by Nick Wynne
Alternative systems of transporting needed supplies were explored. The FEC considered a plan to double track its existing lines, but that was expensive and would take months to complete. Competing railroads, such as the Seaboard Airline, announced that they would build new tracks south, but once again, time was a critical factor, and engineering new routes could not be done overnight.
The developing system of highways in the Sunshine State was not a viable alternative. Most were little more than gravel-coated tracks that could not sustain heavy traffic by trucks—if enough trucks had been available—so that option of relieving the shortages of materials was out of the question.
With Florida’s long coastline and multiple port cities, the use of ships to carry the critical supplies to keep the boom going was seen as the answer to the dilemma. However, steamship lines discovered that they, too, suffered from the same problems experienced by the railroad. Too few warehouses and too few workers meant that ships were queued in the ports waiting and waiting. In Miami, city employees and convicts were pressed into service to relieve the shortages, but as docks piled high with supplies, the shipping lines were forced to institute their own embargo on noncritical supplies. Building materials and furniture were embargoed. T.H. Weigall, a new arrival in Miami in 1925, described the scene:
As usual, every berth was filled. Outside in the harbor, a number of ships lay at anchor waiting to unload…During the last six months of 1925 there was an average of thirty ships constantly in Miami harbour, either unloading or waiting to unload; and this despite the fact that the great passenger lines from New York did not come into the harbour at all, but transshipped their passengers into tenders in the open ocean.
Despite the fact that larger ships took up most of the space in the harbor, enterprising contractors sought to relieve the bottleneck by putting antiquated schooners into operation to bring in supplies, docking them at small areas of the docks that were between the steamships. A few small towns, unable to get supplies through Miami or Jacksonville, sought to take advantage of the newly completed Intracoastal Canal to bring in construction materials. In Eau Gallie in Brevard County, city leaders spent $90,000 of taxpayers’ money to purchase a small steamboat to haul supplies for its developers. Within a year, the City of Eau Gallie was sold to a private buyer for $25,000 because by then the boom was dead and there was no need for supplies.
The scarcity of housing for workers added to the problems for Miami. Few rooms were available at reasonable prices, and with no place to live, workers avoided the port. When a group of entrepreneurs attempted to relieve the situation somewhat by towing a decommissioned ship, the Prins Valdemar, into port to use as a floating hotel, it went aground and capsized in the channel. For twenty-five days, the port was completely blocked to any traffic. What was happening in Miami and Jacksonville had an impact on smaller developments around the state. In Tampa, labor shortages and the scarcity of warehouse space added to the woes of developers on the Gulf Coast. The slowdown that affected development on the east coast was soon felt on the west coast.
By the beginning of 1925, promoters understood that the boom had taken a new direction; it was now time for the dreams created by publicity agents and promoters to move from concept to reality. Buyers who had purchased empty lots now expected to see houses, amenities and town centers built. Although the sale and resale of lots continued at a high pitch, promoters and state officials stepped in to halt the frenzied activities of unregulated speculators. Binder boys were outlawed from operating from their briefcases or hip pockets; real estate sales were restricted to realty company offices; local real estate regulatory boards were established to monitor the activities of agents; and agents were required to have a state license. In addition, a law was passed that limited the legal lifetime of a binder; it was reduced to ten days, and no additional trades, noted by stickers attached to the document, would be honored. Even the binding percentage required to obtain control of a piece of property was increased.
The embargo on building materials presented real problems. Unable to get supplies, building contractors were forced to halt construction in residential areas, and many went bankrupt. As the number of contractors decreased, chambers of commerce placed large ads in magazines and newspapers in an effort to recruit new ones to take their place. Contractors who remained in business were forced to use inferior materials, and substantial Mediterranean houses, which had first been constructed with hollow terra cotta tiles, were now being built with wooden studs wrapped in chicken wire and plastered over. The illusion of solidity was still there, but the quality of construction was gone. The impact of the change to flimsier construction methods would be graphically demonstrated in September 1926, when South Florida was hit by a devastating hurricane.
By the end of 1925 and the beginning of 1926, promoters and investors had other problems. The Sixteenth Amendment to the U.S. Constitution had established an income tax system that imposed significant levies on capital gains, particularly short-term capital gains on property and stocks held for short periods. The fantastic profits made by investors and speculators during the height of the boom—ballyhooed again and again in the advertisements of developers—attracted the attention of federal tax agents, and they descended en masse on the Sunshine State to collect the government’s share. Although most real estate contracts called for payments to be made in three or four increments spread over several years, the Internal Revenue Service demanded its share of the selling prices upfront and in full. Individuals who made thousands of dollars in paper profits now faced demands for payment of thousands of dollars in cash to the federal government in a single payment. Developers who accepted sales contracts worth millions were liable for taxes on the face amount of the contracts, not on the actual amount collected. Exacerbating the situation were the “uncountable cases” of buyers, who
being so carried away by the atmosphere [of the boom] that they had, on the spur of the moment, bought huge tracts of land, public buildings, or anything else that happened to be offer[ed], without there being the remotest possibility of their being able to pay so much as the initial deposit when the time arrived.
