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It looks strange to me. I think it'd be better as "There would need to be excavated down from the street".

Isn't there any problem with this sentence?

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    Try replacing would need to be with is and it might be clearer to see that excavation is correct. (There is excavated doesn't make any sense. There is excavation does.) – Damkerng T. Dec 30 '13 at 7:29
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    "There" is not a suitable object for "to be excavated", unfortunately. That situation requires a noun, e.g. "the hillside would need to be excavated for the building's foundations". – Kaz Dec 30 '13 at 21:19
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In the quoted sentence, there is a dummy pronoun which serves as the subject of needs. Would is a modal verb indicating the conditional irrealis mood. The infinitive phrase to be excavation down from the street is the direct object.

Within that phrase, excavation is the predicate nominative of to be, which must be a noun or pronoun. One would naturally expect the noun (excavation) or gerund (excavating) form. The participle form excavated might be understood in context, it is not commonly used as a substantive, and would look strange out of context.

We could also use excavated if we want to describe the condition of the place down from the street, as opposed to an activity there, but I would use the dummy pronoun it instead of there:

Substituting must be for needs to be, or even is as Damkerng T notes, may help "sound out" the preferable form.

There needs to be excavation.

There must be excavation.

It needs to be excavated.

It must be excavated.

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"There need to be" should be followed by a noun in singular or plural form. if the noun is singular, you should use "There needs to be", for plural, it should be "There need to be". for more information, refer to the link http://wiki.answers.com/Q/Should_you_say_there_need_be_or_there_need_to_be?#slide=1

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