The Government Development Bank-Economic Activity Index for December 2011 showed its first year-over-year growth since March 2006 at the start of Puerto Rico’s years-long recession, officials announced Monday.

The GDB-EAI hit 127.7 in December, a 0.5% increase over the previous December, officials said.

Citing the GDB-EAI’s 98% degree of correlation with real gross national product levels, officials expressed hope that after a stabilization period of more than a year, the Puerto Rico economy is finally breaking into positive terrain.

Total payroll employment, one of four components comprising the GDB-EAI, hit 934,600, a 0.2% improvement over the year-prior period and the first month reflecting positive growth since early 2006.

Cement sales, another GDB-EAI indicator, totaled 1.618 million bags in December, a 13.9% increase over the same period in 2010. Total cement sales for calendar year 2011 ended 5.4% above 2010.

Meanwhile, gasoline consumption reached 95.3 million gallons in December, an increase over the average 87.1 million gallons consumed monthly during 2011, according to GDB officials.

Only one of the four indicators — electric power consumption ― declined compared with last year, with December consumption registering a 1.7% decline over the same period the previous year.

The positive year-over-year growth follows three straight months in which the GDB-EAI showed month-to-month improvements, and in November it fell a mere 0.1% when compared to the year-prior period. However, the December performance of 127.7 was actually a slight decrease from the 128.2 registered in November.

There are other indicators that the economy is on the rebound, notably the unemployment rate dropping to 13.2% in December, the lowest rate since January 2009. Car and home sales and manufacturing production have also been on the rise, while bankruptcies are finally retreating.

Nevertheless, the most recent figures could well spell the best economic news since the recession began nearly six years ago in March 2006. If the year-over-year growth keeps up for the next few months, it would mark the end of the recession. A widely used definition is that a recession begins after two quarters of economic decline, and ends after two quarters of growth.

The Federal Reserve this past week issued aggressive and controversial recommendations for dealing with more $7 trillion in housing wealth loss since the onset of the Great Recession. Many economists agree that housing holds the key to a stronger and more widespread recovery in the U.S., and the Fed’s recommendations are intended to address the buildup of surrendered and foreclosed housing inventory that continues to dampen consumer confidence.

The Federal Reserve’s commentary this past week in a white paper, “The U.S. Housing Market: Current Conditions and Policy Considerations,” recommended policies that would limit the growth of the inventory of foreclosed homes, make mortgage credit easier to access and limit the flow of homes into foreclosure.

Fitch Ratings says the Fed’s recommendations face challenges, but may benefit the private-label residential mortgage-backed securities (RMBS) sector. The primary recommendation of the white paper is a government-facilitated REO-to-rental program, either through direct rentals or third-party sales.

“Expanding the options available for holders of foreclosed properties to dispose of their inventory responsibly could reduce the number of distressed sales and the effect of those sales on home prices,” Federal Reserve Governor Elizabeth A. Duke told the Virginia Bankers Association last week.

“For example, in many housing markets the demand for rental housing is much stronger relative to supply than in the market for owner-occupied homes. Reducing some of the barriers to converting foreclosed properties to rental units will help to redeploy the existing stock of houses in a more efficient way,” Duke said.

“Along the same lines, aggressive neighborhood stabilization efforts, including transferring low-value properties to public or nonprofit entities, such as land banks, that can manage properties that are not dealt with adequately through the private market, could lessen the effect of foreclosures on the prices of homes in the surrounding neighborhoods,” she added.

In analyzing the recommendations, Fitch Ratings reported this week that “while we believe this idea has merit, as it could potentially reduce the number of distressed properties for sale, it would face some operational challenges. A direct rental program could be an undertaking of some magnitude and cost for an REO holder due to the staffing and property management demands associated with large-scale property rental programs.”

“While a third-party sales program could minimize these direct costs, an investor’s ability to secure financing and the lower bids for bulk REO present a different set of challenges,” Fitch Ratings said. “Lastly, a program subsidy may not be politically well-received if it were to lower the recoveries otherwise achieved through sales to owner-occupants.”

Somewhat less challenging, from Fitch Ratings’ viewpoint was the recommended expansion of a program that would allow Fannie Mae and Freddie Mac to refinance underwater borrowers who are current on their mortgages.

