SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             -----------------------

                                    FORM 10-Q

(Mark One)
   X       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1998

                                       OR

       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934


                         Commission file number 1-22262


                             COMMERCIAL ASSETS, INC.
             (Exact name of registrant as specified in its charter)


                Maryland                                         84-1240911
    (State or other jurisdiction of                            (IRS Employer
     incorporation or organization)                         Identification No.)

  3410 South Galena Street, Suite 210                              80231
            Denver, Colorado                                     (Zip Code)
(Address of Principal Executive Offices)

                                 (303) 614-9410
              (Registrant's telephone number, including area code)

                                 Not Applicable
              (Former Name, Former Address and Former Fiscal Year,
                         if Changed Since Last Report.)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No ___.

As of October 30, 1998,  10,364,029  shares of Commercial  Assets,  Inc.  Common
Stock were outstanding.


<PAGE>



                             COMMERCIAL ASSETS, INC.

                                    FORM 10-Q

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

                                TABLE OF CONTENTS

                                                                            PAGE
PART I.    FINANCIAL INFORMATION:

           Item 1.  Condensed Consolidated Financial Statements:

                    Balance Sheets as of September 30, 1998 (Unaudited)
                    and December 31, 1997..................................    1

                    Statements  of Income  for the three and nine  months
                      ended September 30, 1998 and 1997 (Unaudited)........    2

                    Statements  of Cash Flows for the nine  months  ended
                      September 30, 1998 and 1997 (Unaudited)..............    3

                    Notes to Financial Statements (Unaudited)..............    4

           Item 2.  Management's Discussion and Analysis of
                      Financial Condition and Results of Operations........    9


PART II.   OTHER INFORMATION:

           Item 6.  Exhibits and Reports on Form 8-K.......................   16

                                       (i)
<PAGE>

                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                                      September 30,      December 31,
                                                                                          1998               1997
                                                                                          ----               ----
                                                                                       (unaudited)
ASSETS
<S>                                                                                     <C>               <C>       
Cash and cash equivalents                                                               $    2,641        $   74,153
Short-term investments                                                                      59,564                --
Investment in participating mortgages and leases                                             9,514                --
Investments in and notes receivable from Westrec                                             3,959             1,710
CMBS bonds                                                                                   1,795             1,981
Other assets, net                                                                              779               304
                                                                                        ----------        ----------
      Total Assets                                                                      $   78,252        $   78,148
                                                                                        ==========        ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities                                                $      570        $      368
Management fees payable to related parties                                                      48                75
                                                                                        ----------        ----------
                                                                                               618               443
                                                                                        ----------        ----------

STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share, 25,000 shares authorized; no shares                  --                --
   issued or outstanding
Common stock, par value $.01 per share, 75,000 shares authorized; 10,364  and                  104               104
   10,342 shares issued and outstanding, respectively
Additional paid-in capital                                                                  76,874            76,724
Retained earnings                                                                              656               877
                                                                                        ----------        ----------
                                                                                            77,634            77,705
                                                                                        ----------        ----------
      Total Liabilities and Stockholders' Equity                                        $   78,252        $   78,148
                                                                                        ==========        ==========
</TABLE>



           See Notes to Condensed Consolidated Financial Statements.

                                     - 1 -
<PAGE>


                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES
                      (In thousands, except per share data)
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                     Three Months Ended            Nine Months Ended
                                                                        September 30,                September 30,
                                                                        -------------                -------------
                                                                     1998          1997            1998           1997
                                                                     ----          ----            ----           ----
RENTAL PROPERTY OPERATIONS
<S>                                                                <C>           <C>             <C>           <C>     
Income from participating mortgages and leases                     $   151       $      --       $   151       $     --
Management fees paid to manager                                        (16)             --           (16)            --
                                                                    ------       ---------      --------       --------
Income from property operations before depreciation                    135              --           135             --
Depreciation                                                            (4)             --            (4)            --
                                                                  --------       ---------      --------       --------
Income from property operations                                        131              --           131             --
                                                                  --------       ---------      --------       --------

OTHER ACTIVITIES
Interest and other income                                            1,012              51         3,107            211
CMBS bonds revenue                                                      40           3,423           124          7,660
General and administrative expenses                                   (129)           (104)         (303)          (348)
Management fees paid to manager                                         (7)           (886)          (24)        (1,494)
                                                                    ------       ---------      --------       --------
Income from other activities                                           916           2,484         2,904          6,029
                                                                    ------       ---------      --------       --------

OPERATING INCOME                                                     1,047           2,484         3,035          6,029

Acquisition fees paid to manager                                       (61)             --           (61)            --
Reserve for costs related to potential marina investments             (500)             --          (500)            --
                                                                    ------       ---------      --------       --------

NET INCOME                                                             486           2,484         2,474          6,029

Other comprehensive income-unrealized holding gains on CMBS
   bonds                                                                --           6,431            --          8,389
                                                                  --------       ---------      ---------      --------

COMPREHENSIVE INCOME                                              $    486       $   8,915      $  2,474       $ 14,418
                                                                  ========       =========      ========       ========

BASIC EARNINGS PER SHARE                                          $   0.05       $    0.24      $   0.24       $   0.58
DILUTED EARNINGS PER SHARE                                        $   0.05       $    0.24      $   0.24       $   0.58

DIVIDENDS DECLARED PER SHARE                                      $   0.13       $    0.17      $   0.26       $   0.51

Weighted-Average Common Shares Outstanding                          10,364          10,342        10,355         10,328

Weighted-Average Common Shares and Common Share Equivalents
   Outstanding                                                      10,373          10,381        10,378         10,360

</TABLE>



           See Notes to Condensed Consolidated Financial Statements.

