Damage detection in large building structures has always faced challenges due to analyzing the large amount of measured data. In this article, a new damage detection approach based on subspace method is proposed to identify damages using limited output data. Also, a new scheme is presented to develop a smart structure by integrating structural health monitoring with semi-active control strategy. If damage occurs in such a structure under severe excitations, the proposed scheme has the capability to exert necessary control forces in order to compensate for damage and reduce simultaneously the dynamic response of the structure. The reliability and feasibility of the proposed method are demonstrated by implementing the technique to two shear building structures with semi-active control devices. Results show that the damage could be identified accurately with saving time and cost due to less computation even under noise existence; and dynamic response is significantly reduced in the smart structure.