Diversifying with Demolition

Feb 21, 2020, 15:28 PM
Content author:
External link:
Image Url:

January/February 2020

By Megan Quinn

Companies that offer both recycling and demolition are filling niches based on regional demand for commodities, services, or a little bit of both.

Diversifying with DemoDavid Mulicka is having a banner year. HONC Destruction (Fort Myers, Fla.) started in 2002 as a demolition company that demolished 16 houses in its first year. Today, the company is a hybrid recycler and demolition contractor with its own transfer station, a fleet of 500 roll-off containers it rents out, and a plan to expand its footprint into a new space next year. In 2018, it spent $2 million on brand-new recycling sortation equipment, including new screens, magnets, and air sorters to accommodate its growing recycling stream. Mulicka says his business is doing well enough that he has a separate staff of about 25 people for its recycling services. “When I became the person I used to haul to, that transformed my company,” he says. “I can now load partially segregated material and haul it to my own facility from our demolition sites, and I can process it more quickly and efficiently at our transfer station, rather than on customer job sites. I can offer a faster schedule than my competitors.”

It can be tricky to expand a business. Mulicka admits he knew little about the recycling industry when he made the decision to add recycling services in 2007. But he sees demolition and recycling as well-paired industries, especially in Florida, where the construction industry is doing well and recycled concrete and steel are in high demand. Breaking into the recycling industry “was a game-changer,” he explains. “The bigger our recycling business can get, the bigger our demolition business can get,” he says. “We can process faster, and we can get hired for more work because we have the capacity to make materials disappear ourselves.”

Companies that have found a way to balance both recycling and demolition services say this diversification helps them during both good and bad market conditions, and the two industries’ overlapping equipment—such as mobile shears, balers, material handlers, and skid-steers—and materials management know-how make the two a natural fit. Employees often have training that applies to both industries.

These companies “try to be a one-stop shop where they can guarantee demolition material is being recycled because they are using their own plants to do so,” says William Turley, executive director of the Construction and Demolition Recycling Association (Chicago). “Even if they’re doing demolition further afield, they can better prepare [scrap] to be transported and recycled because of the experience they have with their own plants.”

Companies that do both scrap recycling and demolition have the ability to insulate themselves somewhat from economic downturns because they sell both services and commodities, he says. The exact array of services they offer can depend on the unique demands of customers in their geographic region or partnerships these companies have forged over time. That means no two companies with both demolition and recycling expertise are alike.

Diverse services, diverse challenges

Recycling and demolition businesses have a lot going for them, but they’re not immune to the challenges each sector faces, Turley says. Recent dips in commodity prices have been a challenge for both recyclers and demolition contractors, he says. Steel is one of the most common commodities recovered from demolition sites, often in the form of I-beams and rebar, but low steel prices in 2019 hit both sectors hard, he says. “We’re still [recovering] metals, of course. We’re just not always getting every little bit like we used to, like metal springs from mattresses, because it’s just not economically feasible. It’s too much labor for the trouble,” he says.

Low commodities prices have also changed the way some recycling and demolition companies do business. Several years ago, if a business got a contract to take down a refinery, for example, “they’d pay for the opportunity to do the job because of the [high] metal prices,” he says. “But that has changed in recent years … Now they charge upfront for their services.”

Beyond dealing with the normal fluctuations in scrap commodity prices, demolition contractors also have to grapple with how price changes can affect long-term projects, says Andrew DeBaise, executive manager for Rocky Mountain Recycling (Commerce City, Colo.). Scrap recyclers can manage how much of each metal they buy to adjust for daily price changes, but demolition companies are often paid on a project basis, meaning their contract pays the same amount regardless of whether the value of the scrap they recover goes up or down. And since demolition projects can take a year or more, a company might sometimes bid on a demolition job when prices are higher and get left with large piles of low-value scrap months later, when the job is done. This also makes it tough to budget and bid on long-term projects, Mulicka says. “In Florida, you might bid on a project, then learn they want to delay it until after tourist season, which down here is Thanksgiving to Easter,” he says. “Everyone wants the job done when the snowbirds leave, but if you bid [based on] the December pricing for steel, [and] you can’t start the project until May, you might lose 20% off the steel prices” if they decline, he says.

A recycling and demolition company might be able to offset this problem by diversifying the materials it can process—provided there’s a strong local market for them, Mulicka says. When his company expanded, it got creative and started recovering and selling dirt. “Believe it or not, dirt is a hot commodity in Florida” because it’s a key ingredient in construction projects to fill holes and grade streets. It’s expensive to transport, so companies that can supply it locally can make a good profit, he says. The same goes for wood chips, which HONC Destruction sorts and sells as mulch.

