On A Tear: With Vacant Land Scarce, Spec Builders Have Resorted To Plan B

Builder Joe Farrell remembers a project he worked on three years ago in Huntington. He’d purchased a piece of property with an existing 4,000-square-foot home built in 1964, which he estimated to be worth $500,000. At a glance, it was in good condition.The original plan was to renovate. However, after closer inspection of the home, Mr. Farrell decided to go with Plan B—tear it down, and build a new one.

There was a distinct reaction to that choice, he said.

“It blew the neighborhood’s mind. People were like, holy s---. They were shocked. But they were thrilled, because it really lifted the neighborhood.”

It was a simple economic decision, Mr. Farrell said, pointing out that the cost of renovating the home would have far exceeded what it cost to knock it down and start over.

Teardowns might be a rarity more generally, but in the Hamptons, they’ve become de rigueur. Vacant land has been increasingly difficult to find for years now, according to Mr. Farrell and other spec builders, and other changes have contributed to a steady rise in the cost of building new homes, while the price home buyers are willing to pay for them has not kept up the same pace. Meanwhile, the expense to knock down an existing home has remained negligible in comparison. Mr. Farrell pointed out that razing a house can cost anywhere from $15,000 to $20,000—much less than a newly required low-nitrogen septic system, or the mansion tax, which requires builders to pay 1 percent to the state government for property over $1 million with a house on it.

“It has become much more challenging,” he said. “House prices haven’t gone up as much as the land has, and so you’re getting squeezed there. And the cost to build has gone up. They’re better houses, but it’s driving the price up. The mansion tax alone can be double or triple the cost to knock the house down.”

Spec builders have varying methods for finding land and, more frequently, teardowns. They range from directly approaching homeowners who don’t have their house listed for sale, to offering cash deals and incentives for valuable property or land. Mr. Farrell’s company, Farrell Building Company in Bridgehampton, has been running an ad for about a year in The Press seeking teardowns or vacant lots from Southampton to Montauk. The ad tells interested parties to “call today to discuss a direct and immediate cash deal including closing incentives.”

How it came to this is the result of a few factors, according to spec builders.

Mr. Farrell said he believes there are too many builders in the Hamptons, and predicts that the next economic downturn will weed some of them out.

“They’re overpaying for land and subcontractors,” he said. “They hear stories of the Hamptons and think you wave your magic wand and are making a fortune. But a lot of guys are finding it’s not that way.”

Andrew Anderson is a founding partner of M.A.P. Development, which builds spec houses and custom homes primarily in East Hampton and Amagansett. He expressed similar sentiments to Mr. Farrell’s.

“People were buying up a lot of land and they probably shouldn’t have been,” Mr. Anderson said. “They didn’t know the business.”

He said that even teardowns are hard to find these days, thanks to a time when spec builders were buying “almost anything” and overpaying.

Both builders expressed an increase in interest in areas that aren’t the traditionally most desirable locales—Northwest Woods, Springs, and elsewhere north of Montauk Highway. Mr. Anderson said he doesn’t build in Northwest Woods because the demand still isn’t there enough for him to justify it, but he added that clients who previously had no interest in Springs have started to come around. Mr. Farrell has delved more into north-of-the-highway locales as well. But for now, teardowns in the prime areas seem to be the most profitable business model.

The routine tearing down of houses that are outdated, but not in disrepair, may rub some the wrong way for reasons regarding sustainability and maintaining area character. Both Mr. Farrell and Mr. Anderson seem unconcerned by it, but noted that they salvage what they can from teardowns. Appliances in good working order, or windows, might be passed on to an employee who wants them.

“Anything we can repurpose, we do repurpose,” Mr. Anderson said, adding that sustainability is important to him and pointing out he is committed to recycling, drives an electric vehicle, and is conscious of his carbon footprint. They both pointed out that teardowns are a last resort, and that if the structural design of the existing home allows for it, they always pursue renovation first. The homes that are knocked down typically have problems that can’t be worked around, such as 8-foot ceilings, or structural beams in problematic locations.

Mr. Farrell said he was forced to knock down a 6,500-square foot home in Bridgehampton, but made good use of the materials.

“We struggled to renovate it, but the design was so bad that I knocked it down,” he said. “The great thing is that I donated the whole house to a principal from Glen Cove, and he was able to put a 3,000-square-foot extension on his home.”

Mr. Farrell’s company has also built two homes for Habitat for Humanity, using new materials donated by several different suppliers.

Mr. Farrell acknowledged that prime pieces of vacant property are much harder to come by these days—and have been for several years—but said there is still plenty of land out there that could become available at some point.

“There’s just a lot less of it, but it’s not over,” he said. “Farmers are still holding big pieces of land, and over time, families who have been holding it might sell.”

Mr. Farrell was quick to add that he’s “not wishing for that,” pointing out that as prolific a builder as he is, he’s never bought a farm and split it into a subdivision, and that he’s never done a subdivision in the Hamptons.

While knockdowns have become the new normal, Mr. Farrell predicts a somewhat rosier, more palatable picture for the future of spec and luxury homebuilding in the Hamptons.

“Houses won’t be knocked down, because the bones of the houses now, the design, ceiling heights, they’re just being built so well and so efficiently, with spray foam insulation, solar; you can’t build much better than we’re building now,” he said. “So the new stuff will remain, and you’ll just see renovations.”