It’s 5 p.m. on a Friday. All of the city’s 20- and 30-somethings have defiantly slammed their laptops shut for the week and gone out into the wild. Cochiloco, over in Scott’s Addition, is already teeming with them. The patio is strewn with buckets of beer and empty taco baskets, as hordes of young professionals — and some not-so-professionals — busily mix and mingle. More of them flock indoors to a faux taco-truck bar for fruity drinks and mezcals.

Located on the street level of the Otis, an apartment building completed last year by the Richmond-based real estate firm Capital Square in partnership with Greystar, the fast-casual taqueria blends in with its surroundings. Like the hundreds of luxury residences above it, the 3,100-square-foot space, a modern design bomb dropped in a sea of subway tile, is just as spankingly new and shiny.

The Scott’s Addition neighborhood has become a hub of development. Most folks have probably done a doubletake driving by the high-rises that seem to have gone up overnight.

Patrick Phelan, this January, opened the oyster bar, Lillian, in the Gem, a glass-encased, 71-unit condominium that comprises part of the Scott’s Collection, another Capital Square project. His first spot, Longoven (later rebranded as Lost Letter), which he leases separately, debuted down the block six years ago.

“The growth is insane,” says the Scott’s Addition restaurateur, who marvels at the amount of new construction around him as he steps out the door of his restaurants every night. “I don’t think I imagined the expanse of what’s happening now.”

***

These days, more and more places around Richmond are taking up residence in newly-minted buildings which include a mix of homes, offices and storefronts. It’s a prevailing trend as far as restaurant openings, and one that is likely to continue.

“A standalone restaurant is pretty rare,” says Eric Terry, president of the Virginia Restaurant, Lodging and Travel Association, the state affiliate of the National Restaurant Association. “Most of what we’re seeing are ones that are really kind of mixed use.”

Based on data from Richmond’s Department of Planning and Development Review, nearly 35% of development projects that either started or finished construction since 2016 were classified as “mixed-use.”

“The restaurant becomes a critical piece of that development,” Terry explains. “Because people want to live, eat and work in the same sort of space.”

Street-level retail, including restaurants, bars and coffee shops, is often viewed by developers as “amenities” for their residents.

“People, typically when they think of ‘amenities,’ they think of a swimming pool,” says Evolve Development’s Daniil Kleyman. “I would take amenities like this over a crappy gym in my apartment building any day.”

The whole idea behind mixed-use development is to curate a lineup that will enhance the experience of those living there, draw more people to the area – and, of course, raise property values.

“I don’t want to make it sound like we’re altruistic, but, for us, this is kind of a community-making play,” Kleyman adds. “One little food and beverage business has potential to drastically change the neighborhood.”

***

Back in 2006, when local realtor Matt Jarreau moved to Church Hill, it was full of empty, dilapidated buildings, a far cry from those pockets of commerce that exist there today, with its award-winning restaurants and bakeries.

The neighborhood’s renewal has been fueled, in part, by developers like him and Kleyman. Most recently, the pair teamed up for the first time to transform the 2400 block of Jefferson Avenue. (They have another mixed-use project underway at the corner of 35th and East Marshall, and Jarreau has one that he’s working on separately a couple blocks over.)

Their Jefferson Avenue development began in 2015. But they didn’t complete the first building, which houses four short-term rentals, a juice bar and a yoga studio, until 2020. It took an extra two years to wrap construction on 21 other apartments and five commercial spaces in the second building.

“When we bought this piece of land, I wasn’t engaged yet,” recounts Kleyman. “By the time this got done, I had three kids already. Got engaged, got married and had three kids. So, seven years.”

But for them, the time and effort have been worth it. Jarreau’s real estate agency operates out of one of the buildings, and Kleyman goes there for juices on a daily basis and takes Wednesday yoga classes.

***

A very different set of players runs the development game in Scott’s Addition. Even the Jarreau-Kleyman team admits it has been priced out of the competition, which is dominated by big companies with big money, ones who can afford to build what Kleyman jokingly calls “human warehouses.”

In Church Hill, new developments are comparatively smaller. The target demographic is a healthy mix of buyers and renters, including under-40s without children and older suburban couples whose kids have flown the coop, all of whom are looking to settle down. Scott’s Addition buildings, meanwhile, tend to have 200 to 300 units apiece and cater to a transient pool of renters in their 20s and 30s.

Founded in 2012, Capital Square owns approximately 15,000 multifamily residential units across the Southeast. Since the company ramped up its development arm five years ago, it has undertaken 10 mixed-use developments in mid-sized cities such as Richmond, Raleigh, Charleston and Knoxville.