Despite Florida’s attempt to alleviate a part of the tax burden by the passage of an amendment to the state constitution outlawing forever the imposition of an income tax, the federal government had no such limitation and demanded its money.
Changes in the money supply also presented difficulties for the large and small developers of the Sunshine State. The negative publicity in the northern news media created a reluctance on the part of large insurance companies and investors to shift funds to Florida. Although state leaders ballyhooed the strength of Florida banks, both national and state, and cited the growth of bank deposits from $187 million in 1920 to $263 million in 1924 to $375 million in 1925, the reality was that insider loans and lax reporting made most of them little more than shells. In some cases, loans to officers and staff exceeded the assets of the banks. State and federal regulators, intimidated by political pressure or motivated by urges to enter private banking businesses, noted these irregularities in various banks but failed to take actions to correct them. The assets of many of them were predominantly in the form of landholdings or loans on developments, which depended on the continuing boom to retain their value. The Standard Statistics Company of New York warned in 1925 that
by far the larger portion of the purchases of lots and acreage throughout Florida represents speculation pure and simple, the prospective buyers planning neither to plant crops nor to build homes. Until the land reaches the hands of the “ultimate consumer”—the man who will utilize it for the purpose for which it is best adapted—these values will have no stability and will provide merely the basis for speculation [emphasis added].
Yet, as quickly as deposits poured into banks, they went out for real estate loans. It was an untenable situation for the long haul.
Newly elected governor John W. Martin, a Jacksonville lawyer who worked for several banks
, attended a public relations event in New York City in October 1925, along with some of the most prominent Florida promoters, such as Barron Collier, George E. Merrick and N.B.T. Roney and the president of the Florida State Chamber of Commerce, Herman Dann. The purpose of the meeting was to convince major newspaper and magazine publishers that the negative news about the Florida boom was deliberately being printed to cripple the state. The very idea that they could print that the boom was over was ludicrous indeed, since there had never been a boom in the first place. The argument advanced by the governor and the Florida attendees was that the economic activity that had produced the term was merely the market adjusting to the reality of the value of Florida land. What did not exist could not fail. This simple statement became the mantra for the promoters and officials of Florida. Frank P. Stockbridge and John H. Perry summed up the argument succinctly in the 1925 book Florida in the Making when they wrote, “The activity in Florida land, viewed as a whole, is not a ‘boom’ in the sense that prices generally have been inflated beyond actual present values. On the contrary, Florida property has been sold too cheaply!”
The Investment Bankers of America held its annual meeting in St. Petersburg in December 1925, just a few weeks after the governor’s New York event. The fabled “Sunshine City” in the Sunshine State was in the midst of a cold, rainy and gloomy season that dampened spirits and hardened hearts. Unable to enjoy the golf courses in the area or to swim and fish in the Gulf, the more than one thousand bankers, who controlled the bulk of the nation’s financial institutions, spent their time asking hard—and largely unanswered—questions about investments in Florida real estate that promised 6 percent per year. The failure of the state’s bankers, governmental officials and promoters to provide persuasive answers resulted in a vote of “no confidence” in future investments. Not even the argument that supply and demand would determine the ultimate value of any commodity such as land gained any traction. Although Florida had more than twenty-two million tillable acres as yet untouched by development—far in excess of demand—few of the bankers bought the argument that the abundance of undeveloped land meant that the prices being paid in Miami, Boca Raton, Coral Gables, Miami Beach and elsewhere were too cheap. Overall, the conference produced only added skepticism from the bankers and was little more than a black eye for the state.
Although some promoters, such as D.P. “Doc” Davis, established companies that used their own money to fund home construction, they were few and far between. Carl Fisher, who was independently wealthy and had little dependence on loans from banks, catered to a wealthy clientele who could fund their own construction. George Merrick borrowed heavily from banks and insurance companies but put the money to work making his Coral Gables project a reality. Barron Collier, another multimillionaire, invested millions of his own money in southwest Florida, using his personal fortune to underwrite his developments. As promoters went, these men were reasonably honest.
Addison Mizner and his brother Wilson, on the other hand, had little in the way of personal fortunes to undertake their Boca Raton development. With only his reputation and social contacts to go on, Addison nevertheless plunged into the business in a large way. High society’s darling, he was able to attract investors from some of the most storied names in the world of finance in the United States. Wilson Mizner, an admitted con man and a convicted felon, had a similar reputation among the glitterati of the American theatre and movie industries, the sports community and even the underworld. Together they made an appealing team, intent on claiming their share of the Florida dream. When they announced their newest development, Boca Raton, they watched as the rich, near rich and wannabes spent millions in opening day sales to claim the finest lots in the development. The biggest problem they had was in deciding whether their promotions were honest efforts to build an exclusive community for the wealthy or whether it was an elaborate con designed to separate them from their money. While Addison might have harbored dreams of creating a town that would be a living testament to his architectural skills, Wilson had no such illusions. Boca Raton, he said, was “a platinum sucker trap.” That summed up the Mizner brothers’ attitude toward Boca Raton.
