Local coffee chain Compass Coffee has filed for Chapter 11 bankruptcy protection.
:no_upscale():quality(75))
The owners of the business, with 25 stores in D.C., Maryland and Virginia, filed the petition with D.C.’s bankruptcy court to reorganize Tuesday.
The petition is asking the court to reject the leases for nine cafes and Compass' former roasting plant in Ivy City by Jan. 30 if the company cannot renegotiate the lease agreements.
The locations include a Brookfield-owned office building on New York Avenue in downtown D.C., a drive-through coffee shop on Lee Highway in Virginia and a location across from the McPherson Square Metro station.
The company has already vacated its roasting plant at 1401 Okie St. NE, the filing says. Its landlord there — the American Armed Forces Mutual Aid Association — has sued Compass for what it claims is more than $1M in unpaid rent. It is just one of multiple suits from landlords and vendors the company is facing.
One outcome of Compass' bankruptcy process could be a sale.
“After years of struggling financially since the pandemic, Compass has determined that selling the business as a going concern through this chapter 11 case likely represents the best means to preserve jobs and landlord and vendor relationships, and maximize the recoveries for creditors,” Compass co-founder Michael Haft said in his declaration to the court.
Haft said the company reached an agreement with a “strategic buyer with a substantial, global presence in the retail coffee business” that would assume “substantially all of its assets.”
The Washington Post, which first reported the bankruptcy filing, said the bid is likely a “stalking horse,” used to set the price floor for buyers that may become interested during the bankruptcy process.
In his declaration, Haft said Compass' business was severely impacted by the pandemic and the persistent trend of lower office usage.
“Despite the end of the pandemic, customer traffic remains depressed from pre-pandemic levels due to forces beyond the company’s control, including the reduction in government employees and the remote nature of the work of some of the company’s customer base in urban areas,” he said.
He said the company has already stopped its distribution business, which it started during the pandemic to offset losses from declining sales at its cafes, and has sold some of that roasting equipment and inventory.
The bankruptcy filing says the company's assets are between $1M and $10M and its liabilities between $10M and $50M.
The Post reported that the company owes about $10M, between investors and unsecured creditors, including nearly $2M to its landlords.
The chain was launched in 2014 by Haft and Harrison Suarez, who have since parted ways. It has 166 full- and part-time employees. The coffee shops will remain open during the time the bankruptcy case is open.
“Compass is not alone in facing these pressures,” says a Tuesday blog on the company's website announcing the bankruptcy. “Washington is experiencing a broad contraction across the restaurant and cafe sector, affecting national chains and local institutions. Rising costs, reduced foot traffic, and structural changes to work patterns have reshaped the economics of urban retail citywide.”
Here are the addresses of the leases Compass is asking the court to reject:
1401 Okie St. NE
1401 I St. NW
1921 Eighth St. NW
655 New York Ave. NW
7393 Lee Highway, Falls Church
1924 14th St. NW
1827 Adams Mill Road NW
4300 Wilson Blvd., Arlington
1703 H St. NW
4210 Knox Road, College Park
