CLARION COMMERCIAL HOLDINGS, INC.
                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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

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


                For the quarterly period ended September 30, 1999

                         Commission File Number: 1-14167

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


                                                            

                  Maryland                                     13-3988895
- ---------------------------------------------- -------------------------------------------
       (State or other jurisdiction of
       incorporation or organization)             (I.R.S. Employer Identification No.)


             335 Madison Avenue,
             New York, New York                                  10017
- ---------------------------------------------- -------------------------------------------
  (Address of principal executive offices)                     (Zip Code)



       (Registrant's telephone number including area code): (212) 883-2500

                                 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 November 9, 1999, 4,272,363 shares of Class A Common Stock ($.001 par
value) were outstanding.









                              CLARION COMMERCIAL HOLDINGS, INC.
                                          FORM 10-Q

                                      INDEX


                                                                                  
PART I    FINANCIAL INFORMATION.......................................................3

   Item 1:  Financial Statements......................................................3
     Consolidated Statements of Financial Condition...................................3
     Consolidated Statements of Operations............................................4
     Consolidated Statement of Changes in Stockholders' Equity........................5
     Consolidated Statements of Cash Flows............................................6
     NOTES TO FINANCIAL STATEMENTS....................................................7

   Item 2.  Management's Discussion and Analysis of Financial Condition and
            Results of Operations....................................................11

   Item 3.  Quantitative and Qualitative Disclosures About Market Risk...............15

PART II - OTHER INFORMATION..........................................................16

   Item 1. Legal Proceedings.........................................................16

   Item 2. Changes in Securities and Use of Proceeds.................................16

   Item 3. Defaults Upon Senior Securities...........................................16

   Item 4. Submission of Matters to a Vote of Security Holders.......................16

   Item 5. Other Information.........................................................16

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

SIGNATURES...........................................................................17




                                       2









                          PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

                Clarion Commercial Holdings, Inc. & Subsidiaries
                 Consolidated Statements Of Financial Condition
                                   (unaudited)




                                                                               September 30,          December 31,
 Assets:                                                                           1999                   1998
                                                                               -------------         -------------
                                                                                               
    Cash and cash equivalents                                                  $   1,164,698         $     565,684
    Securities - trading, at fair value                                           69,121,221            80,731,788
    Commercial mortgage loan receivable                                                 --              12,949,224
    Other investments                                                              4,856,250             4,856,250
    Deposits with brokers as collateral for securities sold short                 23,979,451            46,830,041
    Accrued interest receivable and other assets                                     598,040             2,089,891
                                                                               -------------         -------------

    Total assets                                                               $  99,719,660         $ 148,022,878
                                                                               =============         =============


Liabilities And Stockholders' Equity:
    Repurchase agreements                                                      $  32,204,000         $  58,924,000
    Government securities sold short                                              23,803,835            45,578,695
    Dividends payable                                                                858,853               689,348
    Treasury stock payable                                                              --                 577,851
    Other liabilities                                                                843,482             2,336,160
                                                                               -------------         -------------

    Total liabilities                                                             57,710,170           108,106,054
                                                                               -------------         -------------

Stockholders' equity:
    Preferred Stock, par value $.01 per share,
    25,000,000 shares authorized; no shares issued                                      --                    --
    Class A Common Stock, par value $.001 per share
    74,000,000 sharers authorized; 5,000,750 issued;
    4,294,263 and 4,451,050 shares outstanding in
    1999 and 1998
      Respectively                                                                     5,001                 5,001
    Class B Common Stock, par value $.001 per share
    1,000,000 shares authorized; 175,000 issued and
      outstanding                                                                        175                   175
    Additional paid-in capital                                                    98,197,339            98,197,339
    Net loss and distributions                                                   (49,191,720)          (52,303,201)
    Treasury stock - (706,487 and 549,700 shares in
    1999 and 1998, respectively) at cost                                          (7,001,305)           (5,982,490)
                                                                               -------------         -------------
    Total stockholders' equity                                                    42,009,490            39,916,824
                                                                               -------------         -------------
    Total liabilities and stockholders' equity                                 $  99,719,660         $ 148,022,878
                                                                               =============         =============




The accompanying notes are an integral part of these consolidated financial
statements.

                                       3









                Clarion Commercial Holdings, Inc. & Subsidiaries
                      Consolidated Statements of Operations
                                   (Unaudited)




                                                                                                                    For the period
                                                                                                                    June 2, 1998
                                                             For The Three      For The Nine        For The Three   (commencement
                                                             Months Ended       Months Ended        Months Ended  of operations) to
                                                             September 30,      September 30,       September 30,    September 30,
                                                                   1999             1999                1998            1998
                                                            ----------------------------------------------------------------------

                                                                                                         
Income:
    Interest income from securities -- trading               $  2,855,674      $  8,549,377       $  7,358,168       $  8,992,934
    Income from commercial mortgage loan                          230,649           702,699            231,599            304,389
    Income from other investments                                 136,185           404,805            150,776            181,634
    Interest income from cash and cash equivalents                 28,961            57,035             16,372             30,826
                                                            ----------------------------------------------------------------------

Total income                                                    3,251,469         9,713,916          7,756,915          9,509,783
                                                            ----------------------------------------------------------------------

Expenses:
    Interest                                                    1,700,119         5,106,395          5,544,220          6,364,944
    Management fee                                                144,329           439,791            241,326            320,686
    Other expenses                                                139,939           534,226          1,001,661          1,021,956
                                                            ----------------------------------------------------------------------

