July 29, 2025 • 24 mins
In 1885, Florida was nothing but swamps and mosquitoes. By 1915, it was America's winter playground. One man made that transformation happen: Henry Flagler.
This is the story of the most audacious real estate development project in American history - how a 55-year-old Standard Oil co-founder spent $100 million building a 400-mile railroad through impossible terrain to create an entire state's economy.
In this episode, you'll discover:
- How Flagler used vertical integration to control every piece of the value chain
- Why he built luxury hotels as "marketing" for land development
- The engineering marvel of his Key West railroad extension over 128 miles of ocean
- How one man created the $100 billion Florida tourism industry from nothing
- Modern parallels to Disney, Musk, and Amazon's infrastructure strategies
Key Lessons:
- Infrastructure creates land value, not the other way around
- Think in decades, not years, for generational wealth
- Create markets instead of competing in existing ones
- Vertical integration amplifies returns across the entire value chain
Whether you're a real estate investor, entrepreneur, or student of business history, Flagler's story reveals timeless principles about vision, patience, and the power of thinking impossibly big.
Think Well. Act Wisely. Build Something Timeless.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_00 (00:00):
Welcome back to the Timeless Investor Show.
I'm Ari Van Gemeren, real estatefund manager, student of
history, and your host today.
The year is 1885, and you'relooking at a map of Florida.
South of Jacksonville, there'sbasically nothing.
No cities, no hotels, no beacheslined with tourists, just
(00:22):
endless swampland, alligators,and mosquitoes.
maybe a little bit of malariathrown on top.
The few people crazy enough tolive there are mostly farmers
struggling to grow oranges.
But fast forward 30 years to1915.
That same swampland has becomeAmerica's winter playground.
(00:43):
Luxury hotels dot the coast.
Trains carry wealthy touristsfrom New York to Key West.
Palm Beach is the winter capitalfor America's richest families.
Miami is a booming city.
How did that happen?
Well, it's rare, but sometimesin history it strikes.
One man happened.
(01:04):
Henry Morrison Flagler.
Today we're going to talk aboutthe most audacious real estate
development project in Americanhistory.
How a 55-year-old oilmillionaire looked at a
mosquito-infested peninsula anddecided to build the railroad to
paradise.
(01:24):
This isn't just a story abouttrains and hotels.
This is a story about creatingvalue for nothing, using
infrastructure to unlock land,and thinking so far ahead that
people call you crazy.
Because here's the thing aboutFlagler and why he's such an
incredible person to explore onthe Timeless Investor Show.
(01:45):
He wasn't just a real estatedeveloper.
He created entire markets thatdidn't previously exist.
This is the Timeless InvestorShow.
Let's dive in.
Before we get to Florida, weneed to understand where Flagler
got the money to build arailroad through a swamp.
Henry Flagler wasn't born rich.
(02:06):
He grew up in a small town inupstate New York.
His father was a Presbyterianminister who didn't make very
much money.
But Flagler had something morevaluable than inherited wealth.
He had the ability to seeopportunities that others might
miss or often missed.
And so in 1867, when he was 37years old, Flagler formed a
(02:27):
partnership with a youngbusinessman named John D.
Rockefeller.
They were building what wouldbecome known as Standard Oil.
Now, I want to stop a second onmy story and just highlight, I'm
38.
It makes me feel great to hearthat this gentleman got started
at 37.
When I learned that and theresearch to this story, it's
just inspiring.
(02:47):
I feel like today we have somany 22-year-old founders that
are worth billions, and we thinkif we're 32, we're too late to
the game.
It is never too late to get intothe game.
Flagler was 37.
He was 37.
And many of you knowRockefeller's name, right?
But most people don't realizethat Flagler was essentially the
co-founder of Standard Oil.
(03:08):
He brought the businessstrategy, the financing, and the
railroad connections that madethe whole thing work.
And Standard Oil became the mostprofitable company in American
history up to that point.
And Flagler owned quite a bit ofit.
So by 1881, when he was 51 yearsold, Flagler was one of the
wealthiest men in America.
He could have retired.
(03:28):
He could have bought a yacht.
and spend his days playing golfand relaxing.
But instead, he decided to builda railroad to nowhere.
So here's how it got started.
In 1878, Flagler's first wifewas suffering from health
problems.
Their doctor recommended a warmclimate, so they went to Florida
for the winter.
This was not an easy trip at thetime.
(03:50):
You had to take a train toSavannah, Georgia, and then a
steamboat to Jacksonville,Florida.
And from Jacksonville, if youwanted to go anywhere else in
Florida, you were basically onyour own.
So when Flagler got toJacksonville, he was appalled by
what he found.
The hotels were terrible.
The transportation was worse.
The whole place felt like thefrontier, not like a destination
(04:12):
for wealthy tourists.
But Flagler saw something elsethere.
He saw potential.
Florida had perfect winter,excuse me, perfect weather in
the winter when the rest ofAmerica was freezing.
It had beautiful beaches.
It had land that was basicallyfree because nobody wanted it.
The only thing Florida reallylacked was infrastructure.
(04:32):
And Flagler knew how to buildinfrastructure.
So most of us in this situationprobably would have thought
about like, oh, let me build ahotel.
Let me think about maybe buyingsome land and developing a
resort.
But Flagler thought bigger, muchbigger.
He realized that the opportunitywasn't just in Florida real
(04:54):
estate.
The opportunity was in creatingthe entire system that would
make Florida real estatevaluable.
Think about it this way.
What good is owning beachfrontproperty if nobody can get to
your property?
Like maybe you have it, you andyour family can enjoy it when
you get there.
But like if you're trying tomake money, what's the benefit?
Flagler's insight was that heneeded to control the entire
(05:15):
customer experience from NewYork to Key West.
