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Did The Florida Real Estate Boom of the 1920’s Cause the Great Depression?

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Chris Knowlton, Bubble In The Sun

With Christopher Knowlton, Author of Bubble in the Sun: The Florida Boom of the 1920s and How it Brought on the Great Depression

Steve spoke with Christopher Knowlton, the author of Bubble in the Sun: The Florida Boom of the 1920s and How it Brought on the Great Depression, to learn the fascinating history of the Florida real estate boom and bust of the 1920s, and how it may have contributed to the Great Depression. Knowlton’s book chronicles the actions of key real estate entrepreneurs who helped create the Florida of today, as well as the story of the Everglades environmentalist, Marjory Stoneman Douglas.

Steve noted that the story Christopher unfolds in his book in many ways paralleled the national real estate market leading up to the 2008 financial crisis—excessive speculation, easy credit, and rapidly escalating real estate prices.

Henry Flagler

One of the key figures included in the book is Henry Flagler. According to Chris, “He was the first of the great Florida developers. He came to Florida 20, 30 years before the others and provided the template for how you could do real estate development and resort development. He built the Florida East Coast Railroad. That infrastructure he built was kind of the backbone that set things up for the great boom after the first World War, in the 1920s.”

Steve made the point that Flagler was pretty much the creator of the resort of Palm Beach, including the famous Breakers Hotel. Chris added that Flagler is known for a string of high-end resort hotels that he built all down the line in Florida. He then explained how the 1920s began to see the emergence of resort hotels aimed more toward the middle class. George Merrick in Coral Gables was a key developer on that front, building properties inland that, since they weren’t right on the beach, were much more affordable and, therefore, opened the door for a lot more people besides just the ultra-rich to start migrating to Florida.

Vegas Before There Was Vegas

Steve related that the picture of Florida in the “Roaring Twenties” was one that resembled what Las Vegas became 20 or 30 years later. Chris agreed, ticking off some of the many factors that fed the Florida boom of the 1920s. “It wasn’t just the fact that there was sunshine, and it was warm, and it was undeveloped, and real estate was appreciating rapidly. You had prohibition, but nowhere was prohibition less enforced than in Florida in the 1920s. And then, of course, they started to sell sex as well. You had Carl Fisher advertising Miami Beach with scantily clad women in bathing suits. The sex sold, the booze sold, and before long it was just a frenzy of development.”

Steve observed that “The opportunities seemed to be just endless. Banks came into town. They started building skyscrapers. And, eventually, more Americans were investing in Florida real estate development than the number of people who had stock brokerage accounts.”

He asked Chris to tell listeners a bit more about Carl Fisher. Chris said, “Fisher was a remarkably colorful character. He was a big boozer. He was a womanizer. He chain-smoked cigars. He really knew how to enjoy himself, and people loved him. He was an endearing character. All of these guys were very colorful. The sad thing is that they all came to a rather macabre end when it all went belly up at the end—and I tell that story in the book, too.” Fisher lost his fortune in the stock market crash of 1929 and the ensuing depression and ended his days living in a small cottage, doing odd jobs for friends.

Fisher, like Flagler, knew that infrastructure was the key to real estate development, and so he built the Dixie Highway that ran all the way from Chicago to Miami, opening up Florida to people in the Midwest. As he began to concentrate on developing Miami Beach, Fisher told investors that property values would increase at least 10% every year. At the same time, banks made it easier and easier for people to invest. You could put down as little as 10%, take out a loan with a balloon payment, and then sell for a big profit long before that balloon payment came due. People were standing in line to get a piece of Florida real estate.

As Chris put it, “Things quickly got out of hand. People in places as far away as Massachusetts and Ohio got Florida real estate fever so bad that the states started to pass laws to prevent people from buying these prospectuses sight unseen. And just like in every other one of these booms—like before 2008—before long the banks were directly involved. The bankers became promoters and developers. Developers became bankers. You had all kinds of conflicts of interest. And it wasn’t long before gangsters were involved as well.”

Addison Mizner

Another of the Florida tycoons whose story Chris tells in his book was Addison Mizner. Mizner was a key figure in developing Palm Beach, including the Everglades Club and the Boca Raton Hotel. He was a great raconteur and a charming wit, as well as a very talented architect.

