Home wreckers

Before putting up a multimillion-dollar monster manse at the right address, builders often tear something down.
by Frank Maley

David Smoots steers a white Chevy Suburban along the tree-lined streets of his neighborhood on Charlotte’s south side. Many houses in Myers Park went up well over half a century ago, but a lot are vanishing, pushed down by bulldozers and replaced by giant homes that sprawl and tower. Even old brick houses that look stately and sturdy are on shaky ground in a market that values where they stand more than the traditions they stand for. In parts of Myers Park — two to three miles from the tall bank headquarters downtown — new homes outnumber originals.

It’s happening across North Carolina and the nation. From the beaches to the mountains, some of the state’s older neighborhoods convulse daily as construction workers tend the birth of behemoths sired by a strong economy and changing life-styles. Neighbors watch warily as one lot after another is cleared and rebuilt. Tyvek is everywhere. Consumers who want higher ceilings, more-spacious kitchens and other amenities are driving the demand for bigger houses. But in many cases, the catalysts are builders who buy property, tear down what’s there and put up new houses on speculation that a buyer will emerge.

When new houses dwarf old, builders hear complaints from those who are overshadowed.

Smoots has nudged the trend along as a home buyer — his 7,000-square-foot house replaced a 1,600-square-foot one — and as director of sales for Charlotte-based Simonini Builders Inc. With 109 employees and more than $100 million annual revenue, Simonini is among the largest builders in Charlotte tearing down houses and replacing them. But it has plenty of competitors, bigger and smaller. A block in Myers Park might have the signs of three or four builders in its front yards. Simonini started in 1973 as a builder of customized homes, but it wasn’t until the mid-1990s that it more than occasionally did teardowns. Smoots is its point man for them.

Putting up houses in older neighborhoods is trickier and often costlier than building on virgin land in the suburbs. The lots are frequently more expensive. The equation also is more likely to include time spent working around trees, calming fears of nearby residents, driving equipment in and out with minimal damage to landscaping and neighborhood harmony and solving problems caused by each lot’s peculiarities. “It pushes the cost up because your productivity goes down,” says David Batie, associate professor of construction management at East Carolina University.

When you’re done, there’s a good chance someone isn’t going to like what you did. Smoots stops his Suburban at a home developed by another builder — a two-story, brick-and-stone, 5,600-square-foot house with a tall, steep roof, bordered on three sides by low-slung red-brick ranch houses. “Quite frankly, I don’t think it’s in keeping at all with the neighborhood. I don’t think that will age well. I am ticked off about stuff like that. I don’t appreciate that. That’s an opportunist right there.”

Builders might disagree on what’s appropriate, but as long as people are buying new houses in old neighborhoods, they will try to satisfy the demand. For the deals to work financially, builders say they need to be able to construct houses bigger than those they tear down. It’s not unusual for a replacement to be more than double the size of the original.

Homeowners often have differing views about what’s happening, too. Some abhor the bigger houses, which they think make older homes seem puny and destroy the character of a neighborhood, and they lament losing trees to construction. Those issues can create public-relations problems for builders. But neighbors often welcome how the new homes boost property values, if they can afford the tax increases.

And when their homes go on the market, selling to a builder is often the easiest negotiation. Although builders sometimes pay less than people who want the house as a residence, homeowners don’t have to wait while potential buyers fuss over every flaw. “If it is a teardown candidate, we don’t care what it looks like,” Simonini CEO Ray Killian says. “We don’t care if the electricity works. We don’t care if the plumbing works. There’s no real-estate commission, and we can close in a relatively short period of time, so it’s a very quick, smooth, clean transaction for the seller.”

