Odd Lots - This Is What Happened During The Great Florida Real Estate Bubble

Episode Date: September 4, 2017

During the 2008 financial crisis, Florida was an epicenter of the real estate meltdown. But for decades before that, the state has been characterized by booms and busts. In this week's episode of the Odd Lots podcast, we spoke with Arva Moore Parks, a Florida historian and preservationist about the great Florida real estate bubble of the 1920s, or as she calls it "The Boom." Parks tells us about the role of the real estate visionary George Merrick, whose influence on Florida remains today, and we discussed what this bubble had in common with others seen throughout history.See omnystudio.com/listener for privacy information.

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Listen on Bloomberg Radio, stream the show live on the Bloomberg business app, or listen to the podcast. That's Bloomberg this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, radio. and wherever you get your podcasts. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal.

And I'm Tracy Allaway. So Tracy, we're in the middle of our series, our series about episodes about bubbles. And of course, last week we had the awesome one about the history of stock market bubbles. And now it's time to talk about some bubbles that aren't directly, maybe not as familiar to people. Oh, okay. Well, I remember doing the catfish farming bubble. Right. I'm excited about what this one could be.

Right. Like, that's the thing. So obviously people know about like the internet bubble and a few, you know, maybe they know about the tulip bubble, which will also be talking about in the later episode. But as you pointed out, you know, several weeks ago we talked about the bubble and catfish. It's a good reminder that bubbles are all over the place everywhere throughout history and not typically in the sort of major areas that we think of. Yeah, and I'd like the fact that we're actually doing this one because it follows on from the stock market bubble one that we did last week quite nicely.

It's something that actually happened, I think, in the 1920s before everyone got really into stocks. But people always talk about the stock market bubble of the 1920s. They kind of forget about this one. Right, exactly. So you're hinting at what it is. So last week, we talked a lot about the stock market bubble of 1929. But a few years earlier in that decade in the 20s, there was an extraordinary, fascinating bubble in Florida real estate.

And of course, Florida has had numerous booms and busts throughout the years. That's sort of part of what makes Florida, Florida, including recently in the financial crisis, Florida got built up and then hit really hard. But this is definitely one of my favorite bubbles. and I think there's a lot of lessons for people, even still today, in analyzing how this built up and how it eventually collapsed. We're going to have to rank our favorite bubbles on a one to ten basis, I think, after we finish the series. Let's do that at the end of the series.

I really like that. All right. All right. Well, I'm looking forward to this one because I think we have a really good guest for it as well, right, Joe? I'm very excited about our guest today. Today we're going to be talking to Arvamore Parks. She's a historian. She's an author. She's a Florida preservationist. Basically, the perfect person, she knows Florida probably better than just about anywhere else. She knows the story and probably the perfect person to glean some insight into this extraordinary period of sort of financial and American history. Great. Let's do it. So without further ado, let's bring in Arva. Arva, thank you very much for joining us.

Well, thank you for inviting me. I look forward to it. Before we get started with the, you know, talking about this period in Florida history, tell us how you, your experience. How did becoming a sort of preservationist and historian of Florida's history, how did that become your main interest? Okay, I was a schoolteacher teaching history at high school, and in the faculty room there was a notice of six credits toward a master's degree for teachers. And I applied and was accepted and was fortunate that Dr. Charlton Tobot, the major Florida historian of the day, got me interested in doing a master's on the earliest community in South Florida, which was Coconut Grove.

And that's where it all began. And I never stopped researching after that. Arva, Joe knows that I like to start at the beginning of things whenever we talk about certain historical events in our podcast. So when we're talking about this real estate bubble in Florida in the 1920s, walk us through how it actually got started. Well, we call it the boom in Florida. We don't call it the bubble. It's the great boom of the 1920s. And in many ways, George America, who I've done my most recent work, moved into what was then called the back country and started selling lots and what he described as Miami's master suburb.

