David Kloiber gave $630,000 to his Lexington mayoral campaign. Where did he get it?
David Kloiber has given more than $630,000 of his own money to his campaign to replace Lexington Mayor Linda Gorton when voters go to the polls next Tuesday.
How can Kloiber afford to spend that much for a job with a $162,063 salary?
The answer is, his family is extraordinarily wealthy. Kloiber is paid to help manage a portion of the wealth that is invested in different businesses. He also collects distributions from a trust in his name.
Kloiber said in a recent interview that he helps to grow his family’s money through smart, active management of companies in different sectors, including technology, manufacturing, agriculture and real estate. His family expects its members to do productive work, with an emphasis on public service, he said.
“When you have a big pool of money like this that is generational wealth, what you don’t want is people who just sit around and live off of it,” said Kloiber, 39, who is in his first term on the Lexington-Fayette Urban County Council.
“So we’ve been very intentional to try and make sure that any benefits gained are based off of productivity and, you know, commitment,” he said.
Kloiber’s family benefits from a Delaware Dynasty Trust likely worth more than $1 billion, according to a review of public records and Kloiber’s interview.
The trust, established at PNC Bank in Wilmington, Del., was created by grandfather Glenn Kloiber in 2002 with a modest $15,000. It later was funded with $310 million from father Daniel Kloiber’s share of the sale of his Lexington company, Exstream Software, to Hewlett Packard in 2008.
Dynasty trusts like this one allow wealth to be passed down through the generations while avoiding many taxes, including estate and gift taxes, and shielding assets from potential creditors. The trust’s distributions and its other operations are controlled by rules initially set by the creator.
The Daniel J. Kloiber Dynasty Trust — which is actually a collection of trusts for the benefit of different family members — grew over the years with investments in real estate, start-up companies, and equities and bonds. It holds several limited liability corporations, or LLCs, that acquire and manage the investments.
David Kloiber, the mayoral candidate, often is described as head of The Kloiber Foundation, a Lexington nonprofit that makes several hundred thousand dollars annually in charitable donations to the Fayette County Public Schools, the Lexington Public Library, the YMCA of Central Kentucky and other places.
This is accurate. But The Kloiber Foundation — a family-backed entity that usually holds assets between $8 million to $9 million — does not pay Kloiber a salary. His work there is not a full-time job.
David Kloiber’s salary comes from his own company, Kloiber Management Services LLC, from which he oversees some business investments of his family trust. Kloiber wouldn’t reveal his salary, other than to say it’s less than the $162,063 that the mayor of Lexington is paid.
As a beneficiary of the Daniel J. Kloiber Family Trust, David Kloiber also is entitled to draw from the fund for certain personal benefits.
One is health insurance. Another is the money used in 2012 to buy a five-bedroom, four-bathroom house in the Hamburg area for $437,000. Because of its funding, Kloiber’s home is owned not by him personally but by its own corporate shell, David Kloiber Property Management LLC.
The roughly $630,000 that Kloiber has spent on his mayoral campaign came from one source, he said: his share of the eight-story Frank and Dino’s restaurant building at 271 W. Short St. in downtown Lexington.
Under the corporate name Overture Realty LLC, Kloiber bought that century-old building three years ago for $4.5 million, alongside a business partner, John G. “Jay” King, according to property records.
Kloiber’s share of the building didn’t go far. He sold it to his family trust for an undisclosed sum, he said.
“They’ll manage it,” he said. “It’s a great investment. We’ll see. Maybe at some point in the future they’ll sell it for a profit, and maybe I’ll be the person who tries to buy it. But I’m not there yet at this point in time in my life.”
Not every investment Kloiber made has worked out well for the family trust.
In July, Daniel R. Fruits of Greenwood, Ind., pleaded guilty in U.S. District Court to wire fraud and money laundering for stealing $14.3 million from the trust from 2015 through 2019. David Kloiber hired Fruits in 2014 to use that money to build up a refrigerated trucking firm, Secure Transit LLC, according to federal prosecutors.
Fruits awaits sentencing Nov. 29.
Fruits’ four-year financial deception was a disappointment that led to the trucking company’s bankruptcy, Kloiber said, but the family ultimately discovered it and called the FBI. The family hopes to recover some or all of its stolen money from assets seized by the federal government, he added.
“(Fruits) bought things like a horse farm for himself. He bought multiple expensive cars in one day,” Kloiber said. “He was buying watches and guns and using a lot of money over a very short period of time and then forging documents from our accountants to falsify the audits.”
However, the trust has enjoyed far more business successes in its investments, Kloiber said.
Among those better investments, he said, are Noveon Magnetics Inc., a maker of rare earth magnets in San Marcos, Texas, and the Pendry San Diego, a $120 million boutique hotel that opened in Southern California in 2017.
Kloiber said his experience as an investment manager would prove invaluable for the mayor of a mid-sized city trying to make its own business deals.
“I have seen deals at many different levels, at different scopes, in different industries. And understanding that has allowed me to be successful. It’s often a pitfall that a lot of new investors get into, not understanding how these deals work and the complexities around it,” Kloiber said.
“When people are concerned about things like TIFs (tax-increment financing projects) or industrial revenue bonds, you have to understand the mechanics of that in order to make a good decision. Because not all deals are created equally even if they’re using the same type of financial structure,” he said.
At the same time, Kloiber said, he wasn’t born into fabulous wealth.
Kloiber’s father Daniel, now 63, living in Austin, Texas, is a Cornell University graduate and technology entrepreneur who has worked at and launched a number of successful companies over his long career. So the family certainly was not poor.
But the father’s big payday was the 2008 sale — with partner Davis Marksbury — of Lexington-based Exstream Software, a document management company that fetched a reported $720 million. Daniel Kloiber’s portion of that windfall elevated his family into rarefied air.
David Kloiber, the oldest of four sons, was called back home to Lexington from Tampa, Fla., where he had met his wife and he was working as a ballroom dance instructor. His father asked him to help manage the family fortune, he said.
There were stumbles along the way as he learned the ropes, he said, but the experience matured him and prepared him for the new job that he now wants as mayor.