“The potential default and loss exposure to the private-label RMBS would be significantly reduced by such a program,” Fitch Ratings said. “But this may be the most politically unpalatable of the recommendations as it would increase the credit risk exposure and size of the GSEs’ balance sheets.”

So if REO to rental is flawed and expanding refinancings is political suicide, what’s to like?

Fitch Ratings said a third recommendation calling for the increased use of foreclosure alternatives, such as short sales and deeds-in-lieu, is one that it believes may be the easiest to implement as it has already been put into practice by most servicers for some time now.

“Furthermore, we find that these alternatives have lower loss severities relative to foreclosures as they reduce the need for legal procedures and lower the cost to protect, maintain and broker the property,” Fitch reported.

“Overall we believe these recommendations could be a net positive for private-label RMBS because they would primarily reduce distressed housing inventory and some could lessen the downward pressure on prices,” Fitch concluded.

Fed Governor Duke told Virginia bankers that “policies that increase credit availability for homeowners or investors seeking to purchase a home or to refinance an existing mortgage would allow more borrowers to access lower interest rates and thus improve the transmission of monetary policy to the economy.”

“Renewed attention to a broad menu of options to modify existing mortgages would provide aid to struggling homeowners and would help to reduce the flow of foreclosed homes into distressed inventory,” she added. “When foreclosure cannot be avoided, incentives provided to homeowners that encourage short sales and deeds-in-lieu of foreclosure can reduce the time and costs of foreclosure and minimize negative effects on communities.”

In a trend that may bode well for a broadening recovery in CRE markets, small business owners are feeling more optimistic — or at least less pessimistic — about sales, hiring and expansion prospects over the next three to six months, according to the latest national index.by the National Federation of Independent Business (NFIB).

The NFIB Optimism Index rose 1.8% in November, with small business owners anticipating improved sales, hiring and capital spending amid a ‘less negative’ outlook for business conditions over the next three to six months.

Eight of the 10 index components improved or remained unchanged in this month’s report, based on the responses of 781 randomly sampled small businesses in NFIB’s membership surveyed throughout November.

While encouraged by the results, the advocacy group was careful not to portray the report as unrealistically sunny during a time of continued difficulty for many small businesses struggling in the tepid recovery.

“The numbers have been depressing for so long, any little progress looks good,” said NFIB Chief Economist William Dunkelberg, who co-authored the monthly Small Business Economic Trends report with policy analyst Holly Wade. Dunkelberg noted that the November reading is still “eight huge points” below its pre-2008 average and 14 points below the comparable recovery period in 2001.

A seasonally adjusted 7% of owners are planning to add jobs over the next three months — a four-point improvement over the previous month and the strongest reading in 38 months — although the number should be at double-digit levels in a solid economic recovery.

“Optimism appears to have climbed because fewer owners expect business conditions or sales to be worse in six months, indicating some hope on the horizon,” the NFIB said. “Improvement, although small, was widespread, with the forward-looking components indicating positive trends for the first time in many months.

“Still, our current reality is still very much the ongoing economic winter.”

The sentiment of small business owners contains much significance for commercial real estate and its investors, as more than 70% of job growth is generated by companies of less than 1,000 employees. The health of smaller businesses is an important factor in office and retail market fundamentals, particularly occupancies and rental rates in non-investment grade properties.

Those non-investment grade properties are starting to stabilize as their tenant base begins to gradually recover from the recession. The CoStar General Commercial Index, derived from repeat sales of non-investment quality properties, increased by 1.4% in October — the sixth straight month of rising prices since the general property index reversed 32 months of price declines dating back to September 2008, according to the latest CoStar Commercial Repeat Sale Index (CCRSI).

Accordingly, with smaller tenants and mom-and-pop retailers finally seeing light at the end of the tunnel, the level of distress sales as a percentage of total general commercial property sales has fallen from a high of 33% in March 2011 to 24% in October 2011.

In the office market, leasing trends also reflect the improved financial position of those tenants, many of which delayed or canceled business expansions or lease extensions. CoStar data shows that smaller tenants have returned to the marketplace over the last year. As of the third quarter, more than half of all new leases signed during the previous 12 months involved smaller tenants, while large office tenants occupying over 25,000 square held steady at 6% of new office leases.