Raindrops patter against the taut cloth of a black umbrella as Smoots walks through a wooded yard in south Charlotte’s Foxcroft neighborhood. A friend tipped him that the owner might sell her house, so he has come to evaluate it for Simonini. He guesses it might be worth about $600,000. Simonini would tear down the 28-year-old, 4,500-square-foot home and replace it with a 6,000-square-foot one that would sell for maybe $2 million. In its favor, the lot sits on higher ground than its neighbors — good for draining rain and swelling buyers’ egos. He walks around back, noting that the property is trapezoidal, a challenge because it means less room in back than in front. A new, bigger house would stretch closer to the rear property line than the old one, which would eliminate some trees. Then he sees what could be a deal breaker: a narrow creek so close to where the new home’s back wall would be that it might not leave room for a swimming pool. If Simonini is going to get $2 million from a buyer, a pool isn’t an option Smoots can forego. Prospective customers will look for reasons not to buy, and so does he. “I’m trying to wear their shoes and wear their hat and say, ‘What is it that is not appealing to me versus the next one I’m seeing down the street?’”

When Smoots discovers a lot worth pursuing, he negotiates price while researching deed and zoning restrictions. If everything is acceptable, he gets it under contract and starts reviewing some of the 50 house plans in the Simonini files to see which fits the lot best. Or he might have new plans drawn. If he settles on an existing design, he often sends it to an architect for site-specific modifications, some aimed at making the house fit in with the neighborhood. Smoots says he tempers the drive to maximize profit on a job with a desire to build good will that could lead to other projects in the neighborhood. “You can have more by taking less.”

No-interest loans help builders sell homes with huger kitchens, higher ceilings and heftier prices.

If a customer comes to him while the lot is under contract but before closing, he’ll show it and maybe the plans he has picked out, but he doesn’t usually beat the bushes for buyers that early. “It’s not on my Web site. I don’t own it, so I don’t market it. When I close, I put a sign in the yard.”

Builders can lower their risk by lining up a buyer before closing on the property and building a customized house. But in a hot market — when the risk of not selling quickly is lower — that’s not always ideal, Smoots says. The profit margins are higher on speculative projects. “I can build a house so much faster as a spec than I can dealing with you and your wife and all your changes and uncertainties and having to wait. Even though you’re paying the note, you’re costing me in resource time. My builder is still having to deal with you for 12 months instead of me being done in nine.”

To turn a profit, Smoots figures his company needs to build houses that will sell for three or four times the price of the lot. Teardowns and rebuilds often include costs that can be hard to quantify, such as the hours or days spent on public relations. Smoots knows that neighbors often grumble when a builder starts work on a teardown, so he visits them to explain what’s going to happen, leaving his card and urging them to call if they have problems.

A lot of his customers work for Bank of America or Wachovia and want to live near downtown. The urban core is the magnet in Raleigh, too, where the hot neighborhoods include Country Club Hills, Coley Forest and Five Points, says Ken Kirby, director of political affairs for the Home Builders Association of Raleigh-Wake County. But in Greensboro, the golf-course communities of Irving Park and Sedgefield have seen more teardowns than other neighborhoods, says Cheryl Collins, executive officer of the Greater Greensboro Builders Association. In New Hanover County, the ocean is the draw. “It’s not unusual to find a million-dollar house, say on Wrightsville Beach, being bought and torn down,” says Donna Girardot, executive officer of the Wilmington-Cape Fear Home Builders Association.

In Charlotte, one house in Myers Park has come to symbolize the teardown trend for many residents. Three years ago, an owner demolished a 5,900-square-foot house at the corner of Princeton Avenue and Queens Road West and replaced it with a 17,000-square-foot stone giant that has been variously described as “beautiful,” a “monstrosity” and “that thing at Princeton and Queens Road.”

It’s a jarring sight, even in a neighborhood boasting a wide range of architecture, including Colonial Revival, Tudor Revival and bungalow. Myers Park was built in stages, starting in 1911, and was a home of tobacco magnate James Buchanan Duke, founder of Duke Power and Duke University.

Many buyers want the prestige of a Myers Park address. But the old houses there — and in other established neighborhoods — often don’t fit their lifestyles, so they opt for a new home that’s usually much bigger. In the past 30 years, the average size of a new single-family house in the U.S. has increased 39% to 2,349 square feet. “Houses are just bigger today than they were in the 1940s or ’50s, when a lot of these houses were built,” says Killian, who grew up in Myers Park and lives there today. “More bathrooms, three-car garages, sports courts, basketball courts, gazebos, pavilions, gardens, pools. In the ’40s, that was not really on the agenda when everybody was coming back from the war.”

