Two Phoenix landlords have filed objections to Salad and Go sites they own being converted into coffee shops.
Davis Enterprises-Indian School Plaza LLC, which owns a shopping center at Seventh Avenue and Indian School Road, and LJO Properties, LLC, the landlord of a small commercial development at 35th Avenue and Baseline Road, objected to the use because their centers already offer drive-through coffee. The centers include Scooter’s Coffee and Black Rock Coffee Bar, respectively.
Salad and Go closed all its locations abruptly in August.
According to documents filed in the Southern District of Texas Bankruptcy Court, both Black Rock and Scooter's have exclusivity clauses in their leases, which limit competitors' ability to set up in the same plaza.
“The substantive restriction is that the premises cannot become a competing coffee-and-beverage retailer,” representatives from LJO Properties wrote in a document submitted to the court, which goes on to say the lease bars any business that makes up 15% or more of its sales on “whole-bean or ground coffee, espresso and coffee-based drinks, tea and tea-based drinks, brewed coffee or blended beverages containing coffee, espresso, tea, or energy-based beverages, smoothies and frozen juice drinks.”
The other exclusivity clause, the one between Davis Enterprises-Indian School Plaza and Scooter’s, is slightly less restrictive, prohibiting businesses that make up 30% or more of their sales from those drinks.
Salad and Go selected Tempe-based Dutch Bros to buy 65 of its leases, including the two that were objected. A competitor coffee shop, Arkansas-based 7 Brew, came forward after the deal became public, claiming it had made a better offer to buy the vacant drive-throughs.
While both objections specifically mention the Dutch Bros deal, the restrictions would apply to any coffee shop, including 7 Brew. The two are the first landlords to file objections, but it is likely more will be filed regarding Salad and Go locations in plazas that include coffee shops.
The sale agreement with Dutch Bros does allow for lease rejection of assumed leases if they meet certain conditions. One of those conditions is if there is a use restriction in the lease that is enforceable and if the landlord will not consent to a waiver or modification. For each rejected lease, the purchase price will be reduced by about $2 million, according to the agreement. The agreed purchase price between Dutch Bros and Salad and Go was $105 million for the 65 leases.
According to documents filed by Salad and Go, it assessed 16 potential buyers and determined that three, Dutch Bros and two competitors, were the most likely candidates. A representative from Salad and Go visited both top contenders in July.
The top two were Dutch Bros and 7 Brew. Salad and Go selected Dutch Bros and opened escrow with the company for the sale. However, 7 Brew has since claimed its offer was better, and a judge could require the leases instead be sold at an auction.
Corina Vanek covers development for The Arizona Republic. Reach her at cvanek@arizonarepublic.com. Follow her on X @CorinaVanek.
This article originally appeared on Arizona Republic: Landlords fight plans to convert Salad and Go sites into coffee shops
