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                       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 March 31, 1997

                                       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.)

      3600 South Yosemite Street, Suite 350                      80237
                 Denver, Colorado                              (Zip Code)
     (Address of Principal Executive Offices)

                                 (303) 773-1221
              (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 May 1, 1997,  10,315,809  shares of Commercial  Assets,  Inc.  Common
Stock were outstanding.
================================================================================


<PAGE>


                             COMMERCIAL ASSETS, INC.

                                    FORM 10-Q

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997

                                TABLE OF CONTENTS


PART I.           FINANCIAL INFORMATION:                                    PAGE

                  Item 1.  Condensed Financial Statements:

                           Balance Sheets as of March 31, 1997 (Unaudited)
                             and December 31, 1996........................     1

                           Statements of Income for the three months
                             ended March 31, 1997 and 1996 (Unaudited)....     2

                           Statements of Cash Flows for the three months
                             ended March 31, 1997 and 1996 (Unaudited)....     3

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

                  Item 2.  Management's Discussion and Analysis of
                             Financial Condition and Results of
                             Operations...................................     8


PART II.          OTHER INFORMATION:

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


                                      (i)
<PAGE>
<TABLE>
<CAPTION>


                             COMMERCIAL ASSETS, INC.
                            CONDENSED BALANCE SHEETS
                          (Dollar amounts in thousands)


                                                                                        March 31,       December 31,
                                                                                          1997             1996
                                                                                          ----             ----
Assets                                                                                (Unaudited)

<S>                                                                                     <C>              <C>       
   Cash and cash equivalents                                                            $    3,288       $    8,277
   Accrued interest receivable                                                                 612              597
   Restricted cash                                                                           2,094            1,982
   CMBS bonds                                                                               67,368           61,460
   Other assets, net                                                                            82               90
                                                                                        ----------       ----------

     Total Assets                                                                       $   73,444       $   72,406
                                                                                        ==========       ==========

Liabilities

   Accounts payable and accrued liabilities                                             $      209       $      189
   Management fees payable                                                                     320              298
                                                                                        ----------       ----------

     Total Liabilities                                                                         529              487
                                                                                        ----------       ----------

Stockholders' Equity

   Preferred Stock, par value $.01 per share, 25,000,000 shares authorized;   no
     shares issued or outstanding                                                               --               --

   Common Stock, par value $.01 per share, 75,000,000 shares authorized;
     10,315,809 shares issued and outstanding                                                  103              103

   Additional paid-in capital                                                               76,559           76,559

   Cumulative dividends declared                                                           (22,049)         (20,295)
   Cumulative net income                                                                    20,676           18,941
                                                                                        ----------       ----------
      Dividends in excess of net income                                                     (1,373)          (1,354)
                                                                                        ----------       ----------

   Net unrealized holding losses on CMBS bonds                                              (2,374)          (3,389)
                                                                                        ----------       ----------

     Total Stockholders' Equity                                                             72,915           71,919
                                                                                        ----------       ----------

     Total Liabilities and Stockholders' Equity                                         $   73,444       $   72,406
                                                                                        ==========       ==========
</TABLE>

                  See Notes to Condensed Financial Statements.


                                     - 1 -
<PAGE>
<TABLE>
<CAPTION>


                             COMMERCIAL ASSETS, INC.
                         CONDENSED STATEMENTS OF INCOME
                      (In thousands, except per share data)
                                   (Unaudited)

                                                                                                Three Months Ended
                                                                                                     March 31,
                                                                                              1997             1996
                                                                                              ----             ----
Revenues

<S>                                                                                         <C>              <C>    
   CMBS bonds                                                                               $  2,044         $ 2,311
   Interest                                                                                      111                7
                                                                                            --------         --------

     Total Revenues                                                                            2,155            2,318
                                                                                            --------         --------

Expenses

   Management fees                                                                               297              378
   General and administrative                                                                    123              330
   Interest                                                                                       --                3
                                                                                            --------         --------

     Total Expenses                                                                              420              711
                                                                                            --------         --------


Net Income                                                                                  $  1,735         $  1,607
                                                                                            ========         ========


Net income per share                                                                        $    .17         $    .16

Weighted-average shares outstanding                                                           10,316           10,142

Dividends per share                                                                         $    .17         $    .17

</TABLE>


                  See Notes to Condensed Financial Statements.


                                     - 2 -
<PAGE>
<TABLE>
<CAPTION>

                             COMMERCIAL ASSETS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

                                                                                             Three Months Ended
                                                                                                  March 31,
                                                                                            1997             1996
                                                                                            ----             ----

Cash Flows From Operating Activities

<S>                                                                                       <C>               <C>    
   Net income                                                                             $ 1,735           $ 1,607
   Adjustments to reconcile net income to net cash flows from operating
     activities:
   Amortization of discount on CMBS bonds and other assets                                   (200)             (238)
   (Increase) decrease in accrued interest receivable                                         (15)                3
   Decrease in other assets                                                                     4                --
   Increase in accounts payable and accrued liabilities                                        42               164
                                                                                          -------           -------

Net Cash Provided By Operating Activities                                                   1,566             1,536
                                                                                          -------           -------

Cash Flows From Investing Activities

   Acquisition of CMBS bonds                                                               (4,801)               --
   Principal collections from CMBS bonds                                                       --               144
                                                                                          -------           -------

Net Cash (Used In) Provided By Investing Activities                                        (4,801)              144
                                                                                          -------           -------

Cash Flows From Financing Activities

   Dividends paid                                                                          (1,754)           (1,724)
   Repayments of short-term notes payable                                                      --              (300)
                                                                                         --------          --------

Net Cash Used In Financing Activities                                                      (1,754)           (2,024)
                                                                                         --------          --------

Cash and Cash Equivalents

   Decrease                                                                                (4,989)             (344)
   Beginning of period                                                                      8,277               598
                                                                                          -------           -------

   End of period                                                                         $  3,288          $    254
                                                                                         ========          ========

</TABLE>


                  See Notes to Condensed Financial Statements.