The Mizner brothers started their Boca Raton development in mid-1925, late in the game. Using the factories he had purchased from Paris Singer as a base for his new company, the Mizner Development Corporation, Addison Mizner called on his society friends to invest in the company. Soon, he could count a long list of America’s wealthiest as stockholders in his company, headed by T. Coleman du Pont, former president of the giant chemical company of the same name and a sometime U.S. senator from Delaware. He became the figurehead chairman for the Boca Raton project, although he soon fell out with the Mizners over the extravagant claims they made about Boca Raton, particularly when one of the Mizner publicity agents, Harry Reichenbach, ran advertisements about a multimillion-dollar development program that didn’t exist. The ads contained a single line that urged investors to “attach this advertisement to your contract for deed. It becomes a part thereof,” which du Pont felt made him and the other directors of the Mizner Development Corporation potentially liable for any losses they might incur. It was more than he was willing to risk. He was getting out of the Boca Raton business.
“General T. Coleman du Pont was the man who killed the Florida boom,” wrote Alva Johnston in 1953. While he was an important public figure in promoting Mizner development, du Pont’s decision alone was not enough to stop the madness. He participated in Governor John Martin’s New York protest against negative publicity in mid-1925, so when he announced, “This thing [Boca Raton] is sure to fail with these people in charge,” his words sparked exits by other prominent investors. Wall Streeters Jesse Livermore and Matthew Brush, taking their cues from du Pont, also departed. Others followed.
More than $21 million in Boca Raton real estate contracts flowed into the coffers of the Mizner Development Corporation, but Addison Mizner spent lavishly, and by early 1926, the company was insolvent. Part of the problem was that buyers paid only a portion of the purchase price initially, and the remainder was to be paid in later installments. Construction of company buildings, infrastructure improvements and personal spending by the Mizner brothers had depleted the company’s treasury. Despite the defection of his most prominent backers, Addison Mizner plunged ahead.
Mizner found a temporary solution to his money woes when he and several partners acquired control of the Palm Beach National Bank, with deposits of approximately $300 million. By the end of the first quarter of 1926, deposits had grown to almost $450 million as investors put their cash into the bank instead of real estate. Raymond B. Vickers’s amazingly detailed book Panic in Paradise unlocks the intricacies of how “Mizner and his partners followed the money into the bank’s vault.” The bank became a subsidiary of the Mizner Development Corporation and financed the final months of the Boca boom. Through a complicated series of insider transactions, interlocking directorates, interest-free loans to federal and state politicians, unsecured loans to principals and regulators and a host of other unethical and often illegal business practices, Mizner and his associates drained every bit of liquidity from the bank.
The Mizner Development Corporation also had access to deposits in several state banks. By offering sweetheart deals to locally prominent bankers, Mizner gained control of these banks as well. Soon, every bank in Palm Beach and West Palm Beach was involved in sustaining the bankrupt Boca Raton development. The depositors in Palm Beach County were not the only unwilling and ignorant supporters of Addison Mizner’s grand schemes. Through the chain of two hundred interlocking banks created by James R. Anthony and Wesley D. Manley, depositors in Georgia, Florida, New York and New Jersey were at risk. The same unscrupulous—many outright fraudulent—practices allowed the Mizner group to use these financial resources as their personal piggy banks.
So much money in Palm Beach banks was tied up in Mizner’s Boca Raton project that even the slightest wobble in the fortun
es of his company could dramatically affect the stability of these financial institutions. When Guy C. Reed, a stockholder in the Mizner Development Corporation, filed a suit against it for engaging in fraudulent advertising while insolvent, the result was a run on the Commercial Bank and Trust Company of West Palm Beach. This bank, presided over by Thomas Cook, another stockholder in Mizner’s company, was unable to meet the demands of depositors seeking to withdraw their money because it had been looted by insiders. On June 28, 1926, the bank closed its doors permanently, and depositors lost all their money. The failure of the Commercial Bank triggered a statewide banking crisis.
On June 29, 1926, with nothing much left in the till, the Palm Beach National Bank closed its doors. It was just the beginning. A panic had set in, and depositors in every bank in Florida felt compelled to see to the safety of their money. The Manley-Anthony chain banks, which had appeared to be so solid and had underwritten millions of real estate loans, were next to collapse. Within two weeks, eighty-three banks in Georgia, the chain’s home base, failed. Because of the interstate connections between banks, the failures in Georgia created a new round of failures in Florida.
In October 1926, Edward C. Romfh, mayor of Miami and president of the First National Bank in that city, penned a commentary on Miami banks that appeared in the American Motorist magazine. “There have been some failures of small banks through the State,” he wrote, “due for the most part to their connection with a chain banking system. In a great many instances these failures are being replaced by new organizations of sound capital structure, which is in line with the general trend toward stabilization.” By the end of 1926, over 150 banks in both states had locked their doors.