Capital Square’s Richmond projects all happen to be in Scott’s Addition, much of which is designated as a qualified opportunity zone. Four have already been built, and two more are slated for construction, for a grand total of 1,200 new condos. Each is funded by investors, some of whom are local, in project-specific “opportunity zone funds,” guaranteeing them certain tax benefits.

“All of these projects have retail on the ground floor,” says Natalie Mason, the company’s co-head of development, noting that they’ve skewed toward coffee shops and other fast-casual concepts in their buildings. “We view having activated, ground-floor retail as a critical component to having a vibrant residential neighborhood.”

The existing scene in Scott’s Addition, with its breweries and arcade bars, was what drew them there in the first place. “Bringing in a variety of different retail operators, we think, will continue to make this neighborhood more attractive to renters,” she says.

***

Even though restaurants and other storefronts in mixed-use buildings add value, they aren’t direct moneymakers for developers.

“You’re consciously taking a hit on your rental income to create this commercial space,” according to Jarreau. He and Kleyman sign longer leases for these spaces and are unable to charge much more per square foot than they would on the residential side of the equation. So, rarely do they help the bottom line.

Retail accounts for an even smaller fraction of Capital Square’s operating revenue.

“It’s not something where there is a financial benefit to doing more retail,” Mason confirms, particularly given the size of their properties. “The focus certainly is on the residential portion of the building.”

The process of curating retail offerings varies by project. Generally, the brainstorming begins several years out from one’s anticipated completion date, as early as when blueprints for the building are being drawn up.

Depending on what the first floor is used for, design decisions have to be made. A full-service restaurant may require the installation of certain exhausts, plumbing and other utilities that a coffee shop or clothing store may not.

“It’s hard, day one, to have a sense of exactly which operators,” says Mason. “But you more lay out a plan of what type of mix you’re looking for.”

In a Capital Square-sized building like The Otis, where there’s 5,000 square feet of retail and commercial spaces to fill, it’s especially important to start thinking about things sooner rather than later.

Once construction is underway, the tenant search commences. This sometimes involves developers soliciting businesses they already know and want to move in and, in other cases, involves the use of commercial realtors who bring the businesses to them.

Jarreau and Kleyman, from the beginning, knew they wanted one of their Jefferson Avenue spaces to be a juice bar, so they reached out to North End Juice. Another prospective tenant, the owners of Spotty Dog Ice Cream, knew Jarreau personally.

The partners were less sure of what to do about the 2,000 square-foot corner storefront that Emerald Lounge and Slurp! Ramen eventually took over. It should be “some sort of food and beverage operation,” Kleyman remembers thinking. Other than that, “I don’t know if we had any strong opinions about it.”

At first, their net was cast widely. They reached out to neighborhood restaurateurs like The Roosevelt’s Kendra Murden and Mark Herndon and chef Brittanny Anderson, who leases Metzger Bar and Butchery and The Pink Room from Kleyman. Jarreau, who was keen on bringing a Thai or sushi restaurant to the area, spent hours soliciting every act in town he could think of.

Collaborating with Kevin Liu and his co-owners from The Jasper bar in Carytown had also been on the developers’ wishlist. As luck would have it, the space caught Liu’s eye as he was driving by one day, and he contacted them through Sperity Real Estate Ventures’ Nathan Hughes and voiced an interest in it.

Capital Square retail tenants came about in a variety of ways, too. They found Cochiloco through a broker, but Lillian, more or less, found them. After a random run-in with a Capital Square representative on the street, Phelan obtained their email and pitched the idea of an oyster bar to them, one that he’d been storing in his back pocket for years.

To be sure, Mason and her team were no strangers to his work.

“Our proximity to [Phelan’s] other location – Longoven, now Lost Letter – that was a real plus from the get-go,” she says. “We would’ve talked to and considered other concepts, of course, in the Gem building, but it was just a natural fit.”

The company had outfitted the Lillian space for two separate retailers. But since they were still working on the building when Phelan came aboard, they were able to completely change the floorplan and customize it for him. The long, linear layout lent itself to the table-height bar he was looking to install in the restaurant. Luckily, no stoves were needed.

***

Mixed-use developers, in many ways, get more involved with their retail tenants than a regular landlord.

In deciding what food and beverage operators to incorporate into their spaces, they often ask for a business plan, design concept, and even past financials, things that others may not care about so long as the rent is paid.

“That’s when it becomes more clear to us if it’s a good fit, both from an aesthetic standpoint, but also from a business standpoint,” Mason explains.