Breaking into the business

What makes a company decide to break into a new line of business? For HONC Destruction, it started as a way to reduce costs. By 2007, the company was doing more than 350 demolition projects of all sizes, from malls to condemned houses, a year. Business was going well, but disposal costs were starting to creep up to almost $1 million a year. “Right before the recession, the nearby landfill raised our rates by 20%, and I realized I was beholden to them because I had no other landfill to go to,” Mulicka says.

Workers at HONC were already recovering metals to sell to nearby scrapyards. Mulicka started looking through his waste stream for ways to sell things that normally went to the landfill and wondered if overhauling his entire system would save more money in the long run. If he could further process and sell the metal himself, as well as process and sell demolition materials such as concrete and wood, he figured he could be more competitive and offer a faster turnaround on projects.

He watched how the recyclers in his area priced the metals he sold them from his demolition projects and did research on what it would take to process, sort, bale, and and sell them himself. “I started off [sorting] the easy things: the copper, aluminum, steel, and the wire from demolition projects. I had to figure out how the [scrapyards] were doing it, where they sold it, how they handled the material.” It took time to establish himself in the market, and even longer to learn the intricacies of pricing and grading metals, he says, but “in the end, I was in control over my own destiny.” Today, HONC Destruction processes 1,000 tons of material a day, and it recovers about 850 tons, including metals, plastic, wood, and dirt.

The ability to process their own scrap and do so faster has advantages, Mulicka says, because it helps HONC avoid some of the commodity pricing fluctuations that make it hard to budget for long-term demolition contracts. The average length of its demolition contract is 60 days, compared with some larger projects that could take one or two years. “Things like lower steel prices still affect us, but the time frame of when we recover and sell the material is shorter now, so outside of major unexpected fluctuations, it’s easier to budget,” he says.

Shifting specialties

HONC Destruction’s workforce and revenue are split nearly 50/50 between recycling and demolition, but not all companies that do both divide their time or resources so evenly. It’s common for owners to shift their business models over time, Turley says. A few companies he’s familiar with have dropped one specialty completely or shifted focus more heavily to the other.

Though it still offers some demolition services, Cherry Cos. (Houston) has moved away from that sector in recent years, says Joe Rizzo, the company’s vice president of business development. Instead, it’s become the largest recycled aggregates producer in the United States and is leaning further into its most successful commodity stream: concrete. “We recycle nearly 3 million tons of concrete on an annual basis,” Rizzo says. “We do a lot of asphalt, roof shingles, and tires, too, so from a green perspective, we’re very focused on that,” he adds. “For us, nowadays, demolition is a smaller part of our business, and we have transitioned over to being a recycler of aggregate in lieu of demolition.”

In December 2019, Arcosa (Dallas), a provider of infrastructure-related products and services, announced it would acquire Cherry Cos. In a presentation to investors, Arcosa officials said the company was attracted to Cherry Cos.’ market share and ability to process and manage high volumes of recycled concrete and other aggregate. “Virgin natural aggregates are becoming more scarce near established metropolitan areas, as decades of growth and development have depleted reserves,” the company said in the presentation. “Recycled aggregates are also a cost-competitive material to meet increased demand for erosion and flood control projects,” especially in the Houston area, a major market Cherry Cos. serves, Arcosa says.

There’s a strong market for concrete in many parts of North America, Turley adds, which works well for Cherry and any other recycling and demolition company that can process and sell the material. Areas with robust construction activity tend to be places with high demand for recycled concrete, which can be used as a base for new roads and buildings, he says. “It’s a superior product, especially as a road base,” he says.

Partnerships over competition

While companies like Cherry Cos. have seized on a regional appetite for recycled aggregate, recyclers with demolition expertise in other parts of North America are filling other niches. The website for Allied Salvage & Metals (Richmond, British Columbia) advertises demolition services, but its owner, Arthur Weinstein, says the company’s most profitable niche is assisting nearby demolition contractors instead of bidding on big projects by itself. “If there’s a really big project, like a big building coming down, [demolition contractors] give us a call,” he says. Allied provides demolition support, equipment, and certified equipment operators for about 10 different demolition contractors in the Vancouver area. Oftentimes, the contractors also need help separating the metal and concrete so they can get a higher price for each, a process that’s easier and cheaper to do on-site, he says. These contractors sometimes pay Allied just to transport waste or aggregate— or they’ll pay Allied to transport shipments of rebar and I-beams to its own yard. “They know we pay good money for [the material] anyway, and they know that when the trucks come to our gate, we’ll put them at the front of the line because they’re bringing a huge quantity,” he says. These services bring in about 20% of Allied’s overall business, usually over the summer months, he says.