                                     - 2 -
<PAGE>



                    COMMERCIAL ASSETS, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                         Nine Months Ended
                                                                                           September 30,
                                                                                           -------------
                                                                                       1998             1997
                                                                                       ----             ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                  <C>              <C>     
Net income                                                                           $   2,474        $  6,029
Adjustments to reconcile net income to net cash flows from operating
   activities:
   Amortization of premium/discount on CMBS bonds and short-term investments               135          (1,542)
   Accrued income on participating mortgages and leases                                   (151)             --
   Depreciation                                                                              4              --
   Increase in accounts payable and accrued liabilities                                    174             565
   Decrease (increase) in other assets                                                    (157)             46
                                                                                     ----------       --------
     Net cash provided by operating activities                                           2,479           5,098
                                                                                     ---------        --------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of short-term investments                                                 (70,151)             --
Collections on short-term investments                                                    6,129              --
Proceeds from sale of short-term investments                                             4,156              --
Investments in participating mortgages, net                                             (7,999)             --
Purchases of real estate                                                                (1,368)             --
Investments in Westrec stock                                                            (2,249)             --
Collections on CMBS bonds                                                                  186              --
Acquisitions of CMBS bonds                                                                  --          (4,801)
                                                                                     ---------        --------
     Net cash used in investing activities                                             (71,296)         (4,801)
                                                                                     ---------        --------

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid                                                                          (2,695)          (5270)
Issuance of Common Stock                                                                    --              31
                                                                                     ---------        --------
     Net cash used in financing activities                                              (2,695)         (5,239)
                                                                                     ---------        --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                              (71,512)         (4,942)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                        74,153           8,277
                                                                                     ---------        --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                           $   2,641        $  3,335
                                                                                     =========        ========
</TABLE>




           See Notes to Condensed Consolidated Financial Statements.

                                     - 3 -
<PAGE>



                             COMMERCIAL ASSETS, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

A.           Organization

Commercial  Assets,  Inc.  ("CAX"  and,  together  with  its  subsidiaries,  the
"Company")  is a Maryland  corporation  which has  elected to be taxed as a real
estate investment trust ("REIT").  The Company commenced operations in 1993 when
Asset Investors Corporation ("Asset Investors")  contributed  $75,000,000 to the
Company and distributed approximately 70% of the Company's Common Stock to Asset
Investors'  stockholders.  The  Common  Stock is  listed on the  American  Stock
Exchange under the symbol "CAX."

The Company's  day-to-day  operations are performed by a manager (the "Manager")
pursuant to a management  agreement  currently in effect  through  December 1998
("the Management Agreement"). Prior to November 1997, the Company was managed by
Financial  Asset  Management  LLC  ("FAM").  An  investor  group  led  by  Terry
Considine,  Thomas L. Rhodes and Bruce D. Benson acquired FAM in September 1996.
In November 1997, the assets of FAM,  including the Management  Agreement,  were
acquired by Asset Investors, which is now the Manager. Mr. Considine is Chairman
of the Board of Directors  and Chief  Executive  Officer of both the Company and
Asset  Investors.  Mr.  Rhodes is Vice  Chairman and Mr. Benson is a director of
both companies.  No change has been made to the Management  Agreement other than
an extension.

The  Management  Agreement  is subject  to the  approval  of a  majority  of the
Company's  independent  directors and can be terminated by either party, without
cause,  with 60 days'  notice.  Since  the  Company  has no  employees,  certain
employees of the Manager have been designated as officers of the Company.

Historically,  the Company  owned  subordinate  classes of  Commercial  Mortgage
Backed  Securities  ("CMBS  bonds").  The CMBS bonds were  issued in  commercial
mortgage loan securitizations involving multi-class issuances of debt securities
which were secured and funded as to the payment of  principal  and interest by a
specific  group of  mortgage  loans on  multi-family  or other  commercial  real
estate.  In 1997, the Company decided to restructure its asset base and cease to
invest in subordinate CMBS bonds. In November 1997, the Company restructured its
subordinate  CMBS bond  portfolio by selling,  redeeming or  resecuritizing  its
various  CMBS  bonds.  The  restructuring  resulted  in  the  Company  receiving
$77,693,000 cash and retaining an equity interest in an owner trust arising from
a  resecuritization  transaction  (see  Note G).  The  Company  has  temporarily
invested the proceeds  from such  restructuring  in  government  securities  and
short-term investments until the funds can be fully reinvested.

During the third quarter of 1998, the Company  decided to invest in manufactured
home  communities  and  invested  $9.4  million  in  four  manufactured  housing
communities and adjoining land with  approximately 420 developed  homesites,  20
sites ready for homes and 360 sites available for future  development  (see Note
E).