Smaller businesses have been slower to recover in part due to excessive leverage and lack of access to capital. Smaller businesses have had more difficulty securing credit, unlike large corporations and REITs, which have very good access to capital. Nearly half of small business owners own their business premises and 39% own investment real estate, increasing their debt levels and hampering their ability to invest directly in their business.

The percentage of owners planning capital outlays in the next three to six months rose 3 points to 24% in November, according to the NFIB, the highest reading in 40 months. But it’s still 5 to 10 points below expected levels in a growing economy. Despite improving conditions, just 8% described the current period as a good time to expand facilities — still very low, but only a point below the best reading over the past 38 months.

Access to credit markets did not appear to be a concern among the NFIB respondents, with just 3% reporting financing as their top business problem — far below weak sales, and excessive taxes and regulation — and 93% reporting that they either have adequate credit or don’t need to borrow.

However, traces of concern about creditworthiness are embedded in the survey findings. One-quarter of the owners reported that weak sales ruled out investment in new equipment or new workers because they’re not likely to generate enough additional earnings to repay loans required to finance the expansion. The average reported interest rate on short-term loan maturities of 12 months or less was 6.3%, basically unchanged since 2008 in spite of the Federal Reserve’s efforts to lower lending rates for small firms.

“The weak recovery provides little incentive to borrow to support expansion or buy new equipment, even if interest rates are low,” NFIB said.

El Departamento de Agricultura (DA) continúa trabajando para cumplir su compromiso de incentivar y desarrollar la agricultura en la Isla.

Para este nuevo año, la agencia se trazó como objetivos la implementación y funcionamiento de varios proyectos, realizando importantes asignaciones en diversos sectores.

Como parte de las iniciativas de las Unidades de Calidad y Alto Rendimiento (UCAR), y con una asignación de 4 millones de dólares, el DA comenzará un proyecto piloto para cultivo de vegetales en un ambiente controlado, que permitiría una calendarización adecuada de las siembras.

A su vez, dicho proyecto reduciría los costos en el control de plagas. “Para hacer posible esta iniciativa, se está trabajando en la creación de 10 estructuras de una hectárea de terreno cada una. Su propósito es establecer tecnología que sirva de escudo contra los efectos de la copiosa lluvia experimentada en la Isla y de las plagas que afectan las plantaciones”, señaló el secretario de Agricultura, Javier Rivera Aquino.

Las mejoras a la planta de Carbonato Calizo es otro de los proyectos en los que trabaja esta agencia. Gracias a una asignación de $750 mil se podrá automatizar el proceso de ensacado y paletización del producto. “De esta manera, se podrá aumentar el volumen del mismo ya que a través de este proceso se enmienda el suelo esencial para la absorción adecuada de nutrientes”, indicó Rivera Aquino.

El aún titular de la agencia sostuvo que también se realizará una inversión de 1 millón de dólares en la Indulac para que cumpla con su función como planta de balance y elabore productos lácteos, tales como queso, mantequilla y yogurt, y de esta manera evitar el decomiso de leche que sufrimos el año pasado.

El Departamento de Agricultura cuenta con, aproximadamente, 20 proyectos listos para inaugurar en Puerto Rico, entre los cuales podemos destacar el molino de alimentos pecuarios Bobby Miller, iniciativas de placas solares y la granja avícola Pujols.

Walmart’s announcement to shift seven of its stores to a 24-hour schedule and confirmation of its $200 million local expansion plans help set a more positive tone for the retail industry in 2011.

Overall, year-end sales will improve modestly, by 3% to 5% as forecast by CARIBBEAN BUSINESS (CB Nov. 3). An early start to the holiday retail season, more precise inventory forecasts, adequate retail mix, aggressive pricing and attractive payment plans, including layaway, are among the measures that will yield positive yearend results for retailers.

With estimated combined sales of $3.5 billion from its local Walmart, Sam’s Club and Amigo supermarket stores, Walmart neared completion of the new Sam’s Club on Kennedy Avenue and broke ground on its multilevel Walmart Supercenter store in Santurce, both of which are in San Juan.

Accounting for 15 million square feet of the island’s retail space, the shopping center segment was a bit of a battlefield in 2011, with ongoing legal action between Empresas Fonalledas, owners of Plaza Las Américas, and developers of the $294 million Plaza Internacional project, Century Development and Taubman Centers. Venezuela-based Grupo Sambil’s proposed $414 million shopping center in Guaynabo didn’t escape Empresas Fonalledas’ wrath, either.

