Commercial mortgage interest rates showed little movement over the past 30 days, according to the Barron's/John B. Levy & Co. National Mortgage Survey of large institutional lenders nationwide. The Federal Reserve's 14% reduction in short-term rates had virtually no effect on the long-term commercial mortgage market, which had already factored the rate reduction into its pricing matrix. Mortgage rates remain at dazzling low levels as witnessed by the Barron's/Levy 10-year prime rate, which is now 7%.

January is traditionally a slow month for the business as both lenders and borrowers are recouping from the flurry of year-end closings and planning for the coming year. This january was no exception and, as a result, commitment volumes were well below the pace set for most of last year. A few survey members appeared to be somewhat concerned that their pipeline of deals was less than needed to meet their ambitious 1996 goals. But the grumbling wasn't enough to entice them to reduce spreads in order to speed up the pace of business.

Mortgage spreads -- the difference between mortgages and Treasuries of the same maturity -- were relatively unchanged. The Barron's/Levy 10-year prime spread of 1.45% hasn't moved of recent. More than a few survey members felt that current spreads were too low, especially given the overall level of rates. To be sure, if loan volume picks up, they will be the first to try and increase their take. But for now, they seem to be willing to merely sit and watch the market take form.

With the dismal Christmas selling season now behind, one might suspect that institutions are biting their nails over coming delinquencies in their retail portfolios. Though they may be privately nervous, survey members all seem to feel that it was the other guy's portfolio that would take the beating. To date, retail has been such a stellar performer that it's hard to get lending executives worked up about future defaults. For example, for 1995, the retail sector's default and delinquency charges, as measured by the Giliberto/Levy Commercial Mortgage Performance [Index.sup.sm], was only half as much as the overall Index's cost. In fact, retail was only a tad more delinquent than apartments, which remain the stellar performer of the real estate industry.

But frankly, the outside analysts are not nearly so sanguine. They are particularly concerned about "big box" retail, which covers stores of 40,000 sq. ft. or larger. They convincingly argue that the number of tenants who can take these spaces are declining and that the credit of the group as a whole is weakening. Many survey members have taken the warning to heart and are either refusing to do new "big box" or "power strip" centers or are greatly reducing their maximum loans to value on these transactions in order to protect against any coming default. But these recent defensive moves do not protect against loans which are already in the portfolio.

Commercial mortgage backed securities originations declined some 10% to $18 billion from the previous year. Estimates for 1996 are for volume of about $18 billion to $20 billion, which would be consistent with origination levels for the past two years.

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