Tragedy struck late in 1878 as a great fire swept through Cape Island's tightly sited wooden structures. The great hotels and homes at the very center of the town burned to the ground. Enthusiasm for Cape May was strong and new cottages and hotels were built. The Victorian era reconstruction explains the presence of so many homes reflecting the diverse architectural influences of the time. Gothic Revival, Second Empire and Rennaisance Revival and their vernacular interpretations as well line the streets of Cape May. Hotels were also rebuilt, but the new hotels were smaller out of concern for another disastrous fire.
As Cape May rebuilt and continued to be a fashionable summer watering spot, tourism competition was growing. The string of barrier islands along the Atlantic coast of Cape May, long viewed as worthless, became the object of real estate development and speculation. The transformation of Absecon Island into Atlantic City spurred special interests to create their own island resorts.