How can I create a terrain that forms around a static mesh, rather than through it?

[Everynone]

The second method seems okay, but I
don’t want to remove instances on a
‘key pressed’ event. I would like it
to happen automatically. Maybe an
‘actor begin overlap’ event would
work?

Run the generation first and once it’s complete:

The above is a gross oversimplification, of course. And you can read up on how sets work in UE4 here:

TSet