Fones Cliffs

Two of the investors who bought 964 acres on the Northern Neck’s Fones Cliffs filed for bankruptcy.

Virginia True, the New York-based corporation that purchased 964 acres of historic and pristine cliffs along the Rappahannock River to develop into a resort, hopes to reorganize under Chapter 11 bankruptcy protection, according to one of the remaining partners.

“Our plan here is to refinance,” said Howard Kleinhendler, one of the two remaining partners of four New York investors. “We’re going to bring in substitute financing or investment to pay back or pay down a good part of this debt and go forward.”

The four partners purchased the property in 2017 for $12 million from the original owner, Allan Applestein, who held it under the Diatomite Corp. of America. The Florida-based company is now listed as a creditor holding a $7 million promissory note.

The Chapter 11 filing by Kleinhendler and Benito R. Fernandez claims liabilities of totaling over $13.5 million. It hinges repayment on the anticipation that their proposed hotel and resort would attract “high-paying” clientele from Amazon’s new headquarters 90 miles away in Northern Virginia.

According to papers filed with the U.S. Bankruptcy Court in the Eastern District of New York, the Chapter 11 filing came about after threatened litigation by the other two former partners and stockholders, Domenick and Anthony Cipollone.

The Cipollone brothers hold a $5 million promissory note and deed of trust conveyed to them last December, which matured in April. Kleinhendler and Fernandez signed a written agreement, called a confession of judgment, as security for the repayment of the amounts owed under the promissory note.

“This is an investment that didn’t go correctly,” said Dominick Cipollone, who politely declined to say more. “My lawyers and accountants are handling everything, so, I really don’t have anything to give you.”

The plan to develop the cliffs has been controversial since the start. Environmentalists and conservationists opposed a 2015 rezoning of the property because of the cliffs’ importance to a large population of bald eagles, local commercial watermen and the historic significance to the Rappahannock Indian tribe. The U.S. Fish and Wildlife Service offered to buy the property and add it to land it has protected along the Rappahannock.

The dispute between investors stems from late 2017, when the developer illegally cleared 13 1/2 acres up to the edge of the cliffs, sending runoff into the river below.

“We wanted to clear a few acres to show investors what a few golf holes would look like. Unfortunately, that was done in error without the appropriate permits,” said Kleinhendler. ”We paid dearly for that, really dearly for that.”

Kleinhendler is referring to a lawsuit filed by Virginia’s attorney general last year that charged the company with “significant and repeated environmental violations at its development project.” David Paylor, head of Virginia’s Department of Environmental Quality, is listed as a creditor who is owed $250,000.

Virginia True hired Tappahannock engineer Jeff Howeth, who has been working more than a year with DEQ to fix the subsequent erosion from the cliffs. He, too, is listed as a creditor owed $50,000. Andrews Development, a contractor also in Tappahannock, is listed as a creditor owed $5,000.

“We’re pretty close to settling with the AG and we hope that will be behind us very soon,” Kleinhendler said.

But the golf course is no longer being pursued.

“The golf course industry right now is not very profitable,” he said. “Not only that, it’s almost impossible to get conventional financing for a golf course. I cannot tell you how many lenders I have spoken to. As soon as they heard the word ‘golf course,’ they hung up.”

Several courses in the Northern Neck have gone out of business in the past few years.

Now, Kleinhendler said, the plan is to anchor the development with a 300-room hotel either built and managed by a hotel group or a group of investors that are in the hotel business. After that would come housing.

The last time Kleinhendler spoke with Richmond County officials, they discussed a cluster of 10-story condominiums and a hotel on 42 acres atop the cliffs rising about 150 feet from the river. He said the original 30-story proposal “was to have a tight footprint and pull the condos further from the cliff and still have a spectacular view,” but the county didn’t like it.

For Richmond County Administrator Morgan Quicke, the thrill of Virginia True’s promises of jobs, taxes and economic boost are all but gone.

“There’s a lot of repairing that needs to be done to the relationship,” Quicke said. “It’s just been one misstep after another for the past couple of years. The confidence with the board and with the county is fairly low these days. And with good reason.”

“The county pretty much said with the Phase I [of the project] mainly on the environmental stuff, ‘Do it right,’ and ‘When we get to Phase II, we need to talk about a lot of environmental stuff,’ ” he said. “Well, they didn’t even get to Phase II before the environmental stuff got kind of screwed up. ... And then it took so long to get it remedied.”

Quicke said Virginia True was a month late paying its 2018 taxes, which totaled $20,058.99, and was charged interest and fees.

Virginia True’s next-door neighbor, Terrell Bowers, had plans to develop his 250 acres called Rappahannock Cliffs, with 10 high-rise condominium units. After years of battles with environmentalists, conservationists, neighbors and other groups, he sold it to the Conservation Fund, who, in turn, sold it at the end of May to the U.S. Fish and Wildlife Service.

Kleinhendler and Fernandez will have their first day in court Thursday as their reorganization plan is presented to creditors and judge.

In spite of all the challenges, Kleinhendler is upbeat. He points out “two really good things” that have happened in the last six to eight months. The first is tax breaks and incentives the developers can offer to investors.

“This whole property has been designated an opportunity zone through the 2017 Tax Act passed by the Trump Administration,” he said. “There’s a lot of money out there looking for opportunities to invest.”

Then the excitement rises in his voice as he returns to the subject of Amazon creating a second headquarters in Arlington, with a promise to create 25,000 well-paying jobs over the next decade.

“These people, they need a place to go for the weekend, they need a place to make weddings, they need a place where they are going to play golf and horseback-riding and shooting and maybe go out fishing on the water,” he said. “There aren’t a lot of 1,000-acre parcels within even a 150-mile radius that’s on the water, that can be developed basically for a second home slash vacation area.”

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