Total expenses                                                  1,984,387         6,080,412          6,787,207          7,707,586
                                                            ----------------------------------------------------------------------

Other operating gains and losses:
    Gain (loss) from securities -- trading                        210,004         3,036,795        (49,140,545)       (49,216,337)
    Provision to adjust commercial loan to market value              --          (1,500,633)              --                 --
    Realized gain on sale of commercial mortgage loan             549,467           549,467               --                 --
                                                            ----------------------------------------------------------------------

Total other operating gains                                       759,471         2,085,629        (49,140,545)       (49,216,337)
                                                            ----------------------------------------------------------------------

Net Income (Loss)                                            $  2,026,553      $  5,719,133       $(48,170,837)      $(47,414,140)
                                                            ======================================================================

Net Income (Loss) per share:
    Basic                                                    $       0.45      $       1.26       $      (9.80)      $      (9.52)
                                                            ======================================================================

    Diluted                                                  $       0.45      $       1.26       $      (9.80)      $      (9.52)
                                                            ======================================================================

    Weighted average shares
    Basic                                                       4,497,649         4,547,397          4,916,584          4,978,336
                                                            ======================================================================

    Diluted                                                     4,497,649         4,547,397          4,916,584          4,978,336
                                                            ======================================================================



The accompanying notes are an integral part of these consolidated financial
statements.

                                       4









                Clarion Commercial Holdings, Inc. & Subsidiaries
            Consolidated Statement Of Changes In Stockholders' Equity
                  For The Nine Months Ended September 30, 1999
                                   (Unaudited)




                                                                        Additional
                                                  Common Stock            Paid-in      Net Income and    Treasury
                                              Class A      Class B        Capital      Distributions      Stock            Total
                            -------------------------------------------------------------------------------------------------------

                                                                                                     
Balance at January 1, 1999                $      5,001   $        175   $ 98,197,339   $(52,303,201)   $ (5,982,490)   $ 39,916,824

Dividend declared:
   Class A common stock                           --             --             --       (2,607,652)           --        (2,607,652)

Net income                                        --             --             --        5,719,133            --         5,719,133

Treasury Stock                                    --             --             --             --        (1,018,815)     (1,018,815)
                                          -----------------------------------------------------------------------------------------

Balance at September 30, 1999             $      5,001   $        175   $ 98,197,339   $(49,191,720)   $ (7,001,305)   $ 42,009,490
                                          =========================================================================================




The accompanying notes are an integral part of these consolidated financial
statements.


                                       5













                Clarion Commercial Holdings, Inc. & Subsidiaries
                      Consolidated Statements of Cash Flows
                                   (Unaudited)



                                                                                                                    For the period
                                                                                                    For the Nine     June 2, 1998
                                                                                                    Months Ended   (commencement of
                                                                                                    September 30,   Operations) to
                                                                                                         1999     September 30, 1998
                                                                                                    --------------------------------

                                                                                                                

Cash flows from operating activities:
    Net income (loss)                                                                               $   5,719,133     $ (47,414,140)
Adjustments to reconcile net income to net cash used by
    Operating activities:
    Discount accretion, net                                                                              (425,838)         (100,935)
    Change in unrealized gain on commercial mortgage-backed securities                                 (4,399,818)       35,684,823
    Change in unrealized (gain) loss on short sales of government securities                           (2,944,597)       12,221,618
    (Decrease) Increase in accrued interest receivable & other assets                                   1,491,851        (1,991,066)
    Decrease/(Increase) in other liabilities                                                           (1,901,024)        6,337,450
    Provision to adjust commercial mortgage loan receivable to market value                             1,500,633              --
    Gain on commercial mortgage loan receivable                                                          (549,467)             --
    Investment in commercial mortgage backed securities                                               (18,597,001)     (222,576,008)
    Sale of commercial mortgage backed securities                                                      35,033,224              --
    Decrease (Increase) in deposits with broker as collateral for securities sold short                22,850,590      (185,482,488)
    (Decrease) Increase in government securities sold short                                           (18,830,263)      172,074,308
                                                                                                    --------------------------------
Net cash provided in operating activities                                                              18,947,423      (231,246,438)
                                                                                                    --------------------------------

Cash flows from investing activities:
    Investment in commercial mortgage loan receivable                                                        --         (13,014,690)
    Principal payments received on commercial mortgage loan                                               152,282              --
    Proceeds from sale of commercial mortgage loan receivable                                          11,845,776              --
    Investment in other assets                                                                               --          (3,809,168)
                                                                                                    --------------------------------
Net cash provided by investing activities                                                              11,998,058       (16,823,858)
                                                                                                    --------------------------------

Cash flows from financing activities:
    (Repayments) borrowings under reverse repurchase agreements, net                                  (26,720,000)      159,903,000
    Dividends paid                                                                                     (2,607,652)         (724,605)
    Purchases of treasury stock                                                                        (1,018,815)       (5,232,705)
    Proceeds from issuance of common stock, net of offering costs                                            --          94,590,973
                                                                                                    --------------------------------
Net cash used by financing activities                                                                 (30,346,467)      248,536,663
                                                                                                    --------------------------------

Net increase in cash and cash equivalents                                                                 599,014           466,367
Cash and cash equivalents at beginning of period                                                          565,684              --
                                                                                                    --------------------------------

Cash and cash equivalents at end of period                                                          $   1,164,698     $     466,367
                                                                                                    ================================

Supplemental information:
    Interest paid                                                                                   $   6,100,706     $   3,563,575
                                                                                                    ================================


Supplemental disclosures of cash flow information:
* Distributions in the amount of $858,853 were declared on September 23, 1999
  and paid on October 15, 1999.
* Distributions in the amount of $2,165,288 were declared on September 23, 1998
  and paid on October 15, 1998.


