Troubled coffee shop chain files Chapter 11 bankruptcy, seeks sale | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Before Peet’s and Starbucks began massive expansions in the 1990s, diner-style restaurants such as Denny’s, IHOP, and Sambo’s were the go-to coffee shops for many consumers.

Even this reporter conducted newspaper interviews at “coffee shops” before Peet’s and Starbucks were nationally popular.

I once interviewed television, film, and Broadway actor Willard Waterman, who in the 1980s suggested we meet at a coffee shop — a now-defunct California Denny’s competitor, Lyon’s.

Waterman appeared on many westerns and comedy television shows back in the 1950s and ’60s. Lyon’s restaurants were established in San Francisco in 1952, and the last one closed in Sacramento in 2012, KOVR-TV reported.

Sambo’s restaurants, with as many as 1,100 in 47 states at one time, also disappeared. Racist connotations of the name “Sambo’s,” along with outrage over George Floyd’s killing in 2020, eventually led the owner of the last restaurant, Chad Stevens, the grandson of one of the founders, to change the name to Chad’s Cafe.

Peet’s and Starbucks replace diners as primary coffee shops

Denny’s and IHOP are still popular breakfast restaurants, especially on weekends, but most people don’t consider them coffee shops anymore, unlike Peet’s or Starbucks.

The modern coffee-shop sector has seen its share of closings, however. Starbucks reduced its North American store count by about 1%, or from 18,734 shops to 18,300 by the end of its fiscal year, ending September 2025.

Peet’s, which has over 250 locations in the U.S., closed a few stores last year.

Popular retail chain Compass Coffee files for Chapter 11 bankruptcy, seeking a sale of its assets.

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Compass Coffee files for bankruptcy protection

Another coffee chain is facing more dire circumstances with closings and a bankruptcy filing.

Washington, D.C.-based Compass Coffee filed for Chapter 11 protection to restructure its business and seek a sale to a stalking-horse bidder, facing a court judgment for unpaid rent and a lawsuit filed by co-founder Harrison Suarez, according to RK Consultants.

The Starbucks rival, which filed its petition in the U.S. Bankruptcy Court for the District of Columbia on Jan. 6, said the bankruptcy responds to a changing retail landscape in the nation’s capital.

Decline in foot traffic and office occupancy slows business

“Washington’s economic and retail landscape has changed fundamentally since 2020,” Compass Coffee said in a statement on its website. “Downtown foot traffic and office occupancy remain well below pre-pandemic levels, and consumer demand has shifted away from the dense weekday patterns that once sustained many urban cafés.”

“Retail models built for a different era, including legacy lease structures and fixed operating costs, no longer align with today’s reality,” the company said.

Compass Coffee listed $1 million to $10 million in assets and $10 million to $50 million in liabilities in its petition. The debtor owes $1.7 million in secured debt, $5.2 million in unsecured convertible notes, and $4.8 million in general unsecured debt, according to Bondoro.

Compass Coffee’s debts:

$10 million to $50 million in liabilities
$1.7 million secured debt
$5.2 million unsecured convertible notes
$4.8 million in general unsecured debt

The debtor reached an agreement with a strategic buyer to serve as the stalking-horse bidder for the company’s assets, backed by $450,000 in debtor-in-possession financing from prepetition investor National Investment Group.

The coffee chain was founded in 2014 by college friends Michael Haft and Suarez. Suarez last year sued CEO Haft and his father, alleging they had lied to him about owning an equal share of the company. Suarez said they cut him out of the company in 2021, WJLA-TV 7 reported.

Compass Coffee closed a roastery facility

Compass Coffee in December agreed to relinquish its roastery facility at 1401 Okie Street in D.C., almost three months after a D.C. Superior Court Associate Judge Leslie Meek in September ordered the coffee roaster to pay monthly rent while a landlord lawsuit against the tenant proceeded, according to the Washington Business Journal.

The debtor’s landlord, American Armed Forces Mutual Aid Association, in September filed for a protective order to require the tenant to pay an initial payment of over $113,000 and then over $116,000 per month starting on Oct. 1, which the judge granted.

More bankruptcies:

The tenant had not paid rent since January 2025 and owes the landlord over $744,000 in rent and related fees, according to court papers.

The coffee company also owes over $300,000 in back rent to the property’s previous landlord, Douglas Development Corp., according to a lawsuit filed by that landlord.

Compass Coffee was established in 2014 and currently operates 25 locations in Washington, D.C., Virginia, and Maryland.

Compass Coffee locations:

4710 Langston Blvd., Arlington, Va.
4300 Wilson Blvd., Arlington, Va.
4100 Wilson Blvd., Arlington, Va.
3003 Washington Blvd., Arlington, Va.
7393 Lee Highway, Falls Church, Va.
1201 Wilson Blvd., Arlington, Va.
4850 Massachusetts Ave. NW, Washington, D.C.
1351 Wisconsin Ave. NW, Washington, D.C.
2150 P St. NW, Washington, D.C.
849 18th St. NW, Washington, D.C.
1703 H. St. NW, Washington, D.C.
1827 Adams Mill Road NW, Washington, D.C.
1401 I St., Washington, D.C.
1924 14th St. NW, Washington, D.C.
1301 K Street NW, Washington, D.C.
555 13th St. NW, Washington, D.C.
435 11th St. NW, Washington, D.C.
1023 7th St. NW, Washington, D.C.
1921 8th St. NW, Washington, D.C.
1535 7th St. NW, Washington, D.C.
650 F St. NW, Washington, D.C.
1201 Half St., Washington, D.C.
821 I St. SE, Washington, D.C.
10400 Fairfax Blvd., Fairfax, VA.
4210 Knox Road, College Park, Md.