B.           Presentation of Financial Statements

The Condensed  Consolidated Financial Statements of the Company presented herein
have been  prepared by the  Company,  without  audit,  pursuant to the rules and
regulations  of  the  Securities  and  Exchange   Commission.   These  financial
statements  reflect  all  adjustments,   consisting  of  only  normal  recurring
accruals,  which, in the opinion of management,  are necessary to present fairly


                                     - 4 -
<PAGE>

the financial  position,  results of operations and cash flows of the Company as
of  September  30, 1998,  for the three and nine months then ended,  and for all
prior periods  presented.  These statements are condensed and do not include all
the information required by generally accepted accounting principles ("GAAP") in
a  full  set of  financial  statements.  These  statements  should  be  read  in
conjunction  with the  Company's  Consolidated  Financial  Statements  and notes
thereto  included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.

Certain reclassifications have been made in the Condensed Consolidated Financial
Statements to conform to the classifications  currently used. The effect of such
reclassifications on amounts previously reported is immaterial.

C.           Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  majority-owned  subsidiaries.  All  significant  intercompany  balances and
transactions have been eliminated in consolidation.

Real Estate and Depreciation

Real estate is recorded at cost less accumulated  depreciation.  Depreciation is
computed  using the  straight  line method over an  estimated  useful life of 25
years  for  land  improvements  and  buildings.   Significant   renovations  and
improvements,  which  improve  or  extend  the  useful  life of the  asset,  are
capitalized and  depreciated  over the remaining  estimated  life.  Maintenance,
repairs and minor improvements are expensed as incurred.

When conditions  exist which indicate that the carrying amount of a property may
be impaired,  the Company will evaluate the recoverability of its net investment
in the property by assessing current and future levels of income and cash flows.
As of  September  30,  1998,  there  has  been no  impairment  of the  Company's
investment in real estate.

Revenue Recognition

Interest on participating  mortgages is recorded based upon outstanding balances
and interest  rates per the terms of the  mortgages.  In  addition,  the Company
evaluates the collectibility of any unpaid interest and establishing reserves as
necessary.  As of  September  30,  1998,  there is no  reserve  for  uncollected
interest on the  participating  mortgages.  Rent on ground  leases is recognized
when earned and due from lessee.

Income Taxes

CAX intends to operate in a manner that will permit it to qualify for the income
tax treatment  accorded to a REIT. If it so qualifies,  CAX's REIT income,  with
certain  limited  exceptions,  will not be subject to federal  income tax at the
corporate  level.  Accordingly,  no  provision  for  taxes  has been made in the
financial  statements.  In  order  to  maintain  its  status  as a REIT,  CAX is
required,  among other things,  to distribute  annually to its  stockholders  at
least  95% of its REIT  income  and to meet  certain  asset,  income  and  stock
ownership tests.

                                     - 5 -
<PAGE>

Earnings Per Share

Basic earnings per share for the three and nine months ended  September 30, 1998
and 1997 are based upon the  weighted-average  number of shares of Common  Stock
outstanding  during each such period.  Diluted  earnings  per share  reflect the
effect of any dilutive, unexercised stock options in each such period.

Use of Estimates

The  preparation  of the financial  statements in conformity  with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial  statements and  accompanying  notes.  Actual results could differ
from those estimates.

Statements of Cash Flows

Cash  maintained  in  bank  accounts,   money  market  funds  and  highly-liquid
investments  with an initial  maturity of three months or less are considered to
be cash and cash equivalents for purposes of reporting cash flows.

Non-cash investing and financing activities for the nine months ended  September
30, 1998 and 1997 were as follows (in thousands):
                                                           1998            1997
                                                           ----            ----
Principal collections on CMBS bonds transferred
  to restricted cash                                      $   --         $ 6,192

Unrealized holding gains on CMBS bonds                        --           8,389

Issuance of Common Stock for services                        150             135

D.           Short-term Investments

During the second and third  quarters of 1998, the Company  acquired  short-term
investments  consisting of mortgage-backed bonds guaranteed by Federal Home Loan
Mortgage   Corporation  and  Federal  National   Mortgage   Association.   These
investments are classified as  available-for-sale,  and the fair market value at
September 30, 1998 approximates the carrying value of $59,564,000.

E.           Investments in Participating Mortgages and Leases

As of September 30, 1998, the Company has investments in participating mortgages
secured by three  manufactured  home  communities  and adjoining land. The notes
accrue interest at 15% per annum and pay interest at 9% per annum through August
1999,  with the pay rate  increasing 1% each year thereafter to a maximum of 12%
per annum.  The loans  mature in  September  2007.  The  Company  also  receives
additional  interest  of 50% of the  net  profits  from  the  properties.  As of
September 30, 1998, the Company had  investments in  participating  mortgages of
$8,139,000  and during the three and nine months then ended,  income of $140,000
from these mortgages.

In addition,  as of September 30, 1998,  the Company owned a  manufactured  home
community  which was leased to a third  party for 50 years.  The  Company  earns
annual base rent calculated based on the acquisition cost of the leased property
and a rent  percentage that increases over 10 years from 9% to 13% per annum. In
addition,  the  Company  receives  50% of the net  profits  and cash flow of the
property.