The transportation, theaccommodations, the
destinations.
So he developed what we wouldcall today a vertically
integrated strategy.
First, build a railroad to bringpeople to Florida.
Second, build luxury hotels togive them somewhere to stay.
Third, buy up land along therailroad route before anyone
(05:36):
else realizes what's happening.
And lastly, develop that landinto cities and resorts.
And it was brilliant.
Every piece of the strategyreinforced every other piece.
The railroad made the landvaluable.
The hotels created demand forthe railroad.
The land development generatedpassengers for both the railroad
So in 1885, Flagler startedconstruction on what he called
(06:00):
the Florida East Coast Railway.
People thought he was insane.
The route he planned would rundown the entire east coast of
Florida through swampland overrivers and eventually come
across the ocean to Key West.
Engineers told him it couldn'tbe built.
Investors told him it wouldnever make money.
Local newspapers called itFlagler's Folly.
(06:20):
I think in general, if anyonecalls something their name plus
folly, you should go for it.
Seward's Folly, we acquired theentire state of Alaska for
nothing, right?
Nothing.
How much gold and oil did wereceive from that?
Newspapers and people love topoo-poo innovative and
interesting projects.
It's probably our favoritepastime.
But Flagler didn't care.
(06:42):
He had enough money fromStandard Oil to fund the entire
project himself, if necessary.
And the construction was brutal.
I mean, think about it.
Workers had to drain swamps,they had to build bridges across
rivers, and they had to laytrack through areas where
literally no, I don't wanna sayno human had set foot before,
because the native tribesobviously had set foot there,
but where no Northern Americanshad set foot before, white
(07:08):
people, for lack of a shorterterm, sorry, had set foot
before.
The workers had to deal withalligators, snakes, hurricanes,
and diseases like malaria andyellow fever, Hundreds of
workers died during theconstruction, but Flagler kept
pushing south.
Every time the railroad reacheda new town, land values in that
town would multiply overnight.
(07:29):
What Flagler figured out wasthat every mile of railroad he
built made the land around itmore valuable.
So it wasn't really in therailroad business.
He was using the railroad tocreate valuable real estate.
As the railroad progressed,Flagler built a series of
increasingly elaborate hotels.
Flagler built hotels that weremore like attractions than
places to stay.
(07:50):
The Ponce de Leon Hotel in St.
Augustine, completed in 1888,was called the most beautiful
hotel in America.
It had electric lights and mostof America was still using gas.
It had steam heat, modernplumbing, and a staff of
hundreds.
The Royal Ponceana Hotel in PalmBeach was even grander.
When it opened in 1894, it wasthe largest wooden structure in
(08:13):
the world.
It could accommodate 1,750guests and employed over 1,400
staff members.
But here's what made Flaglerdifferent.
He wasn't trying to make moneyon the hotels himself.
The hotels were marketing.
They were there to convincewealthy Americans that Florida
was a sophisticated destination.
Not a wilderness.
(08:34):
And so once people startedcoming to Florida for the
hotels, they started buyingland.
And Flagler owned most of theland for sale.
Not to mention the fact thatevery hotel he put together had
thousands of people working onit that also needed somewhere to
live.
And Flagler controlled the land.
So as Flagler's railroad pushedsouth, he essentially created
cities along the route.
Palm Beach didn't exist beforeFlagler.
(08:55):
He built the town from scratchas a resort community for
America's wealthiest families.
Fort Lauderdale was a tinytrading post before the railroad
arrived.
Flagler developed it into aproper, proper city.
Miami was a settlement of about300 people when Flagler's
railroad reached it in 1896.
Within a decade, it had become amajor city.
This is something, by the way,that would be almost impossible
(09:18):
today to create entire citiesfrom nothing.
But in Flagler's time, if youcontrolled the transportation,
you could literally decide wherecities would grow.
And Flagler was smart about howhe did it.
He didn't just plop down arailroad station and hope for
the best.
He would buy up large tracts ofland around where the station
would be built.
Then he would develop the landthoughtfully, laying out
streets, buildinginfrastructure, creating parks
(09:40):
and commercial districts.
He was essentially doing masterplan community development on a
massive scale.
It reminds me a little bit of,you know, when you have a rural
town that's near a freeway andthen for whatever reason, the
government decides to reroutethe freeway and the town dies or
the the railroad decides toreroute the railroad and the
town dies.
(10:00):
And like, you know, there'slike, it's a movie trope.
You see it all the time.
What's unique about this is thatFlagler controlled the railroad
that gave the value to the land.
So he's willing to invest in therailroad, but he had a
completely vertically integratedstructure to profit on every
single piece of the thing.
So this is, this is I think oneof the more, Interesting parts
(10:21):
of the story, which is the KeyWest extension.
So by 1905, Flagler's railroadhad reached Miami.
And honestly, I think mostpeople would have probably
stopped at that point.
You traverse the entire state.
But Flagler was 75 years old andworth hundreds of millions of
dollars.
He could have declared victoryand enjoyed his success.
Instead, he announced his mostambitious project yet, extending
(10:43):
the railroad across the water toKey West.
This was engineering on a scalethat had never been attempted.
The railroad would have to cross128 miles of open ocean,
connecting a series of smallislands with bridges and
causeways.
And everybody told him it wasimpossible.
The engineering challenges wereenormous.
The cost would be astronomical.
(11:04):
And Key West was just a smallfishing village.
Who would even want to go there?
But Flagler had a differentvision.
He understood that Key West wasonly 90 miles from Cuba.
If you could get a railroad toKey West, you could connect it
to steamship lines to Havana.
And suddenly, you have a directtransportation link from New
York to Cuba.