To start, Phelan, together with his trusty architects at Fultz & Singh, drew up a deck for Lillian, complete with a mock-up menu, design drawings, and descriptions, which Mason’s team at Capital Square promptly reviewed and approved.

Liu, similarly, fired off a full proof-of-concept for Emerald Lounge and Slurp! Ramen, prepared by Campfire & Co., the same design firm he used before. In-depth discussions with Jarreau and Kleyman ensued. The developers stressed that the last thing they wanted for Jefferson Avenue was a seedy sports bar, and The Jasper’s sterling reputation reassured them of that.

Once a concept has been vetted, however, restaurant owners are mostly free to make their own creative choices.

“It’s their business, it’s their baby,” says Kleyman. “So, we try to stay out of their way.”

Lease agreements generally specify what a space is to be used for, such as a restaurant or bar. But provided there’s not a total use change, business owners are given room to pivot, whether that means finetuning their idea, reworking the food, or making physical changes.

Of course, because adjoining facilities in a mixed-use building are shared by its residents, it’s not uncommon to find negotiated lease provisions that restrict what restaurants or bars can do as far as their use of common areas, plan for food deliveries and trash disposal, exterior signage and décor, and hours of operation. (Jarreau and Kleyman have started asking their tenants who serve the public to stay open at least five or six days a week.)

According to Liu and Phelan, none of this stands in the way of their ability to operate.

“We had a whole lot of freedom” with the menu and design, says the Lillian owner, who recently received Capital Square’s blessing to add outdoor seating. “I’m still doing my little micro-pivots throughout.”

As for Emerald Lounge and Slurp! Ramen, the only time there was an issue was when Liu and his partners tried installing yellow vinyl which, Jarreau and Kleyman argued, clashed with the look of the building. The developers, however, had no qualms greenlighting their request to add colored tinting to the patio lights.

Nothing compares to what Liu dealt with back when he leased a spot in Short Pump Town Center. The corporate mall owners there exerted way more control over their operations, he says. Businesses were made to sign 50-something page contracts and comply with a Home Owners Association (HOA)-like rulebook. And it was mandatory that they open on major holidays, report gross sales every month, and agree that, if a certain revenue threshold was met, their landlord would be entitled to a percentage of it.

***

Under the mixed-use dining model, there is a kind of financial “partnership.” Not in terms of equity ownership or profit sharing. But in terms of an industry practice known as “tenant improvement [TI] allowances,” which are fronted by developers to help restaurants and others finance the interior buildout of their spaces.

“They’re getting a blank shell. … But that requires a significant investment on their part,” says Kleyman. “As developers, we’re contributing money towards that buildout.”

Technically, it’s more akin to a construction loan than a subsidy. The amount that a developer agrees to advance — which is significant, but usually no more than 50%, according to Kleyman — is a negotiated part of the leasing process. And it gets priced into the base rent amount and paid back over time. Roughly speaking, more TI money means higher rent and vice versa.

Even so, developers are arguably forgoing returns on funds they’d be better off investing elsewhere. And from the business owners’ perspective, unless one can find an affordable, move-in ready alternative or has money on hand to fully renovate an existing storefront, a developer-funded buildout from scratch may have its advantages.

“In a buildout, you are looking for cashflow,” Phelan explains. “You want to get to the finish line and get your restaurant open with as much assistance built in there as possible so that you’re not having to come up with that cash while you’re not having any revenue come through your doors.”

That’s where tenant improvement money comes in handy.

The actual buildout is left to the businesses themselves. Don’t expect to find developers weighing in on the wallpaper, tile, or upholstery. They will review a tenant’s blueprints and choice of contractor and interior designer or, on occasion, resolve building-wide issues impacting the piping and ductwork. Otherwise, they infrequently intervene.

If restaurant owners do need a bit of assistance along the way, developers are able to provide it. Kleyman, who keeps folks on speed dial for all kinds of emergencies, helped the Emerald Lounge guys whenever they had permitting or plumbing problems. And he’s recently been helping Anderson navigate City Hall, after her new restaurant, The Pink Room, ran into zoning issues two months into opening.

***

When Evrim Dogu and his sister Evin opened Sub Rosa bakery in 2012, they bought the entire 5,000-square-foot building outright for $300,000 and lived upstairs from it, rent free. They were also given the option of leasing just the bakery space for less than $1,600 a month.

All this “made it possible for Sub Rosa,” says Dogu. “If we had to pay a large amount for rent going into it, yeah, it would’ve been prohibitive.”

The Richmond real estate market, however, has changed a lot.