Allied has thought about expanding its demolition services to be more of a stand-alone business, possibly serving areas “up country” away from the immediate Vancouver area, but Weinstein says his company has now developed such strong relationships with other demolition companies that it would likely hurt the business if they went solo—even if they focused on less competitive areas farther away from Vancouver. The time, funding, and strategic planning that would be necessary to successfully build out the demolition side of the business are not worth the energy and might not yield a good return on investment, he says. Allied’s focus is better spent “doing what we love best and what we know how to do best: recycling,” Weinstein says. “I’d rather be friends with 10 demolition companies here than have to do it on my own. The way we do it now—we assist, we don’t compete—is what works for us.”

Many scrapyards that have close relationships with demolition contractors have considered branching out into demolition on their own, partly because of the allure of being able to handle scrap from demolition projects directly, DeBaise says. Yet many don’t understand what an undertaking it can be, he says. “Yes, it can be a great source of material for you on the scrap side,” he says. “But you have to understand that demolition contractors have very similar challenges with handling materials, finding markets, finding labor … you have to really feel like you can marry the two businesses in a profitable way, and you have to feel that you can take on any additional risk a demolition business might have.”

Like Allied Salvage & Metals, Rocky Mountain Recycling doesn’t do any of its own demolition projects, but its partnerships with demolition contractors are a keystone of its business, he says. A “major” portion of its inbound scrap—about 50% of its annual volume—comes from demolition projects in the Denver metro area, he says. That’s because RMR’s scrap management services include sending its employees and trucks to demolition sites to help prepare and sort scrap. An even bigger part of RMR’s demolition-related business comes from its consulting services, where DeBaise or other employees visit demolition sites before a project begins to help the contractor estimate what it might cost to undertake the project, “then [estimate] the return on commodities potentially generated,” he says. RMR also helps contractors develop pricing for the material and generate “full breakdown reports” of the materials they identify during their site visits.

Other scrapyards offer this type of service to local contractors, but RMR was able to turn the consultations into a specialized, national service that has sent their employees all over the United States and Canada, DeBaise says. “We were buying material that came from large national demolition projects in Colorado, Nevada, Wyoming, and Nebraska. Building those relationships helped us take on projects all across” North America, he says.

Building business for the future

DeBaise says both demolition contractors and scrap recyclers are used to operating with some level of uncertainty about how commodity prices, government regulations, or construction and infrastructure projects might affect future business. Both sectors also have their eye on some large-scale changes in the United States that could directly affect them. “The overall economy has a great impact on the demolition projects that are available,” DeBaise says. “But political policies also play a role.”

One trend is the shift in energy policy in the United States, he says. Recently, “power plants not associated with natural gas have been on the political agenda, and there have been a lot of older power plants scheduled to be decommissioned. At the same time, emerging in 2020, you have renewable energy projects that are being revitalized,” he says.

One notable project is the planned demolition of 18 structures at a former federal nuclear research site in California. The U.S. Department of Energy announced in December that it was seeking requests for proposals for the next round of demolition work. Demolition and recycling companies keep their ear to the ground for these types of announcements, which could provide work for several years, DeBaise says.

These companies similarly follow news about a possible infrastructure bill or any legislation that could affect domestic infrastructure spending. In July 2019, the Senate Environment and Public Works committee approved a bipartisan funding bill allocating $287 billion for road projects, which the Wall Street Journal reported is a 27% increase from current funding but nowhere near the $1 trillion investment in roads and bridges President Trump proposed on the campaign trail in 2016. Other infrastructure spending proposals, such as a $2 trillion package proposed in 2019, fell through due to political disagreements. As of December, the president has said he is still committed to putting new infrastructure measures into law, the Wall Street Journal reported. “If any of that comes to fruition, all of a sudden you’ll see an increase in bridge work, and that would generate both ferrous for scrap recyclers and opportunities for demolition workers,” DeBaise says. 

Megan Quinn is senior reporter/writer for Scrap.

Recycling companies that provide demolition services find they can branch out and meet broader market needs. 
  • 2020
  • Jan_Feb

Have Questions?