Unfortunately, Addison made the mistake of making his brother, Wilson, a partner in his business. Wilson was a bonafide con artist, guilty of all kinds of financial shenanigans and borderline corruption. Eventually, Mizner’s real estate empire came crashing down and Addison Mizner was totally bankrupt and a broken man in the end.

The Environmentalist – Marjory Stoneman Douglas

In his book, Chris’s counterpoint to the story of the real estate moguls is the story of Marjory Stoneman Douglas. Chris says, “She’s really the conscience of the book. She arrives as a young woman around 1918. Her father was the founder of what becomes the Miami Herald. She gets a job there as the first woman reporter. She was interested in the Florida landscape right from the beginning, and through the 1920s she sees the devastation that starts to occur.” She had originally been cheering on the developers, just like everyone else, but then she started to see what was happening to all the birds that she’d fallen in love with and to all the trees. Before long, she started to develop a real environmental conscience. Eventually, she became a major environmental activist and possibly the single most important person responsible for preserving the Everglades and having it ultimately designated as a national park. She wrote the book, The Everglades: River of Grass.

The Bust

The Florida real estate crash that presaged the 1929 stock market crash and the Great Depression—and that, according to Chris—was actually a big causal factor of the eventual nationwide depression – came in 1926. You had all those people heavily leveraged in Florida real estate investments, expecting property values to continue rising forever, and then the bottom fell out when the Great Miami Hurricane of 1926 hit. It’s estimated that property damages totaled over $100 million which would be over $200 billion in today’s money.

Things had already started to get shaky in 1925. Forbes magazine started warning people that Florida land values weren’t based on anything much more than speculation. The IRS started looking into real estate corruption in the state. The railroads imposed an embargo on building materials going into Florida because they were creating gridlock for all the other kinds of railroad traffic.

In 1928, another major hurricane hit Palm Beach. More than 1,700 homes were destroyed and more than 2,500 deaths occurred. With a second major natural disaster in just two years, the Florida real estate boom was officially a major bust. In fact, Florida’s economy, like much of the rest of the country, didn’t begin to recover until after the Second World War.

Get Christopher Knowlton’s book, Bubble in the Sun, to learn the rest of the fascinating story of the rise and fall of Florida real estate in the 1920s.

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: You know, the Florida that we know today, especially from South Miami to Palm Beach, has seen the kind of uncontrolled growth that is, basically, in fact, seen as normal for life around here. Yet this unique growth trend started very early indeed. As a matter of fact, it started so early that most of us don’t even know the history of how we got here, and the booms and busts which were created by literally just a few men, names you might have heard of because some islands in Miami are named after them, counties in West Florida are named after them, but not that much has really been written about them. Well, that’s just changed due to this new book entitled The Florida Boom of the 1920s: How It Brought on the Great Depression. The author is Christopher Knowlton, and Christopher Knowlton joins me today. Welcome to the show, Chris.

Christopher Knowlton: Hi, Steve. The true title is Bubble In The Sun.

Steve Pomeranz: Bubble In The Sun. Sorry about that. Bubble In The Sun: The Florida Boom of the 1920s and How It Brought on the Great Depression. Thank you for that change. So who are these men that we’re talking about? I mean, I know one is Addison Mizner, as we are here in Boca Raton. But Henry Flagler who was involved initially with Standard Oil was a big driver here. Tell us a little bit about him.

Christopher Knowlton: Yeah, sure. He really was the first of the great Florida developers. He came to Florida, 20, 30 years before the others. But he provided the kind of template for how you could do real estate development, resort development, including golf courses, but really resort development. He first built an enormous railroad. He had retired from Standard Oil where he’d made an enormous fortune and he was just looking for something else to do. He was still a relatively young man in his very early fifties and eager to do something new and something that he had complete control over. So he built this railroad down the length of the coast, the East Coast. I think most people probably know this story, the Florida East Coast railroad. But he provided really the model for how to do it.