In an era when America wasbecoming interested in Caribbean
(11:26):
trade, this would also beincredibly valuable.
So construction began in 1905.
It took seven years and costover$50 million, approximately
$1.5 billion in today's money.
The engineering was miraculous.
Workers built massive concreteviaducts across the water.
They survived multiplehurricanes, including one that
killed over 400 people.
(11:47):
And when the first train reachedKey West in 1912, newspapers
called it the eighth wonder ofthe world.
Long stretch from Flagler'sFolly.
Flagler at this point was 82years old.
He had spent the last 27 yearsof his life building a railroad
through a swamp to a fishingvillage that most Americans had
never heard of.
(12:08):
And one year later, He was dead.
This project was his magnumopus.
He triumphed at a scale mostpeople could never even dream
of, and he basically built thestate of Florida.
So let me break down whatFlagler actually accomplished
from a business perspective,because this is one of, I think,
(12:29):
the most brilliant real estatestrategies in history.
Flagler understood somethingthat many developers probably
intuitively understand, but It'sprogressively more difficult as
time gets on.
But land by itself isn't worththat much.
What makes land valuable ishaving access to it.
So before the railroad, Floridaland was basically worthless.
(12:50):
After his railroad, the sameland was worth hundreds or
thousands of times more.
But here's the key.
And this is the key that I'vebeen harping on a lot in
writing, in our podcasting, andevery single thing I work on.
Flagler didn't just buildinfrastructure and hope someone
else would benefit.
He controlled every piece of thevalue chain.
He was vertically integrated inthe best possible way.
(13:13):
He owned the railroad thatbrought people to Florida.
He owned the hotels where theystayed.
He owned the land they fell inlove with.
He owned the developmentcompanies and sold them lots.
So when wealthy New Yorkers cameto Florida and decided they
wanted to build winter homes,they had to buy land from
Flagler's companies.
transport materials on Flagler'srailroads, and often stayed at
Flagler's hotels while theirhomes were being built.
(13:34):
It was a perfectly integratedbusiness model.
Now, what made Flagler differentfrom other developers was his
timeline.
Most developers wanted quickreturns.
Flagler was planning projectsthat would take decades to pay
off.
Most real estate developers wantto buy land, develop it quickly,
and sell it for a profit.
Flagler was willing to spenddecades building infrastructure
(13:56):
before he saw significantreturns.
He understood that if you'recreating an entirely new market,
you do have to be patient.
Now to play devil's advocatewith this point, most of us are
not co-founders of Standard Oil,don't have infinite capital, and
the ability to build all of theinfrastructure that leads to a
project.
But there are developers, and wewill cover them in future
(14:18):
episodes, who did understandFlagler's lesson.
one way or the other, and theyutilized it to bring the
infrastructure to do the work,to ally with the city, with
municipalities, to do what theyhad to do.
Flagler took tremendous risk toachieve this strategy, but he
also had tremendous wealth tostart.
So there's some aspects of thestory that are a little more
(14:39):
difficult for your averageinvestor getting started today
to really deploy in their ownstrategy.
But I still think there's a lotof stuff to take away from it.
So Flagler's strategy to thispoint has been repeated many
times since, but rarely on sucha grand scale.
Walt Disney did somethingsimilar when he bought Disney
(15:00):
World in Orlando.
He bought up thousands of acresof swampland in secret, and then
he built the infrastructure tomake that land incredibly
valuable.
I would argue Elon Musk is doingsomething similar with his
various companies.
Tesla's gigafactories arelocated in places where Musk
also owns large amounts of land.
The boring company buildstunnels that just happen to
connect to properties that Muskis involved with.
(15:21):
In real estate developmenttoday, the most successful
developers, in my opinion,understand Flagler's core
insight.
You don't just develop the land,you develop the infrastructure
that makes the land valuable.
For example, when Amazon choosesa location for a new
headquarters, they're not justthinking about operating costs.
They're thinking about how theirpresence will affect local real
estate values.
(15:41):
And when tech companies buildcampuses in areas like Austin or
Nashville, they're not justlooking for talent.
They're creating the conditionsthat will make their real estate
investments more valuable overtime.
And they can control the inputsthat make these things more
valuable.
You know, another great exampleI always loved is the story
about the development of themeatpacking district, right?
I mean, the meatpacking districtin Manhattan was valuable real
(16:05):
estate, I guess, if you lookthrough time and history.
But at the time that it wasbeing developed, you know, and I
can't remember the name of thedeveloper off the top of my
head, but one thoughtfuldeveloper started in secret
buying up plots of land And thenhelped put together a huge
project at the center of themeatpacking district that
basically massively catalyzedthe value of the land all around
(16:28):
it.
So it's a unique and valuablestrategy.
What I think the approaches Isee a lot of developers do today
is so-and-so city's growing.
I'm going to build an apartmentcomplex in the middle of it.
I mean, it works, right?
It works.
We don't do it that way.
That's not our investingstrategy, but it does work.
But it's not the way to liketremendous wealth the way these
(16:49):
guys took it on.
But That's because people don'thave the risk appetite.
So let's talk about Flagler'srisks.
Let's talk about what he took onbecause they were enormous.
Flagler spent...
roughly$100 million of his ownmoney on Florida development.
That's about$3 billion intoday's money.
And for most of that time, therewas no guarantee that people
would actually want to come toFlorida.
(17:11):
Tourism to warm climates wasn'treally an established thing yet.
Air conditioning didn't exist.
So most people assumed that warmclimates were automatically
unhealthy.
The engineering challenges weremassive.
Nobody had ever built a railroadthrough the Everglades or across
open ocean.
Hurricanes, diseases, economicpanics, any of these could have
(17:31):
destroyed the entire project.
So Flagler was betting not justhis money, but his reputation
and his legacy.