This year’s new arrivals included: PetSmart, T.J. Maxx, Victoria’s Secret and Steve Madden. New dining offers include Texas de Brazil, Teriyaki Xpress, Buns the Burger Shop, DiYukas, Casa Lola and the reopened Mango’s. It was cold war between frozen yogurts, with Yogen Früz and Yogurt Fit ahead of the pack.

Still, 2011 wasn’t kind to more than 100 restaurants that had to close this year.

Meanwhile, closing of bankrupt Borders Books Music & Café stores unleashed a bidding war for the prime Plaza Las Américas locale, with mall owners outbidding a couple of local hopefuls for the 30,000-square-foot space.

The island’s $6 billion food industry saw its sales dwindle as a result of the island’s ongoing economic situation and continues to battle the local restaurant industry over the distribution rules and regulations of the $2 billion federal Nutrition Assistance Program.

On the pharmacy front, CVS drugstore chain continued with its $400 million expansion, while industry leader Walgreens, with more than 110 locations, followed suit with the opening of a new store at Santurce’s Stop 18 and the addition of grocery departments to as many locations as would accommodate them.

Small retailers saw signs of improvement, said Ignacio Veloz, president of the United Retailers Association, based on new marketing strategies, becoming partners with other retailers and identifying new export markets.

He added that hundreds of Puerto Rican companies generated more than $143 million in new sales through their participation in some 14 national and international export events this year.

It was another fl at year for the local $900 million beer industry, despite new arrivals including Cervecera de Puerto Rico’s Magna; MillerCoors’ Blue Moon and V. Suárez’s new distribution of Brooklyn Beer.

While Ponce’s Destilería Serrallés is still gunning for a larger slice of the island’s rum-incentive program, Florida-based Caribbean Distillers introduced Roberts Spiced Rum, a runner-up contender to Captain Morgan, whose production moves from Serrallés to the U.S. Virgin Islands next year.

Puma Energy continues to expand its footprint in the Caribbean with the acquisition of Chevron’s fuel distribution and storage assets in Puerto Rico and the U.S. Virgin Islands. The deal will boost it network of gas stations in Puerto Rico to nearly 350.

Puma, unit of Europe-based commodities trading giant Trafigura, will buy Chevron’s fuel marketing and aviation businesses in Puerto Rico and the U.S. Virgin Islands for an undisclosed sum, the company said in a release.

The assets include 192 retail service stations, an aviation fuel supply business in the Virgin Islands, and storage tanks in Puerto Rico and St. Thomas, whose total capacity is around 430,000 barrels.

Chevron has sought a buyer for the assets since earlier this year, Puma said, adding that it has plans to expand the facilities once the deal is approved by regulators.

Swiss oil company Puma Energy Caribe has been building its fuel distribution business in the Caribbean and Latin America since 2010. It opened its first gas stations in Puerto Rico after buying Caribbean Petroleum Corp.’s (Capeco) fire-damaged depot in Bayamon along with 147 Gulf-branded service stations through a court-ordered bankruptcy sale. Puma has also acquired storage and fuel distribution from Exxon Mobil throughout Central America.

Puma is considering an initial public offering of stock within the next 18 months, and expects to have revenues of $4 billion this year, Reuters reported.

U.S. oil major Chevron announced in June it was leaving Puerto Rico and planned to sell its 187 Texaco stations across the island.

The Texaco brand has been in the U.S. Caribbean territory since 1911, and it currently has 75 employees.

Last year, the company issued a statement saying it would sell its fuels marketing and aviation business in other Caribbean islands including Barbados, Antigua and Martinique to Vitogaz SA., a subsidiary of France-based RUBIS.

The restructuring is aimed at saving money and strengthening more lucrative markets, the company has said. Chevron is based in San Ramon, California. Texaco became a wholly owned subsidiary of Chevron in 2001.

With a massive $100 million-plus renovation, the Condado Vanderbilt Hotel—the first luxury hotel built on the island, originally in 1919—is nearing its official reopening date, restoring Condado’s longtime lost luxury and regal presence.