                                     - 3 -
<PAGE>


                             COMMERCIAL ASSETS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

A.   Organization

     Commercial Assets,  Inc. (the "Company") was incorporated under the laws of
Maryland on August 11, 1993,  as a wholly owned  subsidiary  of Asset  Investors
Corporation,  a  Maryland  corporation,  which is listed  on the New York  Stock
Exchange,  Inc.  under the symbol  "AIC"  ("Asset  Investors").  Pursuant to the
agreement  dated August 20, 1993,  between Asset  Investors and the Company (the
"Contribution  Agreement"),  Asset  Investors  contributed  $75,000,000  to  the
initial capital of the Company, including $200,000 in cash. On October 12, 1993,
Asset Investors  distributed  approximately 70% of the outstanding common stock,
par  value of $.01 per  share,  of the  Company  ("Common  Stock")  as a taxable
dividend  to  Asset  Investors'  stockholders.  Prior to the  distribution,  the
Company  had not  engaged in any  activities  other  than  those  related to its
formation.  Asset Investors  currently owns approximately 27% of the outstanding
Common Stock. The Common Stock is listed on the American Stock Exchange, Inc.
("AMEX") under the symbol "CAX."

B.   Presentation of Financial Statements

     The Condensed Financial Statements of the Company have been prepared by the
Company,  without audit, pursuant to the rules and regulations of the Securities
and  Exchange  Commission.  These  Condensed  Financial  Statements  reflect all
adjustments, consisting of only normal recurring accruals, which, in the opinion
of  management,  are  necessary  to present  fairly the  financial  position and
results of  operations  of the  Company  as of March 31,  1997 and for the three
months  then  ended  and 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 Financial Statements
and notes thereto  included in the Company's  Annual Report on Form 10-K for the
year ended December 31, 1996.

C.   Statements of Cash Flows

     Cash  maintained in bank  accounts,  money market funds and overnight  cash
investments  are  considered  to be cash and cash  equivalents  for  purposes of
reporting  cash flows.  The Company paid interest  expense in cash of $5,000 for
the three months ended March 31, 1996.

     Non-cash  investing  and  financing  activities  for the three months ended
March 31, 1997 and 1996 were as follows (in thousands):

                                                              Three Months Ended
                                                                   March 31,
                                                             -------------------
                                                             1997          1996
                                                             ----          ----
Principal collections on CMBS bonds transferred to
    restricted cash                                        $    112       $  442

Unrealized holding gains on CMBS bonds                     $  1,015       $   24

Distributions of Common Stock pursuant to dividend
    equivalent rights ("DERs")                             $     --       $   96


                                     - 4 -
<PAGE>


D.   CMBS Bonds

     The  Company  owns  subordinate   classes  of  Commercial  Mortgage  Backed
Securities  ("CMBS  bonds").  As of March 31, 1997 and December  31,  1996,  the
outstanding   balances  of  the  Company's  CMBS  bonds  were   $94,921,000  and
$89,297,000,  respectively,  while unamortized  purchase discounts,  acquisition
costs and allowance  for credit  losses  totaled  $25,179,000  and  $24,448,000,
respectively.  Additionally,  unrealized  holding losses on the CMBS bonds as of
March  31,  1997  and  December  31,  1996  were   $2,374,000  and   $3,389,000,
respectively.

     In March 1997, the Company  contributed its ownership  interest in two CMBS
bonds (Lehman Capital  Corporation Trust  Certificate,  Series 1994-2 and Series
1994-3)  into a newly  created  trust  (Blaylock  Mortgage  Capital  Corporation
Multifamily  Trust).  Interests  in bond classes  within the same CMBS  issuance
which were owned by another party were also  contributed to the trust. The trust
then issued seven classes of CMBS bonds  collateralized by the CMBS bond classes
contributed  into the trust. The Company received an interest in five of the new
bond classes which corresponded to the Company's  ownership interests in the two
bonds  contributed  to the  trust.  The  Company  also  acquired  the  remaining
$5,737,000  principal balance of two of the new bond classes rated BB and B at a
cost of $4,801,000, which resulted in the 100% ownership in the five subordinate
new classes.

     At  March  31,  1997,  the  outstanding   balance  of  the  mortgage  loans
collateralizing  the CMBS bonds was $894,072,000  and the outstanding  principal
balance  of the CMBS  bonds  that are  senior to the  Company's  CMBS  bonds was
$795,859,000.  The aggregate  allowance for credit losses on the Company's  CMBS
bonds was  $12,720,000 at both March 31, 1997 and December 31, 1996. As of March
31,  1997,  one mortgage  loan with an  outstanding  balance of $788,000,  which
collateralized two of the Company's CMBS bonds, has been foreclosed. The Company
estimates  that the loss from this  mortgage loan may range from $0 to $425,000,
dependent  upon the  recovery of  indemnification  claims made  against the bond
underwriter.  There  have  been  no  credit  losses  charged  to  operations  or
write-downs charged against the allowance for credit losses.

     Pursuant  to the  provisions  of  certain  of  the  Company's  CMBS  bonds,
principal  payments  which would  otherwise  be  attributable  to the  Company's
interests  are  required  to be set aside in reserve  accounts  to  support  the
eventual  payment of more senior  classes of CMBS  bonds.  At March 31, 1997 and
December 31, 1996,  $2,094,000 and $1,982,000,  respectively,  were set aside in
reserve accounts and are shown as restricted cash on the balance sheet.

