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Wall Street History
https://www.gofundme.com/s3h2w8
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05/16/2003
The Florida Land Boom
There has been a lot of talk recently about a potential bubble in
the real estate market. And it’s not about just the U.S., as
Britain, which has a far stronger history of booms and busts in
this area, appears to be near a major peak as well. But as Alan
Greenspan and the Federal Reserve do all they can to keep the
refinancing and housing booms in place, I thought the following
tale would be interesting, that of the surge in Florida real estate
in the years prior to the 1929 crash. What follows is largely from
the work of the great market historian, the late Robert Sobel, and
his book “The Pursuit of Wealth.”
In the late 19th century Florida was mostly undeveloped. Then
Standard Oil tycoon Henry Flagler took an interest, constructing
a railroad on the east coast that he hoped would lead to increased
tourism. Flagler opened the first hotel in Miami, the Royal Palm,
in 1897 and by his death in 1913, the “state of the future” was
beginning to take shape, particularly as the citrus industry took
off.
Around this time a New Jerseyan, John Collins, arrived on the
scene. He tried his hand at growing coconuts, bananas, and other
fruits, but nothing was working out so he returned home. He did
leave behind daughter Katherine and her husband Thomas
Pancoast to look after the family interests. It was Pancoast who
then decided that Miami Beach, specifically, offered great
opportunities, but he needed to find a way to make it more
accessible.
Pancoast wanted to build a bridge, but needed capital and a
partner. One day a fellow by the name of Carl Fisher was
speedboating in the area and stumbled upon some of Pancoast’s
holdings. Fisher was in the auto industry (though it’s not the
same family as today’s Fisher Auto Body) and he was a co-
founder of the Indianapolis Motor Speedway. Carl offered to
finance the bridge and then he advertised homesites in the area.
Miami Beach was “a place to escape from winter,” his ads read,
and he promised electricity and telephones, city water and
sewers, golf and fishing. Of course initially we were talking
about raw land, nothing more. But by 1915, Fisher, Pancoast and
Collins organized the town of Miami Beach.
World War I benefited Florida because the wealthy vacationed
there instead of Europe. The boom was coming and Fisher and
company initially focused on the rich, but with the advent of the
automobile and the surge in Model Ts, Florida now seemed open
to middle class America, too, particularly as highway
construction soared.
The real estate boom, though, started slowly but by 1922 there
was a surge in new investment. Land prices began to skyrocket.
It didn’t hurt that Miami was the jumping off point to Havana
and Bimini. And why was this important? Whisky, my friends.
Cuba and Bimini were prime spots for whisky smugglers who
could buy, for example, a case of 24 fifths of Scotch for $24 and
resell it to tourists in Miami for $100-$120. They in turn would
resell it up north for $20 a fifth. [Source: Sobel]
But back to real estate, most of the activity was along a 100-mile
stretch from Palm Beach to Miami Beach. Futuristic developers
were able to turn their ideas into reality. George Merrick, for
example, designed the upper middle class suburb of Coral
Gables, a completely planned community on the outskirts of
Miami that included country clubs, canals, shopping areas,
transportation and more.
As for Carl Fisher, he was busy selling lots, $3 million worth in
1923, then $8 million in ’24 and $12 million in ’25. Others met
similar success. Those who bought in ’23 could sell for 5-6Xs
their original investment just two years later.
“Why stop at one lot?” asked the real estate agents. “Buy
several, sell off a few, and the rest would be free.” And, similar
to today, agents back then accepted as little as 5% down, on
binder, then took another 25% before the deal closed. But since
the second payment often took months, by the time it was
required the property could have doubled in value. This same
process might be repeated several times. Robert Sobel says “It
was as though a massive profit-laden chain letter had been set in
motion.”
Following is a real example of the advertising touting the
opportunities, with emphasis provided as it was originally
written.
“This is a straight-from-the-shoulder message to MY FRIENDS.
GET IT AND GET IT QUICK! I had to make a rush trip to
New York, and believe me, I am glad to be back in time to get
my friends in on the BEST THING YET NOW GET THIS
QUICK! When I discovered Lake Stearns I know I had found
the best land in Florida. With me is Mr. Walter T. Spaulding,
President of the Spaulding Construction Company of New York
and Miami, a nationally known constructor. He put his OWN
money into this proposition and will handle the construction of
all utilities at Lake Stearns.
“MR. WALTER DUNHAM, a man of great vision, will direct
the selling campaign of this property to the public.
“These two associates and I are going to PUT THIS OVER, and
YOU are COMING IN ON IT. YOU are coming in with me on
the fist $150,000 we are going to put in because you KNOW ME
and believe in my judgement. I want $5,000 out of you for this
proposition. NOW DON’T WRITE ME. I WON’T HAVE
TIME TO SCRATCH A PEN. I have given you the facts and am
offering you a FINAL OPPORTUNITY to get in RIGHT NOW.
SEND ME YOUR CHECK and I will put it in the BANK. This
is a personal message from me to YOU. You want to make some
REAL MONEY now. Get in and come on while the
PROPOSITION IS HOT.”
In 1925, an estimated $1 billion flowed into Florida projects.
Some of this capital was from Wall Street speculators, who saw
it as an opportunity to make more than they already were in
stocks. Small town America was cashing in its savings and
buying up lots in Florida. Europeans also arrived, particularly
when stories emerged that Miami Beach was the next Monte
Carlo.
But by 1926, prices were leveling off. Then on September 18 of
that year, disaster struck .HURRICANE!!!!! Now the last
major storm to hit Florida had been back in 1910, but there was
little to damage then. It was different this time. Between 370
and 390 died (I read different figures), over 5,000 were injured,
and property damage was estimated to be in the neighborhood of
$80 million, a considerable sum for that time.
Reconstruction resumed almost immediately, however, but then a
second big hurricane hit in 1928 and the land mania was over.
Of course it all would have ended a year later, anyway, thanks to
the Crash and the Depression.
One final note, that famous crook, Charles Ponzi, scammed more
than a few poor souls himself selling underwater, mosquito
infested lots in Florida in the 1920s, all while on bail pending
appeal of his Ponzi scheme.
Wall Street History returns next week with the story of John
Quincy Adams and the Tariff of Abominations.
Brian Trumbore
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