But the rewards wereproportional to the risks.
By the time Flagler died in1913, his Florida investments
were worth far more than he hadspent on them.
The towns he had created werethriving.
The land he had bought forpennies an acre was selling for
hundreds of dollars an acre.
(17:52):
And more importantly, heliterally created an entirely
new industry.
Florida tourism that wouldgenerate billions of dollars in
economic activity for the nextcentury and never stop.
So what did he get right?
Let me break down the keyprinciples that made this
strategy click.
First, he understoodinfrastructure value.
Most people see infrastructureas a cost.
I think Flagler saw it as acompetitive advantage.
(18:15):
Second, he thought in decades,not years, this is something we
talk about a lot on the TimelessInvestor Show.
Flagler was willing to spend 30years building something before
he expected major returns.
That kind of patience isextremely rare, but it often
separates great investors fromgood ones.
Third, he controlled the entirevalue chain.
Talked about it ad nauseum.
I won't dig into it more, butthis is very important.
(18:38):
Fourth, he created marketsinstead of just participating in
them.
So like I said before, manydevelopers will just build build
buildings in the middle of agrowing city.
But Flagler was adept atcreating the demand where none
had existed before.
And lastly, he wasn't afraid tobe early.
Flagler started building inFlorida when most people thought
it was uninhabitable.
(19:00):
Being early allowed him to buyland cheaply and position
himself perfectly for whendemand eventually materialized.
I want to say one thing on thisnote as well.
Ego and pride and not wanting tobe embarrassed are reasons that
people don't take on risk.
There's money risk and there'sreputational risk.
Now, you cannot survive goingbankrupt on money, but you can
(19:25):
survive to an extent.
You can survive reputationalrisk.
Flagler was a man that doesn'tseem to me in the reading of his
history to have caredparticularly much about
reputational risk.
For example, his second wifebegan to exhibit severe mental
health issues And at some pointwhen he was in, I believe in his
(19:46):
early 70s, he divorced her andmarried his 31-year-old
secretary, which was incrediblyscandalous.
And I am not saying this to saybravo for him.
He took a bold stand.
I'm not saying that at all.
What I'm saying is he waswilling to take the reputational
blowback.
He didn't care.
So not caring.
(20:07):
not being too affected by whatpeople think about you, not
being too affected by thenewspaper.
They called it Flagler's folly.
Many of us would have wilted atthat.
I know I might have, right?
I mean, like, you know, socialridicule and scorn is really
difficult to deal with.
I don't know that this is true,but from the reading of the
story, from understanding whathe's done, his ability to
(20:29):
withstand public scrutiny andReputational risk and ridicule
were at a very high level.
There's something we can learnfrom that.
So that's the first thing I wantus to take away from stories
that matter today.
The second piece of it from whatwe can learn from this story is
that infrastructure stillcreates value, but we might be
talking about broadbandinternet, electric vehicle
(20:50):
charging stations,transit-oriented development,
thoughtful deployment of solarpanel arrays and new product or
even old product, it allmatters.
Second of all, integration stillmatters tremendously.
I have come to believe that themost successful real estate
companies today are not justinvestors in real estate.
They control various parts ofthe value chain.
(21:13):
And I just think it's incrediblyimportant.
Thirdly, patience still paysoff.
In this era, we have instantgratification, social media.
It's easy to forget that thebiggest real estate fortunes in
history were built over decades,not a three to five year span.
Creating markets is moreprofitable than competing in
(21:34):
existing markets.
Totally true.
Hard to execute in reality.
And I think the risk is probablybeyond most of our ability to do
so.
But if you can find somewhere,if you're a developer and you
can find somewhere where you cancreate the conditions for future
demand, it can be worth goingafter it.
So look, Flagler died in 1913,just one year after his railroad
(21:57):
reached Key West.
He was 83 years old and hadspent almost 30 years building
his Florida empire.
In a cruel irony, the railroadto Key West, his greatest
engineering achievement, wasactually destroyed by a
hurricane in 1935.
The state of Florida bought theright-of-way and converted it
into a highway, which became thefamous overseas highway that
still connects to Florida Keystoday.
(22:18):
But Flagler's real legacy wasn'this railroads.
It was the transformation ofFlorida from a wilderness into a
destination.
Today, Florida is the third mostpopulous state in America.
Tourism is a$100 billionindustry.
Real estate development is oneof the state's large economic
sectors.
None of that would have happenedwithout Henry Flagler's vision
and willingness to spend decadesbuilding infrastructure that
(22:41):
nobody else thought wasimportant.
So Henry Flagler teaches us thatthe biggest real estate fortunes
can and do often come fromcreating value, not just
capturing it.
Anyone can buy land where demandalready exists, but creating
demand where none existedbefore, that is one of the
places that genuine generationalwealth can be built.
Flagler looked at a swamp and hesaw paradise.
(23:04):
He looked at transportationproblems and he saw business
opportunities.
He looked at infrastructurecosts and saw competitive
advantages.
Most importantly, He was willingto spend decades building
something that other people saidwas impossible and willing to do
it with his own money.
That kind of vision, patienceand execution is rare.
But when it works, it transformsnot just the investor's wealth,
(23:25):
but it can transform entireregions and industries.
As modern real estate investorsand timeless investors, we can't
all build railroads acrossoceans, but we can learn to see
opportunities where others seeproblems.
We can learn to think in decadesinstead of years.
We can learn that sometimes thebest investments are the ones
that everybody else thinks arecrazy.
(23:46):
Next week, we're going toexplore another fascinating
chapter in American real estatehistory.
how John D.
Rockefeller used standard oilprofits to build a real estate
empire that his family stillbenefits from today.
Until then, remember, thinkwell, act wisely, build
something timeless.
