Bringing down the house: Recycling pricey beach houses for the land

Harvey Ryan stands in front of a home on the north side of Rehoboth Avenue that was built in 2013 on a teardown lot. // Photo by Maria DeForrest

by Kathy Canavan

Teardowns are becoming the new normal for premium lots.

People actually gasped back in 2014 when they heard Ellen and Alan Levin tore down Mario and Rebecca Capano’s $4.3 million Rehoboth mansion to build their own waterfront retirement home, but teardowns are becoming more commonplace on Delaware’s priciest beach blocks.

Even multimillion-dollar teardowns.

In Fenwick Island alone, 11 owners have purchased homes just to tear them down in the last five years, at prices ranging from $435,000 to $2.19 million, according to Russell Griffin of RE/Max Above and Beyond in Seaford.

The demand for lots in A-list locations is strong across the United States, according to Zelman & Associates, the housing market research firm.

The term “homebuyer” might be a misnomer when you’re talking about wealthy buyers seeking beachfront sites. “If it’s direct beachfront, they’ll tear the house down and just buy the dirt for somewhere in the neighborhood of a million and a half,” said Ed Higgins of RE/Max Above and Beyond. “They’ve done that several times this year. It’s supply and demand. You’ve only got a handful of homes, and it’s not like you can create more land.”

The back of the Levins’ bayfront home-which was built on the former site of the Capano’s 13-bathroom, dual-spiral-staircased white mansion-faces the Rehoboth Beach Country Club. (Background photo by Maria DeForrest; Foreground photo courtesy of Photo courtesy of Debbie Reed, Debbie Reed Team, RE/Max Realty Group)

One oceanfront empty lot in Gull’s Nest in North Bethany is currently for sale with an asking price of $4.5 million. It’s one-third acre.

A one-third acre lot in Rehoboth’s North Shores community is for sale for $1.69 million with the promise of a “short walk to the beach.”  The lot is on the land side of Ocean Drive, but a multi-story house could have a good ocean view.

A lot in exclusive Henlopen Acres is listed for $1.7 million. It’s just under a half acre, and it’s not canalfront.

As Howard Fortunato, executive vice president of the Homebuilders Association of Delaware puts it, “There’s a finite amount of land.”

Lot prices at the beach have roller-coastered over the tumultuous last decade, according to figures from the Sussex County Association of Realtors, but agents say prices on lots in walkable neighborhoods don’t dip.

Richard L. Bryan of Long & Foster in Lewes stands on the site of a recent teardown near Cape Henlopen State Park. The home behind him is a 2006 teardown and rebuild.

“There’s not many lots to choose from anymore,” said Richard L. Bryan of Long and Foster, who has been selling homes at the beaches for 34 years.  “You can count on one hand the number of lots available in Rehoboth, and they range from about $500,000 to $800,000. It’s kind of unusual when you buy in an area and your land value is half of what your house costs.”

Land costs usually make up 22 to 25 percent of total home cost, but local builders say that’s turned upside down for walkable properties at A-list beaches. Land costs there are typically 50 percent of the sale price and, on occasion, 60 or even 70 percent. Thus, teardowns are becoming increasingly common.

A man who bought a beach house through Bryan several years ago has it listed with him again this season – sans the house. After renting the place for years, the owner opted to tear it down and put the empty 50-by-100-foot lot up for sale. Price tag: $500,000.

Turnstone Builders, a custom builder in Rehoboth, puts about half its houses on vacant lots and half on knockdowns. “Houses 30 to 50-plus years old are sitting on valuable land, thus the knockdown,” said Larry Wilde, vice president of Turnstone. “In our market, land is a very large percent of the lot-with-home cost. The closer to the ocean, the more valuable the land “¦ None of this is rocket science.”

About 25 percent of the time, Turnstone builds for clients who have owned a property for generations and opt to do something different with it. “The houses are fine the way they are, but they were built in the ’60s or ’70s and maybe now they want a three-story thing with a better air-conditioning system and better mechanicals, better bathrooms, more energy efficient, all those things,” Wilde said.

He said one family owned a large tract in Dewey. Three sisters decided to knock down the vacation home they visited as children and build a new seven-bedroom beach house they can rent for $15,000 a week.

And, Turnstone often works with investors who buy prime lots to build spec houses. When they started framing one of those a few blocks behind Funland recently, people saw it and bought it on the spot.

Agents say national builders have a lock on several communities on the periphery of the beach that have been approved for sewer or septic. As the walkable beach lots become dearer, developers are filling in every gap along Del. 1 between Lewes and Rehoboth.

Finding lots or potential teardowns in the tight market is difficult. Local builders, like Harvey Ryan, owner of  Turnstone, often get the drop on outsiders. “The owner here grew up in the area and knows everybody in town and has his ear to the ground,” Wilde said. “He knows a lot of real estate agents, which is good, because, a lot of times, if you wait until it’s on the Multi-List, you’re too late.”

“Toward the beach area, they’ve really come back roaring in the last three or four years. As fast as they can build, they’re selling homes there,” said Ed Higgins of RE/Max Above and Beyond.

Bryan said the beach towns’ historic charm and ocean access draws two distinct buyers: “In Lewes, some people like the old houses.  They want to renovate and they’ll employ local architects. On the beach, it’s a different story. They will tear down a one-story cottage and replace it with a three-story with an elevator.”

He said the sweet spot for buyers is any place where they can walk to the beach and anything else they want. “Traffic is getting to be a little thick,” he said.