While CMBS production was robust in the first six months of 1999, it was "down by almost 50% during the last six months," said Greg Jacobs, senior vice president and co-head at Greenwich Capital Markets, Inc.

Mid-April showed the tightest spreads for the sector, between 100 and 105 basis points, but then a significant widening took place during the fall due to a lack of liquidity. Despite Y2K, November and December showed more investor interest, and spreads collapsed in December, tightening on the expectations of an increase in interest rates in February.

"Rates, rates and rates is really the issue," added J.P. Morgan's Brian Baker.

The Fed is expected to raise interest rates by 25 basis points in early February and then another 25 basis points or 50 basis points in the spring, panelists said.

"The dominant issue is that the funds rate may go as high as 6.55 in one year's time," said Jacobs. "There will be continued Fed side effects. Such a change in interest rates could cause there to be a radically different environment by year-end."

Moreover, according to DLJ's Jim Titus, "delinquency rates are expected to ratchet up this year."

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