Former real-estate developer thinks his Va. farm is fertile ground for business

March 26, 2011

It is easy for Dominique Kostelac to forget the troubles of his former life as he meanders down the old wagon trail on his 33-acre farm outside Charlottesville. There are the plastic tubes he uses to tap the maple trees for syrup. Here is the island in a forgotten river where he found the remnants of a dugout canoe, which he imagines could be as old as the Indians. This is where the persimmon trees grow so heavy that a shake of the branches releases their bounty.

He moved to Holly Tree Farm five years ago with his wife and three kids when he was still a high-flying real estate developer cashing in on the housing boom. What followed has become an all-too-common story: The bursting of the bubble — and perhaps his own overexuberance — left him millions of dollars in debt and facing foreclosure. Or, as Kostelac puts it, “we did a big face-plant . . . and we were stranded here.”

As it happened, that face-plant was right into some of the most fertile soil in Virginia. A longtime foodie and serial entrepreneur, Kostelac is convinced that his old neighbors in yuppie Washington will pay premium prices for produce and meat from the small farmers who are his new neighbors. Now, in this refuge from his failures in the city, he sees opportunity — in the leaves of the grapevine that wraps around his front gate, the morel mushrooms that sprout beneath a shade tree and the wild raspberries that grow faster than ones he planted — that he might have overlooked before.

“Like when you go blind,” he says. “You start hearing better.”

Forming a farm club

Kostelac weaves past water coolers filled with maple sap, ignores the tray of apple cider donuts on the stove and plops in front of two laptops squeezed onto a tiny table in the kitchen in his basement. This is the headquarters of Arganica Farm Club.

Note the word “club.” One point Kostelac is adamant about is that Arganica is not a CSA, or community-supported agriculture. In that model, customers commit to buying portions of a harvest. That ensures farmers have buyers for their crop but limits customers’ control over what or how much they receive.

Instead, Arganica customers pay a fee ranging from $30 for a month to $250 a year to join the club and can buy basil ($3.25 a bunch) or brisket ($29.25 per pound) or bagels ($6.25 for six). Groceries are then delivered to their doorsteps in handmade white-washed wooden crates.

The seeds of Arganica were planted two years ago as what Kostelac calls “make-work.” After losing his shirt in the housing market, he was left with too much free time and hunted for ways to stay busy. The answer, he realized, was all around him. The farm was covered in driftwood and branches that he collected to stoke the fires that warmed the house. Why not gather the rest and sell it?

Kostelac named the enterprise Black Bear Wildwoods. He tied the branches with string made of hemp and called it sustainable. He hired many of the workers who had helped him refurbish homes in Washington to collect and deliver the bundles. Wood that didn’t sell was burned to boil down sap from the maple trees.

At winter’s end, the fires burned out. But Kostelac was just getting started.

“Why would we stop this great thing we got going?” he thought to himself. “Everybody needs work, right?”

Soon he was scouting local growers of heirloom tomatoes, calling small pig farmers and meeting with artisan breadmakers. He cobbled together a shopping list of about a thousand products, primarily from local producers.

One of them is Tom Weaver, whose family has been farming since an ancestor bought land in Orange, Va., from James Madison in 1819. Now, much of the land has been given over to raising white sows and Duroc daddies without hormones, antibiotics or nitrates under the name Papa Weaver’s Pork.

The first orders from Arganica were for 10 or 15 pounds of meat, Weaver said. Now they ask for as much as 200 pounds and pay him each week — crucial income during the winter when the farmers’ markets, another important outlet, are closed.

“It’s really ballooned for us,” Weaver said.

For him, Arganica is a no-risk proposition. That’s because Kostelac bears the burden of estimating his customers’ orders. Guess too low, and he’s out of stock. Too high, and he’s stuck with food that won’t sell or, worse, goes bad. He picks up the food from each vendor, trucks it to the District and takes the loss if it’s not up to snuff.

In the past few months, Arganica has expanded to Richmond, Hampton Roads and Charlottesville and now has its eye on Baltimore. A recent Groupon promotion netted more than 2,000 new members, boosting Arganica’s roster to more than 10,000. The sheer volume can quickly overwhelm the staff of roughly 70 full- and part-timers struggling to keep pace with demand, making even the smallest glitch feel monumental.

Today’s crisis: a broken printer.

If the customer orders aren’t printed, they can’t be packed for delivery. Kostelac logs in to a video chat with his brother and business partner, Tom, who lives in the Czech Republic and helped develop Arganica’s computer system. Kostelac likes to say he’s running a 21st-century business from an 18th-century farmhouse.

“The printing cutoff is soon, Tom,” Kostelac says. “They’re sweating bullets.”

Arganica office manager Heather Riggleman pops in from the room next door and sticks her head in front of the camera. “Hi Tom. I’m freaking out. I’m gonna turn to all capitals on Skype.”

The staff rushed the job to a print shop in Charlottesville, but they’re already behind schedule. Just another item for a to-do list that’s growing faster than crabgrass.

“Inevitably, the dumbest things will knock your legs out,” Kostelac says.