Thank you for listening to theTimeless Investor Show.
(24:07):
If you enjoyed this episode,please share it with someone who
appreciates ambitious thinkingand long-term vision.
And if you haven't already,please subscribe to the Timeless
Investor Newsletter where weexplore these themes in even
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Lastly, if you don't mindleaving a review for the show on
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It would be tremendouslyhelpful.
It helps the show to grow and ithelps us to reach a broader
(24:29):
audience.
I'm Ari Van Gemeren and I'll seeyou next week.
Thank you for being here.
Welcome back to the Timeless Investor Show.
I'm Ari Van Gemeren, real estatefund manager, student of
history, and your host today.
The year is 1885, and you'relooking at a map of Florida.
South of Jacksonville, there'sbasically nothing.
No cities, no hotels, no beacheslined with tourists, just
(00:22):
endless swampland, alligators,and mosquitoes.
maybe a little bit of malariathrown on top.
The few people crazy enough tolive there are mostly farmers
struggling to grow oranges.
But fast forward 30 years to1915.
That same swampland has becomeAmerica's winter playground.
(00:43):
Luxury hotels dot the coast.
Trains carry wealthy touristsfrom New York to Key West.
Palm Beach is the winter capitalfor America's richest families.
Miami is a booming city.
How did that happen?
Well, it's rare, but sometimesin history it strikes.
One man happened.
(01:04):
Henry Morrison Flagler.
Today we're going to talk aboutthe most audacious real estate
development project in Americanhistory.
How a 55-year-old oilmillionaire looked at a
mosquito-infested peninsula anddecided to build the railroad to
paradise.
(01:24):
This isn't just a story abouttrains and hotels.
This is a story about creatingvalue for nothing, using
infrastructure to unlock land,and thinking so far ahead that
people call you crazy.
Because here's the thing aboutFlagler and why he's such an
incredible person to explore onthe Timeless Investor Show.
(01:45):
He wasn't just a real estatedeveloper.
He created entire markets thatdidn't previously exist.
This is the Timeless InvestorShow.
Let's dive in.
Before we get to Florida, weneed to understand where Flagler
got the money to build arailroad through a swamp.
Henry Flagler wasn't born rich.
(02:06):
He grew up in a small town inupstate New York.
His father was a Presbyterianminister who didn't make very
much money.
But Flagler had something morevaluable than inherited wealth.
He had the ability to seeopportunities that others might
miss or often missed.
And so in 1867, when he was 37years old, Flagler formed a
(02:27):
partnership with a youngbusinessman named John D.
Rockefeller.
They were building what wouldbecome known as Standard Oil.
Now, I want to stop a second onmy story and just highlight, I'm
38.
It makes me feel great to hearthat this gentleman got started
at 37.
When I learned that and theresearch to this story, it's
just inspiring.
(02:47):
I feel like today we have somany 22-year-old founders that
are worth billions, and we thinkif we're 32, we're too late to
the game.
It is never too late to get intothe game.
Flagler was 37.
He was 37.
And many of you knowRockefeller's name, right?
But most people don't realizethat Flagler was essentially the
co-founder of Standard Oil.
(03:08):
He brought the businessstrategy, the financing, and the
railroad connections that madethe whole thing work.
And Standard Oil became the mostprofitable company in American
history up to that point.
And Flagler owned quite a bit ofit.
So by 1881, when he was 51 yearsold, Flagler was one of the
wealthiest men in America.
He could have retired.
(03:28):
He could have bought a yacht.
and spend his days playing golfand relaxing.
But instead, he decided to builda railroad to nowhere.
So here's how it got started.
In 1878, Flagler's first wifewas suffering from health
problems.
Their doctor recommended a warmclimate, so they went to Florida
for the winter.
This was not an easy trip at thetime.
(03:50):
You had to take a train toSavannah, Georgia, and then a
steamboat to Jacksonville,Florida.
And from Jacksonville, if youwanted to go anywhere else in
Florida, you were basically onyour own.
So when Flagler got toJacksonville, he was appalled by
what he found.
The hotels were terrible.
The transportation was worse.
The whole place felt like thefrontier, not like a destination
(04:12):
for wealthy tourists.
But Flagler saw something elsethere.
He saw potential.
Florida had perfect winter,excuse me, perfect weather in
the winter when the rest ofAmerica was freezing.
It had beautiful beaches.
It had land that was basicallyfree because nobody wanted it.
The only thing Florida reallylacked was infrastructure.
(04:32):
And Flagler knew how to buildinfrastructure.
So most of us in this situationprobably would have thought
about like, oh, let me build ahotel.
Let me think about maybe buyingsome land and developing a
resort.
But Flagler thought bigger, muchbigger.
He realized that the opportunitywasn't just in Florida real
(04:54):
estate.
The opportunity was in creatingthe entire system that would
make Florida real estatevaluable.
Think about it this way.
What good is owning beachfrontproperty if nobody can get to
your property?
Like maybe you have it, you andyour family can enjoy it when
you get there.
But like if you're trying tomake money, what's the benefit?
Flagler's insight was that heneeded to control the entire
(05:15):
customer experience from NewYork to Key West.
The transportation, theaccommodations, the
destinations.
So he developed what we wouldcall today a vertically
integrated strategy.
First, build a railroad to bringpeople to Florida.
Second, build luxury hotels togive them somewhere to stay.
Third, buy up land along therailroad route before anyone
(05:36):
else realizes what's happening.
And lastly, develop that landinto cities and resorts.
And it was brilliant.
Every piece of the strategyreinforced every other piece.
The railroad made the landvaluable.
The hotels created demand forthe railroad.
The land development generatedpassengers for both the railroad
So in 1885, Flagler startedconstruction on what he called
(06:00):
the Florida East Coast Railway.
