Trinity Groves is a multiphase redevelopment of a former warehouse and light-industrial site that began with a 10.3-acre restaurant/specialty food incubator and destination. The project is located along the Trinity River, across from downtown Dallas, at the base of the new and iconic Margaret Hunt Hill Bridge in west Dallas. The core incubator area of Trinity Groves currently includes 14 restaurants, two dessert shops, a culinary education and events center, and a brewery, all located in four buildings that were formerly used primarily as a trucking facility. Following on the success of the restaurant incubator concept, the developers have embarked on a plan and program to develop 90 adjacent acres, assembled over the past 11 years, with new apartment, condominium, hotel, and office space, as well as additional restaurant and retail space.
Food, restaurants, and entertainment lie at the heart of many developments today, and are increasingly being leveraged as catalysts for urban redevelopment. Trinity Groves is an excellent example of how food can be not only a key amenity, but also a driving force and a defining element in a new development scheme. At the heart of the Trinity Groves project is the restaurant incubator program, an idea developed by veteran restaurant entrepreneur Phil Romano and his partners—Stuart Fitts, Butch McGregor, and Jim Reynolds—that encourages chefs and restaurateurs to develop and present creative restaurant concepts to a team of experienced restaurateurs and investors who select the best proposals and then support them to bring these ideas to reality. Trinity Groves now includes 14 restaurants and several other food-service tenants operating in spaces that were formerly industrial warehouses. These warehouses have been rehabilitated and adapted to showcase these new tenants in a lively and compelling environment that draws people from around the Dallas metropolitan area.
More on this project: The Site and the Idea | Zoning, Approvals, and TIF | Development Finance | Planning and Design | Marketing, Leasing, and Management | Observations and Lessons Learned | Project Information
The project website outlines the initial goals of the incubator thusly: “Our evolving development strives to foster the growth of startup businesses, building on Dallas’s culture of innovation and entrepreneurism, while creating jobs and spurring economic opportunity.” A second primary goal was to use the restaurants to reposition the entire area so that new residential and commercial development could take place, eventually leading to increased property values and the creation of an entire new district in central Dallas. The first goal has been achieved, and the developers are well on their way in pursuit of the second goal, with new multifamily rental apartments under construction across from the restaurant incubator site.
The initial challenge for the developer was how to recast the area’s image. “What we needed to do,” observes Romano, “was to come up with a short-term plan that did not interfere with the long-term plan for the area. I came from the restaurant industry, and my industry needs new concepts because we are approaching new markets—the millennials. They want something that is new, different, and exciting. At the time we began this project, a lot of young people could not find jobs, so I thought we would give them the opportunity to create their own jobs. Who better to create new concepts for new people than new people?” So Romano and his partners arranged a plan similar to a shark tank. “Let’s see if we can get some young entrepreneurs and give them a chance to own their own business.”
One of the strategies used was to start a fund that would invest in the incubator program. The fund investors include Romano, Fitts, and other individual investors. To date, the fund has been very successful, raising about $12 million, and is returning distributions to investors. The fund has provided a 12 percent return as of early 2016.
Incubator. The developers founded the incubator idea on the following premises: the restaurants should be about 2,500 square feet (plus outside dining patios), seat about 125 people, and do about $2 million per year in gross revenues. Romano and his partnership team agreed to invest, from the fund, up to $500,000 in each restaurant’s finishes, equipment, furnishings, and so on, with no investment required from the restaurateur, no guarantees on the lease, and no financial liabilities. The Trinity Groves fund, in turn, would own 50 percent of the restaurant. The restaurant had to be owner-operated, and it had to offer a distinctive and creative concept.
The initial proposals were five pages long and included a restaurant floor plan, a menu, an opening budget (including construction, equipment, furnishings, inventory, insurance, marketing, etc.), financial projections (profit and loss forecast), and a short biography of the restaurateur. This offer attracted a lot of attention, and hundreds of proposals were submitted. Romano and his team interviewed over 500 people during the initial incubator lease-up process, for fewer than 20 spots.
Restaurateur selection process and deal. Those selected for further consideration were invited to make presentations. A business plan and a description of how their concept was distinctive also were required. Romano and his team checked the restaurateurs’ credentials, sampled their food two or three times—using the kitchen at Trinity Groves—to make sure the food was consistently good, put them together with a designer to do some concept renderings of what the restaurant could look like, and talked to them about philosophy and culture to gauge how well they would fit in.
Those who were chosen were given a location and financing and a 50 percent ownership interest in the restaurant. This equity funding gave the Trinity Groves fund 50 percent ownership, and general partner status, for each of the restaurants. The Trinity Groves team manages the construction of the space, and ultimately works to help make the restaurateur successful.
The restaurateur is also offered a $60,000 annual salary that is a draw against profits. In turn, the restaurateur is required to pay a 5 percent management fee, split with his or her Trinity Grove co-owner, and 6 percent of sales for rent, plus common area charges (CAM). Once the restaurant is open, the restaurateur must meet certain parameters in terms of sales and profits. If he or she is working hard but not meeting these parameters, the Trinity Groves team will work with him or her. If the restaurateur is not working hard or Trinity Groves does not believe the concept is working, the lease is terminated, but the restaurateur has lost no real money other than his or her time investment.
For the latest deals involving a newer restaurateur who has come in to replace a restaurant that has left, the terms are less generous. Now that the project is up and running and successful, Trinity Groves does not need to give a 50 percent interest to attract new restaurateurs; also, construction is largely complete for existing spaces, so the new restaurateur has fewer startup tasks. The latest restaurateurs to be added are now typically offered 15 percent or 25 percent ownership interests in the restaurant.