                                     - 6 -
<PAGE>

Real estate  leased  under a  long-term  lease as of  September  30, 1998 was as
follows (in thousands):

Land                                                                  $     240
Land improvements and buildings                                           1,128
                                                                      ---------
                                                                          1,368
Less accumulated depreciation                                                (4)
                                                                      ---------
Investment in ground lease, net                                       $   1,364
                                                                      =========

F.           Investments in and Notes Receivable from Westrec

Prior  to  deciding  to  acquire  manufactured  home  communities,  the  Company
evaluated  acquiring interests in marinas and, in connection with this, acquired
a 12% interest in Westrec Marina  Management Inc.  ("Westrec") for approximately
$2,500,000 in March 1998.  During the third quarter of 1998, the Company decided
to invest in manufactured  housing  communities and not to invest in marinas. At
September 30, 1998, the Company valued its investment in Westrec common stock at
$2,128,000;  the price at which the Company  can re-sell  such stock to Westrec.
The Company has expensed  $500,000 for the portion of its  investment in Westrec
in excess of the sales price plus  additional  due diligence,  legal,  and other
costs incurred in connection  with  investigating  investments  in marinas.  The
Company also has notes and interest  receivable  from  affiliates  of Westrec of
$1,831,000  and  $1,710,000  at  September  30,  1998  and  December  31,  1997,
respectively.  In May 1998,  the  Company  issued  to an  affiliate  of  Westrec
warrants to purchase 322,000 shares of Common Stock at $6.60 per share.

G.           CMBS Bonds

In November 1997,  the Company  restructured  its portfolio of CMBS bonds.  Nine
bonds were sold,  one bond was  redeemed and the  remaining  two CMBS bonds were
resecuritized by contributing the bonds and related  restricted cash to an owner
trust in which the Company retained an equity interest.  In a private placement,
the trust then sold debt securities representing senior interests in the trust's
assets.  The principal balance of the equity interest retained by the Company is
$5,000,000.  However,  since the equity interest represents the first-loss class
of the portfolio and provides credit support for the senior debt securities, the
Company  established  an allowance  for credit  losses of $3,000,000 in order to
value the equity interest at its then estimated fair value of $2,000,000. During
the nine months ended September 30, 1998, the Company received $310,000 of which
$186,000  was  recorded  as a  reduction  in the net book value of the  retained
equity interest.

H.           Management Fees

The Company operates under a Management Agreement, pursuant to which the Manager
advises the Company on its  business and  oversees  its  day-to-day  operations,
subject to the supervision of the Company's Board of Directors.  Asset Investors
has been the Manager since  November  1997.  Prior to November 1997, FAM was the
Manager.  The Management  Agreement  provides that the Manager  receives a "Base
Fee," an  "Acquisition  Fee" and an  "Incentive  Fee."  The Base Fee is  payable
quarterly in an amount equal to 1% per annum of the Company's  average  invested
assets  excluding cash and short-term  investments of cash. The  Acquisition Fee
equals 0.5% of the cost of each real estate asset  acquired.  The  Incentive Fee
equals 20% of the amount by which the Company's  REIT  (taxable)  income exceeds
the amount  calculated by multiplying  the Company's  "average net worth" by the
"Ten-Year  United  States  Treasury  rate" plus 1%. In 1997,  the  Manager  also
received  "Administrative  Fees" on each CMBS bond  outstanding.  Administrative
Fees were terminated in connection with the November 1997  restructuring  of the
CMBS bond portfolio.




                                     - 7 -
<PAGE>

Fees paid to the Manager were (in thousands):

                                                   For the Nine Months Ended
                                                         September 30,
                                               --------------------------------
                                                    1998               1997
                                               ---------------    -------------
Base Fees                                          $   40           $    527
Acquisition Fees                                       61                 23
Incentive Fees                                         --                921
Administrative Fees                                    --                 46
                                                   ------           --------
                                                   $  101           $  1,517
                                                   ======           ========

The  Acquisition  Fees incurred in 1997 were  capitalized as part of the cost of
acquiring CMBS bonds.

I.           Commitments

In connection with the acquisition of a manufactured home community, the Company
entered into an earn-out agreement with respect to 154 unoccupied homesites. The
Company will pay $17,000 to the former owner for each newly occupied homesite.





                                     - 8 -
<PAGE>

Item 2.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                 RESULTS OF OPERATIONS.


Introduction

The Private  Securities  Litigation  Reform Act of 1995 provides a "safe harbor"
for  forward-looking  statements in certain  circumstances.  Certain information
included in this Report,  the Company's  Annual Report to Stockholders and other
Company filings  (collectively  "SEC Filings") under the Securities Act of 1933,
as amended,  and the  Securities  Exchange  Act of 1934,  as amended (as well as
information  communicated  orally or in  writing  between  the dates of such SEC
Filings) contains or may contain information that is forward looking, including,
without  limitation,  statements  regarding  projections of the Company's future
financial  performance,  cash flow,  dividends and  anticipated  returns on real
estate investments.  Such  forward-looking  statements involve known and unknown
risks,  uncertainties  and other  factors  that may cause  the  actual  results,
performance or achievements  of the Company to be materially  different from any
future  results,  performance  or  achievements  expressed  or  implied  by  the
forward-looking  statements. Such factors include: general economic and business
conditions;  interest  rate  changes;  financing and  refinancing  risks;  risks
inherent  in  owning  real  estate  or  debt  secured  by  real  estate;  future
development  rate of homesites;  competition;  the  availability  of real estate
assets at prices which meet the  Company's  investment  criteria;  the Company's
ability to reduce expense levels, implement rent increases and use leverage; and
other  risks set  forth in the  Company's  Securities  and  Exchange  Commission
filings.  Readers should carefully review the Company's financial statements and
the notes thereto, as well as the risk factors described in the SEC Filings.