The accompanying notes are an integral part of these consolidated financial
statements.


                                        6









                          NOTES TO FINANCIAL STATEMENTS

NOTE 1   ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in conformity with the instructions to Form 10-Q and Article 10, Rule 10-01 of
Regulation S-X for interim financial statements. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the annual financial statements and notes thereto included in
the Company's annual report on Form 10-K filed with the Securities and Exchange
Commission. The consolidated financial statements include the accounts of
Clarion Commercial Holdings, Inc. ("Clarion") and its consolidated subsidiaries
(together with Clarion, the "Company"). All intercompany transactions and
balances are eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting of normal and recurring accruals,
necessary for a fair presentation of the consolidated financial condition of the
Company at September 30, 1999 and December 31, 1998, the results of its
operations for the three months and nine months ended September 30, 1999, and
for the three months ended and the period from commencement of operations (June
2, 1998) to September 30, 1998, the changes in its stockholders' equity for the
nine months ended September 30, 1999 and its cash flows for the nine months
ended September 30, 1999 and for the period from commencement of operations
(June 2, 1998) to September 30, 1998. Operating results for the period ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for any other interim periods or the year ending December 31, 1999.

Clarion was incorporated in Maryland in February 1998 and commenced its
operations on June 2, 1998. The Company is a specialty finance company organized
to invest in commercial mortgage-backed securities (primarily subordinate
securities) commercial mortgage loans, mezzanine investments, equity investments
and other real estate related investments.

NOTE 2   SIGNIFICANT ACCOUNTING POLICIES

In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated statement of financial condition and revenues and expenses for
the periods covered. Actual results could differ from those estimates and
assumptions.

A summary of the Company's significant accounting policies follows:

SECURITIES -- TRADING

At the date of acquisition, the Company elected to designate its government
securities and commercial mortgage-backed securities ("CMBS") as trading assets.
Such securities are carried at their estimated fair value, with the net
unrealized gains or losses included in earnings. For a description of the
methodology used in determining fair value of the Company's CMBS investments,
refer to Note 3. Interest income is recognized as it becomes receivable, and
includes amortization of premiums and accretion of discounts, computed using the
effective yield method, after considering estimated prepayments and credit
losses. Actual credit loss and prepayment experience is reviewed periodically
and effective yields adjusted if necessary.

The Company may, in the future, acquire assets that will be held for longer
periods of time, and will therefore, not be held principally for the purpose of
selling them in the near term. In this case, the Company may elect to designate
these assets as "Available-For-Sale" and any subsequent unrealized gains and
losses on the assets would be reported in other comprehensive income.

SHORT SALES

The Company enters into contracts to sell securities that it does not own at the
time of the sale, at a specified price at a specified time (short sales). The
Company utilizes these contracts as a means of mitigating ("hedging") the

                                       7








potential financial statement impact of changes in the fair value of its
portfolio of CMBS due to changes in interest rates. These contracts involve the
sale of U.S. Treasury securities borrowed from a broker. The broker retains the
proceeds from the sale until the Company replaces the borrowed securities. Risks
in these contracts arise from the possible inability of counterparties to meet
the terms of their contracts and from movements in securities values and
interest rates. If the market value of the securities involved in the short sale
increases, the Company may be required to meet a "margin call". The Company
accounts for its liability to return the borrowed securities under short sales
contracts at their market values, with unrealized gains or losses recorded in
earnings. Income earned on the proceeds on deposit with brokers is included in
interest income from securities - trading and interest due under the short sales
is included in interest expense.

COMMERCIAL MORTGAGE LOAN

In September 1999 the Company sold its investment in the commercial mortgage
loan for cash of $11,845,776. The Company recorded a reserve for loan impairment
in the amount of $1,500,633 at June 30, 1999 based on its estimated valuation of
$11,346,168, at that time. The Company adjusted that value by recording
principal and market premium amortization of $49,858 prior to sale. Therefore,
the Company recognized a gain on sale of $549,466 for the three months ended
September 30, 1999.

OTHER INVESTMENTS

The Company's 10% interest in Clarion Capital, LLC (the "Manager") and the
preferred interest in a limited partnership are accounted for at cost, with
income from distributions recognized as distributions are declared. The Company
periodically reviews these investments for other-than-temporary impairment. Any
such impairment would be recognized in income by reducing the investment to its
estimated fair value.

COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income" defines comprehensive income as
the change in equity of a business enterprise during a period from transactions
and other events and circumstances, excluding those resulting from investments
by and distributions to owners. The Company had no items of other comprehensive
income during any of the periods presented.

NEW ACCOUNTING PRONOUNCEMENT

In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that the Company recognize all derivatives as either assets or liabilities in
the statement of financial condition and measure those instruments at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge of the exposure to changes in the fair value of a
recognized asset or liability or a hedge exposure to variable cash flows of a
forecasted transaction. The accounting for changes in the fair value of a
derivative (e.g. through earnings or outside earnings, through comprehensive
income) depends on the intended use of the derivative and the resulting
designation.