And of course, real estate development is dependent on having good railroads and good roads. So that infrastructure that he built was kind of the backbone that set us up for the really great boom, which was the boom after the First World War in the 1920s, the roaring twenties. Nowhere did it roar more than in Florida. The book is really about these four great developers of that period. And then as a counterpoint to them, Marjory Stoneman Douglas, who was the great environmentalist of the period who would go on to write the great book on the Everglades, and the two are really inextricably involved—economic development and environmental development.

Steve Pomeranz: He, Henry Flagler, basically created The Breakers Hotel in Palm Beach. He kind of invented Palm Beach. That was really the first stop from his train, and he built his own house, Whitehall, which is now a museum and has been for many years, which really started—from what I gather in the book—it started people thinking about, “Well, I don’t have to go down to Florida and stay in a hotel. I can actually start building my vacation second home here.” Is that in your view, what started this boom?

Christopher Knowlton: Yes and no, Steve. He actually started in St Augustine with the Ponce de Leon Hotel, which really is as big a hotel as we had seen in America up until that time and top of the line service, but really targeted at a high-end audience, a wealthy clientele, the sort of gilded-age barons of whom he was one. And all of his hotels, as he went down the coast, and he got all the way down to Miami and he actually continued to build his train right on to Key West. But his hotels were really very high end.

It wasn’t until the ’20s when the economy really took off that the opportunity emerged to build resort hotels for a middle-class audience. I tell the story of George Merrick in Coral Gables. He had plenty of high-end real estate that he was developing, but he is also targeting the middle class. The properties were more inland. They weren’t right on the coast, and so the housing was much more affordable. And the dream, the American dream, kind of became available to everybody.

But you know, there were other factors feeding what eventually became a frenzy. It wasn’t just the fact that there was sunshine and it was warm and it was undeveloped and real estate was appreciating which always helps, but you had prohibition, but nowhere was prohibition less enforced than in Florida in the 1920s. And then, of course, they started to sell sex as well. You have the great case of Carl Fisher advertising Miami Beach with scantily clad women in bathing suits. For the first time, I mean really that was rather a novel thing. It’s just one example of where the 1920s began to kind of create the contemporary culture we have today. But the sex sold. The booze helped sell real estate too. And then it all started to catch on.

Steve Pomeranz: It was really the precursor of Vegas. I mean it was basically the last frontier; it was kind of the Wild West. As you said, the booze was flowing, the opportunities seemed to be just endless, and you know, the great real estate boom started happening. Banks came into town. They started building skyscrapers. Actually, it says in your book that you estimate that as many as 18 million people of middle-class means mostly risked their savings by investing in Florida real estate, where only one and a half million in the country had brokerage accounts.

So this idea that more people were invested in real estate, especially the middle class than the upper class, which had brokerage accounts and could invest in stocks, which, of course, is considered one of the reasons that the Great Depression started, the crash of the stock market and so on. But I think you make the case in your book that it really started earlier, and perhaps it started with the decline of Florida real estate.

Let’s talk about Carl Fisher a little bit more. He came out of the fringes of the automobile business. He built the Indianapolis Speedway and he was really quite a marketing genius, right?

Christopher Knowlton: Well, he was. He was also a great road builder because first, he organized the construction of the Lincoln Highway, which was the first highway across the United States. And having had some success with that, he decided to build the Dixie Highway down to Miami from the East, Northeast, and from the Midwest. Of course, you know all of real estate development is dependent on road building, ultimately. He knew that, and he was by then starting his second career which was, of course, in real estate development in Miami Beach.

So to have the road end in Miami Beach, well, it served his interest very well. But he’s a remarkably colorful character. He was a big boozer. He was a womanizer. He chain smoked cigars. He really knew how to enjoy himself, and people loved him. He was a really rather endearing character.

All of these guys were very colorful, very different. The sad thing is that they all come to a rather macabre end when it all goes belly up at the end. And I tell, of course, that story as well.

Steve Pomeranz: Yeah, I want to hear about that.

Christopher Knowlton: A lot of fun in the sun, but it doesn’t end so well.

Steve Pomeranz: So the promise was to own a piece of Florida land that almost sounded too good to be true. You could put 10 maybe 25% down and have a balloon note for the balance and, hey, if you wanted to flip that note for a big profit, go right ahead. They didn’t call it flipping back then, but that was really the beginning. And also, I think Carl Fisher said that he raised prices 10%; he was going to do that every single year. And that caused people to stand in line to sign up to get their piece of these so-called or hoped-for riches.