People thought he was insane.
The route he planned would rundown the entire east coast of
Florida through swampland overrivers and eventually come
across the ocean to Key West.
Engineers told him it couldn'tbe built.
Investors told him it wouldnever make money.
Local newspapers called itFlagler's Folly.
(06:20):
I think in general, if anyonecalls something their name plus
folly, you should go for it.
Seward's Folly, we acquired theentire state of Alaska for
nothing, right?
Nothing.
How much gold and oil did wereceive from that?
Newspapers and people love topoo-poo innovative and
interesting projects.
It's probably our favoritepastime.
But Flagler didn't care.
(06:42):
He had enough money fromStandard Oil to fund the entire
project himself, if necessary.
And the construction was brutal.
I mean, think about it.
Workers had to drain swamps,they had to build bridges across
rivers, and they had to laytrack through areas where
literally no, I don't wanna sayno human had set foot before,
because the native tribesobviously had set foot there,
but where no Northern Americanshad set foot before, white
(07:08):
people, for lack of a shorterterm, sorry, had set foot
before.
The workers had to deal withalligators, snakes, hurricanes,
and diseases like malaria andyellow fever, Hundreds of
workers died during theconstruction, but Flagler kept
pushing south.
Every time the railroad reacheda new town, land values in that
town would multiply overnight.
(07:29):
What Flagler figured out wasthat every mile of railroad he
built made the land around itmore valuable.
So it wasn't really in therailroad business.
He was using the railroad tocreate valuable real estate.
As the railroad progressed,Flagler built a series of
increasingly elaborate hotels.
Flagler built hotels that weremore like attractions than
places to stay.
(07:50):
The Ponce de Leon Hotel in St.
Augustine, completed in 1888,was called the most beautiful
hotel in America.
It had electric lights and mostof America was still using gas.
It had steam heat, modernplumbing, and a staff of
hundreds.
The Royal Ponceana Hotel in PalmBeach was even grander.
When it opened in 1894, it wasthe largest wooden structure in
(08:13):
the world.
It could accommodate 1,750guests and employed over 1,400
staff members.
But here's what made Flaglerdifferent.
He wasn't trying to make moneyon the hotels himself.
The hotels were marketing.
They were there to convincewealthy Americans that Florida
was a sophisticated destination.
Not a wilderness.
(08:34):
And so once people startedcoming to Florida for the
hotels, they started buyingland.
And Flagler owned most of theland for sale.
Not to mention the fact thatevery hotel he put together had
thousands of people working onit that also needed somewhere to
live.
And Flagler controlled the land.
So as Flagler's railroad pushedsouth, he essentially created
cities along the route.
Palm Beach didn't exist beforeFlagler.
(08:55):
He built the town from scratchas a resort community for
America's wealthiest families.
Fort Lauderdale was a tinytrading post before the railroad
arrived.
Flagler developed it into aproper, proper city.
Miami was a settlement of about300 people when Flagler's
railroad reached it in 1896.
Within a decade, it had become amajor city.
This is something, by the way,that would be almost impossible
(09:18):
today to create entire citiesfrom nothing.
But in Flagler's time, if youcontrolled the transportation,
you could literally decide wherecities would grow.
And Flagler was smart about howhe did it.
He didn't just plop down arailroad station and hope for
the best.
He would buy up large tracts ofland around where the station
would be built.
Then he would develop the landthoughtfully, laying out
streets, buildinginfrastructure, creating parks
(09:40):
and commercial districts.
He was essentially doing masterplan community development on a
massive scale.
It reminds me a little bit of,you know, when you have a rural
town that's near a freeway andthen for whatever reason, the
government decides to reroutethe freeway and the town dies or
the the railroad decides toreroute the railroad and the
town dies.
(10:00):
And like, you know, there'slike, it's a movie trope.
You see it all the time.
What's unique about this is thatFlagler controlled the railroad
that gave the value to the land.
So he's willing to invest in therailroad, but he had a
completely vertically integratedstructure to profit on every
single piece of the thing.
So this is, this is I think oneof the more, Interesting parts
(10:21):
of the story, which is the KeyWest extension.
So by 1905, Flagler's railroadhad reached Miami.
And honestly, I think mostpeople would have probably
stopped at that point.
You traverse the entire state.
But Flagler was 75 years old andworth hundreds of millions of
dollars.
He could have declared victoryand enjoyed his success.
Instead, he announced his mostambitious project yet, extending
(10:43):
the railroad across the water toKey West.
This was engineering on a scalethat had never been attempted.
The railroad would have to cross128 miles of open ocean,
connecting a series of smallislands with bridges and
causeways.
And everybody told him it wasimpossible.
The engineering challenges wereenormous.
The cost would be astronomical.
(11:04):
And Key West was just a smallfishing village.
Who would even want to go there?
But Flagler had a differentvision.
He understood that Key West wasonly 90 miles from Cuba.
If you could get a railroad toKey West, you could connect it
to steamship lines to Havana.
And suddenly, you have a directtransportation link from New
York to Cuba.
In an era when America wasbecoming interested in Caribbean
(11:26):
trade, this would also beincredibly valuable.
So construction began in 1905.
It took seven years and costover$50 million, approximately
$1.5 billion in today's money.
The engineering was miraculous.
Workers built massive concreteviaducts across the water.
They survived multiplehurricanes, including one that
killed over 400 people.
(11:47):
And when the first train reachedKey West in 1912, newspapers
called it the eighth wonder ofthe world.
Long stretch from Flagler'sFolly.
Flagler at this point was 82years old.
He had spent the last 27 yearsof his life building a railroad
through a swamp to a fishingvillage that most Americans had
never heard of.
