Prior to the early 1950s, Shelter Key (on which most of Key Colony Beach is located) was a 97-acre (390,000 m2) low-lying island. Then, Phil Sadowski began dredging around the island, adding to its size and increasing its height to six feet above mean sea level, and later built developments on the island.
Around 1956-1957, residents of nearby Marathon began discussing incorporating the entire area. Sadowski was not keen on having his development swallowed up into Marathon, so he began the process of incorporating the island into its own city. The Florida Legislature passed legislation in June 1957 allowing incorporation, which local residents passed unanimously in September, thus creating today's Key Colony Beach.
Incorporation would become a blessing in 1960, when much of the city was destroyed by Hurricane Donna. As a separately incorporated city, Key Colony Beach received its own federal grant to rebuild; nearby Marathon (not yet incorporated) had to settle for a portion of the grant given to Monroe County. However, the storm (and subsequent takeover of Cuba by Fidel Castro) caused a depression of real estate prices, which would take several years to stabilize.
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