Christopher Knowlton: Yeah, you’re exactly right, Steve. And that was an inspired piece of marketing on his part, is everybody was pretty sure they were going to make something on their investment. Who doesn’t like a sure thing, and Florida really did look like a sure thing.

Now I just want to correct one thing. We don’t think it was 18 million who bought real estate in Florida. I think the more reasonable estimate is probably between two and five. The interesting thing is that there’s very little data that was collected about this, and there’s very little data about mortgages and who was lending. That’s one of the reasons I think that the importance of the Florida boom to the broader economy and why it might’ve contributed, or very likely contributed, to the collapse of real estate nationally when it did finally roll over.

Steve Pomeranz: So during that time, Miami was growing exponentially. There were skyscrapers being built. Homes like you mentioned. George Merrick was building in Coral Gables. That money had to come from somewhere. So it really mostly came from banks along with private investors. So tell us a little bit about the banking situation at that time.

Christopher Knowlton: Yeah. It was coming out of banks all around the country. I mean people got Florida real estate fever in Massachusetts and in Ohio and various places where they started to pass laws to prevent people from buying these prospectuses sight unseen. It really quickly got out of hand. And as for the banks, just like in every other one of these booms, like in 2008, before long the banks were directly involved. The bankers became promoters and developers. Developers became bankers. You had all the attendant conflicts of interest that that always creates. And you know, it wasn’t long before gangsters were involved. I talk about Al Capone in the book. But it quickly got an infusion of corruption, which tends to happen late in these booms.

Steve Pomeranz: It’s the cycle. We saw the same thing … It’s a bit of a different color, but fundamentally, it’s the same painting when you look at 2008 and the bust of real estate, and you look at 1926-27 and the bust of real estate. The same greed. We know we had the high levels of greed in ’08. We had the banks doing anything just to sell properties. They lowered their lending standards, and it seems like human nature really doesn’t change.

Christopher Knowlton: Yeah. No, that’s right. You know, the financial innovation back then was actually the home mortgage and installment credit as well to buy your model T Ford or your car, there were other models by the end of the decade. But people were using debt for mortgages and for consumer credit to leverage themselves up. That’s when that whole problem started. They weren’t CDOs. They were very simple, straight vanilla, five to seven-year mortgages back then. But they certainly contributed mightily to what happened in the Great Depression.

Steve Pomeranz: Well, when you put 10% down and your leverage is 10 to one, it doesn’t take a whole lot of decline to wipe out that 10%. That ripples throughout the financial economy, and that’s what causes problems. The book is Bubble In the Sun: The Florida Boom of the 1920s and How It Brought on the Great Depression. The author is Christopher Knowlton and he’s joining me today.

Let’s briefly touch upon Addison Mizner, then I want to get to Marjory Stoneman Douglas. Addison Mizner, basically, helped to create Palm Beach. I know we still see his architecture here in Boca Raton, and of course, he was responsible for building the Boca Raton Hotel. Tell us a little bit about Addison Mizner.

Christopher Knowlton: Yeah. Addison Mizner is a very winning character. He was a charming human being, and everybody who knew him adored him. He was a great raconteur and wit. And he was a very talented architect. He was kind of misperceived for a while as just a resort swell, but we can see now how good is his buildings really were.

He got his start building the Everglades Club in Palm Beach for Paris Singer. It was a huge hit as a work of architecture. He attracted clients among America’s very wealthy who were building homes in Palm Beach for the first time. They were moving out of the old Flagler hotels and building homes of their own, and he was right there at the right place at the right time. The problem was that he had a brother named Wilson Mizner who was another great wit, but a real bonafide con artist.

He made the terrible mistake of involving Wilson in his business. And Wilson got him to go from being an architect to a developer in an effort to make a big score for both of them. Mizner himself was wealthy, but his brother was still looking for that great opportunity. It was his brother who in Boca Raton where they got overly exposed, where they were guilty of some financial shenanigans and over-promising, one thing and another, the usual kind of borderline corruption. One thing led to another and it all came crashing down. Mizner, ultimately, was bankrupt and a broken man when it was all over.