(12:08):
And one year later, He was dead.
This project was his magnumopus.
He triumphed at a scale mostpeople could never even dream
of, and he basically built thestate of Florida.
So let me break down whatFlagler actually accomplished
from a business perspective,because this is one of, I think,
(12:29):
the most brilliant real estatestrategies in history.
Flagler understood somethingthat many developers probably
intuitively understand, but It'sprogressively more difficult as
time gets on.
But land by itself isn't worththat much.
What makes land valuable ishaving access to it.
So before the railroad, Floridaland was basically worthless.
(12:50):
After his railroad, the sameland was worth hundreds or
thousands of times more.
But here's the key.
And this is the key that I'vebeen harping on a lot in
writing, in our podcasting, andevery single thing I work on.
Flagler didn't just buildinfrastructure and hope someone
else would benefit.
He controlled every piece of thevalue chain.
He was vertically integrated inthe best possible way.
(13:13):
He owned the railroad thatbrought people to Florida.
He owned the hotels where theystayed.
He owned the land they fell inlove with.
He owned the developmentcompanies and sold them lots.
So when wealthy New Yorkers cameto Florida and decided they
wanted to build winter homes,they had to buy land from
Flagler's companies.
transport materials on Flagler'srailroads, and often stayed at
Flagler's hotels while theirhomes were being built.
(13:34):
It was a perfectly integratedbusiness model.
Now, what made Flagler differentfrom other developers was his
timeline.
Most developers wanted quickreturns.
Flagler was planning projectsthat would take decades to pay
off.
Most real estate developers wantto buy land, develop it quickly,
and sell it for a profit.
Flagler was willing to spenddecades building infrastructure
(13:56):
before he saw significantreturns.
He understood that if you'recreating an entirely new market,
you do have to be patient.
Now to play devil's advocatewith this point, most of us are
not co-founders of Standard Oil,don't have infinite capital, and
the ability to build all of theinfrastructure that leads to a
project.
But there are developers, and wewill cover them in future
(14:18):
episodes, who did understandFlagler's lesson.
one way or the other, and theyutilized it to bring the
infrastructure to do the work,to ally with the city, with
municipalities, to do what theyhad to do.
Flagler took tremendous risk toachieve this strategy, but he
also had tremendous wealth tostart.
So there's some aspects of thestory that are a little more
(14:39):
difficult for your averageinvestor getting started today
to really deploy in their ownstrategy.
But I still think there's a lotof stuff to take away from it.
So Flagler's strategy to thispoint has been repeated many
times since, but rarely on sucha grand scale.
Walt Disney did somethingsimilar when he bought Disney
(15:00):
World in Orlando.
He bought up thousands of acresof swampland in secret, and then
he built the infrastructure tomake that land incredibly
valuable.
I would argue Elon Musk is doingsomething similar with his
various companies.
Tesla's gigafactories arelocated in places where Musk
also owns large amounts of land.
The boring company buildstunnels that just happen to
connect to properties that Muskis involved with.
(15:21):
In real estate developmenttoday, the most successful
developers, in my opinion,understand Flagler's core
insight.
You don't just develop the land,you develop the infrastructure
that makes the land valuable.
For example, when Amazon choosesa location for a new
headquarters, they're not justthinking about operating costs.
They're thinking about how theirpresence will affect local real
estate values.
(15:41):
And when tech companies buildcampuses in areas like Austin or
Nashville, they're not justlooking for talent.
They're creating the conditionsthat will make their real estate
investments more valuable overtime.
And they can control the inputsthat make these things more
valuable.
You know, another great exampleI always loved is the story
about the development of themeatpacking district, right?
I mean, the meatpacking districtin Manhattan was valuable real
(16:05):
estate, I guess, if you lookthrough time and history.
But at the time that it wasbeing developed, you know, and I
can't remember the name of thedeveloper off the top of my
head, but one thoughtfuldeveloper started in secret
buying up plots of land And thenhelped put together a huge
project at the center of themeatpacking district that
basically massively catalyzedthe value of the land all around
(16:28):
it.
So it's a unique and valuablestrategy.
What I think the approaches Isee a lot of developers do today
is so-and-so city's growing.
I'm going to build an apartmentcomplex in the middle of it.
I mean, it works, right?
It works.
We don't do it that way.
That's not our investingstrategy, but it does work.
But it's not the way to liketremendous wealth the way these
(16:49):
guys took it on.
But That's because people don'thave the risk appetite.
So let's talk about Flagler'srisks.
Let's talk about what he took onbecause they were enormous.
Flagler spent...
roughly$100 million of his ownmoney on Florida development.
That's about$3 billion intoday's money.
And for most of that time, therewas no guarantee that people
would actually want to come toFlorida.
(17:11):
Tourism to warm climates wasn'treally an established thing yet.
Air conditioning didn't exist.
So most people assumed that warmclimates were automatically
unhealthy.
The engineering challenges weremassive.
Nobody had ever built a railroadthrough the Everglades or across
open ocean.
Hurricanes, diseases, economicpanics, any of these could have
(17:31):
destroyed the entire project.
So Flagler was betting not justhis money, but his reputation
and his legacy.
But the rewards wereproportional to the risks.
By the time Flagler died in1913, his Florida investments
were worth far more than he hadspent on them.
The towns he had created werethriving.
The land he had bought forpennies an acre was selling for
hundreds of dollars an acre.
(17:52):
And more importantly, heliterally created an entirely
new industry.
Florida tourism that wouldgenerate billions of dollars in
economic activity for the nextcentury and never stop.
So what did he get right?
Let me break down the keyprinciples that made this
strategy click.
First, he understoodinfrastructure value.
Most people see infrastructureas a cost.
