When it comes to commercial construction projects, there are generally two different construction categories that delineate things like the type of structure being built, as well as the funding for that structure. Those two types of projects are vertical and horizontal construction.
Vertical construction refers to any construction that is built vertically, such as skyscrapers or high rises in a city. These projects are more often found in urban areas and gateway markets, rather than suburban or rural areas.
“There’s a world of difference between vertical and horizontal construction,” said Josh Thompson, Founder and CEO of Thompson Touch, a New York-based full-service construction company. The main difference between the two is how the structure is built spatially. In other words, is the structure being built wide or tall? A vertical project is built upwards, like a skyscraper, whereas horizontal construction is lower and wider. Vertical construction projects also rely on more architectural design, whereas horizontal projects use civil engineers, with less variation in design.
Some examples of vertical construction projects include “skyscrapers, offices, multifamily buildings [and] structured facilities,” said Barry Wurzel, President of Texas-based construction company Wurzel Builders. Thompson said, “Those are your skyscrapers and high rises with a $60 million penthouse apartment.”
Funding for vertical and horizontal construction also varies. For vertical projects, funding usually comes from the private sector. However, horizontal construction projects often get funding from government, state or municipal organizations, although there are certainly exceptions. “With vertical construction, there’s probably a lot of private money flowing,” said Thompson.
Thompson said that with vertical projects, the money often comes from investors and various investment groups — “your big money players,” he added. Of course, there are always some exceptions, Thompson noted, such as large, vertically built schools or hospitals. In most cases, though, vertical construction is for-profit and privately funded, said Thompson. Other times, private, vertical construction is “paid for through a combination of private equity and lender financing,” said Wurzel. Construction takeout loans are one common lending option with vertical construction.
Essentially, the main difference between vertical and horizontal construction is how the building or project exists spatially. Vertical construction is built upwards, in the form of skyscrapers and high rises. When taking on a vertical project, you’ll likely need to get private money through investors and/or investment groups to fund the construction. Before embarking on such a project, it’s a good idea to talk to a financial advisor to fully understand the financing, how much money you’ll need to borrow, and the real estate development timeline.
