By Ilaina Jonas

NEW YORK (Reuters) - The prices of investment-grade commercial real estate rose more than 4 percent in the third quarter, possibly signaling an end to the sector's year-long downward spiral, according to an leading property index released on Tuesday.

The 4.4 percent third-quarter increase in the MIT Center for Real Estate's transaction-based index (TBI) index is the first positive price change in the index in more than a year and the largest increase since the market downturn began in mid-2007.

"One quarter does not a trend make and we are still well below normal trading volume," David Geltner, director of research at MIT/CRE, said in a statement. "Nevertheless, this is the strongest sign of a bottom that we've had in two years."

The U.S. commercial real estate market has been in a downward spiral for more than two years. Borrowers are facing shortfalls in financings when loans come due. Some borrowers are struggling to meet even monthly payments.

The delinquency rate of U.S. commercial real estate loans securitized into Commercial Mortgage-Backed Securities (CMBS) hit 4.8 percent in October, up from 4.36 the prior month and dwarfing the 0.77 rate of a year earlier, according to Trepp, which tracks CMBS loans.

The TBI tracks the prices that institutional investors, such as pension funds pay or receive when buying or selling commercial properties such as shopping centers, apartment complexes and office towers.

The price index at the third quarter stood at 36.5 percent below its 2007 peak, up from its 39 percent deficit seen last quarter, which now could be the trough and suggests the U.S. commercial property market may have finally found a price bottom.

In addition, the number of transactions rose for the second straight month in the third quarter to 90 from 42 in the second quarter.

"The big news this quarter is not just that the price index increased, but that transaction volume substantially increased for the second quarter in a row, reflecting the first increase in market sentiment in two years," Geltner said. Continued...