Caught by the braking of the area's business expansion and a tighter credit environment, Stern Office Furniture Inc., an important retailer that has operated in Washington since World War II, filed for bankruptcy protection Monday.

In a Chapter 11 reorganization filing at the U.S. Bankruptcy Court in Rockville, the Capitol Heights-based company said it had assets of $4.4 million and liabilities of $6.65 million, including almost $3 million owed to Sovran Financial Corp.

Retail observers said that when sales dropped dramatically, Stern was caught, like many others whose fortunes are linked to the commercial real estate market.

"They did very well in the boom times, but did not get in a position to shrink down when things started to get tough," said one retailer. "We all had salad days when they could not build enough commercial office space, and we all rode the crest of the wave. Now we can't give the stuff away, and anyone who hasn't made a lot of right decisions on a continuing basis will be in trouble."

Since Friday, the company has closed seven of its 11 retail locations, mostly in Virginia and the District, and has centralized its private contracting operations at its Maryland headquarters. Fifty employees, mostly salespeople, were laid off on Friday and the remaining staff of 82 is expected to be pared down considerably.

"It's very emotional for me and for everyone in the business," said Andrew M. Stern, president of Stern, which was founded by Stern's father and uncle more than 40 years ago. "But we expect to be back in business as soon as possible... . This is what I have done my whole life and want to continue to do."

Mirroring the precarious state of the commercial real estate market here, Stern has been hard hit in recent months. Its business has been heavily dependent on continual openings of new office buildings and the company has suffered a 25 percent decline of its revenue in the last 12 months, Stern said, down to $25 million a year. Retail analysts estimated that the Washington area's retail office furniture business totals just over $200 million annually.

Especially damaged was Stern's retail "in stock" division -- Stern executives have expanded and spent a lot of money decorating showrooms in recent years to take advantage of a booming walk-in business. But sales in that area have dropped sharply, Stern said, leaving the company stuck with high overhead costs.

And, he said, its backbone contracting operation, which sells higher-priced, special-order office systems, also has suffered as companies have cut operating costs, including purchases of new equipment.

Stern's major area competitor, Laurel-based Desk & Furnishings Inc., already has seen similar problems, having emerged from bankruptcy earlier this year.

"A few years ago, 80 percent of the business walked in through the front door," said Irv Godles, current vice president and general manager of D&F, a seven-store operation now owned by a Chicago-based company. "Today you have to go out and find business, be very lean and gear yourself for both the good and bad times."

Other factors also exacerbated Stern's problems, including increased competition from office product stores and superstores, such as M.S. Ginn Co., Staples Inc. and Jacobs Gardner Supply Co., which have expanded and upgraded their office furniture offerings.

Stern employees said they were shocked by the filing and are worried about finding new jobs. Some Stern workers had been laid off over the past few months, but the biggest firing took place on Friday.

"I don't know what's going on," said one employee, who was let go from Stern's Sterling store. "There is no severance, vacation, no back expense payments -- the manager said if we wanted to recover we should file a claim."

The bankruptcy reorganization will basically be a downsizing, Stern said. Most of Stern's unsecured creditors -- owed $3 million -- are office furniture manufacturers, he said, and many of them have agreed to cooperate with the company to get the business back to financial health.

Remaining operations will continue uninterrupted under bankruptcy reorganization, Stern said.