Tear-down Prototypes

Attributes of Tear-Down Neighborhoods

I've posted previously about the somewhat counter-intuitive attributes of tear-down houses ("Tear-Down Economics," "Contender . . . or Pretender?"), so I'm not going to revisit the analysis here.

However, tear-down neighborhoods -- areas with lots of tear-down activity -- also have their own attributes.

Here's what they seem to have in common.

Location. Duh, right?

Actually, there are two kinds of locations that are popular.

The first is what you'd expect: the premier, A+ lots in the premier locations -- on Lake of the Isles in Minneapolis with skyline views, beachfront property on Lake Minnetonka, etc.

However, many if not most of those locations already have existing, trophy homes sitting on them. You don't dismantle a Lamborghini to build a Ferrari (at least, not usually).

So, in practice, much of the tear-down activity actually occurs in adjacent areas where the location is only slightly less desirable -- call it "A" instead of "A+" -- but where the existing housing stock is much more modest (and therefore cheaper).

As a result, the potential upside is much greater. This is the second type of tear-down neighborhood.

Ultimately, it is the size of this gap -- between existing and new construction -- that determines whether a neighborhood has tear-down potential (the bigger the gap, the more tear-down potential).

Examples include the areas just west of Cedar Lake and south of Lake Calhoun in Minneapolis, and South Harriet Park in east Edina.