Business.

Commercial  Assets,  Inc., a Maryland  corporation formed in August 1993, ("CAX"
and,  together  with its  consolidated  subsidiaries,  the  "Company") is a real
estate investment trust ("REIT"). Initially, it was a wholly-owned subsidiary of
Asset Investors Corporation ("Asset Investors"). Asset Investors contributed $75
million  to the  initial  capital of the  Company  and in  October  1993,  Asset
Investors  distributed  approximately  70% of the Company's  outstanding  common
stock  ("Common  Stock")  to  Asset  Investors'  stockholders.  Asset  Investors
currently owns  approximately  27% of the outstanding  Common Stock and provides
certain management services to the Company pursuant to the terms of a management
agreement.  See  "Manager."  The Common  Stock is listed on the  American  Stock
Exchange, Inc. ("AMEX") under the symbol "CAX."

Historically,  the Company  owned  subordinate  classes of  Commercial  Mortgage
Backed  Securities  ("CMBS bonds").  CMBS bonds generally are backed by mortgage
loans on commercial  real estate.  The  principal  and interest  payments on the
underlying mortgage assets are allocated among the several classes or "tranches"
of a series of CMBS  bonds.  The  Company's  subordinate  tranches of CMBS bonds
included "first-loss" tranches, which bore the risk of default on the underlying
collateral and provided  credit support for the more senior  tranches.  In 1997,
the  Company  decided to reduce its  exposure to the risks  associated  with its
subordinate  CMBS bonds and to increase  stockholders'  risk adjusted returns by
investing in a different type of real estate asset. In connection with this, the
Company  restructured  its  subordinate  CMBS bonds in November 1997 by selling,
redeeming and  resecuritizing  its various CMBS bonds and received $77.7 million
in cash and a small residual interest in two CMBS bonds from such restructuring.
The  Company  temporarily  invested  its  funds  in  government  securities  and
short-term  investments until such time as it determines the type of real estate
assets in which it will invest.

                                     - 9 -
<PAGE>

In the third quarter of 1998, the Company decided to invest in manufactured home
communities.  The Company  believes that this business can provide  predictable,
growing  cash  flows with  returns to  stockholders  that can be  enhanced  with
property-related,  long-term  debt  financing.  Asset  Investors  is also in the
manufactured  home  community  business,  and the  Company  believes  that Asset
Investors'  experience  will  enhance the  Company's  investments  in this asset
class.  The Company and Asset Investors have agreed that the Company will invest
$50 million in manufactured home communities before Asset Investors will acquire
additional  manufactured  home communities for cash.  Thereafter,  the companies
will coordinate future acquisitions.

A manufactured home community is a residential subdivision designed and improved
with sites for the placement of manufactured homes and related  improvements and
amenities.  Manufactured  homes  are  detached,  single-family  homes  which are
produced  off-site by manufacturers and installed on sites within the community.
Manufactured  homes are  available  in a variety  of  designs  and floor  plans,
offering many amenities and custom options.

Modern   manufactured  home  communities  are  similar  to  typical  residential
subdivisions containing centralized entrances,  paved streets, curbs and gutters
and  parkways.  The  communities  frequently  provide a clubhouse for social and
recreation  activities  and other  amenities,  which may include  golf  courses,
swimming  pools,  shuffleboard  courts and  laundry  facilities.  Utilities  are
provided or arranged for by the owner of the  community.  Community  lifestyles,
primarily  promoted  by  resident  managers,  include  a wide  array  of  social
activities  that  serve to  promote  a sense of  neighborhood.  The  communities
provide an attractive and affordable  housing  alternative  for retirees,  empty
nesters and start-up or single-parent families.

The owner of each home in the Company's communities leases the site on which the
home is located.  The typical  lease  entered into between the tenant and one of
the  Company's  manufactured  home  communities  for  the  rental  of a site  is
month-to-month  or year-to-year,  renewable upon the consent of both parties or,
in some instances, as provided by statute. The Company owns the underlying land,
utility connections,  streets,  lighting,  driveways,  common area amenities and
other capital  improvements  and is  responsible  for  enforcement  of community
guidelines  and  maintenance.   Each  homeowner  within  the  manufactured  home
community  is  responsible  for the  maintenance  of his  home and  leased  site
including lawn care in some communities.

The Company believes that manufactured  home  communities,  once fully occupied,
tend to achieve a stable  rate of  occupancy.  The cost and effort  involved  in
relocating a home to another  community  generally  encourages  the owner of the
home to resell it within the community.

The Company  believes that even though the cash returns to be earned from equity
interests  in  manufactured  home  communities  may be  less  than  the  returns
previously  earned on the CMBS  bonds,  the  change in assets  will  reduce  the
Company's exposure to credit risks and may result in increased opportunities for
capital  appreciation.  There can be no assurance  that the Company will acquire
any  additional  manufactured  home  communities  due  to a  number  of  factors
including,  but not limited to, differences  between the Company's  valuation of
the property and the purchase  price required by the property owner or the price
that other  purchasers may be willing to pay, the Company's  determination  that
the return it expects from a property is inadequate for the risk associated with
owning and operating the property,  or other investment  opportunities  that may
become  available  to the Company in the future.  In  addition,  there can be no
assurance  that the value of  manufactured  home  communities  purchased  by the
Company will  appreciate.  The failure to achieve expected returns or a decrease
in the value of such manufactured home communities could have a material adverse
effect on the Company.

