Patricia Kluge: Billionaire's Ex-Wife Faces Foreclosure

An Outsized Ambition

From the sound of it, ambition got the best of the nude-model-turned-landed-gentry.

Kluge entered the Virginia wine industry in 1999, flush with cash and an outspoken desire to be the most prestigious winery on the East Coast. That kind of hubris irritated the rest of the Virginia wineries who aimed to promote the state's wines as a whole. Kluge wasn't looking for friends; instead she pumped a reported $50 million into developing the winery. Of that, $27 million was said to be spent on state-of-the-art equipment alone. In comparison, a source at one well-regarded winery down the road says they haven't spent that much in their 30-plus-year history.

Kluge spared no expense. She also lured renowned consultants and a winemaker from France whose salary was rumored to be $1 million. And while most Virginia wineries produce about 5,000 cases a year, Kluge tried to bottle 50,000 to 60,000 cases. But those in the wine industry say her unrealistic timeline is most likely where Kluge went wrong.

As one insider puts it, "The old saying goes: 'how do you make a small fortune in wine? You start with a big one.' But you can't spend like a drunken sailor because it's already expensive.

"You plant three years before you get useable fruit...it takes a decade just to figure out what you're doing," the source says. "The problem wasn't with the grapes or the winemaking, it was bad business."

Interestingly, Kluge's wines were well received. Kluge Estates was a regular winner in the state's Governor's Cup wine awards. But one of her many business missteps was in her pricing. The Kluge Estates New World Red, a Bordeaux-style red blend, was originally priced at $75 a bottle. That's steep for Virginia wine, no matter how good it is.

Bob Kocher, owner of Once Upon a Vine wine shops in Richmond, Va., sells more Virginia wine than any other retailer and is intimately familiar with the challenges of the industry. "The problem with Virginia wines is the first thing they build is a huge, beautiful tasting room that costs a million-and-a-half and they want you to pay for it by charging a high price for their wine. Napa started in barns, they didn't start in tasting rooms. [Kluge Estates] was trying to make a fast dime when they should have made a slow nickel."

The price of the New World Red was reduced several times until it ultimately went for $22 a bottle.

"I don't think she was a person that really knew the wine industry in general and I think she just went overboard telling people she would go global before even she went Virginia-wide," Kocher says. "I think she just overspent."



The Beginning of the End

The winery's debts piled up and Kluge did what she could to save it. She took out multiple mortgages on Albemarle House (above), the home she built with ex-husband Kluge and had lavishly decorated with rare antiques from around the world. In a January 2010 interview, Kluge told Luxist that she and third husband, William Moses, were looking to downsize. What she didn't mention was the true dire financial straits she was in.

A month later the price of Albemarle House was chopped in half, to $48 million. By April, Sotheby's announced it would be auctioning the contents of the estate in its first home auction in 20 years. The auction, which included a $3.8 million Imperial Chinese clock and custom $300,000 sporting guns, was estimated to bring in $14 million. The resulting sale exceeded that, earning $15.2 million. Next on the auction block was Kluge's jewelry. In late April 2010, Sotheby's auctioned her personal jewelry collection, a sure sign of the coming apocalypse for Kluge. That sale earned $5 million.

All was quiet on the Kluge front for the next six months while Kluge struggled to stave off creditors. Until October, when Kluge Estate Winery was hit with foreclosure. Last month the 960-acre winery and vineyards were auctioned but failed to sell when no one stepped up to top lender, Farm Credit, and its $19 million bid. So for now the winery stays in the hands of Farm Credit. Bill Shmidheiser, a lawyer with Farm Credit, said the bank hopes to sell the property and that $19 million is a good deal for any buyer considering the $50 million Kluge and Moses spent creating the winery.

Most recently the winery's inventory was sold at auction. Due to Virginia alcohol laws, only licensed sellers were able to attend. Much to the dismay of the state's wine industry the wine sold at bargain-basement prices and even had to be stopped after one case sold for just $2. A Virginia wine insider says that upset the other wineries who are now expecting a flood of inexpensive Kluge wines to hit the market, devaluing their wines. "It makes us all look amateurish."

The most recent foreclosure to wallop Kluge is that of her Vineyard Estates subdivision. Much to the displeasure of the rest of tony Albemarle County -- which is filled with multi-acre plantations including Thomas Jefferson's Monticello -- Kluge launched a plan to subdivide a portion of her 300 acres into the luxury "Vineyard Estates." The development would offer plots from $1.5 to $13 million and offer a selection of pre-screened architectural plans as well as a "global concierge" service.

Five lots in the 24-lot subdivision -- it's first phase -- went into foreclosure when the partner on the deal, First Colony Corporation from North Carolina, went bankrupt. The subdivision's 122 acres are assessed at $6.9 million and Vineyard Estates LLC owes $8.2 million, according to a property auction notice. Only one house was built in the subdivision as a spec house. In an interesting twist, Kluge and Moses bought that house back at the foreclosure auction: They were its only bidders. The home, Glen Love Cottage, is 6,600 square feet and assessed at $2.76 million. They paid $3.675 and currently live there.

"Vineyard Estates has suffered from a lack of sales as have many other real estate projects during the recent economic downturn," Bill Moses said in a statement.

The Final Straw

In an interview with The Hook, Moses outlined the fall of the winery. Apparently in 2008 an equity investor was lined up to partner with the winery when, on the eve of the banking collapse, Farm Credit called in its $34.8 million loan. Moses says it was a non-monetary default. The winery had simply not met its 2007 sales projections. Kluge and Moses' outsized ambitions had gotten the best of them.

"There was no way we could immediately repay the loan," Moses told The Hook. "We had over-leveraged the company."

And while they tried for a year-and-a-half to desperately to save the company -- negotiating with the bank and selling their belongings -- it still wasn't enough. In the end, Moses said, "it was like swimming laps with lead weights."

Gallery: Patricia Kluge's Albemarle House

Gallery: Kluge Estates Vineyard

Gallery: The Collection of Patricia Kluge

Gallery: Patricia Kluge's Magnificent Jewels