I think Flagler saw it as acompetitive advantage.
(18:15):
Second, he thought in decades,not years, this is something we
talk about a lot on the TimelessInvestor Show.
Flagler was willing to spend 30years building something before
he expected major returns.
That kind of patience isextremely rare, but it often
separates great investors fromgood ones.
Third, he controlled the entirevalue chain.
Talked about it ad nauseum.
I won't dig into it more, butthis is very important.
(18:38):
Fourth, he created marketsinstead of just participating in
them.
So like I said before, manydevelopers will just build build
buildings in the middle of agrowing city.
But Flagler was adept atcreating the demand where none
had existed before.
And lastly, he wasn't afraid tobe early.
Flagler started building inFlorida when most people thought
it was uninhabitable.
(19:00):
Being early allowed him to buyland cheaply and position
himself perfectly for whendemand eventually materialized.
I want to say one thing on thisnote as well.
Ego and pride and not wanting tobe embarrassed are reasons that
people don't take on risk.
There's money risk and there'sreputational risk.
Now, you cannot survive goingbankrupt on money, but you can
(19:25):
survive to an extent.
You can survive reputationalrisk.
Flagler was a man that doesn'tseem to me in the reading of his
history to have caredparticularly much about
reputational risk.
For example, his second wifebegan to exhibit severe mental
health issues And at some pointwhen he was in, I believe in his
(19:46):
early 70s, he divorced her andmarried his 31-year-old
secretary, which was incrediblyscandalous.
And I am not saying this to saybravo for him.
He took a bold stand.
I'm not saying that at all.
What I'm saying is he waswilling to take the reputational
blowback.
He didn't care.
So not caring.
(20:07):
not being too affected by whatpeople think about you, not
being too affected by thenewspaper.
They called it Flagler's folly.
Many of us would have wilted atthat.
I know I might have, right?
I mean, like, you know, socialridicule and scorn is really
difficult to deal with.
I don't know that this is true,but from the reading of the
story, from understanding whathe's done, his ability to
(20:29):
withstand public scrutiny andReputational risk and ridicule
were at a very high level.
There's something we can learnfrom that.
So that's the first thing I wantus to take away from stories
that matter today.
The second piece of it from whatwe can learn from this story is
that infrastructure stillcreates value, but we might be
talking about broadbandinternet, electric vehicle
(20:50):
charging stations,transit-oriented development,
thoughtful deployment of solarpanel arrays and new product or
even old product, it allmatters.
Second of all, integration stillmatters tremendously.
I have come to believe that themost successful real estate
companies today are not justinvestors in real estate.
They control various parts ofthe value chain.
(21:13):
And I just think it's incrediblyimportant.
Thirdly, patience still paysoff.
In this era, we have instantgratification, social media.
It's easy to forget that thebiggest real estate fortunes in
history were built over decades,not a three to five year span.
Creating markets is moreprofitable than competing in
(21:34):
existing markets.
Totally true.
Hard to execute in reality.
And I think the risk is probablybeyond most of our ability to do
so.
But if you can find somewhere,if you're a developer and you
can find somewhere where you cancreate the conditions for future
demand, it can be worth goingafter it.
So look, Flagler died in 1913,just one year after his railroad
(21:57):
reached Key West.
He was 83 years old and hadspent almost 30 years building
his Florida empire.
In a cruel irony, the railroadto Key West, his greatest
engineering achievement, wasactually destroyed by a
hurricane in 1935.
The state of Florida bought theright-of-way and converted it
into a highway, which became thefamous overseas highway that
still connects to Florida Keystoday.
(22:18):
But Flagler's real legacy wasn'this railroads.
It was the transformation ofFlorida from a wilderness into a
destination.
Today, Florida is the third mostpopulous state in America.
Tourism is a$100 billionindustry.
Real estate development is oneof the state's large economic
sectors.
None of that would have happenedwithout Henry Flagler's vision
and willingness to spend decadesbuilding infrastructure that
(22:41):
nobody else thought wasimportant.
So Henry Flagler teaches us thatthe biggest real estate fortunes
can and do often come fromcreating value, not just
capturing it.
Anyone can buy land where demandalready exists, but creating
demand where none existedbefore, that is one of the
places that genuine generationalwealth can be built.
Flagler looked at a swamp and hesaw paradise.
(23:04):
He looked at transportationproblems and he saw business
opportunities.
He looked at infrastructurecosts and saw competitive
advantages.
Most importantly, He was willingto spend decades building
something that other people saidwas impossible and willing to do
it with his own money.
That kind of vision, patienceand execution is rare.
But when it works, it transformsnot just the investor's wealth,
(23:25):
but it can transform entireregions and industries.
As modern real estate investorsand timeless investors, we can't
all build railroads acrossoceans, but we can learn to see
opportunities where others seeproblems.
We can learn to think in decadesinstead of years.
We can learn that sometimes thebest investments are the ones
that everybody else thinks arecrazy.
(23:46):
Next week, we're going toexplore another fascinating
chapter in American real estatehistory.
how John D.
Rockefeller used standard oilprofits to build a real estate
empire that his family stillbenefits from today.
Until then, remember, thinkwell, act wisely, build
something timeless.
Thank you for listening to theTimeless Investor Show.
(24:07):
If you enjoyed this episode,please share it with someone who
appreciates ambitious thinkingand long-term vision.
And if you haven't already,please subscribe to the Timeless
Investor Newsletter where weexplore these themes in even
greater depth.
Lastly, if you don't mindleaving a review for the show on
whatever your podcasting serviceis.
It would be tremendouslyhelpful.
It helps the show to grow and ithelps us to reach a broader
(24:29):
audience.
I'm Ari Van Gemeren and I'll seeyou next week.
Thank you for being here.
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