The Company is required to implement SFAS 133 on January 1, 2001. Company
management is evaluating the impact that this statement will have on its hedging
strategies and use of derivative instruments and is currently unable to predict
the effect, if any, it will have on the Company's financial statements.

NET INCOME PER SHARE

Net income per share is computed in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings Per Share, and is calculated on
the basis of the weighted average number of common shares outstanding during the
period plus the additional dilutive effect of common stock equivalents. The
dilutive effect of outstanding stock options is calculated using the treasury
stock method.

For the three months and nine months ending September 30, 1999 and the three
months ending September 30, 1998 and the period from commencement of operations
(June 2, 1998) to September 30, 1998, diluted net income per share was the same
as basic net income per share, because all outstanding stock options were
antidilutive.


                                       8








DISTRIBUTIONS

On October 15, 1999, the Company made a distribution of $0.20 per share to
stockholders of record at the close of business on September 30, 1999. The
character of the distribution to the stockholders for income tax purposes has
not been determined at this time.

INCOME TAXES

The Company has elected to be taxed as a Real Estate Investment Trust ("REIT")
and has complied with the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), with respect thereto. Accordingly, the Company is not
subject to federal income tax to the extent of its distributions to stockholders
as long as certain asset, income and stock ownership tests are met.

The Company has elected mark-to market valuation treatment for its investment
portfolio under Internal Revenue Code Section 475. Under this election the
Company must treat all unrealized trading gains and losses as realized for
income tax purposes as well as treating all trading transactions as operating
gains and losses.

NOTE 3   SECURITIES -- TRADING AND SHORT SALES

The Company's securities -- trading consist of CMBS with an estimated fair value
of $69,121,221 and an amortized cost of $83,659,207 at September 30, 1999,
resulting in an unrealized loss of $14,537,986 at that date. At December 31,
1998, the Company's securities - trading consisted of CMBS with an estimated
fair value of $80,731,788 and an amortized cost of $99,669,591, resulting in an
unrealized loss of $18,937,803 at that date.

The portion of the loss from securities-trading that relates to CMBS still held
at September 30, 1999 was $256,647 and $808,305 for the three months and nine
months ended September 30, 1999, respectively. The portion of the loss from
securities-trading that relates to CMBS still held at September 30, 1998 was
$37,005,731 and $35,684,823 for the three months ended September 30, 1998 and
for the period from commencement of operations (June 2, 1998) to September 30,
1998, respectively.

The aggregate estimated fair value by underlying credit rating of the Company's
CMBS at September 30, 1999 and December 31, 1998 are as follows:



                               September 30, 1999                   December 31, 1998
                               ------------------                   -----------------
  Security Rating   Estimated Fair Value     % of Total    Estimated Fair Value      % of Total
  ---------------   --------------------     ----------    --------------------      ----------
                                                                     
  BBB                   $21,506,107             31.1%         $     --                   --
  BBB-                   15,608,629             22.6                --                   --
  BB                     10,524,300             15.2           58,252,658               72.2%
  B                      14,780,256             21.4           15,695,359               19.4
  B-                      2,569,757              3.7            2,819,988                3.5
  NR                      4,132,172              6.0            3,963,783                4.9
                        -----------           ------          -----------              -----
                        $69,121,221           100.00%         $80,731,788             100.0%
                        ===========           ======          ===========             ======



As of September 30, 1999, the mortgage loans underlying the CMBS interests held
by the Company were secured by properties of the types and in the states
identified below:




                 Property Type    Percentage (1)          State      Percentage (1)
               ----------------------------------     -------------------------------
                                                         
                     Retail            35.7%                CA             22.0%
                     Hotel             19.4                 NJ             12.9
                  Multifamily          19.2                 TX              9.1
                     Office            18.0                 FL              8.2
                     Other              7.7                 MO              7.8
                                                      All others (2)       40.0



(1) Based on a percentage of the total unpaid principal balance of the
    underlying loans.
(2) No other state comprises more than 5% of the total.


                                       9








As of September 30, 1999, the weighted average unpaid principal balance of loans
that are (1) underlying the CMBS investments of the Company and (2) more than 60
days delinquent is 0.12% of the unpaid principal balance of the total collateral
as of that date.

The fair value of the Company's portfolio of CMBS is generally estimated by
management based on market prices provided by third party market participants.
The market for the Company's CMBS periodically suffers from a lack of liquidity,
accordingly, the fair values reported reflect estimates and may not necessarily
be indicative of the amounts the Company could realize in a current market
exchange.

At September 30, 1999, the un-leveraged, un-hedged, weighted average yield to
maturity (excluding default and prepayment estimates) of the Company's CMBS
portfolio was 11.91%.

The yield to maturity on the Company's CMBS interests depends on, among other
things, the amount and timing of principal payments, the pass-through rate and
interest rate fluctuations. The subordinated CMBS interests owned by the Company
provide credit support to the more senior interests of the related commercial
securitization. Cash flow from the mortgages underlying the CMBS interests
generally is allocated first to the senior interests, with the most senior
interest having a priority entitlement to cash flow. Remaining cash flow is
allocated generally among the other CMBS interests in order of their relative
seniority. To the extent that there are defaults and unrecoverable losses on the
underlying mortgages, resulting in reduced cash flows, the most subordinate CMBS
interest will bear this loss first. To the extent there are losses in excess of
the most subordinated interest's stated entitlement to principal and interest,
then the remaining CMBS interests will bear such losses in order of their
relative subordination. There is, therefore no assurance that the yield to
maturity discussed above will be achieved.