Since 2018, Dogu has been scouting for a second location in which to open up a Roman-style pizza counter and wine bar and expand their milling and bakery production. Even with an established brand, more capital than they had when they started, and four James Beard nominations, the Sub Rosa siblings have, thus far, been unable to find something they can reasonably afford to rent, much less buy.

“When we first opened Sub Rosa, it was still difficult to find the right spot, but I didn’t feel like cost of spaces was the issue then,” Dogu observes. “That’s the thing that’s changed a lot, as we’ve been looking around at a lot of different spaces all around different parts of the city.”

They’ve already had to rule out being able to own another place, and most of the rental properties they saw were either too expensive or would require too much money to renovate.

Believe it or not, one of their best options was a newly-developed space in Scott’s Addition, only slightly bigger than their Church Hill bakery. But they still would’ve paid the developer over $6,000 to $7,000 a month for it. And in the end, Dogu couldn’t stand the thought of bringing Sub Rosa into what he calls the “sprawl” of Scott’s Addition.

(UPDATED 11/24: Meanwhile, the Dogu’s have been displaced from their one and only building in Church Hill after a devastating fire broke out this past Sunday. No word yet on when the acclaimed bakery will reopen.)

Rents have certainly gone up. According to real estate firm Cushman & Wakefield | Thalhimer, annual asking rent in the Richmond retail market was reportedly an average of $13.62 per square foot in 2013 versus $17.96 in 2023. Meaning that the average monthly rent for a 2,000-square-foot space went from $2,270 to $2,993.

For full-service restaurants nationwide, surveys by the National Restaurant Association showed that median occupancy costs per seat (which include rent as well as taxes and property insurance) increased by 125% from 2014 to 2022, whereas median sales per seat only increased by 54%.

All of this has only made it harder for an industry that relies on razor-thin profit margins. Between paying to rent and renovate a place on your own or working with some mixed-use developer, one isn’t necessarily a better choice than the other. Take it from Phelan who’s done both.

“There’s probably a stereotypical kind of knee-jerk reaction to be suspicious of developers,” says Phelan, but “whether it’s a big developer or a smaller rental situation, all the numbers just have to work – and rent’s a serious one.” Developer or not, he says, “rent pushes out sometimes really great restaurants.”

Being in a mixed-use setting, where there’s already an audience and other businesses around to drive more foot traffic into one’s restaurant, can help financially. “That single restaurant out on its own just is not as successful today as it is if it’s in a development,” says the Virginia Restaurant Lodging and Travel Association’s Eric Terry, which, in his view, explains all the developer-driven dining we’ve seen.

On the other hand, it’s not cheap getting in on the ground floor of a new development either. Even with TI allowances, restaurant owners still have to chip in a considerable amount of capital themselves for the buildout. Unless they can put up their own money like Liu and his co-owners did, or otherwise secure funds they need through an investor group like Phelan had, it may not be an option.

***

Nor is the opportunity offered to everyone who knocks on a developer’s door. Developers have to be strategic about who they let in.

“We are not in the business of losing money,” Kleyman reminds us. Which means picking a slate of candidates, particularly ones with a proven track record and clear plan, that they predict will be popular with local residents and perform well long-term.

“This is a bet on the neighborhood,” he says, and “a bet on the tenants that are going into this building.”

But how do they define “the neighborhood”? Is it only the so-called gentrifiers, or are they also thinking of other members of these formerly disinvested areas? A fancy oyster bar and cocktail lounge are one thing, but what about a mom-and-pop soul food restaurant or a Halal carryout spot or a Vietnamese pho shop owned by a family of refugees?

This isn’t the first time questions like these are being asked. For developers, there’s constant tension between preserving and renewing an existing community.

The Libbie Mill-Midtown development, in the early aughts, gave rise to high-end restaurants and shops, while replacing apartments once occupied by Southeast Asian immigrants who built a vibrant enclave in Richmond’s Horsepen Road area — a change that some called “the death knell for the international community.”

Last year, VPM reported that Jarreau’s Marshall Street project faced criticism after crews demolished a couple of beloved, 100-plus-year-old storefronts, without permission from the city. Both were previously Black-owned businesses.

As it becomes harder to buy or rent in Richmond and the mixed-use dining model grows, certain types of restaurants — those that don’t exactly fit this vision of what developers are building and who they’re building for — may be boxed out. And the restaurant scene may begin to look as cookie-cutter as the buildings they construct.

“I absolutely see that risk,” says Liu. “And hopefully, developers are also aware of it.”

That said, it’s hard to hold developers solely or directly responsible. Even Dogu, who has no love lost for them, is hesitant to point any fingers.

