no plans of stopping.