E.   Short-Term Notes Payable

     The Company's Loan and Security Agreement collateralized by four CMBS bonds
(FNMA 94-M2C, FNMA 94-M2D,  Kidder 94-M1C and Kidder 94-M1D) expires on November
29,  1997.  No  borrowings  were  outstanding  on this line at March 31, 1997 or
December 31, 1996 and  $21,616,000  was  available  to be  borrowed,  subject to
lender  approval.  Advances  bear  interest  based upon a spread over the London
Interbank Offered Rate on Eurodollar Deposits  ("LIBOR").  The Loan and Security
Agreement contains certain covenants with which the Company was in compliance at
March 31, 1997. The amount the Company will be able to borrow under the Loan and
Security  Agreement is subject to lender approval and will vary depending on the
value of the collateral pledged to secure such facility.


                                     - 5 -
<PAGE>


     The  Company  has a  one-year,  unsecured  line of  credit  with a bank for
$1,000,000  which  expires  on July 19,  1997.  Advances  under  this  line bear
interest at prime. Two of the Company's Independent Directors are members of the
Advisory Board of the bank. At March 31, 1997 and December 31, 1996, no advances
were outstanding on this line of credit.

F.   Management Fees

     The  Company's  day-to-day  operations  are  performed by  Financial  Asset
Management  LLC  (the  "Manager")  pursuant  to  a  management   agreement  (the
"Management Agreement") which is subject to the annual approval of a majority of
the Independent  Directors.  The Company's By-laws,  as amended,  require that a
specified  number  of the  Board of  Directors  and each  committee  thereof  be
comprised  of  persons  constituting  Independent  Directors.  Pursuant  to  the
Company's By-laws,  an Independent  Director is a person "who is not affiliated,
directly or indirectly,  with the person or entity  responsible for directing or
performing the day-to-day  business  affairs of the corporation (the "advisor"),
including a person or entity to which the advisor subcontracts substantially all
of such functions,  whether by ownership of, ownership  interest in,  employment
by, any material business or professional relationship with, or by serving as an
officer of the advisor or an affiliated business entity of the advisor."

     Pursuant to the Management  Agreement,  the Manager receives a Base Fee, an
Incentive Fee, an  Acquisition  Fee and an  Administrative  Fee. The Base Fee is
payable  quarterly in an amount  equal to 1% per annum of the "average  invested
assets"  of  the  Company.   The   Incentive  Fee  is  based  on  the  Company's
profitability and is intended to align compensation paid to the Manager with the
interests  of  the  Company's  stockholders.  The  Manager  is  entitled  to the
Incentive  Fee only  after the  Company's  stockholders  first  have  received a
threshold  return on the  Company's  "average net worth" equal to the  "Ten-Year
United  States  Treasury  rate" plus 1%. Twenty  percent of the  Company's  REIT
income  in  excess  of this  threshold  return  is paid  to the  Manager  as the
Incentive  Fee.  The  Manager  receives an  Acquisition  Fee of 1/2 of 1% of the
initial cost of each asset which the Manager  assists the Company in  acquiring.
The  Acquisition  Fee  compensates  the Manager  for  performing  due  diligence
procedures  on  portfolio  assets  acquired by the  Company.  The  Manager  also
performs certain bond  administration and other related services for the Company
pursuant to the Management Agreement and receives an Administrative Fee for such
services of up to $10,000 per annum for each of the Company's CMBS bonds. If the
Company owns more than one class of a commercial securitization,  the Manager is
entitled  to  receive  an  additional  fee of up to  $2,500  per  annum for each
additional class.

     During the three months ended March 31, 1997 and 1996, the Company's  total
management fees pursuant to the Management Agreement were $320,000 and $378,000,
respectively.  Management  fees during the three months ended March 31, 1997 and
1996  included:  (i) Base Fees of  $166,000  and  $171,000,  respectively;  (ii)
Administrative Fees of $13,000 and $16,000,  respectively;  (iii) Incentive Fees
of $118,000 and $191,000, respectively; and (iv) Acquisition Fees of $23,000 and
$0,  respectively.  Acquisition  Fees are capitalized as part of the cost of the
acquired CMBS bonds.

     In February  1997,  the Board of  Directors  of Asset  Investors  adopted a
multi-step plan which includes  consideration of Asset Investors  acquisition of
the Manager. A special committee of Asset Investors'  Independent  Directors has
been established to evaluate the acquisition. If the acquisition is consummated,
it would result in Asset  Investors  assuming the  operations of the Manager and
its obligations under the Management Agreement.


                                     - 6 -
<PAGE>


G.   Stock Option Plan

     The Company has a Stock Option Plan for the issuance of non-qualified stock
options to its  directors  and  officers.  Prior to May 30, 1996,  stock options
granted under the Stock Option Plan  automatically  accrued dividend  equivalent
rights  ("DERs").  During the three  months  ended March 31,  1996,  the Company
incurred  $96,000 of non-cash  general  and  administrative  expenses  from DERs
covering  16,362 shares of Common Stock which were subject to issuance  pursuant
to options  granted under the Stock Option Plan. On May 30, 1996,  the Company's
stockholders  approved an amendment to the Stock Option Plan which  provided for
the issuance of Common Stock in exchange for the  elimination  of the accrual of
DERs for options granted under the Stock Option Plan.


                                     - 7 -
<PAGE>


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

     Commercial Assets, Inc. (the "Company") was incorporated under Maryland law
on August 11, 1993 by Asset  Investors.  The  Company  commenced  operations  on
October 12,  1993,  the date on which Asset  Investors  contributed  $75,000,000
($74,800,000  pursuant to the Contribution  Agreement plus $200,000 cash) to the
capital of the Company and distributed approximately 70% of the shares of Common
Stock of the Company to Asset  Investors'  stockholders.  The  Company's  Common
Stock is listed on the American Stock Exchange under the symbol "CAX".