Steve Pomeranz: Yeah, I was looking up in the bankruptcy proceedings creditors received 0.1% on the dollar. For example, one paving company received $93 on a $93,000 claim. But I mean I can paint the hype here. On the first day of selling, on May 14th, 1925, $2 million of properties were sold. He would run buses from Worth Avenue in Palm Beach to Boca Raton. He also used seaplanes to transport potential buyers to the site, and he would exaggerate in his brochure that he had offices all over the country when, in fact, he really didn’t. It all came crashing down in 1927.

Let’s get to Marjory Stoneman Douglas because she is kind of the antithesis of all of which we’re talking about today. What is her background and what does she end up doing?

Christopher Knowlton: Yeah. She’s really the conscience of the book. She arrives as a young woman around 1918. Her father is the founder of what becomes the Miami Herald. She gets a job first as a society reporter for them, and she’s the first woman reporter. She interested in the Florida landscape right from the beginning, and through the ’20s, she sees the devastation that starts to occur. The great symbol of what happens to the Everglades during this building period is the building of the Tamiami Trail, which cuts right through the Everglades from one side to the other, trying to link Tampa to Miami, which would be great for real estate and great for the developers. And the newspapers are on the side of that. First, she is too, and then she starts to see what’s happening to the birds that she’s fallen in love with and to the local pines.

Before long she really starts to develop a real environmental conscience. I trace her evolution. It’s kind of the making of an activist in the book. She doesn’t actually write her definitive work until 1947 on the Everglades. But in the ’20s, she builds her own little bungalow. So she’s directly exposed to all of this too and having her own experience with real estate. She has a construction contractor who runs off with her money. It’s done through fits and starts, but she ends up leaving the newspaper and starting to write fiction for the Saturday Evening Post. All the fiction features Florida and features its wildlife and its natural beauty. She becomes really a terrific writer.

I view her as the counterpart to the real estate developers of the era. I think she rounds out the story because my argument in the book is that you can no longer separate economic development and economic wellbeing from environmental well-being. That those two are now merged at the hip.

Steve Pomeranz: Yet in Florida, development still seems to have the edge, by far, I would say. Would you agree?

Christopher Knowlton: Well, I’m not sure I could comment on that. I’m more of a historian. I’m not up on exactly what’s going on, but that wouldn’t surprise me. Let me put it that way. I mean even back then, the legislature and the State House was very much under the control of the business interests. I think you see that in a lot of states around the nation.

Steve Pomeranz: Well, she was responsible for, in a sense, saving the Everglades, and finally the creation of it as a national park. The book you referred to, by the way, is called The River of Grass for anyone who’s interested. We’re talking about Marjory Stoneman Douglas. My guest is Christopher Knowlton. The book is Bubble in the Sun: The Florida Boom of the 1920s and How It Brought on the Great Depression. Real quick, Chris. So what started it in 1926 or 1927? What was the beginning of the end?

Christopher Knowlton: Well, there was this terrible hurricane that struck Miami square in the face, and a lot of the construction, of course, was very flimsy and done on the cheap, and that resulted in disastrous destruction. There was a second hurricane that hit Palm Beach about two years later that actually cost more lives, in particular, the African-American farmworkers who lived just below Lake Okeechobee. So some devastating hurricanes really pointed up the environmental sensitivity of the area, which had really been overlooked by the developers. I mean, they’d eviscerated the Everglades, which is the great aquifer for Florida, very shortsighted from a development perspective. And then they built right along the coast where the hurricanes can hit. So it’s very much a cautionary tale.

Steve Pomeranz: Very much so. The book, Bubble in the Sun: The Florida Boom of the 1920s and How It Brought on the Great Depression. I’ve been speaking with Christopher Knowlton.

To hear this and any interview again, if you have any questions, we love your questions by the way, just visit our website, which is stevepomeranz.com to join the conversation. While you’re there, sign up for our weekly update where you can get all of this in your inbox every single week. All you have to do is go to the website, which is stevepomeranz.com and put in your email address, and you’ll be on the list. Christopher Knowlton, thank you so much for joining me today.

Christopher Knowlton: Steve, thanks. I’ve enjoyed it.