At September 30, 1999, the Company had open contracts to sell U.S. Treasury
securities with face amounts totaling $22,764,000 and a fair value of
$23,803,835. Although the Company generally does not settle these contracts at
expiration, but instead rolls them over into new contracts, if the Company had
settled its open contracts at September 30, 1999, the Company would have been
required to pay the counterparty $161,079.

The unrealized gain (loss) on these contracts for the three months and nine
months ended September 30, 1999 was ($845,448) and $2,944,597, respectively,
which is included in unrealized gains from securities-trading in the
consolidated statement of operations. The realized gains on these contracts for
the three months and nine months ended September 30, 1999 was $1,766,946, which
is included in realized loss from securities-trading in the consolidated
statement of operations. The Company earned $575,794 and $1,747,764 on short
sale proceeds held by brokers and incurred interest of $769,938 and $2,384,192
on the short sales contracts for the three months and nine months ending
September 30, 1999, respectively.


NOTE 4  COMMON STOCK

On June 30, 1998, the Board of Directors of Clarion authorized a program to
repurchase up to 400,000 shares of Class A Common Stock (the "Stock Repurchase
Program"). Pursuant to the Stock Repurchase Program, purchases of Class A Common
Stock have been and will be made at the sole discretion of management in the
open market or in privately negotiated transactions until the earlier to occur
of (i) the date on which the Company acquires, in the aggregate, 400,000 shares
of Class A Common Stock, or (ii) June 30, 1999. On September 8, 1998, the Board
of Directors authorized management to repurchase an additional 400,000 shares
prior to September 30, 1999, at a price not to exceed $13.60. On August 18, 1999
the Board of Directors extended the expiration date of the Stock Repurchase
Program by one year to September 30, 2000.

As of January 1, 1999, the Company had acquired a total of 549,700 shares of
Class A Common Stock in the open market at a cost of $5,982,490. In the nine
months ended September 30, 1999, the Company acquired an additional 160,300
shares of Class A Common Stock in the open market at a cost of $1,026,180.

In the nine months ended September 30, 1999 the independent members of the Board
of Directors received 3,513 shares of Class A Common Stock as compensation for
their service to the company.


                                       10








NOTE 5   TRANSACTIONS WITH AFFILIATES

Clarion has entered into a Management Agreement (the "Management Agreement")
with the Manager, under which the Manager manages the Company's day-to-day
operations, subject to the direction and oversight of Clarion's Board of
Directors. The Company pays the Manager an annual base management fee equal to
1% of the average stockholders' equity in the company, excluding any mark to
market adjustments to the Company's assets.

The Company will also pay the Manager, as incentive compensation, an amount
equal to 25% of the Adjusted Net Income of Clarion, before incentive
compensation, in excess of the amount that would produce an annualized return on
equity equal to 2.5% over the Ten-Year U.S. Treasury.

In accordance with the terms of the Management Agreement, the Company paid
$144,329 and $439,791 in base management fees for the three months and nine
months ended September 30, 1999, respectively. The Company has not accrued for,
or paid, the Manager any incentive compensation since inception.


NOTE 6   REPURCHASE AGREEMENTS

As of September 30, 1999, the Company had entered into repurchase agreements in
the amount of $32,204,000 to finance a portion of its investments. The weighted
average maturity of the agreements as of September 30, 1999 was 18.81 days, with
no agreement having a maturity greater than 30 days, and the weighted average
interest rate was 6.02%, based on one-month LIBOR plus a weighted average spread
of 0.64%. The repurchase agreements are collateralized by the Company's
portfolio of CMBS investments.


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

The Company was organized in February 1998 to invest in commercial
mortgage-backed securities (primarily subordinate securities), commercial
mortgage loans, mezzanine investments, equity investments, and other real estate
related investments. Substantially all of the $94.7 million of net proceeds
received from the sale of 5,000,000 shares of its Class A Common Stock in June
1998 together with the net proceeds of other financing arrangements were used to
acquire the Company's portfolio of investments.

The following discussion of the Company's financial condition, results of
operations, and capital resources and liquidity should be read in conjunction
with the Company's financial statements and related notes.

MARKET CONDITIONS:

The three months ended September 30, 1999 were relatively calm for the Company,
as spreads on subordinate classes of CMBS did not move dramatically in either
direction. The price of a fixed income security (such as a CMBS) or a commercial
loan is often determined by adding an interest rate spread to a benchmark
interest rate, such as the U.S. Treasury rate. As the spread on a security
tightens (or decreases), the price (or value) of the security rises.

While spreads on the subordinate classes of CMBS moved very little in the three
months ended September 30, 1999, interest rates did increase slightly. The
ten-year U.S Treasury rate rose approximately 0.10% in the three months ended
September 30, 1999. In the same way that a widening (increasing) spread for CMBS
and commercial loans causes their value to fall, increasing interest rates also
causes their value to decline. In order to offset this potential loss in CMBS
and commercial loan value due to increasing interest rates, the Company "sells
short" U.S. Treasury securities that increase in value as interest rates rise.
In the three months ended September 30, 1999, the Company's short positions in
U.S. Treasury securities effectively offset the decline in value of the
Company's CMBS and commercial loan positions due to the increase in interest
rates.