     Since its inception, the Company has operated in a manner that permitted it
to qualify for the income tax  treatment  afforded  to a real estate  investment
trust ("REIT") as defined in the Internal Revenue Code of 1986, as amended, (the
"Code"). If it so qualifies,  the Company's taxable income ("REIT income"), with
certain limited  exceptions,  will not be subject to federal or state income tax
at the  corporate  level.  To qualify as a REIT under the Code,  the  Company 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.

     The Company's day-to-day operations are performed by the Manager,  pursuant
to the  Management  Agreement,  which is  subject to the  annual  approval  of a
majority of the Independent Directors. The Manager also manages Asset Investors.
The  Manager is  subject to the  supervision  of the Board of  Directors  of the
Company.  As part of its duties,  the Manager  presents  the Company  with asset
acquisition  opportunities and furnishes the Board of Directors with information
concerning the acquisition,  performance and disposition of assets.  The Company
has no employees. Certain employees of the Manager have been designated officers
of the Company.

     The Company owns,  and the Manager  administers  on the  Company's  behalf,
subordinate debt interests in CMBS bonds issued in  securitizations  of mortgage
loans  on  multifamily  properties.  The  Company  owns  12  CMBS  bonds  from 5
commercial mortgage loan securitizations acquired at a cost of $70,146,000.  The
CMBS bonds had an  outstanding  principal  balance of  $94,921,000  at March 31,
1997, and an estimated  weighted-average  yield-to-maturity before credit losses
of 13.3%.  At March 31, 1997,  approximately  66% of the  outstanding  principal
balance of the Company's  CMBS bonds is unrated,  and the remaining 34% is rated
"BB" through "CCC" by national  credit  rating  agencies.  The  mortgages  which
comprise the  collateral  for the Company's  CMBS bonds are secured by apartment
communities  in 36  states,  including  25%,  12% and 8% in Texas,  Arizona  and
Georgia, respectively.

     The multifamily  mortgage loans that collateralize the Company's CMBS bonds
were primarily  originated during 1993 and 1994.  Capital for mortgage financing
during 1993 and 1994 was generally  less available than in 1995 and 1996 because
of, among other things,  the reduced  funding of such loans by traditional  real
estate  lenders  (e.g.  banks,  thrifts,  pension  funds,  etc.) in  response to
significant  losses which  resulted  from falling real estate values in the late
1980s and early 1990s.  Accordingly,  the Company  believes  the  mortgage  loan
underwriting  procedures  applied to mortgage loans  originated in 1993 and 1994
were more stringent than underwriting procedures applied to multifamily mortgage
loans  originated  in 1995 and  1996.  The  Company  may  benefit  from the more
stringent  underwriting  procedures on the mortgage loans that collateralize its
CMBS bonds through  reduced  credit losses in the future.  See "FORWARD  LOOKING
INFORMATION" below.

     Presented  below is a schedule of the CMBS bonds owned by the Company as of
March 31, 1997 and December 31, 1996 (dollar amounts in thousands).


                                     - 8 -
<PAGE>
<TABLE>
<CAPTION>

                                                                      Weighted-
                                                           Maturity    Average                 Senior        Outstanding Balance at
                        Description               Coupon     Date       Life(1)    Rating    CMBS Bonds(2)    3/31/97      12/31/96
-----------------------------------------------   ------   --------  ----------    ------    -----------     -----------------------
Fannie Mae Multifamily REMIC Trust 1994-M2
<S>         <C>                                    <C>       <C>        <C>                  <C>            <C>           <C>     
     Class C4                                      7.99%     1/2001     3.7 yrs.  Unrated    $   361,817    $ 10,679      $ 10,704
     Class D4                                      8.18%     1/2004     6.5       Unrated                     38,297        38,384
DLJ Mortgage Acceptance Corporation
     Series 1994-MF4, Class B-3                    8.50%     4/2001     4.0          B            97,928       3,136         3,136
     Series 1994-MF4, Class C                      8.50%     4/2001     4.0       Unrated                      4,183         4,183
Kidder, Peabody Acceptance Corporation I
     Series 1993-M2, Class E5                      8.88%     8/2021     3.4          BB           93,035      10,000        10,000
Kidder, Peabody Acceptance Corporation I
     Series 1994-M1, Class C                       8.25%    11/2002     4.3          B           207,503       8,930         8,930
     Series 1994-M1, Class D                       8.25%    11/2002     4.6       Unrated                      7,655         7,655
Lehman Capital Corporation Trust
 Certificate
     Series 1994-23                                                                                               --         2,143
     Series 1994-33                                                                                               --         4,162
Blaylock Mortgage Capital Corporation
 Multifamily Trust
     Series 1997-A Class B-3 3                     6.42%    10/2003     6.6          BB          133,789       5,352            --
     Series 1997-A Class B-4 3                     6.42%    10/2003     6.6          B                         3,345            --
     Series 1997-A Class B-5 3                     6.42%    10/2003     6.6          B-                        1,003            --
     Series 1997-A Class B-6 3                     6.42%    10/2003     6.6         CCC                        1,003            --
     Series 1997-A Class B-7 3                     6.42%    10/2003     6.6       Unrated                      1,338            --
                                                   ----                 ---                  -----------    --------      --------
     Total outstanding balance                     8.05%                5.3 yrs.             $   894,072      94,921        89,297
                                                   ====                 ===                  ===========

