The Corner Bakery cafe chain filed for bankruptcy protection, saying it's joining the growing number of similar eateries struggling because workers that traditionally grabbed meals or placed catering orders haven't returned to downtown offices.

The Dallas-based company, which has about 140 restaurants, is also trying to avert a foreclosure sale by a company that acquired one of its loans and said it is dealing with "increasingly impatient" landlords as COVID-relief funds to pay rent dry up, according to Chapter 11 documents filed in U.S. Bankruptcy Court in Delaware. The company that now holds Corner Bakery's loans denies the chain's allegations.

The reduced number of workers commuting downtown five days a week in cities across the country has hurt businesses relying on those customers. It also has led to talk of whether to shift toward adding more residential space, potentially converting offices, in a strategy to help local restaurants, stores and other businesses. New York is looking at zoning changes, while Washington, D.C.'s mayor wants to increase its downtown population.

Corner Bakery is seen as a competitor to fast-growing Panera Bread, which is headquartered in Sunset Hills, Missouri, as a fast-casual eatery featuring breakfast, lunch and dinner and offering a menu with sandwiches, salads, pastries and other sweets. But the bakery-cafe sector, perhaps more so than other kinds of restaurants, has faced difficulties during and in the wake of the worst of the COVID outbreak as employees work from home.

In 2020, when the pandemic forced most restaurants to temporarily close, the U.S. operator of the Le Pain Quotidien bakery chain filed for Chapter 11 and was later sold. And last year Panera's parent, Panera Brands, was slated to file for an initial public offering but called it off citing "deteriorating" capital market conditions.

"Since opening its first location in Chicago in 1991, Corner Bakery's urban-centric fast-casual concept relied heavily on the breakfast and lunch daytime office worker crowd to drive sales and restaurant traffic," Amanda Lai, director at retail consulting firm McMillanDoolittle, said in an email to CoStar News on Monday.

"As remote work schedules continue to persist post-pandemic, Corner Bakery and competitors such as Au Bon Pain and Pret a Manger have been particularly challenged by weak downtown foot traffic and reduced demand for corporate catering," Lai said. "Coupled with inflationary challenges, supply chain disruptions, and labor pressures, urban restaurant brands like Corner Bakery have faced mounting pressure from landlords and lenders as government assistance has dried up and sales and foot traffic remain below pre-pandemic levels."

Even so, there are signs that downtown businesses could find a different type of customer. A new study in Chicago shows one sign of promise for restaurant chains such as Corner Bakery is that the central business district is said to have added 3,700 residents during the pandemic, providing a new source of demand.

In October 2020, Pandya Restaurant Growth Brands, part of Rohan Group of Cos., owned by real estate investor and restaurant operator Jignesh Pandya of Newtown, Pennsylvania, acquired Corner Bakery from Atlanta-based Roark Capital Partners. Terms of the deal weren't disclosed.

In a statement at that time, Corner Bakery CEO Frank Paci said the sale would give his chain "access to resources that we need to continue to operate our business in this challenging environment" and in a position to grow its brand. The chain's real estate footprint currently spans states including California, Texas, Pennsylvania, Illinois, Virginia, Maryland and D.C.

Pandya, who also owns the Boston Market restaurant chain, detailed Corner Bakery's financial challenges in a 14-page affidavit filed in bankruptcy court.

"Like many urban, fast-casual concepts, Corner Bakery struggled during the pandemic and saw sharp declines in earnings and revenue," Pandya said. "Office closures proved especially problematic for Corner Bakery, as a large part of its revenue is derived from catering for workplaces, as well as breakfast and lunch for commuters."

In addition, he said, "the company had been experiencing difficulties and declining average unit volumes even before the pandemic, leading it to hire restructuring and financial advisers to explore strategic alternatives."

Corner Bakery made roughly $7.5 million in principal payments on outstanding loans since 2020 despite its challenges, according to Pandya.

"During that same period, although Corner Bakery's core business remained strong, the company has been plagued [by] the same challenges that have riddled the fast-casual restaurant sector since 2020, such as cost increases for ingredients that cannot easily be passed on to customers, inflation, supply chain disruptions [and], a challenging labor market," he said.

In addition, "landlords how have been increasingly impatient as COVID relief funds have expired ... in the post-COVID climate," according to Pandya.

"While many Corner Bakery locations are profitable, others are under-performing and burdening the company," he said.

Corner Bakery said it had been in negotiations with lenders who alleged it had defaulted on its loans when it was notified that SSCP Restaurant Investors, which it described as a market competitor, had purchased the loans.

In a Feb. 17 letter, SSCP notified Corner Bakery of "alleged additional events of default," according to Pandya. Corner Bakery offered to make loan payments, but was "informed that SSCP would not address their requests and intended to foreclose on the company's assets," he said in his affidavit.

SSCP, based in Dallas, said it disputes Pandya's allegations.

"We look forward to working with the professionals and the court for a successful outcome of these proceedings that is in the best interest of the Corner Bakery brand," Ken Schwab, SSCP director of finance, said in an email to CoStar News.

In its filing, Corner Bakery listed assets and liabilities of $10 million to $50 million each. The company said it employs roughly 2,000 people, with about 150 of them full time.

Corner Bakery was No. 121 among chains in U.S. system-wide sales in a recent Nation’s Restaurant News census, according to Pandya's affidavit.

Corner Bakery didn't immediately respond to a request to comment beyond the affidavit.

Corner Bakery has retained Culhane Meadows as legal counsel, Hilco Trading as its financial adviser and investment banker, and Kurtzman Carson Consultants as its an administrative adviser.