                                       11








RESULTS OF OPERATIONS

General:

Net income for the three months and nine months ending September 30, 1999
amounted to $2,026,553 or $0.45 per share, basic and diluted, and $5,719,133 or
$1.26 per share, basic and diluted, respectively. Net loss for the quarter ended
September 30, 1998 and for the period from commencement of operations (June 2,
1998) to September 30, 1998 amounted to $48,170,837 or $9.80 per share, basic
and diluted and $47,414,140 or $9.52 per share, basic and diluted, respectively.
The net income for the three months ending September 30, 1999 was attributable
primarily to income from investments of $3.3 million and net realized and
unrealized gains from securities-trading of $0.8 million. This was offset by
interest expense of $1.7 million, and other expenses of $0.3 million. The net
income for the nine months ending September 30, 1999 was attributable primarily
to income from investments of $9.7 million and net realized and unrealized gains
of $2.1 million. This was offset by interest expense of $5.1 million and other
expenses of $1.0 million. The net loss for the three months ending September 30,
1998 was attributable primarily to net realized and unrealized losses from
securities-trading of $49.1 million. This was offset by income from investments
of $7.8 million, interest expense of $5.5 million and other expenses of $1.2
million. The net loss for the period from commencement of operations (June 2,
1998) to September 30, 1998 was attributable primarily to net realized and
unrealized losses from securities-trading of $47.4 million. This was offset by
income from investments of $9.5 million, interest expense of $6.4 million and
other expenses of $1.3 million. The results of operations realized during the
period ending September 30, 1999 are not necessarily indicative of the results
that may be expected for future periods.

Investment Income:

For the three months and nine months ending September 30, 1999 and the three
months ending September 30, 1998 and the period from commencement of operations
(June 2, 1998) to September 30, 1998, the Company earned income of $3,251,469,
$9,713,916, $7,756,915 and $9,509,783 from investments, respectively, as
follows:





                                                                                    Period from
                                                                                    Commencement
                                     Three Months   Nine Months   Three Months     of Operations
                                        Ending        Ending         Ending      (June 2, 1998) to
                                    September 30,  September 30, September 30,     September 30,
            Investment                   1999          1999           1998              1998
- -----------------------------------------------------------------------------------------------
                                                                        

CMBS                                   $ 2,279,880   $ 6,801,613    $ 4,579,729    $ 6,059,652
Deposits with brokers as collateral
 for securities sold short                 575,794     1,747,764      2,778,439      2,933,282
Commercial mortgage loan                   230,649       702,699        231,599        304,389
Mezzanine investment                       136,185       404,805        150,776        181,634
Cash and cash equivalents                   28,961        57,035         16,372         30,826
                                    ----------------------------------------------------------

TOTAL                                  $ 3,251,469   $ 9,713,916    $ 7,756,915    $ 9,509,783
                                    ==========================================================




Interest Expense:

For the three months and nine months ending September 30, 1999, the Company
incurred interest expense of $930,182 and $2,722,203 from repurchase agreements
and $769,938 and $2,384,192 from government securities sold short, respectively.
For the three months ending September 30, 1998 and for the period from
commencement of operations (June 2, 1998) to September 30, 1998, the Company
incurred interest expense of $2,430,560 and $3,080,679 from repurchase
agreements and $3,113,660 and $3,284,266 from government securities sold short,
respectively.

As of September 30, 1999, the Company had entered into repurchase agreements in
the amount of $32,204,000. The weighted average interest rate was 6.02%, and is
a variable rate, based on one-month LIBOR plus a weighted average spread 0.64%.


                                       12








As of September 30, 1999, the Company had the following open short positions in
U.S. Treasury securities:  $3,881,000 (face) of U.S. Treasury 6.50%, 11/15/2026
and $18,883,000 (face) of U.S. Treasury 7.00%, 07/15/2006.

Other Expenses:

In accordance with the terms of the Management Agreement, an expense of $144,329
and $439,791 in base management fees was incurred for the three months and nine
months ending September 30, 1999, respectively. The base management fees for the
three months ending September 30, 1998 and for the period from commencement of
operations (June 2, 1998) to September 30, 1998 were $241,326 and $320,686,
respectively. The Company has not accrued for or paid any incentive compensation
to the Manager since inception.

Other Operating Gains & Losses

For the three months and nine months ended September 30, 1999, the Company
recorded gains of $210,004 and $3,036,795, respectively, on its securities
portfolio. This compares to losses of $49,140,545 and $49,216,337 for the three
months ended September 30, 1998 and the period from commencement of operations
(June 2, 1998) to September 30, 1998, respectively.

In September 1999 the Company sold its investment in the commercial mortgage
loan for cash of $11,845,776. The Company recorded a reserve for loan impairment
in the amount of $1,500,633 at June 30, 1999 based on its estimated valuation of
$11,346,168, at that time. The company adjusted that value by recording
principal and market premium amortization of $49,858 prior to sale. Therefore,
the company recognized a gain on sale of $549,466 for the three months ended
September 30, 1999.

In August and September the Company sold five of its CMBS investments for total
proceeds of $28,958,658. In addition, the Company closed out the related short
treasury hedges. These transactions resulted in realized losses of $4,307,620.
The closing of short treasury hedge transactions in the three months ended
September 30, 1998 and the period from commencement of operations (June 2, 1998)
to September 30, 1998 resulted in realized losses of $1,099,396 and $1,309,897,
respectively.