Unamortized discount 6                                                                                       (12,889)      (12,077)
Allowance for credit losses 6                                                                                (12,720)      (12,720)
Unamortized acquisition costs 6                                                                                  430           349
                                                                                                            --------      --------
     Amortized cost                                                                                           69,742        64,849
Net unrealized holding losses 6                                                                               (2,374)       (3,389)
                                                                                                            --------      --------
     Total net book value                                                                                   $ 67,368      $ 61,460
                                                                                                            ========      ========
<FN>
-----------------------------------------------
1    Remaining weighted-average life at March 31, 1997.
2    The  outstanding  principal  balance at March 31,  1997,  of the CMBS bonds
     senior to the  Company's  subordinate  CMBS  bond  classes.  The  amount is
     aggregated for classes from a single issuance.
3    In March 1997, the Company contributed Lehman Series 1994-2 and 1994-3 to a
     trust and in turn received  Blaylock Classes B-5, B-6 and B-7 and a partial
     interest in Classes B-3 and B-4. At the same time, the Company acquired the
     remaining interests in Blaylock Classes B-3 and B-4.
4    Payment of principal and interest is not guaranteed by FNMA.
5    The Company has a 75.2% ownership interest in this CMBS bond.
6    The amounts are specifically identified to individual CMBS bonds.
</FN>
</TABLE>


                                     - 9 -
<PAGE>


                          RESULTS OF OPERATIONS FOR THE
                   THREE MONTHS ENDED MARCH 31, 1997 AND 1996

REIT Income

     REIT income is taxable income computed as prescribed for REITs prior to the
dividends paid  deduction.  The Company's REIT income for the three months ended
March 31, 1997, was $1,912,000  ($.19 per share) compared with $2,059,000  ($.20
per share) for the same period in 1996.  The primary reason for the decrease was
lower income from CMBS bonds partially  offset by increased  interest income and
reduced management fees and general and administrative expenses.

     REIT income from CMBS bonds for the three months ended March 31, 1997,  was
$2,222,000  ($.22 per share) compared with  $2,825,000  ($.28 per share) for the
same period in 1996. The decrease in REIT income from CMBS bonds was due in part
to the 1996  amortization of the pricing  discount on one of the CMBS bonds. For
this  particular  bond, the Company  elected to limit the amount of amortization
for REIT  income  purposes  to the  lesser of  principal  received  or  computed
amortization. During the three months ended March 31, 1996, a $337,000 principal
prepayment was made on a mortgage  collateralizing this bond. As a result of the
election, amortization was increased by the amount of the prepayment; there were
no  similar  prepayments  during  the three  months  ended  March 31,  1997.  In
addition,  during the three  months  ended March 31,  1996,  the Company  earned
$300,000 of income from two CMBS bonds (Aspen MHC,  Series  1994-1,  Class C and
Class D-1) which redeemed in May 1996.

     The CMBS bonds have coupon  interest  rates ranging from 6.4% to 8.9% and a
weighted-average  yield-to-maturity  before  credit  losses for REIT purposes of
13.3%.  The yield from CMBS bonds  exceeds the coupon  interest rate because the
subordinate  CMBS bonds were sold to the Company with original issue discount or
market discount (i.e.,  the acquisition  prices of the CMBS bonds were less than
their par values).  Accordingly, the Company amortizes a portion of the discount
(the  excess of the  outstanding  par  amount  over the net cost),  as  interest
income, on a constant effective yield under the interest method over the life of
the CMBS bond. Amortization of the discount into REIT income from certain of the
Company's CMBS bonds is limited to principal received.

     Through March 31, 1997,  one mortgage loan with an  outstanding  balance of
$788,000,  which  collateralized  two of the  Company's  CMBS  bonds,  has  been
foreclosed.  The Company  estimates  that the loss from this  mortgage  loan may
range from $0 to $425,000, dependent upon the recovery of indemnification claims
made against the bond underwriter.  Otherwise, there have been no delinquencies.
As of March 31, 1997,  there have been no credit losses charged to operations or
write-downs  charged against the allowance for credit losses. For REIT purposes,
credit  losses are  reflected in income only when they are  realized.  In future
periods,  the Company likely will be allocated  credit losses on its CMBS bonds,
and as a result,  REIT income may be adversely  impacted.  See "FORWARD  LOOKING
INFORMATION" below.

     Interest  income during the three months ended March 31, 1997, was $111,000
($.01 per share)  compared  with  $7,000  ($.00 per share) for the three  months
ended March 31, 1996.  The increase in interest  income  during the three months
ended March 31, 1997, as compared to the same period in 1996 is due to investing
the proceeds from the May 1996  redemption of two CMBS bonds into highly liquid,
short-term investments.  It is anticipated that interest income will decrease in
future periods because a portion of the proceeds were used to acquire  interests
in Blaylock Classes B-3 and B-4 in March 1997. See "FORWARD LOOKING INFORMATION"
below.


                                     - 10 -
<PAGE>


     The Company's  management fees were $297,000 ($.03 per share) for the three
months ended March 31, 1997,  compared  with  $378,000  ($.04 per share) for the
same  period  in  1996.  Specifically,   Incentive  Fees  declined  by  $73,000,
Administrative Fees by $3,000 and Base Fees by $5,000. The decrease in Incentive
Fees was due to a $147,000 decrease in REIT income and a 65 basis point increase
in the average  Ten-Year  U.S.  Treasury Rate from the first quarter 1996 to the
first  quarter  1997.  The  decrease  in Base Fees and  Administrative  Fees was
primarily due to the May 1996 redemption of the two CMBS bonds.

     The Company  incurred  $23,000 of Acquisition  Fees during the three months
ended March 31, 1997,  relating to the purchase of interests in Blaylock Classes
B-3 and B-4. These  Acquisition Fees are capitalized and amortized over the life
of the related bonds. No Acquisition  Fees were incurred during the three months
ended March 31, 1996.