Scheduled to open within the next few weeks  the hotel recently hosted its first major private event, which included attendance by Marriott hotels’ top brass; local veteran hotelier and Vanderbilt developer Hugh Andrews, founder of International Hospitality Enterprises (IHE); José “Peco” Suárez, president of IHE; and project investors.

Listed in the National Register of Historic Places in 2008, the Vanderbilt is part of the Condado Trio Renovation Project, along with La Concha Hotel and the opening of THE Tower condo residences, aimed at reviving the Condado area, once known as San Juan’s premier tourism-residential district and Puerto Rico’s window to tourism.

Although renovation work have taken nearly two years longer than anticipated, IHE’s Andrews has spared no detail in the development of what many deem will be the crowning jewel of Condado. Project modifications aside, the original renovation plan of the Condado Vanderbilt Hotel Towers consisted of two condo-hotel midrise structures on either side of the landmark 93-room Vanderbilt.

The Condado Vanderbilt Towers will consist of about 100 studio units and 112 one-bedroom suites with ocean and city views, adding a total of 212 room keys to the original Vanderbilt Hotel. The first phase of the construction project, completed earlier, consisted of a 368-vehicle, multilevel parking structure and the East Tower, followed by construction of the West Tower.

When the project was originally announced more than five years ago, starting prices of the units were intended to run between $600,000 and $1 million. Owners of the suites will have full access to Vanderbilt Hotel’s facilities, which will include informal and formal fine dining, 24-hour room service, daily live entertainment, fitness center and spa services, two swimming pools, boutiques, art galleries and more than 30,000 square feet of business center and banquet facilities.

Although the global, U.S. mainland and Puerto Rico’s own six-year recession have taken a toll on consumers the world over, the high-end segment of the hospitality industry still enjoys a positive outlook into the future. An attractive tax credit, tax exemptions and investment incentives, already available within Puerto Rico’s Tax Code, will make the acquisition of Vanderbilt units, investing in and/or relocating to Puerto Rico, an even more attractive proposition than it was six years ago.

The national office market has officially started its recovery: rents and vacancies have not only stabilized, but are even turning positive. But not every area of the country has received that memo. The rate of recovery varies widely by state, city, and even individual submarket.
There continues to be a wide disparity between markets that are already on the road to recovery and those that have yet to gain a foothold. For example, the best performing market over the past year in terms of effective rents was San Francisco, which saw a 6 percent improvement, according to Reis. At the other end of the spectrum was Cleveland, which ranked last among 79 cities with effective rents that dropped a further 1.8 percent in the past year.

“It really runs the gamut between markets that are starting to see some material increases and markets that are still seeing fairly significant decreases,” says Ryan Severino, a senior economist at Reis.

That being said, there clearly is a broader trend of improvement. Occupancies have improved or stayed flat in 42 out of 79 metropolitan areas over the 12-month period ending in the second quarter, according to Reis. Effective rents during the same period increased in 38 out of 79 markets that Reis tracks.

Markets such as Raleigh-Durham are reveling in the release of some pent-up demand for office space. “We saw businesses that were unable or unwilling to make future decisions over the last couple of years,” says Gregory T. Payne, CCIM, a broker at Pickett-Sprouse Real Estate in Durham, N.C. Companies were not hiring, because they were afraid they would have to lay workers off again in six or nine months after they had trained them. So instead of getting a new lease, companies were more apt to go month-to-month.

“It is not going gangbusters yet, but we are finally seeing more tenants wanting to make a new commitment, at least for the next couple of years, and maybe expand after that –- especially after standing pat for the last several years,” Payne says.

Atlanta, like many secondary and tertiary markets across the U.S., has hit bottom in terms of employment. However, while most of the shakeout in terms of job losses has passed, the metro has yet to see any significant improvement in job growth. “I don’t think anyone can say when we are going to see sustainable job growth,” says Andy Sumlin, CCIM, director of project leasing at Barry Real Estate Cos. in Atlanta. “But until then, I think it is just more of the same, because all we are doing is trading tenants –- whether that is among competitors or between different office product type as the flight to quality continues.”

Many cities are even experiencing a growing gap between downtown and suburban space. To some degree, that is to be expected due to the density, but it also reflects the flight to quality in many metros. Tenants are taking advantage of values and the opportunities to trade up on locations and quality of space. “The moral of the story is that it is the CBD areas that are driving the overall performance in the office market right now,” Severino says.