                                     - 10 -
<PAGE>

Recent Developments

Manufactured Home Community Acquisitions

During the third quarter of 1998,  CAX acquired  interests in four  manufactured
home  communities and adjoining land, for total  consideration  of $9.4 million.
The communities consist of 420 developed homesites, 20 sites ready for homes and
360  homesites  available  for  future  development.  Of  such  properties,  one
community is located in Florida, and three are in Arizona.

Marina Investments

During 1998, the Company  considered  investing in marinas.  In connection  with
this,  the Company (i) acquired 12% of the  outstanding  common stock of Westrec
Marina Management,  Inc.  ("Westrec"),  a marina management company, (ii) issued
warrants to an affiliate of Westrec to purchase  322,000 shares of the Company's
Common  Stock at a per share  price of $6.60,  and (iii) lent  $1,750,000  to an
affiliate of Westrec. During the third quarter of 1998, the Company decided that
it would acquire  manufactured  home communities and no longer planned to invest
in marinas.  Accordingly,  the Company  reserved  $500,000 for costs  related to
previously  considered  marina  investments and to value the Company's shares of
Westrec at the $2,128,000  price at which the Company can re-sell such shares to
Westrec.

Future Acquisitions

From  time to time,  the  Company  evaluates  acquisition  opportunities  in the
manufactured  home  community   industry  and  expects  to  acquire   additional
properties as opportunities can be identified on terms considered  beneficial by
management.  The acquisition of interests in additional  communities  could also
result in the Company  becoming  leveraged as it incurs debt in connection  with
these transactions.

When evaluating potential  acquisitions,  the Company considers such factors as:
(i) the geographic  area and type of property;  (ii) the location,  construction
quality,  condition and design of the property;  (iii) the current and projected
cash flow of the  property  and the  ability to  increase  cash  flow;  (iv) the
potential  for capital  appreciation  of the  property;  (v) the terms of tenant
leases,  including  the  potential  for rent  increases;  (vi) the potential for
economic growth and the tax and regulatory environment of the community in which
the  property is located;  (vii) the  potential  for  expansion  of the physical
layout of the  property  and/or the number of sites;  (viii) the  occupancy  and
demand by  residents  for  properties  of a similar type in the vicinity and the
residents' profile;  (ix) the prospects for liquidity through sale, financing or
refinancing of the property;  (x) competition  from existing  manufactured  home
communities in the area; and (xi) the replacement cost of the property.

Expansion of Existing Communities

The  Company  also  seeks to  increase  the  number of  homesites  and  earnings
generated from its existing  portfolio of manufactured home communities and from
future  acquisitions  by expanding the number of sites available to be leased to
residents if justified by local market  conditions  and  permitted by zoning and
other  applicable laws. As of September 30, 1998, the Company has an interest in
four  communities  with 24 sites  ready for homes  and 360 sites  available  for
future development.




                                     - 11 -
<PAGE>

Properties

The manufactured home communities in which the Company has interests are located
in Florida and Arizona. The following tables set forth certain information as of
September  30, 1998,  with respect to the  Company's  communities  and principal
markets:


<TABLE>
<CAPTION>

                                                                  Average        Sites    Sites Available
                                      Developed                 Monthly Rent   Ready for       for 
 Community                Location    Homesites     Occupancy     per Site       Homes     Development
-------------------------------------------------------------------------------------------------------------
<S>                 <C>                 <C>         <C>            <C>             <C>         <C>
Cypress Greens      Lakeland, FL         84         100%           $184            24          154
Fiesta Village      Mesa, AZ (2)        175          98             273            --          206 (1)
Casa Encanta        Mesa, AZ (2)        111          87             350            --           -- (1)
Southern Palms      Mesa, AZ (2)         51         100             203            --           -- (1)

                                       ----        ----            ----           ---         ----
                                        421          96%           $262            24          360
                                       ====        ====            ====           ===         ====
<FN>

(1)  The Company  intends to redevelop the Fiesta  Village,  Casa  Encanta,  and
     Southern Palms  communities  along with adjoining vacant land. The combined
     redevelopment will result in the additional 206 spaces.
(2)  The Company  holds notes  receivable  secured by the communities. The notes
     earn interest and participate in profits from the communities.
</FN>
</TABLE>


<TABLE>
<CAPTION>

                                                       Number of Sites
                                        -------------------------------------------------------------
                                                                                       Available for
                      Number of                                   Ready for               Future
                     Communities           Developed                Homes              Development
                   ----------------     -----------------     -----------------     -----------------
<S>                         <C>                 <C>                   <C>                  <C>
Arizona                     3                   337                   --                   206
Florida                     1                    84                   24                   154
                         ----                ------                 ----                  ----
   Total                    4                   421                   24                   360
                         ====                ======                 ====                  ====

</TABLE>

Manager

The Company's  day-to-day  operations are performed by a manager (the "Manager")
pursuant to a management  agreement  currently in effect  through  December 1998
("the Management Agreement"). Prior to November 1997, the Company was managed by
Financial  Asset  Management  LLC  ("FAM").  An  investor  group  led  by  Terry
Considine,  Thomas L. Rhodes and Bruce D. Benson acquired FAM in September 1996.
In November 1997, the assets of FAM,  including the Management  Agreement,  were
acquired by Asset Investors, which is now the Manager. Mr. Considine is Chairman
of the Board of Directors  and Chief  Executive  Officer of both the Company and
Asset  Investors.  Mr.  Rhodes is Vice  Chairman and Mr. Benson is a director of
both  companies.  The  Management  Agreement  is  subject to the  approval  of a
majority of the Company's  independent directors and can be terminated by either
party,  without cause, with 60 days' notice. Since the Company has no employees,
certain  employees  of the  Manager  have been  designated  as  officers  of the
Company.