     In February  1997,  the Board of  Directors  of Asset  Investors  adopted a
multi-step plan which includes  consideration of Asset Investors  acquisition of
the Manager. A special committee of Asset Investors'  Independent  Directors has
been established to evaluate the acquisition. If the acquisition is consummated,
it would result in Asset Investors assuming the obligations of the Manager under
the Management Agreement.

     General and administrative  expenses of the Company were $124,000 ($.01 per
share) for the three months ended March 31, 1997,  compared with $392,000  ($.04
per share) for the same  period in 1996.  General  and  administrative  expenses
decreased during the three months ended March 31, 1997,  compared with the first
quarter  of 1996,  due to the timing of  shareholder  relations  and  accounting
expenses and the  elimination of DER expense  pursuant to the May 1996 amendment
to the Stock Option Plan.

     During the three  months  ended  March 31,  1996,  interest  expense on the
Company's  short-term  notes  payable was $3,000 ($.00 per share).  There was no
interest  expense during the three months ended March 31, 1997. The decrease was
primarily the result of repayment of short-term borrowings during the first half
of 1996.

Dividend Distributions

     In March 1997,  the Company  declared a first quarter  dividend of $.17 per
share which was paid on March 31, 1997, to  stockholders  of record on March 17,
1997. This was the tenth  consecutive  quarter of a regular dividend of $.17 per
share.

Book Income

     For the three months ended March 31, 1997,  the Company  earned book income
computed in accordance  with GAAP of $1,735,000  ($.17 per share)  compared with
$1,607,000  ($.16 per share) for the same period in 1996. The $128,000 ($.01 per
share)  increase in book  income was due to the  increased  interest  income and
lower management fees and general and administrative expenses,  partially offset
by lower revenues from the early  redemption of the two CMBS bonds as previously
discussed.  The election  regarding the  amortization of the pricing discount on
the bond with the $337,000  principal  prepayment  was for REIT income  purposes
only.  The  prepayment  did not have an impact on book  income  during the three
months ended March 31, 1996.


                                     - 11 -
<PAGE>


Reconciliation of REIT Income and Book Income

     The Company  computes its income in accordance  with the Code (REIT income)
and in accordance with GAAP (book income).  As a REIT, the Company's REIT income
is the basis upon which the Code requires the Company to make  distributions  to
its stockholders. However, because the Company's Common Stock is registered with
the Securities and Exchange  Commission,  the Company also is required to report
its financial position and income in accordance with GAAP.

     During the three  months ended March 31, 1997,  REIT income  exceeded  book
income by $177,000 ($.02 per share). Substantially all of this difference is due
to: (i) the method of recording  credit losses,  which for REIT income  purposes
are not deducted  until they occur (as of March 31, 1997,  no credit  losses had
been realized) and which for book income purposes are estimated and reflected as
a reduction of revenues in the form of lower discount  amortization  included in
interest  income from CMBS  bonds;  and (ii) the method of  amortizing  purchase
price  discounts,   which  for  REIT  income  purposes  is  subject  to  certain
limitations not applicable for book income purposes.

                         LIQUIDITY AND CAPITAL RESOURCES

     The Company uses its cash flows from operating activities and other capital
resources  to provide  working  capital to support  its  operations,  for making
distributions to its  stockholders,  for the acquisition of portfolio assets and
for the repayment of short-term borrowings. For the three months ended March 31,
1997 and 1996,  cash flows provided by operating  activities were $1,566,000 and
$1,536,000,  respectively.  As of March 31, 1997,  the Company had $3,288,000 in
cash and cash equivalents, which the Company currently intends to use to pay its
expenses,  make dividend  distributions  to stockholders  and acquire  portfolio
assets. See "FORWARD LOOKING INFORMATION" below.

     During March 1997,  the Company  acquired  interests  in Blaylock  Mortgage
Capital  Corporation  Multifamily  Trust Classes B-3 and B-4 for $4,703,000 plus
acquisition and transaction costs of $98,000.  The acquired interests in the new
bond  classes  are rated BB and B, had a  principal  balance  of  $5,737,000  at
acquisition,  and pay a coupon of 6.4% per annum. The estimated weighted-average
yield-to-maturity  before  credit losses of the acquired CMBS bonds is 10.0% per
annum.

     The Company's Loan and Security Agreement collateralized by four CMBS bonds
expires on November 29, 1997. No  borrowings  were  outstanding  on this line at
March 31, 1997 or  December  31,  1996,  and  $21,616,000  was  available  to be
borrowed subject to lender approval.  Advances bear interest based upon a spread
over LIBOR.  The Loan and Security  Agreement  contains  certain  covenants with
which the Company was in  compliance  at March 31, 1997.  The amount the Company
will be able to borrow  under the Loan and  Security  Agreement  is  subject  to
lender  approval and will vary depending on the value of the collateral  pledged
to secure such facility.

     The  Company  has a  one-year,  unsecured  line of  credit  with a bank for
$1,000,000  which expires on July 19, 1997.  Advances bear interest at prime. At
March 31, 1997 and December 31, 1996, no advances were  outstanding on this line
of  credit.  Two of the  Company's  Independent  Directors  are  members  of the
Advisory Board of the bank.

     The indentures of the commercial  securitizations  in which the Company has
acquired CMBS bonds generally provide for substantial  penalties if the mortgage
loans underlying the commercial  securitization are prepaid, and the prepayments


                                     - 12 -
<PAGE>


generally are allocated to the senior bond classes before the  subordinate  bond
classes which the Company generally owns. Significant principal distributions to
subordinate  CMBS bonds  generally  are not  anticipated  before  the  scheduled
principal distributions.

