Based on deals that are currently being prepared for market, 2016 is likely to end with $67.2 billion of CMBS having been issued. That number would be 29.3% behind last year's $95.1 billion of issuance, and would mark the first time that annual issuance had declined from the prior year since 2009.

This year's relatively tepid volume came in spite of the fact that more than $87 billion in CMBS loans that were originated in 2006 were to have matured. Some of those notes defaulted when they came due, while others were taken out with financing from other sources.

Issuance was impacted sharply by the volatility that plagued most markets during the first half of the year. The second quarter produced only $9.5 billion of issuance, the lowest quarterly volume tally in more than four years. But market conditions stabilized soon after and issuance picked up. $18 billion in CMBS was issued in Q3 2016, a 90% increase from the second quarter. However, that level was still 39% less than the year-ago period. The fourth quarter is on pace to reach $22.4 billion, which would be a nearly 6% increase from last year.

The issuance picture for next year doesn't get much better. Most projections call for roughly $65-$70 billion of issuance, with some predicting slightly higher volumes of up to $80 billion or so. That's despite the fact that some $89 billion of performing CMBS loans mature during the year. Of course, not all of them will get refinanced. For instance, Morningstar Credit Ratings projects that perhaps only 60% of that volume will qualify for refinancing.

Helping to quash issuance expectations is risk retention, a regulation that goes into effect in three weeks that requires at least 5% of every structured-finance transaction be retained by its issuer or another qualified party. Issuers have the option of keeping a vertical slice of every deal, a horizontal slice which they could sell to a qualified B-piece buyer, or a combination of both known as an L-shaped piece.

So far, three risk retention-compliant deals have been issued, each of which were aggressively pursued by investors. All of those deals have used the vertical strategy, so their issuers each kept 5% of every bond class. The rules stipulate that those pieces have to be kept for five years. That, in and of itself, should work as a brake on issuance going forward as issuers might have limited capacity to retain bonds for such extended periods.

Meanwhile, there's no word yet on when a deal adopting a horizontal or L-shaped strip will be brought to market. While a number of B-piece buyers (entities that historically invested in the riskiest classes of CMBS deals) have raised long-term capital for the purpose, complications over documentation and other issues have halted such deals.

All told, 2017 CMBS issuance is not likely to keep up with the pace of maturities. That means life insurance companies, banks, and the housing-finance agencies will likely receive upsurges in their origination volumes. And the slew of funds pursuing the origination of bridge loans should have a field day, as the two-year term for such issues represents an alternative to lengthier refinancing if it cannot be attained.