Older neighborhoods offer status and location, though the houses often aren’t spacious enough for buyers.

Teardowns also have been fueled by low interest rates and the increasing popularity of interest-only loans, which allow borrowers to delay payment of principal. Typically, they are used by those anticipating a big boost in their income or hoping to refinance or sell their house quickly. In 2000, interest-only loans were just 1.8% of new mortgages in North Carolina, excluding refinancings, according to LoanPerformance, a San Francisco-based mortgage-information provider. By last year, that number had shot up to 28.7% in North Carolina and 34.8% in the Charlotte metro area. Nationally, 34.2% of new loans are interest-only.

Such loans can help people manage what is often the high cost of a new home on a teardown site. In Myers Park and elsewhere, million-dollar houses are less of a novelty than before. They were about 0.6% of the nation’s houses in 2000. But in 2003, the latest statistics available from the U.S. Census Bureau, they made up 1% of all homes. In North Carolina, their share was smaller in 2003, but the increase has been more dramatic — 0.14% to 0.34%

Just as builders have jumped at the opportunity to demolish older houses and erect new ones, homeowners in neighborhoods where that’s common have reacted, as individuals and in groups. Sometimes those responses help builders. Sometimes they don’t.

On the plus side, teardowns can spur people in changing neighborhoods to hire builders to improve their houses. Across from a house Simonini is building on Princeton Avenue, Bill Musgrave is reluctantly adding 2,000 square feet to the front of his 5,400-square-foot home. The houses on both sides of his recently were torn down. One of the replacements has been built; the other is under construction. Both extend more than 30 feet closer to the street than his. Musgrave, who owns eight Saturn car dealerships in North Carolina, hired Simonini to bring his house in line with his neighbors’ and raise its value. “I felt like if I didn’t improve my house to make it more competitive with what was being built around it, then I would basically limit my house to the value of the lot.”

While the Musgraves keep up with the Joneses, residents of Hermitage Court in Myers Park asked the City Council to designate their street a historic district, which can slow builders’ projects and make their work more difficult. The district, approved in April, is a response to nearby development — epitomized by what Hermitage Court residents call “the castle” at Queens and Princeton, about two miles away. “The only things that are missing are a drawbridge and a moat,” quips Edwin Peacock III, who led Hermitage Court’s effort.

That designation can’t prevent teardowns. But the Charlotte Historic District Commission can delay a building permit for a year, administrator John Rogers says. “It makes people think twice about doing spec demolitions and rebuilds in the district, because that’s a year delay in your turnaround time.” If a builder does proceed, he must meet nine commission criteria, some of which are subjective, such as “the overall relationship of the project to its surroundings.” Put simply, Rogers says, “you have to make it look like it belongs there.”

At the other end of the spectrum, owners of the 24 houses on Sherbrooke Drive, a Charlotte cul-de-sac about five miles from Myers Park, could become a builder’s fondest dream. They put their combined 17 acres on the market last year and hope to sell to a developer who could build 80 condominiums. They were motivated by dollar signs, as well as the fear that builders might buy their houses one by one and slowly change the nature of the neighborhood.

Two years ago, a builder bought a vacant lot adjoining the 50-year-old neighborhood and wanted to buy houses next to it. But the neighborhood association denied a request to waive a rule barring houses taller than one story. However, people began talking about selling their houses together to get more than they could individually, which they guessed would be about $250,000 each. They want to get double that.

While Sherbrooke waits for a buyer, work goes on in Myers Park. Other parts of Charlotte and the state probably also will change, though Killian isn’t sure how much longer the numbers will work for builders. “The sales prices of these teardown houses, meaning really just lots, are getting so high, can you put the proper house on there and still be in a marketplace that’s acceptable for some buyer to buy one?” Killian asks. “That’s the $64,000 question.”

Rising interest rates or a recession could slow the teardown revolution, too. If opposition to the big houses grows, local regulations also might halt it. So far, though, nothing has dampened demand for bigger houses on expensive lots in established neighborhoods. “I’m in the business every day,” Killian says. “And I’m shocked at the amount of money that people have and are willing to spend.”