     The Company's  ability to acquire  additional  assets will depend on, among
other things, unanticipated principal prepayments such as the $9,664,000 of CMBS
bonds redeemed in May 1996, obtaining new debt or equity capital, or liquidating
the existing  portfolio of CMBS bonds. There is no assurance the Company will be
able to identify new asset  acquisition  opportunities  that meet the  Company's
acquisition criteria or that the Company will be able to raise additional funds,
whether  from  principal  prepayments,  borrowings,  issuances of debt or equity
securities,  liquidation of the current portfolio or other sources. See "FORWARD
LOOKING INFORMATION" below.

     As a REIT,  the Company is  required,  among other  things,  to  distribute
annually to its stockholders at least 95% of its REIT income,  85% of which must
be declared  during the tax year and distributed by January 31 of the subsequent
year. The remainder is required to be distributed prior to filing the tax return
for the year.  At March 31,  1997,  the  Company had  cumulative  REIT income in
excess of  distributions  of  $1,433,000.  By  qualifying  for the favorable tax
treatment accorded to a REIT and by distributing to its stockholders 100% of the
Company's REIT income,  the Company generally will not be required to pay income
tax at the corporate level. See "FORWARD LOOKING INFORMATION" below.

     The  Company  anticipates  its REIT  income from CMBS bonds will exceed the
related cash flow due to the inherent  structure and pricing of the  subordinate
CMBS bonds. The subordinate  classes of CMBS bonds purchased by the Company were
issued at a  significant  discount to their par value.  In  accordance  with the
Code, this discount generally is amortized into income over the life of the CMBS
bond (a non-cash source of REIT income).

     Under the Code, the Company has elected an income  recognition  methodology
for  certain  of  its  CMBS  bonds  that  computes  income  attributable  to the
amortization  of market  discount as the lesser of: (i) the amount of  principal
received  from the CMBS bond  during  the year;  or (ii) the  computed  discount
amortization. The effect of this election is to defer a portion of the amount of
the Company's  REIT income from non-cash  discount  amortization  from the early
years  in the life of the  applicable  bonds to  later  years  when  significant
repayments  of principal  are  expected to be received.  The Company was able to
make this  election  on seven  CMBS  bonds  which had an  outstanding  principal
balance of $61,017,000 at March 31, 1997.

     Subordinate  CMBS bonds acquired by the Company are  relatively  non-liquid
and,  as a result,  the  Company's  ability to change its  portfolio  quickly in
response  to  changes  in  economic  and other  conditions  may be  limited.  In
addition,  REIT rules  applicable  to the Company  may  restrict  the  Company's
ability to sell assets within four years of their acquisition. Under the Code, a
redemption or prepayment does not constitute a "sale."

     As the holder of subordinate  CMBS bonds (which generally are allocated all
losses on the underlying  mortgage loans until the principal balance of the bond
is exhausted),  the Company has significant credit risk. These bonds are subject
to a greater risk of loss of principal and non-payment of interest than the more
senior bonds secured by the same assets.  If a borrower defaults on a commercial
mortgage  loan that is pledged as  collateral  for a  commercial  mortgage  loan
securitization,  and the  proceeds of the  foreclosure  of the property are less
than the unpaid balance of the mortgage plus  foreclosure  costs  (principal and
interest advances through  foreclosure sale, repair and maintenance costs during
the  foreclosure,  brokerage fees,  legal fees,  taxes,  insurance,  etc.),  the
Company,  as the holder in most cases of the  subordinate  class,  will suffer a
loss.


                                     - 13 -
<PAGE>


     The Company  believes that cash generated by current and future  operations
and additional capital-raising activities, including borrowings, will enable the
Company to meet its  current  and  anticipated  future  liquidity  requirements,
including the payment of dividends to its  stockholders in an amount equal to at
least 95% of the Company's REIT income. See "FORWARD LOOKING INFORMATION" below.

     The management  and the Board of Directors of the Company are  continuously
evaluating  the  Company's  existing  investments,  structure  and  strategy and
considering whether changes are warranted.  The goal of management and the Board
of  Directors is to invest in assets with the  greatest  risk-adjusted  rates of
return. A change in the Company's  existing portfolio may impact the future REIT
income and resulting dividends of the Company. See "FORWARD LOOKING INFORMATION"
below.

                         CMBS BOND YIELD CONSIDERATIONS

Defaults

     The  yields  on the  CMBS  bonds  acquired  by the  Company  are  extremely
sensitive to the amount and timing of defaults and the severity of losses on the
mortgage loans collateralizing such CMBS bonds. The Company's right, as a holder
of  subordinate  CMBS bonds,  to  distributions  of  principal  and  interest is
subordinate to the more senior classes of CMBS bonds. Actual losses on the loans
take place after  default on the loan,  when the proceeds  from the  foreclosure
sale of the real estate are less than the unpaid  balance of the  mortgage  loan
plus  interest  advances and  foreclosure  costs.  Such losses will be allocated
first to the  subordinate  first-loss CMBS bonds prior to being allocated to the
more senior CMBS bond classes.  As of March 31, 1997,  one of the mortgages with
an outstanding balance of $788,000 that collateralized two of the Company's CMBS
bonds  has been  foreclosed.  The  Company  estimates  that the loss  from  this
mortgage  loan may range from $0 to  $425,000,  dependent  upon the  recovery of
indemnification claims made against the bond underwriter.  Otherwise, there have
been no delinquencies. The CMBS bonds the Company owns are more speculative than
the senior CMBS bond  classes and may be subject to special  risks,  including a
substantially greater risk of loss of principal and non-payment of interest.