Tough customers

Each faltering step of the fledging enterprise has been chronicled and dissected on Internet message boards and e-mail lists, the consequence of catering to a passionate and discriminating clientele. Produce sometimes arrives bruised or spoiled, particularly delicate products such as mesclun lettuce or basil. The packing process is labor-intensive and often inefficient, which can lead to incorrect or incomplete orders. Packing frozen meats and sauces, for example, involves two guys pulling each item from a large freezer on the farm, then sticking them in coolers that go right back into the freezer — only for another person to dig through them later to fill the orders.

Peggy Moore of McLean gave Arganica a low one-star rating on Yelp and stopped placing orders weeks ago, even though her six-month membership has yet to expire. She said her first order featured rotten potatoes and pears that looked ready for composting. Her deposits on glass bottles of milk and seltzer often were not refunded, Moore said, and she felt that the shittake mushrooms were overpriced.

“I kept feeling like there were fewer and fewer things that I could possibly order from without being completely ripped off or get something inferior,” she said. “It’s just massive dysfunction.”

Arganica’s staff has begun responding to complaints on message boards and tweaking its service. Deadlines for orders were pushed back to give producers and workers more time to pick up and pack the food. Estimated delivery times were extended, and Kostelac updated the models he used to predict each week’s purchases.

Even disgruntled customers acknowledge that when Arganica gets it right, the results are delicious: exceptionally fizzy hand-bottled seltzer from Pittsburgh that comes in vintage glass bottles; heirloom tomatoes from a greenhouse in Virginia in the middle of winter; grass-fed ground beef from foodie favorite Polyface Farms at prices that rival Whole Foods.

And some customers have rallied to Arganica’s defense. Katalina Mayorga of the District has been a member for more than a year and said the service has saved her from hours of scouring farmers’ markets on the weekends. She said dealing with the growing pains of a start-up is worth the wonder of the Amish natural peanut butter or the homemade pasta. Mayorga even met Kostelac last summer during a promotional food and wine tasting he held in the city.

“You can just tell from talking to him that he is doing this because he believes in it,” she said. “They’re creating a market for local food.”

A shadow of debt

Kostelac admits the missteps and says the back end was just as messy: software failed, data crashed, suppliers forgot about them, staff was overworked and Mother Nature mocked them. But he is confident that the tenor of the conversation will turn, and his faith in Arganica’s mission remains solid.

“It is a game changer for the entire foodshed of local and micro producers,” Kostelac wrote in an e-mail.

The stakes are just as high for Kostelac. Holly Tree Farm was supposed to be his escape route from the collapse of Washington’s go-go housing market. At the height of the real estate boom, Kostelac says, he could get $10 million in credit with just his signature. Now he doesn’t even qualify for a credit card. It’s unclear whether that says more about his finances or the banks’ loose lending standards at the time. But what is certain is that Kostelac has left a trail of debt that could prove difficult to erase:

$22,605 on a Bank of America credit card.

$169,000 in legal fees.

$11,239 on a Chase credit card.

A repossessed boat.

Several of the claims against him are from tenants of roughly a dozen properties he owned, he says, during the peak of his real estate career. He says he got stuck when the credit market collapsed, loaded down with half-finished projects that he couldn’t find financing to complete and that he couldn’t yet rent out. The interest on his construction loans alone cost him $100,000 a month that he paid out of pocket, he says.

“You forward lean and it stops suddenly — it doesn’t matter how good a person you were,” Kostelac says. “We had to create a parallel life.”

He sits at the kitchen table of his ramshackle farmhouse, a half-eaten bag of chips and other detritus of life with three kids littering the table and their dog, Luffy, wandering the halls. He apologizes for the disarray. He and his wife, Rachel, haven’t had much time — or money — to fix things up, he says.

In this life, his kids play with their hamsters, Cheeky and Vanilla, at the table, letting them run up and down their arms and even through their sleeves. When Arganica is short on crates to pack deliveries, Kostelac runs upstairs and commandeers the ones filled with his kids toys. He writes long missives to Arganica members on his blog each week, waxing about oysters from a food cart in Puerto Rico, raising chickens while in college and Croatian traditions for roasting lamb. One post, titled “Hey Bernanke: Everyone’s Got a Job This Thanksgiving,” ruminated on the role that even the lowliest animals play in the business of the farm.

“It is rightful to focus on the good life that was provided here for the creatures and that we are all participating in a cycle of activity that extends long before and long after our short span,” he wrote.

Sometimes the parallel lives collide. Arganica is a separate business that’s starting with a fresh slate. Still, according to court documents, Kostelac and his wife have amassed $4.7 million in debt and are battling foreclosure on the farm. Some weeks, he says, he has made payroll for Arganica employees with only hours to spare.

Kostelac says he has two choices: spend his time cleaning up the mess of his past or build the future. The past will be taken care of — eventually. But as he walks the wagon trail on the farm, he turns the conversation to the wild chicory growing amid the brush. Kostelac crosses a pasture, tromps through horse manure and leaps a fence to yank some out of the ground, sure of the path he has chosen.

Ylan Q. Mui is a financial reporter at The Washington Post covering the Federal Reserve and the economy.
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