Coffee Shop Closing As DMV Chain Files For Bankruptcy

COLLEGE PARK, MD — Compass Coffee in College Park will be closing its doors after the coffee shop chain filed a Chapter 11 bankruptcy petition Tuesday in U.S. Bankruptcy Court.

Compass Coffee operates 25 coffee shops across the DMV and plans to close 10 of them. Included in the filing submitted by Compass CEO Michael Haft was a list of 10 unexpired non-residential leases the company asked the court to reject.

"The Debtor leases the premises for each of its 25 cafés from unaffiliated landlords," according to the filing. "Certain of the Leases have become unprofitable due to decreased customer traffic, in part as a result of the financial headwinds the Debtor faced leading to the filing of this Case, as more fully described in the M. Haft Declaration. The Debtor has conducted a thorough analysis and identified the cafés related to the Leases listed on the Lease List as those that are likely to continue to drive losses for the Debtor, and as a result, should be rejected."

One of the leases on the list was for the company's headquarters building, which is located at 1401 Okie St., Northeast in Washington, D.C. The other nine locations on the list are:

• 4210 Knox Road, College Park, Maryland
• 1401 I St. Northwest, Washington, D.C.
• 1921 Eighth St. Northwest, Washington, D.C.
• 655 New York Ave. Northwest, Washington, D.C.
• 7393 Lee Highway, Falls Church, Virginia
• 1924 14th St., Northwest, Washington, D.C.
• 1827 Adams Mill Road Northwest, Washington, D.C.
• 4300 Wilson Blvd., Arlington, Virginia
• 1703 H St., Northwest, Washington, D.C.

The company recently completed negotiations with a strategic buyer with a "substantial, global presence in the retail coffee business," according to Haft, adding that he would file a purchase agreement for the court's approval.

Haft filed the petition on behalf of the company, which owes about $1.7 million to four creditors, who have filed liens against the company.

"The proposed sale is contemplated to be a sale of assets of the business as a going concern, free and clear of claims, except those expressly assumed," Haft wrote. "Compass expects through the sale to pay its secured lenders in full, to pay the restructuring costs incurred to conduct the chapter 11 sale process, and to have additional proceeds sufficient to make a distribution to unsecured creditors through the chapter 11 case."

Compass owes EagleBank $643,779.25 on a term loan, the Small Business Administration $464,782.07 on a disaster assistance loan made to the company following the pandemic, and Square $518,083.19, which provided receivables financing for some of the cafés, according to the court filing.
The company owes approximately $5.2 million to insider and outside investors, as well as about $100,000 in credits to inKind.

The company also has more than 100 unsecured creditors who are owed a total of about $4.8 million, which are mostly past due rent, unpaid purchase amounts and accounts payable to suppliers and other vendors, according to court records.

"The onset of the Covid-19 pandemic in early 2020 had a massive impact on the company," Haft wrote in his filing. "Compass had to modify its customer-facing retail business, which resulted in the loss of considerable revenue and a resulting need to downsize its workforce. During the pandemic, the company developed a coffee roastery and distribution business in an attempt to offset the loss of income from the substantial reduction in café traffic."

Once the pandemic was over, customer traffic continued to depress due to forces beyond the company's control, according to Haft. These included the reduction of federal government employees and the remote nature of many of the businesses in the region.

"While some café locations remain profitable, others are only minimally profitable or unprofitable," Haft wrote. "In an attempt to overcome the loss of customer traffic, the company has instituted significant overhead reductions to maintain its operating cashflow while attempting to cultivate opportunities for a value-maximizing transaction. In particular, Compass has exited the coffee distribution business and returned its focus to the core business of operating cafés."

Compass employs 166 workers on a full- or part-time basis across its corporate headquarters and 25 cafés in D.C., Maryland and Virginia.

Patch Editor Michael O'Connell contributed to this article.