And he had the first sales in 1921, and he expected a couple hundred or five thousand people showed up. And in many ways, that began the frenzy, I guess we should say, of buying up, the back country, buying up different areas of South Florida. The Everglades started at 27th Avenue, which is hard for people to believe today north of the Miami River. So all of that had to be reclaimed Everglades' land. So there was a lot of vacant land, and that bade Miami area, the perfect candidate for this bubble or boom of the 1920s. So you mentioned this character, George Merrick, who created this community, Coral Gables, and he, you know, is a real estate development. It had way more interest from buyers than he anticipated. What was it about his vision?

What was it about his salesmanship for buying up real estate in South Florida that really attracted people at such an intense level? Well, he was a master salesman and did an enormous amount of advertising. His grandfather, Fink, had become very wealthy manufacturing of patent medicine called Fink's Magic Oil. And he taught George, and he was the one that convinced the marriage to move to South Florida after They were in Duxbury, Massachusetts, after the terrible freeze. So they bought this land in the backcountry and actually raised grapefruit. And George sold grapefruit from a mule cart as a 13-year-old boy. But he dreamed about what he might be able to do with his 160 acres, the original 160 acres that his father had bought.

Before moving on, just to touch on something you said, his father was a salesman for sort of, it was called Fink's Magic Oil. No, that was his grandfather. Oh, his grandfather. And so when we think of like in the old days, these sort of salesmen with their, you know, now I call him snake oil salesmen, but these sort of cure all tinctures and cure all oils, one can imagine that these sort of, the salesmanship involved in selling those old oils may have passed through to George to sell real estate in Florida as this sort of paradise. Plus, the grandfather, Fink was a Methodist circuit riding minister prior to becoming a. snake oil salesman. And his father was a Yale-educated congregational minister in New England, and the terrible freeze where they lost a child. Grandpa Fink had been to the brand-new community of Miami and told Solomon and Althea, Georgia's parents, about buying land in the back country.

And so Solomon Merrick, the educated man, ended up buying this wilderness and moved out in what was called the back country of Coconut Grove. So walk us through, what was the sales pitch for buying Florida property at that time? Like, I imagine, you know, they were pitching probably to all types of people, not just people who were already in Florida. So what were they telling them to entice them to buy into that market? Well, open land. And George Merrick, I think, had as much to do with creating the boom nationally because he advertised in national newspapers about Coral Gables. and that was unheard of at the time.

So people came down, and then other vacant land, other homesteads. The whole area was homesteaded. That tells you how vacant, I mean, how unpopulated South Florida was. And so other owners of these 160-acre homesteads began to also develop them into subdivisions with romantic names. And they, too, began to advertise in the papers. I find it interesting. You're talking about Merrick's father being a minister because Merrick himself, while he was selling property, and this is something that I learned recently, he recruited to help him sell property William Jennings Bryan, one of the great orators of the era. He's famous, of course, he ran for president. He's famous for his cross of gold speech, for his role in the Scopes Monkey Trial himself, a religious minister. And so there seems to be this sort of crossover between the salesmanship involved in selling property as well as the sort of salesmanship involved in preaching. I agree with that 100%. And I think that Merrick, again, was a genius when it came to marketing.

And I think he learned a lot of it from Grandpa Fink and his father. And then hiring William Jennings Bryan was just unheard of at the time. So William Jennings Bryant became one of his major salesmen. to selling Coral Gables, both locally and nationally. So in addition to these big-name salesmen like William Jennings-Bryne, you also had this network of young men called Binder Boys, and they would go out and try to get people to put down payments on houses, right? Yeah, they would sell, quote, binders, which were like down payments for a certain price,

so you would get a binder on a piece of land, and you would pay for it later. And they made a lot of money doing that. And unfortunately, a lot of them, a lot of that, the binders, help create the fall or the end of the boom because people were not able to pay them off after the stock market crash and after the bank failures and everything else. So the binder boys not only promoted the boom, they also helped end it. Let's talk about some of the, you know, some of the things that characterized you call it a boom, might call it a bubble. But in any boom, there's sort of glaring examples that in retrospect seems like people behaving completely irrationally. What were some of those things? Like, what were sort of the price jumps that we would see on a plot of land from first purchase to flip to the next flip and so on?

