Pub. 5 2010-2011 Issue 5

January/February 2011 13 Extraordinary Service for Extraordinary Members. O N DEC. 8, 2010, FARMCREDIT OF the Virginias, a $1.5 billion Farm Credit System (FCS) association serving western Virginia and almost all of West Vir- ginia, auctioned the 907-acre Kluge Estate Winery and Vineyard. Located near Charlottesville, Va., home of the University of Virginia and the locale of many large estates and vineyards, the Kluge property was auctioned by the FCS association to recover what it can on a $34.8 million loan to Patricia Kluge and her current husband, Bill Moses. Although more than 50 people attended the auction, no one submitted a bid topping Farm Credit of the Virgi- nias $19 million opening bid. Society column devotees will re- member that Kluge, an actress in her younger days, married the media mo- gul and multi-billionaire John Kluge in 1981. They divorced in 1990, with Patricia Kluge receiving a property settlement reportedly in the $1 billion range, including investments that gen- erated $1.6 million in interest a week. How much remains of that settlement is a mystery. Starting in 2007, Kluge and Mo- ses borrowed almost $35 million from Farm Credit of the Virginias to went south fairly quickly, for Moses is quoted as saying, “We had a non- monetary default declared in ’08.” Ac- cording to a news report, “a covenant in the loan had to do with sales, which were not up to target. Even though the payments were current, according to Moses, the [FCS] called the loan. Since 2008, we’ve been trying to get the loan refinanced or find an investor, [Mo- ses] said. As you know, the past two years have been the worst economic climate.” Granted that the country has been in a recession, but for a loan to go bad that quickly, and with a probable loss, suggests that the loan should not have been made in the first place. Lending to uber-rich, or at least the very well off, is neither new nor occasional for Farm Credit of the Virginias. In 2001, FCW reported on that association’s lending on country estates in the heart of Virginia’s fabled hunt country. The Kluge/Moses loan far exceeds in size and excess the FCS country-estate lending FCW exposed in 2001. This loan, and the FCS’ loss, is an excellent example of inappropri- ate FCS lending that the next Congress should examine. FCS lending for country estates, hobby farms, hunt- ing preserves, and other recreational activities has grown substantially in recent years. Wealthy estates are not the type of lending Congress envi- sioned when it created the FCS. Congress and the Farm Credit Administration (FCA) also should examine whether FCS of the Virginias has properly accounted for this loan default, especially since the associa- tion foreclosed on the property. That appears to be the case because, accord- ing to news reports, the association (erroneously referred to as a bank by the media) “called the loans and took control of the winery. Much of the staff was fired and the bank [sic] filed papers to sell off the estate and winery at auction.” Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE © 2011 Bert Ely expand their winery, the largest in Virginia, to gain national distribu- tion for their wines. Kluge secured the loan with their property, which also includes the 45-room Albemarle House that currently is offered for sale at $24 million, down from its initial asking price of $100 million, and a 34,000-square-foot former carriage museum. To help pay their bills, in June a Sotheby’s auction of the contents of Albemarle House brought in $15.2 million, but that apparently was not enough to stave off the foreclosure and auction of the Kluge Estate Winery and Vine- yard. The FCS association also has sued Kluge and Moses, presumably to try to collect on personal loan guarantees. Farm Credit Watch (FCW) read- ers may reasonably ask what is the taxpayer-subsidized FCS doing lend- ing to a billionaire, much less taking a loss on such lending given that the FCS was created to provide credit to struggling farmers and ranchers un- able to get credit elsewhere. While admittedly Kluge and Moses probably cannot get credit today, they appar- ently were creditworthy, or at least had substantial assets in 2007 when they obtained their FCS loan. The loan Q Farm Credit Watch — continued on page 14 Some Wine Will Sour Before its Time FCS Faces Huge Wine Loss