In Business

A demolition contractor's excavator rips through two old homes and the former Memory Makers photography studio to prepare the sight for homes similar to those in the background. The worker in the foreground is busy stacking bricks on pallets to be sold to specialty brick dealers. (Photograph by Adam Madison.)

As the price of construction materials, fuel and other resources continue to rise, coupled with an idle housing market, urban sprawl may be coming to a halt. Building subdivisions in cornfields is a concept quickly going out of style. Urban redevelopment is all the rage, and it’s increasingly cost efficient.

Whiting, Ind., a 125-year-old town just outside Chicago, has adopted a recipe that can breathe new life into a deteriorating community and hopefully keep homeowners in place. It’s as simple as knocking down the old and starting anew. Cost, however, is an issue, so the city must remain frugal.

Whiting Mayor Joe Stahura explains how it has demolished the oldest buildings to make way for new homes and commercial properties. Its biggest success story was the demolition of abandoned factory Globe Roofing for $320,000 when initial contract bids were ringing in above $1 million. The secret was recycling of the old bricks and scrap iron, which the contractor was able to recover and sell. Now that recycling construction materials has caught on, demolition is much more affordable.

The Globe Roofing property later sold for $1.2 million to British Petroleum, which it offered before the building was even down. If BP had bought and demolished the property itself, the cost would have been close to $4 million because of stringent internal policies. As a result, Whiting was able to build rapport with the refinery and turn a profit. The property now serves as a parking lot for BP employees and contractors.

This example, however, is the exception rather than the norm. Almost always a municipality will lose money with redevelopment endeavors, especially now that commercial and residential properties are selling at all-time lows. However, costs are reduced by utilizing everything to its maximum potential. Nothing can be wasted.

“There still is the fallacy that you make money recycling. I am not sure that there are many recycling programs run by municipalities that make money,” Stahura says. “But they certainly help reduce costs.”

It’s the long-term value to the community that makes redevelopment a winning strategy. The city now is transforming entire blocks. The city recently purchased three homes on one of the ugliest blocks for about $225,000. It demolished them for $36,000. The lots later sold for a mere $6,000. The city almost always absorbs these costs and resells for the original purchase price, eating the costs of improvements or demolition. Despite the monetary losses, the neighborhood is being transformed to secure a new stream of property taxes.

To further reduce costs, Whiting takes on much of the recycling independently. Once a site is purchased, city workers move in to remove all of the obvious recyclables. Sometimes structures are completely gutted, other times they are packed with stuff. Books, newspapers, cardboard, etc. all go to nearby recycling facilities after being sorted by city workers. These operations charge by the load, but it’s considerably less than shipping things to the landfill. Copper, brass, aluminum and other metals with true value go to nearby scrap yards that pay by weight. Furniture and appliances are stored and later sold at auctions or donated. Antique materials also are revealed including brick and woodwork that can be sold at premiums to specialty dealers. It’s a lot of work, but tipping fees at landfills are outrageous, Stahura says.

This is a true achievement, Construction Materials Recycling Association President William Turley says. The Environmental Protection Agency should make a case study of this. Materials are being diverted from landfills. Also, reusing and recycling saves energy and is all around more sustainable.

Turley says it’s unprecedented for a city to take on so much work independently. Whiting, however, is a bit of an anomaly. Despite its proximity to Chicago, it is a city of less than 6,000 and can maintain more maneuverability than surrounding communities. It has the warehouse space to store materials, as buyers are being sought, and the manpower to move materials. The steady cash flow from the refinery also helps tremendously.

When moving into action, Whiting follows a tiered bidding system. For quick jobs under $25,000, finding a contractor is as easy as sending a fax to a list of contractors. Anything higher requires a sealed quote system. Specifications of the job must be documented, sealed and mailed by deadline. Sealed quotes are opened at public meetings.

The really large projects like the Globe Roofing building require a public bid, advertising and public meetings. It can be a complicated process, but it helps assure fairness and maintains competitive pricing. It also protects the municipality from unexpected price increases, and there are many ups and downs when dealing with rates for scrap metals. By city ordinance, a contractor is required to account for its recycling initiatives when placing a bid.

Many more powerful tools are available. For example, an Indiana statute allows the city to pick and choose what businesses are launched in these new or renovated buildings because the city actually is giving out grants. For instance, a derelict building was purchased for $60,000. However, the city invested another $130,000 to build a new roof, install windows, and stabilize the structure. Some minor demolition and some gutting also were required. The city eats these costs and resells for the original purchase price, Stahura says.

“Everybody wants a building that has $190,000 of work for nothing,” Stahura says. “Since we made the investment, we now set the parameters.”

Potential buyers must present proposals to the city’s predetermined standards, and there must be a consensus that the business would truly benefit the community. If a proposal is accepted, the business owner must agree to the terms of the redevelopment commission. If the terms are not met in a reasonable time, a lean can be placed on the property for the cost of the city’s investment. Stahura says there are no other strings attached, and this is basically a forgivable loan.

Most recently the city convinced a new business owner to commit to $200,000 additional renovations within six months. They are limiting the above rental space to two high-quality loft apartments. They also will work with the city when looking for additional commercial tenants.

There’s now a waiting list for these properties. Stahura says they can’t fix them up fast enough. Between the investments being made on residential and commercial property, Whiting may be completely transformed in a matter of years. However, it takes money, vision, and serious commitment to bring these strategies to fruition.

“It takes true talent and hard work to redevelop a site,” Turley says. “Any idiot can build a house in a cornfield.”