Well, it would go dramatically. As I said, the 160-acre homesteads were basically free. I think it cost about $15 to apply. And so a lot of the land began as homesteads, and then it was subdivided and sold off. So the price increase would be exorbitant to the owner in the beginning. And as the boomed grass, the prices kept going up, up, up. I mean, in the gables, that was particularly true. George Merrick wanted to build beauty for the middle class.

He did not start out building this growth. grand fancy pants subdivision. That only happened because it was so popular and people kept paying more and more and more. The Binder Boys, they became so prevalent that they had to be like, they were like just selling out on the sidewalk and selling out on the street everywhere and they actually had to pass ordinances to sort of get them indoors so that people could get through the streets. Like how crazy and frenzy did the Binder Boys phenomenon get? Well, the downtown Miami era is where the Binder Boys would sell the streets. and if you look at some of the pictures,

many of the first high-rise buildings in Miami were built in this era too. So some of the early pictures of downtown Miami, the streets are just full of people, and the sky is full of metal, you know, skyscrapers going up. So it was an incredible period of time. And people, as I grew up much later than that, but my people were still talking about the boom,

and everybody knew they were talking about the 1921 to 1929, 28. And they were literally, when you say the streets filled with people, it was literally people coming down from the rest of the country on the streets, meeting up with the binder boys, and making real estate transactions right there and sight unseen, like not really knowing anything about the real estate they were buying. Right. Some of that was true. And there were buses, though. George Merrick had a fleet of buses that brought people in, even in from the night. north into Coral Gables to sell them. So he tended to show them, and he created, he had the first

professional landscape architect, Frank Button, did big plans. And when you go into Coral Gables today, these plans are still intact. So even though George Merrick only had eight years, he planned, he had the first plan community. And that's why it continues to be, you know, very valuable real estate today, even though it lost everything there for a while. Canadian women are looking for more. More out of themselves, their businesses, their elected leaders, and the world are out of them. And that's why we're thrilled to introduce the Honest Talk podcast. I'm Jennifer Stewart.

And I'm Catherine Clark. And in this podcast, we interview Canada's most inspiring women. Entrepreneurs, artists, athletes, politicians, and newsmakers, all at different stages of their journey. So if you're looking to connect, then we hope you'll join us. Listen to the Honest Talk podcast on IHart Radio or wherever you listen to your podcasts. I like the anecdote that the binder boys, you know, when they would get paid a down payment on a property, it was all by check. So it would take them a while to get the actual money. So what they would do is they would take their binders over to hotels and restaurants and clubs and use those to get credit in the meantime until the check cleared.

It kind of creates this nice image of the boom times and all these binder boys out partying in Miami with the money that they have in. yet received. It was a wild and crazy time and there were nightclubs and there were prohibition escapees, even though prohibition was in effect, not very much in effect in Miami. So I'm just curious, you know, when it came to the people who were actually buying the properties, give us some sense how many of them were in it because they were actually excited about the prospect of developing this previously unused land, and how many of them were in it just because they were looking to make a quick buck? Well, I think there was plenty of each.

It's hard to give exact numbers because some of the people that came down to make a quick buck kind of fell in love of the area and stayed. So a lot of, or lost everything and had to stay. You had a combination of the two when the boom ended after the 26th hurricane. See, there was this horrible hurricane in 1926. and that pretty much stopped the quote boom. It just practically blew Miami away. But George Merrick continued to pour his money into Coral Gables after the 26th hurricane.

So you can't say that it completely stopped. A lot of people do. I disagree with that point of view. It really stopped in 28, and they literally threw George Merrick out of Coral Gables. And he lost everything. He put everything he had in trying to keep it going after the 26 hurricane. So the bust really came for sure by 28, 29. When the stock market crash, you know, happened to.

And then that killed it off. I want to talk a little bit more about the bust in a second, but one thing I wanted to go back to, you mentioned that George Merrick at one point got his own fleet of buses to bring people down, would-be buyers. Something that I read is that at one point, the craze to buy property in Florida got so intense. that they actually had to limit the number of passengers who came in by rail and highway so that they could make room for food and other provisions to get into the state to feed the people that were actually there who was getting so clogged. Am I remembering that correctly?

