The recent commercial mortgage market can best be described in one word: volatile. Interest rates have headed up, thanks in part to actions taken by the Federal Reserve, while spreads - the difference between Treasuries and commercial mortgages of the same term - have increased as well. Although increasing interest rates and spreads have brought volatility to the market, the market feels quite different than it did during last fall's market crash.

Laura Quigg of New York-based Sanford Bernstein offers, "Despite the market's turbulence, there's nowhere near the fear of last fall." Although the new higher rates haven't suited the borrowing community, lenders, especially those in the life insurance industry, are smiling from ear to ear. As one large life insurance company executive notes, "This is a great buyer's market - what's not to like?"

On the commercial mortgage-backed securities side, early September was fairly quiet as most investment banks decided not to launch new transactions until after Labor Day. Despite the calm, there was plenty of action. On the positive side, New York-based Soros Fund Management, the global money manager headed by financier George Soros, announced that it had started a newly-formed mortgage arbitrage team headed by executives formerly with Bankers Trust. Industry observers noted that the team would surely be involved in CMBS, though a Soros spokesman declined to comment on the company's future activities. Nevertheless, the Soros' reputation for picking sectors in advance of a rally brought a smile to the face of many CMBS money managers.

In late August, Philadelphia-based GMAC Commercial Mortgage led a $1.15 billion securitization of conduit loans, which received more than the usual amount of attention. The entire $600 million Class-A2 rated triple-A was reportedly sold to Freddie Mac, though both GMAC and Freddie Mac declined to comment. Freddie Mac has been a buyer of large tranches before, and this purchase seemed to reassure the market that positive trends were in the offing. As one money manager comments, "Freddie doesn't buy dumb stuff."

Charlotte, N.C.-based First Union National Bank was also reportedly in the market with a voracious appetite. The bank was said to be buying more than $300 million in triple-A securitizations. First Union officials noted that they view CMBS as a good value but declined to provide any specifics on their purchases.

On the CMBS side, the offering calendar for October looks somewhat modest. Optimists are estimating that only slightly more than $4 billion will come to market in October. But even though the forward CMBS calendar appears to be relatively in check, the asset-backed securities and corporate bond calendars seem to be positively huge. As a result, CMBS spreads are not expected to tighten until after the deluge of paper in the other two markets has found a home.

Money managers view this as a buying opportunity for those who can stomach short-term volatility. To virtually no one's surprise, new loan originations are running well below target. Although few CMBS originators will admit it on the record, most have privately acknowledged that production is off by at least 50%. For those looking down the road, the decreasing originations indicates that the CMBS pipeline late this year and early next year will not set any records.

The technical side of both the CMBS and whole-loan markets still seems extraordinarily strong. New construction is being kept in reasonable check and loan defaults and delinquencies are at record low levels.

But as many industry observers opined, it is late in the game and this good news cannot go on forever. This is true in the multifamily sector where defaults and delinquency costs have been at almost immeasurably small levels. According to Freddie Mac's Charlie Olsen, "The bloom is off the rose in some spots, including rent concessions in markets such as Denver, Atlanta and Las Vegas."