CHANGES IN FINANCIAL CONDITION

General: Total assets as of September 30, 1999 amounted to $99.7 million and
were comprised primarily of $69.1 million of CMBS, $24.0 million of deposits
with brokers as collateral for securities sold short and a mezzanine investment
of $3.9 million. Total liabilities of the Company as of September 30, 1999
amounted to $57.7 million and were comprised primarily of repurchase agreements
in the amount of $32.2 million and government securities sold short in the
amount of $23.8 million. During the three months ended September 30, 1999, the
Company sold five CMBS investments for $29.0 million and the commercial loan
receivable for $11.8 million. There was a corresponding decrease in repurchase
agreements of $26.7 million. Deposits with brokers as collateral for securities
sold short decreased by $22.9 million, mirroring the decrease in government
securities sold short. The Company decreased its short positions as a result of
the sale of the related CMBS investments and commercial mortgage loan
receivable.

CAPITAL RESOURCES AND LIQUIDITY:

Liquidity is a measurement of the Company's ability to meet potential cash
requirements, including ongoing commitments to repay borrowings, fund
investments, loan acquisition and lending activities and for other general
business purposes. The Company's primary sources of funds for liquidity consist
of repurchase agreements and maturities and principal payments on securities and
loans, and proceeds from sales thereof.

Market observations suggests that buyers of CMBS and sources of repurchase
agreement financing may adopt a more conservative position in their business
practices as Year 2000 approaches. This may affect the Company's ability to sell
securities and/or obtain financing and also may affect the value of the
Company's assets and the cost of its debt. If the company were unable to replace
its short term financing, it may be forced to sell its assets in order to pay
down its repurchase agreements at a time when the market for the sale of such
assets is unfavorable. If this were to occur, the company could realize
substantial losses.


                                       13







The Company's operating activities generated cash flows of $18.9 million during
the nine months ending September 30, 1999. This was due primarily to an excess
of interest income on investments over financing costs of approximately $4.6
million and net proceeds from trading in commercial mortgage backed securities
of $11.6 million. This compares with the Company's operating activities during
the period from commencement of operations (June 2, 1998) to September 30, 1998
which used cash flows of $231.2 million. This was primarily due to investment in
commercial mortgage backed securities of $222.6 million.

The Company's investing activities generated cash flows totaling $12.0 million
during the nine months ending September 30, 1999 primarily through the proceeds
from the sale of the commercial mortgage loan receivable. This compares with
cash flows used for investing activities of $16.8 million for the period from
commencement of operations (June 2, 1998) to September 30, 1998. These funds
were used to purchase the commercial mortgage loan receivable and investment in
other assets.

The Company's financing activities used $30.3 million during the nine months
ending September 30, 1999 and consisted primarily of payments made on repurchase
agreements of $26.7 million, purchases of treasury stock of $1.0 million and
distributions to shareholders of $2.6 million. The Company's financing
activities for the period from commencement of operations (June 2, 1998) to
September 30, 1998 generated $248.5 million through proceeds from issuance of
common stock of $94.6 million and proceeds from repurchase agreements of $159.9
million.

The Manager is currently evaluating investment opportunities on behalf of the
Company. In the event that the Manager identifies an investment opportunity
consistent with the Company's investment objectives, the Company may seek
sources of additional capital, including various third-party borrowings or the
issuance of preferred equity. The Company may also elect to increase its
borrowings under repurchase agreements or may elect to dispose of an existing
asset.

The Company, in order to avoid corporate income taxation of the earnings that it
distributes, is required to distribute annually at least 95% if its taxable
income to stockholders. It is possible that the Company may experience timing
differences between the actual receipt of income and the inclusion of that
income in the calculation of taxable income. In the event that the cash
generated by the Company's investments is insufficient to fund the distributions
to stockholders that are required to maintain the Company status as a REIT, the
Company may access cash reserves or seek sources of additional capital in order
to fund the distributions.

Except as discussed herein, management is not aware of any other trends, events,
commitments or uncertainties that may have a significant effect on liquidity.

STOCKHOLDERS' EQUITY:

Stockholders' equity as of September 30, 1999 was $42.0 million. In the nine
months ending September 30, 1999, stockholders' equity increased by $2.1 million
due to net income of $5.7 million, offset by a decrease of $1.0 million due to
the repurchase of stock and a decrease of $2.6 million due to distributions of
$0.20 per share to stockholders of record on September 30, 1999, June 30, 1999
and March 31, 1999.

YEAR 2000 COMPLIANCE:

Substantially all of the Company's computer systems are supplied by the Manager.
In 1998, an affiliate of the Manager formed an internal team ("the team") of
information technology professionals to identify the risks to the business
operations of the Manager, and the Company, that may arise from the transition
to the Year 2000 and beyond. The team also assumed responsibility for increasing
awareness of the potential risks to the business operations through
presentations to employees and management of the Manager. The team has also
completed a written plan that identifies corrective steps to mitigate these
risks.

The Manager's plan for Year 2000 compliance covers mission-critical systems,
physical facilities and communications systems. It also addresses external
interfaces with third-party computer systems that communicate with the systems
of the Manager. The Manager has allocated approximately $50,000 to cover
expenses associated with the assessment of potential Year 2000 issues. The
Company has not allocated any funds to cover Year 2000 compliance; however, the
Company may bear a portion of the costs incurred by the Manager in this regard.