Yes, you are. It's hard to even imagine today. We've never seen anything quite like the boom, as we call it. We've had plenty of booms. In fact, I was born here, and I frequently say I've lived in maybe seven different Miami's because we've had a series of these quote booms or speculative period where we keep changing who we are. I like that idea that like the boom and bus cycles are sort of almost definitional to what Florida is all about at this point. Absolutely. I would certainly agree to that, particularly Miami. It's been so true here. In my life, I've been through booms and bust. I've watched it happen, you know. Arva, before we move on to the trigger of the bust,

what's your favorite anecdote from the boom period of this time? Is there one thing that sticks out in your mind? Well, no, it's really hard because I've just known so much. I think the idea that George had the Spanish theme, it's kind of ironic that today we have so many Spanish speakers and the majority of people, Miami now, are, you know, from Latin America. This certainly was not true. We were mostly what everybody called crackers, which were the Southers who populated Miami prior to the boom.

And the crackers were everything. And one of the quotes that was in the New York paper is the only thing lacking in Coral Gables were the Spaniards themselves. And that's kind of ironic when you think about today. Because George named all the street names see after Spanish. and then later Italian cities. So he saw the history. He was a history book. He saw the history of Florida, beginning way back with Postal Leon, as what we should be thinking about in that era, see, the boom time.

So it's all very fascinating, honestly. All right. Let's talk about the bad stuff and how it eventually came to an end. So you mentioned the role that the 1926 hurricane had. the hurricane didn't kill the market outright, but it was sort of the beginning of the end. How bad was the hurricane, like sort of put it in context and then talk about sort of the immediate hurricane aftermath for the market? Well, it's still one of the worst hurricanes in South Florida history. The 45 hurricane was another one that was a lot of flooding, but the 26 hurricane.

And we in all our history say it really did stop the boom. So we went into the Great Depression before the rest of the nation. We led our Great Depression began really in 26. And it was George that poured his fortune. He was today, I'd be a billionaire. He poured his fortune back into trying to keep the quote boomer, keep Coral Gables alive. So when they threw him out in 28, he didn't have anything. And when he died, he was only 55.

his estate was less than $300, $400. So that gives you the idea of how the boom killed people's personal money on the bus, rather, killed the personal fortune of most of the people that had come down during the boom. So what happened afterwards? Because, you know, if I think back to the most recent real estate boom that we had in the U.S., that would be just before 2007, 2008, the aftermath of that was. was, I mean, incredibly emotional for many people and you had lots of people who were kicked out of their house. But if a lot of the Florida properties were being bought for speculative use, you know, what happened?

People just lost money or were there people sort of out on the street in South Florida? Well, a lot of people did lose their homes. And there's some similarity between the speculative booms of the 1920s and the other booms. A lot of people got the idea that they could make money on Florida real estate. And so they purchased as the prices went up, they continued to purchase even with more expensive prices. And then when the next bust came and the prices dropped, they couldn't pay the mortgage. And so they lost their home. They lost their property.

So it is definitely a pattern, boom bus, boom bus, boom bus, boom bus, and Miami history. And so George Merrick, you said he basically ended up broke. you is at one point the modern equivalent of a billionaire. He ended up with about $400. The timing of the, when people sort of declared in your mind the boom, as you call it, did it end with the stock market crash of 1929? Did it end a little bit before that? When is the sort of period where, you know, you sort of bookend the boom? Well, it kind of ended with the hurricane of 1926. As far as most everybody but George and as said, he poured his fortune. into trying to keep Coral Gables going, and he did not succeed.

He ended up actually being postmaster. He applied for the – he's very smart. He applied for the postmaster and got a job as Miami Postmaster, and he was only 55 when he died. So it's a very sad story in a way, but when you look at Coral Gables today, his planning was brilliant. And someone says you don't need a sign to tell you when you enter Coral Gables because of his planning that he did back in the 1920s during the boom.

You know, there's a quote that I think is right. I can't remember it exactly, but I read it somewhere recently, and they were saying, like, the key to a bubble is you have to have a tremendous story that then just gets taken too far. But the fundamentals have to be really good. And what it sounds like I think with Florida, and part of the reason it keeps coming back is that the fundamentals actually really are good. It is a very beautiful place.