The  Management  Agreement  provides that the Manager  receives a "Base Fee," an
"Acquisition  Fee" and an "Incentive Fee." The Base Fee is payable  quarterly in
an  amount  equal  to 1% per  annum of the  Company's  average  invested  assets
excluding cash and short-term  investments.  The  Acquisition Fee equals 0.5% of
the cost of each real estate asset acquired. The Incentive Fee equals 20% of the


                                     - 12 -
<PAGE>

amount  by  which  the  Company's  REIT  (taxable)  income  exceeds  the  amount
calculated by  multiplying  the  Company's  "average net worth" by the "Ten-Year
United  States  Treasury  rate"  plus 1%. In 1997,  the  Manager  also  received
"Administrative  Fees" on each CMBS bond outstanding.  Administrative  Fees were
terminated in connection with the November 1997  restructuring  of the CMBS bond
portfolio.  During the third  quarter  of 1998,  the  Company  paid Base Fees of
$16,000 and Acquisition Fees of $61,000 on its investments in manufactured  home
communities.  The Company  expects to pay additional  Base Fees and  Acquisition
Fees during 1998. It may pay Incentive Fees based on the Company's results.

The Company has agreed to indemnify the Manager and its affiliates  with respect
to all expenses, losses, damages, liabilities, demands, charges or claims of any
nature in respect of acts or  omissions of the Manager made in good faith and in
accordance with the standards set forth in the Management Agreement.

Taxation of CAX

CAX has elected to be taxed as a REIT under the  Internal  Revenue Code of 1986,
as  amended  (the  "Code"),  and CAX  intends to  continue  to operate in such a
manner.  CAX's  current and  continuing  qualification  as a REIT depends on its
ability to meet the various  requirements  imposed by the Code,  through  actual
operating results, distribution levels and diversity of stock ownership.

If CAX  qualifies  for taxation as a REIT,  it will  generally not be subject to
federal corporate income tax on its net income that is currently  distributed to
stockholders. If CAX fails to qualify as a REIT in any taxable year, its taxable
income will be subject to federal income tax at regular  corporate  rates on its
taxable income (including any applicable  alternative  minimum tax). Even if CAX
qualifies as a REIT,  it may be subject to certain  state and local income taxes
and to federal income and excise taxes on its undistributed income.

                          RESULTS OF OPERATIONS FOR THE
             THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

Due to the change in the  Company's  business  from  investing  in CMBS bonds to
owning and managing manufactured home communities, the results of operations for
the three and nine months ended  September  30, 1998 are not  comparable  to the
same periods in 1997.

The  Company  does not  believe  that  changes in  inflation  rates would have a
material impact on the net income of the Company.

Rental Property Operations

During the three and nine  months  ended  September  30,  1998,  the Company had
$131,000 of income  from rental  property  operations  arising  from its initial
investments in manufactured home communities.

Interest and Other Income

Interest and other income  during the three and nine months ended  September 30,
1998 was  $1,012,000  and  $3,107,000,  respectively,  compared  to $51,000  and
$211,000,  respectively,  for the same  periods in 1997.  The increase is due to
temporarily  investing the $77.7 million cash proceeds received in November 1997
from the  restructuring  of the CMBS bonds. The average interest rates earned on
these  short-term  investments  were 5.4% and 5.3% during the nine months  ended
September 30, 1998 and 1997, respectively.

                                     - 13 -
<PAGE>

CMBS Bonds

Income from CMBS bonds was $40,000 and $124,000 during the three and nine months
ended  September 30, 1998,  respectively,  compared to $3,423,000 and $7,660,000
for the same periods in 1997. Earnings during 1998 represent the income from the
retained equity interest from the  resecuritization of two CMBS bonds. All other
income from the CMBS bonds ceased  subsequent to the  restructuring  of the CMBS
bonds in November 1997.

General and Administrative

General and  administrative  expenses of the Company were  $129,000 and $303,000
for the three and nine months ended September 30, 1998,  respectively,  compared
to $104,000 and $348,000,  respectively,  for the same periods in 1997.  General
and  administrative  expenses increased for the three months ended September 30,
1998 compared to the same period in 1997  primarily  due to higher  professional
fees. General and administrative expenses decreased for the first nine months in
1998  compared to 1997  primarily  due to lower  accounting  and other  expenses
related to the ownership of CMBS bonds.

Management Fees

During the three and nine months ended September 30, 1998, the Company  incurred
Base Fees of $7,000 and $24,000,  respectively,  on the retained equity interest
from the CMBS bond  resecuritization  and the investment in Westrec.  During the
nine months  ended  September  30,  1997,  the  Company's  management  fees were
$1,494,000  consisting of Base Fees of $527,000,  Incentive Fees of $921,000 and
Administrative Fees of $46,000. The large decrease in management fees is because
the  Company  does  not  incur  such  fees on cash  equivalents  and  short-term
investments of the Company's cash resources.

