The Rise & Fall of Kluge Estate Winery

Virginia showplace up for auction Dec. 8 after Farm Credit forecloses on $35 million loan

by Linda Jones McKee
Kluge Estate
Charlottesville, Va. -- There’s an old joke that the best way to make a small fortune in the wine industry is to start with a large one. Sometimes even having a pocket full of dollars doesn’t guarantee that a winery will make a go of it. That certainly proved to be true in the case of the Kluge Estate Winery and Vineyard in Charlottesville, Va.

Patricia Kluge and her husband, William J. Moses, started the winery in 1999, intent on establishing a world-class vineyard and making the winery one of the largest and most influential in Virginia. Located south of Charlottesville not far from Thomas Jefferson’s Monticello, Kluge’s estate included 2,000 acres and a 45-room English-style “manor house” known as Albemarle House. Approximately 200 acres were planted in vineyards; the couple built an elaborate tasting room known as the Farm Shop and Kluge hired the internationally-known “Flying Winemaker,” Michel Rolland as the consulting winemaker.

The winery’s first release was the limited edition Kluge Estate 2000 New World Red, priced at a breathtaking $495 per bottle. Only 289 bottles of the wine were produced, each one signed by Kluge and then-winemaker Gabriele Rausse. At that time, most wine in Virginia was sold for less than $50 per bottle, and the release of a first wine from a new winery at such an exalted price created a lot of publicity for Kluge Estate. Later releases of Kluge Estate New World Red were priced considerably lower, the 2001 at $58 per bottle and the 2005 at $25. Wines & Vines’ most recent data show an annual production of 40,000 cases.

In 2007 Kluge and Moses went to Farm Credit of the Virginias and secured a loan for $34.785 million, ostensibly to expand the winery into both national and international markets. In October 2010, Farm Credit foreclosed on this loan and listed the assets of the Kluge Estate Winery and Vineyard to be auctioned off, including:

• 907 acres in southern Albemarle County (including 164 acres in vineyard)
• The Kluge Estate Winery and Vineyard Farm Shop and tasting room
• Offices and production buildings
• Six employee houses
• A 34,000 square-foot former carriage museum.

The auction of the winery and equipment will be held at high noon Dec. 8 at the vineyard office building on Grand Cru Drive, Charlottesville. Potential bidders for the winery must bring a $250,000 cashier’s check to get in the door; the winning bidder will have until Dec. 10 to pay the deposit of $2.25 million.

A second auction will be held Dec. 11 in Madison, Va., to sell 15,000 cases of Kluge Estate wine, including the 2005 New World Red (listed on the Kluge Estate Winery website at $25 per bottle) and sparkling wines. This auction is open only to organizations that have a Virginia state license to sell alcohol.

Civil action
In addition to the foreclosure on the 2007 loan, Farm Credit also filed a civil suit Oct. 29 against Kluge and Moses as guarantors of that loan. The civil lawsuit contends that in September, Kluge and Moses transferred more than seven acres and property to the John W. Kluge Jr. Trust, a trust held in the name of Kluge’s son. At that time, Kluge and Moses were attempting to restructure their loan, and Farm Credit thinks that the gift was made “for the purpose of shielding and/or concealing assets” from the bank. Farm Credit wants the gift voided, seeks a lien on the land and property transferred to the trust, and wants the property to be sold to help reduce the couple’s debt to Farm Credit.

These suits involving Farm Credit are not the first financial problems that Kluge and Moses have faced. At approximately the same time they obtained the Farm Credit loan in 2007, they were planning to build an “upscale wine community called Vineyard Estates” on more than 500 acres of the Kluge property. The lien holder, Sonabank, foreclosed on a $17.4 million loan for the planned subdivision earlier in 2010. Kluge and Moses covered debt of $3,700,000 and moved into the only house, known as “Glen Love,” that had been built. The realtor for the project, Frank Hardy, sued Kluge and Moses in February 2010 for $1.9 million; that case was settled out of court.

In 2009, Kluge and Moses listed their mansion, Albemarle House, for sale for $100 million. The price was dropped to $48 million in February. The property, still listed on Sotheby’s website, is not part of the foreclosure on the winery property. In June 2010, Sotheby’s sold the contents of Albemarle House at auction for $15.2 million; another Sotheby auction earlier in 2010 had sold approximately $5 million worth of Kluge’s jewelry.

Most recently, release of overdue property tax records in Charlottesville, Albemarle County and Augusta County revealed that Patricia Kluge owes more than $86,000 in real estate taxes on her estate and winery.

According to Moses, “The pace of our growth was not sufficient to satisfy the company’s banking consortium.” He blamed a “perfect storm” of economic collapse that hit the wine industry and other businesses for Kluge Estate Winery’s financial problems.

Kluge’s fortune was largely based on a settlement she received from her divorce in 1991 from her second husband, John W. Kluge, a telecom billionaire and the founder of Metromedia. The settlement included 2,000 acres of John Kluge’s Virginia estate and the mansion, Albemarle House.

While the Kluge Estate Winery and the Kluge-Moses family fortunes are obviously facing many difficulties, one positive outcome for the Virginia wine industry was the strong support of Kluge and Moses for the enology and viticulture programs at Piedmont Virginia Community College, to which they donated $1.2 million in 2005. The Kluge Moses Science Building was officially opened Sept. 16, 2010, named in recognition of their gift, the largest single contribution ever received by the community college.

While the total cost of the building was $11.5 million, the Kluge-Moses gift enabled the college to add technology it might not otherwise have been able to afford, including such refinements as classroom whiteboards that copy anything written on them as PDF computer files. It is unknown whether the gift has been paid in full.





Posted on 11.15.2010 - 12:47:03 PST
Re the article on Kluge, well done, thoroughly and accurately researched and reported. One bit that might have spiced the piece: midst all the woes that woman suffered one bright moment came when Kluge brut and rose sparkling wines were served at the wedding of Chelsea Clinton.