It's some of the best weather in the entire country. The beaches are beautiful. As you mentioned, his community of Coral Gables was very well designed. So while it may have gotten completely carried away and a bunch of people lost their heads with speculation, the key thing it seems to go back to is that the underlying fundamentals are, in fact, very strong. And he was not wrong to be sort of selling what. he was selling? No, I think that one of the major influences was a lot of vacant land. You know, people had not, the railroad did not come down here until 96. And you think about the rest of the

nation up to 1896. And there were, you know, when Miami was incorporated, there were 330 people here in 1896 in the city of Miami. So it started booming. The railroad created maybe one of the first booms when it got here and then it just kept continuing. It's just a history of boom and bust. Joe, I think that's a nice place to leave it. I think that is a perfect place to leave it. I'm really glad you brought in the railroads there at the end because I do think that, you know, that's sort of a constant theme with bubbles is some new technology to enable the

sort of capital to flow. And obviously the railroad being a key source of capital from the rest of the country. Arva Moore Parks, it was delightful to talk to you, so great to get your perspective and really appreciate it. Well, I'm glad you're doing this because people need to understand that we're the capital booms, I guess. I love that. Yeah. Boom capital of the world. Yeah, yep, yep, yep.

Thank you very much. Thank you. I don't know about you, Tracy, but I really like talking to Arva just now. Yeah, I got to say, I feel like I know a lot more about Florida than I did when I started this podcast. But I thought the point that you were just making towards the end, that, you know, fundamentally, there has to be a story to justify every bubble. I think that's a really important one. And you can see it in Florida. You know, you had the advent of the cars so people could actually drive down to Florida and see the beautiful weather and, you know, the coconut trees or the orange trees or whatever. You had a bunch of people who were becoming newly wealthy and had lots of leisure time to take vacations. And you could see why they would be interested in Florida real estate. No, absolutely. Like every, you know, it's like you sort of sell Florida as this wonderful paradise within the U.S.

But the truth is it kind of is like it's beautiful and great beaches. And now, especially today now that air conditioning is widespread, it's very, very comfortable to be in. And so, yeah, people got carried away, obviously, but the fundamentals are pretty great. And, you know, I remember last week we were talking to Scott Nations and he about stock market bubbles. And one of the things he said is that each stock market bubble kind of has a new financial contraption. So whether it was portfolio insurance in the 80s or the trust funds of the 1920s. And so, you know, you think about the new technologies that were emerging for real estate, whether it was the emergence of these down payments, these binders, the trains that brought people in. It's sort of similar themes across all bubbles.

Yeah, I think that's right. And also the network of salesmanship that went into this, right? You had the newspaper advertisements. You had, who was that guy, William Jennings Bryant? That's one of my favorite little nuggets because everybody knows the Cross of Gold speech. Everybody knows the trial over the teacher who taught evolution that they made that play about. But the fact that as part of his career, one of the things he did was go to Florida. and Hawk real estate during the 20s, I think is probably something that, A, nobody knows,

but B, really fits into this broader theme that if you can preach religion really well, you can probably sell property as well. Do you think many of the bankers around nowadays selling ETFs and things? I think they have experienced in preaching? I don't know, but probably they should consider recruiting from churches, you know, that there may be an untapped market of potentially good salesmen out there. so maybe there's a future lesson for them. All right.

Shall we end it? Let's do it there. We have more episodes in our bubble series coming up, and you'll have to stay tuned to find out what they are. I'm Tracy Allowway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthal. You can follow me on Twitter at the stalwart,

and you can follow our producer, Sarah Patterson, on Twitter at Sarah Pat with two teams. Thanks for listening. I'm Francie Lacan. an award-winning journalist, and I've got a new podcast, Leaders with Francine Lacqua, from Bloomberg Podcasts. I've interviewed everyone from Heads of State to fashion icons about the news of the moment. But I've always been curious, who are these people as leaders? I don't think there's one right way to be a leader.

Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow leaders with Francine Lacois wherever you get your podcasts.