Mission Critical Systems:


                                       14








The Manager advised the Company that, as of September 30, 1999, the team had
completed an inventory of all systems, and had identified all mission-critical
systems that were not Year 2000 compliant. The team had also developed
remediation and testing plans to address Year 2000 issues. As of September 30,
1999, the team had advised the Company that it had completed remediation and
testing of substantially all internal mission-critical systems.

Assessment of Year 2000 Readiness of Third Parties:

On September 30, 1999, the Manager advised the Company that it had identified
and had contact with all third parties upon which the Manager relies for
mission-critical and non-mission-critical systems. All of the third parties
contacted by the team had documented their plans for addressing Year 2000 issues
and their progress in achieving Year 2000 compliance.

Development of Contingency Plan:

As of September 30, 1999, the team had advised the Company that it had created a
written disaster recovery plan that addresses contingency plans for the Manager
in the event of internal and external computer failures.

Risks Associated with Achieving Year 2000 Compliance:

Based upon the Manager's representations regarding the team's efforts and
responses from third parties, the Company believes that the Manager is
substantially Year 2000 compliant. There can be no assurance that the
assessments or remediation measures made by the Manager or significant third
parties with whom the Manager's systems interface have been or will be accurate.
There is a risk that failure by the Manager or those significant third parties
to achieve Year 2000 compliance will have an adverse effect on the business
operations of the Company.

FORWARD-LOOKING STATEMENTS:

Certain statements contained herein are not, and certain statements contained in
future filings by the Company with the SEC, in the Company's press releases or
in the Company's other public or shareholder communications may not be, based on
historical facts and are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
which are based on various assumptions (some of which are beyond the Company's
control), may be identified by reference to a future period or periods, or by
the use of forward-looking terminology, such as "may," "will," "believe,"
"expect," "anticipate," "continue," or similar terms or variations on those
terms, or the negative of those terms. Actual results could differ materially
from those set forth in forward-looking statements due to a variety of factors,
including, but not limited to, those related to the economic environment,
particularly in the market areas in which the Company operates, competitive
products and pricing, fiscal and monetary policies of the U.S. Government,
changes in prevailing interest rates, acquisitions and the integration of
acquired businesses, credit risk management, asset/liability management, the
financial and securities markets and the availability of and costs associated
with sources of liquidity. The Company does not undertake, and specifically
disclaims any obligation, to publicly release the result of any revisions, which
may be made to any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes in interest rates,
lending environments, changes in spreads on CMBS, real estate cash flows and
values, foreign currency exchange rates, commodity prices and equity prices. The
primary market risks to which the investments of the Company are exposed are
lending environments, interest rate risk and CMBS spread risk, which are highly
sensitive to many factors, including governmental monetary and tax policies,
domestic and international economic and political considerations and other
factors beyond the control of the Company. Changes in the general level of
interest rates can also affect the net interest income of the Company.

The Company is further exposed to interest rate risk through its short term
financing through repurchase agreements at rates that are based on 30-day LIBOR.
The repurchase agreements into which the Company has entered are for


                                       15







terms of less than, or equal to 30 days. Changes in interest rates may increase
the Company's cost of financing its investments.

Furthermore, if the company were unable to replace its short term financing, it
may be forced to sell its assets in order to pay down its repurchase agreements
at a time when the market for the sale of such assets is unfavorable. If this
were to occur, the company could realize substantial losses.

The investments of the Company are also exposed to spread risk. The price of a
fixed income security is generally determined by adding an interest rate spread
to a benchmark interest rate, such as the U.S. Treasury rate. As the spread on a
security widens (or increases), the price (or value) of the security falls. As
spreads on CMBS widen, the fair value of the Company's portfolio falls. Spread
widening in the market for CMBS can occur as a result of market concerns over
the stability of the commercial real estate market, excess supply of CMBS, or
general credit or liquidity concerns in other markets.

The Company enters into contracts to sell securities that it does not own at the
time of the sale, at a specified price at a specified time (short sales). The
Company utilizes these contracts as a means of mitigating ("hedging") the
potential financial statement impact of changes in the fair value of its
portfolio of CMBS due to changes in interest rates. As the value of the
Company's CMBS declines (increases) with increases (decreases) in interest
rates, the value of the contracts increases (decreases). There can be no
guarantee, however, that the change in value of the contract will completely
offset the change in value of the fixed-rate interest-earning asset. Risks in
these contracts arise from the possible inability of counterparties to meet the
terms of their contracts and from movements in securities values and interest
rates. Furthermore, if the market value of the securities involved in the short
sale increases, the Company may be required to meet a "margin call".

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings
    At September 30, 1999 there were no legal proceedings to which the Company
    was a party or of which any of its property was subject.

Item 2. Changes in Securities and Use of Proceeds
    Not applicable

Item 3. Defaults Upon Senior Securities
    Not applicable

Item 4. Submission of Matters to a Vote of Security Holders
    Not applicable

Item 5. Other Information
    None

Item 6. Exhibits and Reports on Form 8-K

    (a) Exhibits

    Exhibit 27.1 -- Financial Data Schedule

    (b) Reports on Form 8-K

        None


                                       16








                                   SIGNATURES

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

                                        CLARION COMMERCIAL HOLDINGS, INC,

Dated: November 12, 1999



                                          By: /s/ Fredrick D. Arenstein
                                          -------------------------------------
                                          Name: Fredrick D. Arenstein
                                          Title: Treasurer


                                       17