NEW YORK CITY-Citing deterioration of its loan portfoliofollowing the collapse of the market for securitized debt, PetraFund REIT and its parent Petra Offshore Fund L.P. filed for Chapter11 protection Thursday. The filing at US Bankruptcy Court inManhattan lists assets of between $1 million and $10 millionagainst liabilities of $100 million to $500 million.

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In court documents, Petra, led by president and CEO AndrewStone, cites the judgment won against it this past spring byNewport Beach, CA-based KBS Preferred Holdings I LLC over debtarising from an unsecured loan. Petra says it tried unsuccessfullyto negotiate with KBS following the May judgment by New YorkSupreme Court Judge Eilleen Bransten and the creditor’scommencement of enforcement action.

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According to an SEC filing, KBS in October 2007 made a pair of$25-million interest-only loans to Petra. Bransten’s May rulingnotes that Petra made no payments on the loans.

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Petra says in an affidavit supporting the bankruptcy filing thatunder the terms of a restructuring agreement in principle with asecured creditor that holds a lien on its Petra CRE CDO 2007-1,which provides financing for “a substantial portion” of the REIT’sreal estate transactions, it’s required to file for Chapter 11protection. The REIT is affiliated with Petra Capital Management,which serves as manager of the $1-billion CDO.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.