Acquisition Fees

During the three and nine months ended  September 30, 1998 the Company  incurred
Acquisition  Fees with the  Manager  of  $61,000  as a result  of the  Company's
investments  in  manufactured  home  communities.  During the nine months  ended
September  30,  1997,  the  Company  incurred  Acquisition  Fees of  $23,000  on
acquisitions  of  CMBS  bonds.  The  Acquisition  Fees  incurred  in  1997  were
capitalized as part of the cost of acquiring CMBS bonds.  Acquisition  Fees were
not capitalized in 1998 because the Manager is Asset Investors,  owner of 27% of
the Company.

Reserve for Costs Related to Potential Marina Investments

As noted above,  during the third quarter of 1998,  the Company  decided that it
would no longer seek to acquire  interests in marinas and reserved  $500,000 for
costs related to previously considered marina investments.


                         LIQUIDITY AND CAPITAL RESOURCES

As of  September  30,  1998,  the  Company  has  cash and  cash  equivalents  of
$2,641,000 and short-term  investments of $59,564,000.  The Company's  principal
demands for liquidity include normal operating  activities and dividends paid to
stockholders.  In addition, during the nine months ended September 30, 1998, the
Company invested  $9,367,000 in manufactured home  communities.  The Company may
invest a significant portion, if not all, of its cash and short-term investments
in manufactured home communities.

                                     - 14 -
<PAGE>

In April and July 1998, the Company  declared  $0.13 per common share  dividends
for the first and second quarters of 1998 totaling $2,695,000.  In October 1998,
the Company  declared a $0.13 per common share dividend for the third quarter of
1998  which  will be paid in  November  1998.  During  each of the  first  three
quarters of 1997, a dividend of $0.17 per common share was declared and paid.

During 1997, the Company had a Loan and Security  Agreement,  collateralized  by
four CMBS bonds,  which was cancelled in November 1997 upon the restructuring of
the CMBS bonds. The Company also had an unsecured line of credit with a bank for
$1,000,000  that expired on July 31, 1998. No advances were made under this line
of credit during 1998.

The  Company  believes  that even  though  the cash  returns  to be earned  from
interests  in  manufactured  home  communities  may be  less  than  the  returns
previously  earned on the CMBS  bonds,  the  change in assets  will  reduce  the
Company's exposure to credit risks associated with its former CMBS bonds and may
result in  increased  opportunities  for capital  appreciation.  There can be no
assurance,  however,  that the value of the  manufactured  home communities will
appreciate, and any drop in the value of the manufactured home communities could
have a material adverse effect on the Company.

                              YEAR 2000 COMPLIANCE

The  Company's  hardware and software  systems that are critical to its business
operations are currently Year 2000  compliant.  Upon failure of any system,  any
data   included  in  critical   software   (such  as   rent-rolls   and  certain
record-keeping  systems)  could  be  transferred  to  alternative   commercially
available  software at a reasonable  cost to the Company and within a reasonable
time period to enable the Company to continue  its business  operations  without
any  material  interruption  or  material  effect on its  business,  results  of
operations or financial condition. In addition,  management anticipates that any
hardware or software  that the Company  acquires  (including in order to upgrade
existing systems) between now and December 31, 1999 will be Year 2000 compliant.

Management  believes  that  the  cost  of  modification  or  replacement  of its
accounting  and reporting  software and hardware that is not compliant with year
2000  requirements will not be material to the Company's  financial  position or
results of operations.





                                     - 15 -
<PAGE>




                                     PART II
                                OTHER INFORMATION




Item 6.           EXHIBITS AND REPORTS ON FORM 8-K.

           (a)    Exhibits:

Exhibit No.       Description

     3.1          Amended and Restated Charter of Commercial  Assets,  Inc. (the
                  "Registrant"),  (incorporated  herein by  reference to Exhibit
                  3.1 to the  Amendment No. 1 to the  Registrant's  Registration
                  Statement  on  Form  10 (as  amended,  the  "Form  10") of the
                  Registrant,  Commission File No. 1-22262,  filed on August 31,
                  1993).

     3.2          By-laws of the  Registrant, (incorporated  herein by reference
                  to  Exhibit 3.2 to  Amendment  No. 1  to  the  Form 10  of the
                  Registrant,  Commission  File No. 1-22262, filed on August 31,
                  1993)

     3.3          Amendment to the By-laws of the Registrant dated as of January
                  14, 1997  (incorporated  herein by reference to Exhibit 3.3 to
                  the Registrant's Annual Report on Form 10-K for the year ended
                  December,  31, 1996,  Commission  File No.  1-22262,  filed on
                  March 24, 1997).

      27          Financial Data Schedule.


           (b)    Reports on Form 8-K:

No Current  Reports on Form 8-K were filed by the  Registrant  during the period
covered by this Quarterly Report on Form 10-Q.



                                    SIGNATURE

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                                       COMMERCIAL ASSETS, INC.
                                                       (Registrant)


Date:  November 13, 1998                               By  /s/ David M. Becker
                                                         ---------------------
                                                         David M. Becker
                                                         Chief Financial Officer


                                     - 16 -