“To whatever extent that they drive the market further up, I think that they’re culpable,” says the Sub Rosa bakery owner, “but I don’t feel like developers have much to do with some of those market forces.”

From rising real estate prices to higher food and labor costs to changes in consumer spending, there are a host of challenges facing independent restaurants, particularly ones that fall between fast-casual and uber fine-dining. Regional restaurant groups are faring slightly better than the rest of the pack. But the fact is, “our full-service restaurants are struggling,” says Terry. “And some of that’s just the cost of doing business.”

If anything, developers have capitalized on the situation. They didn’t create it.

***

Thanks to these developers, though, there are also spaces for new businesses that did not exist before. Which is a positive contribution when you stop to consider the scarcity of affordable Richmond real estate.

“The more supply of new retail spaces in the city, the better it is for people looking for space,” says Mason.

This, in turn, can be transformative. Phelan, for one, observes that the influx of developer-driven retail, including restaurants like his, has arguably made Scott’s Addition more than just a drunk adult playground for beer and dart throwing.

When Jarreau and Kleyman’s Jefferson Avenue development was first proposed, Dogu had his doubts and even went so far as to attend city meetings and oppose the project, calling it “an abomination.” Yet, as much as he still hates the look of these new builds, he’s come to believe it’s benefitted the Church Hill community.

“I love every single spot that they’ve opened across the street from Sub Rosa,” he confesses. “I had my misgivings, but this is great.”

According to developers I interviewed, their goal is to make these spaces accessible to as many different types of retail tenants as possible. But that has its limits.

“There’s always room for everybody,” Kleyman claims. “The question is, can they afford to pay the rent that we must obtain in order to build this building?”

In their defense, many developers that Phelan has seen seem willing to do what they reasonably can – including lowering the rent – to support all sorts of establishments.

“I don’t think they just want one kind of profile of a business throughout the neighborhood,” he suggests.

If anything, unlike other landlords, some of them are motivated by more than just dollar figures. It’s not purely a “commercial relationship,” says Liu. At least not in his experience. “It’s much more about, what are we adding to the community?”

As Jarreau and Kleyman point out, several first-time, female-owned businesses have opened in their mixed-use development on Jefferson Avenue. The Spotty Dog owners, despite lacking in experience and capital, were such great people with such great ideas that they decided to take a chance on them.

The Church Hill developers have also been mindful of not filling their buildings exclusively with fine-dining concepts, but making room for more affordable dining options as well. And they’ve consistently said no to national chains, in favor of small, local establishments.

Despite being a bigger player in Richmond, Capital Square has taken the same approach, leasing to locals and newbies while turning down big-brand names and trying to keep their offerings as varied as possible.

Not all commercial developers follow that playbook, though.

“If we were, let’s say, a larger regional or national developer, we would be much more likely to look at franchises,” Kleyman notes. “And we would actually not even entertain leasing to first-time business owners or very small players.”

Consider the cluster of chains near the Diamond ballpark. Starbucks, Raising Cane’s, Chipotle, and Marco’s Pizza, all of which recently moved into the Scott’s Walk development by Thalhimer Realty Partners.

***

Mixed-use development could well be the future of Richmond dining. But is it the future we imagine for ourselves, one where developers, however well-intentioned and considerate they may be, are driving the food scene? Perhaps, at times, in the wrong direction.

It’s no surprise, given Dogu’s not-so-pro-developer stance, where he comes out on this.

“[Developers] already have too much power,” he says. “So, giving them the extra creative power over what exists in Richmond is sad.”

Liu is cautiously optimistic. In his opinion, should the mixed-use dining model persist, we don’t want developers becoming too involved or disinterested. Rather, they’ll need to find a balance – between thinking they’re restaurateurs and know more about the industry than they do, and not thinking hard enough about it and caring only about who pays them the most rent.

Nobody really knows where Richmond’s developer-driven dining is taking us. Propelling things forward is a desire for growth. But not all growth is responsible or sustainable. Sometimes, like weeds in a garden, it can be depleting.

Putting another mixed-use building on the map, with any luck, won’t just mean replacing another creative restaurant idea with one that panders or plays it safe. And hopefully, in making room for our city to grow, developers will leave enough of it for chefs and restaurant owners to innovate, take risks, and do what they do best.

Justin Lo is a Richmond food writer and dining critic. He has written for the Richmond Times-Dispatch since 2019, along with Style Weekly, En Forme Magazine, and the Southern Foodways Alliance. Follow him on Instagram @justinsjlo.