     If the CMBS bonds  acquired by the Company have an actual  default rate and
severity  of  loss  on the  mortgage  collateral  that  are  higher  than  those
anticipated  by the Company  when the bonds were  acquired,  their yield will be
lower than the Company  initially  anticipated  and, in the event of substantial
losses,  the Company may not recover its acquisition  cost. The timing of actual
losses also will affect the Company's  yield on CMBS bonds,  even if the rate of
default and severity of loss are consistent  with the Company's  projection.  In
general,  the earlier a loss  occurs,  the  greater  the  adverse  effect on the
Company's yield.

     The  Company's  yield on CMBS bonds also will be affected by interest  rate
levels during the periods in which the mortgage loans  collateralizing  the CMBS
bonds  mature.  For  example,  if at  the  maturity  date  of a  mortgage  loan,
prevailing  mortgage  interest rates are much higher than the original  interest
rate on the mortgage loan, the operating cash flows from the commercial property
may not be  sufficient  to meet the higher  debt  service  costs of  replacement
financing,  and  the  owner  of  the  commercial  property,   unable  to  obtain
replacement financing,  may default on the mortgage. If the property is not sold
for more than the amount of the mortgage plus foreclosure costs, the Company may
incur credit  losses.  Similar  losses may occur if financing of the  commercial
properties  cannot be arranged at the maturity  date of the current  outstanding
mortgage due to poor property  performance.  These potential losses are referred
to as "balloon losses."


                                     - 14 -
<PAGE>


     There can be no assurance as to the future rate of delinquency, severity of
loss or the timing of any such losses on the mortgage loans  collateralizing the
CMBS bonds and,  thus,  no  assurance  as to the actual  yield  received  by the
Company. See "FORWARD LOOKING INFORMATION" below.

Prepayments

     The aggregate amount of distributions on the Company's CMBS bonds and their
yields also will be affected by the amount and timing of  principal  prepayments
on  the  mortgage  loans.  Generally,  all  payments  of  principal,   including
prepayments,  on the  mortgage  loans  will be paid to the  holders  of any more
senior  classes  of  CMBS  bonds  before  principal  payments  are  paid  to the
subordinate  bond classes held by the Company.  Because of this,  when computing
yields-to-maturity  on its CMBS bonds,  the Company  generally does not consider
prepayments from the underlying  mortgage loans  collateralizing its CMBS bonds.
However,  because  the  Company is  acquiring  the CMBS  bonds at a  significant
discount from their outstanding  principal balance,  prepayments of principal on
the CMBS bonds the Company owns,  may increase the  Company's  yield on its CMBS
bonds.

     Because the rate and timing of  principal  payments on mortgage  loans will
depend on future  events and on a variety of factors  over which the Company has
no control,  no  assurances  can be given as to the rate or timing of  principal
payments,  if any,  on the CMBS bonds the Company  owns.  See  "FORWARD  LOOKING
INFORMATION" below.

Loss Severity

     While the rate and  timing of  defaults  and  prepayments  on the  mortgage
collateral are important in  determining  the  anticipated  yield on subordinate
CMBS bonds,  the  anticipated  severity of the loss on the mortgage loans (i.e.,
the  total  loss  on any  foreclosure  sale  as a  percentage  of the  remaining
outstanding  principal  balance  of  a  mortgage  loan)  is  significantly  more
important in  determining  the  anticipated  yield on a  subordinate  CMBS bond.
Losses on defaulted mortgage  collateral are realized after the foreclosure sale
of the property which  generally is the only security for the mortgage loan. The
severity of these losses is extremely  important  because such losses  generally
will be allocated  to, and will reduce the remaining  principal  balance of, the
Company's  subordinate  CMBS bonds.  The severity of loss takes into account the
property owner's equity in the mortgaged real estate, the anticipated decline in
market  value  of  the  property,   accrued  and  unpaid  interest  through  the
foreclosure  process and  foreclosure  costs.  The higher the coupon rate of the
mortgage  loan,  the higher are the costs of interest  advances from the date of
default through foreclosure sale.

        INFLATION, INTEREST RATES, MORTGAGE PREPAYMENTS AND OTHER FACTORS

     The Company, its assets and its Common Stock will be affected by prevailing
market  interest  rates,  including:  (i) the effects of  interest  rates on the
values of long-term,  fixed-rate debt securities;  (ii) the possibility that, in
periods of high interest  rates,  the Common Stock may be less  attractive  than
alternative  investments  of equal  or lower  risk;  (iii)  possible  mismatches
between the Company's  borrowing costs and the Company's cash flow  requirements
which could have a negative  effect on the Company's  income;  (iv) the negative
effect of high interest  rates on the  properties  underlying the Company's CMBS
bonds  (including a negative  impact on the owner's  ability to  refinance  debt
secured  by such  properties);  and (v) the  effects  of  interest  rates on the
Company's borrowing costs. Interest rates are determined in large part by market
conditions and  government  policies which are beyond the control of the Company
and which are difficult to predict.


                                     - 15 -
<PAGE>


                           FORWARD LOOKING INFORMATION

     Certain  statements  in  this  Form  10-Q  Quarterly  Report,  as  well  as
statements made by the Company in periodic press  releases,  and oral statements
made by the Company's  officials to analysts and  stockholders  in the course of
presentations  about  the  Company  and  conference  calls  following  quarterly
earnings releases, constitute "forward-looking statements" within the meaning of
the  Private  Securities  Litigation  Reform Act of 1995.  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 the
following:  general economic and business conditions;  investment opportunities;
interest rate changes; competition; the availability of financing with terms and
prices  acceptable to the Company;  the Company's  ability to maintain or reduce
expense levels and losses on CMBS bonds.


                                     PART II
                                OTHER INFORMATION

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

           (a)    Exhibits:

Exhibit No.       Description

     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:  May 12, 1997                                   By  /s/ Kevin J. Nystrom
                                                         ----------------------
                                                         Kevin J. Nystrom
                                                         Chief Financial Officer


                                     - 16 -