Commercial real estate prices resumed their steady if modest rise in September following a pause the previous month, helping lift the CoStar National Composite Index to a nearly 1% gain in pricing for the third quarter of 2011 over the previous three months.

Two main factors, the ongoing decline in distressed sales activity and the recovery in pricing of retail and multifamily sales — drove the 0.9% increase for the quarter and the modest 0.4% bump, according to the latest release of the CoStar Commercial Repeat Sale Index (CCRSI).

CoStar counted 825 sales pairs for September, 682 general property purchases and 143 investment grade deals, in slightly lower transaction activity from the previous month. By comparison, only 385 transactions were recorded in January 2009, the bottom of the last downturn, and the September figure is within the historical range of the real estate boom period from 2004 to 2008.

Total deal dollar volume declined slightly in September by 1.2% from its six-month average, chiefly reflected in the general property index, which fell 5.9%, while investment grade volume remained at about par with its six-month average.

Distress sales accounted for 25% of repeat-sale transactions in September and have declined steadily as a percentage of total sales from a peak of 35.4% in March 2011. While distress sales have drifted down over the past six months, the overall level remains high, suggesting that distress continues to be a significant factor in CRE pricing.

Both the investment-grade and general commercial property indices rose about a half-percentage point in September – further evidence that the pricing bifurcation between high-quality and lesser-quality assets is starting to level out. The fifth consecutive monthly increase pushed the general property index to a 1.6% gain during the third quarter over the prior three months, the second straight quarter of positive price growth. The Investment Grade Index edged down 1.4% in the third quarter, reflecting the August softening in pricing.

Sales of non-distressed property sales posted solid quarterly price increases of 2.3% for general properties and 1.9% for all commercial properties. Distressed property sales continued their gradual decline.

The CCRSI Multifamily Index posted a 2.1% pricing gain following the strong 7.3% increase in the second quarter. The multifamily index has jumped 12.3% and outperformed all the other property indices since bottoming out in the second quarter of 2010.

The Retail Index posted the highest gain, rising an impressive 5% over last quarter. However, retail has a lot of ground to make up and was still 3.9% below the same period last year, and 32.8% below its peak.

“Despite great uncertainties in current economic conditions, the commercial real estate market recovery continued, albeit slowly and at a bumpy pace. The steady and solid recovery of the General Commercial Index also indicated broad interest in commercial real estate among investors,” according to the monthly CoStar report.

Still, many challenges remain. While overall U.S. retail and multifamily prices advanced in the third quarter, office and industrial prices retreated, and pricing for everything except apartments continues to oscillate in 2011, with the lack of a clear upward trend reflecting the uneven recovery for those sectors in the volatile economy.

Despite the gradual strengthening in pricing of higher-end properties, the investment-grade repeat sales index remained 35.8% below its August 2007 peak, with the composite and general property indices both down from last year and nearly 34% below their peak.

The Office Index fell by 5.1% in the third quarter after posting a strong 15.5% gain in the previous three months. Office is 38.5% below its second-quarter 2008 peak, the largest decline among the four property types. Similarly, the Industrial Index fell by 3.6% in the third quarter, with prices presently 9.3% below the same period last year and 33.1% below their early 2008 peak.

The latest CCRSI results reflect trends noted by CoStar analysts during the recent round of third-quarter market reviews for the office, industrial, retail and apartment sectors.

“The demand for real estate in terms of capital is returning. There is tremendous pressure on investment managers to place money, principally because real estate looks cheap relative to other asset types,” said Walter Page, director of research and office specialist for Property & Portfolio Research (PPR), CoStar’s forecasting and analytics subsidiary, during the third-quarter office review last month.

While continuing to struggle, general property transaction activity is showing some improvement of late. While the office market is seeing the lowest level of pricing among the property types by historical numbers, high-quality assets that have traded at premium prices have fueled recent improvements on that front, said Jay Spivey, CoStar director of analytics.

While still prevalent , distress is not as deep in real estate markets as some had expected. The recent Operation Twist move by the Federal Reserve to lower interest rates may have slowed the momentum of distressed sales by flattening the yield curve for banks, Senior Real Estate Strategist Suzanne Mulvee said during the CoStar’s retail outlook.

The Northeast, which saw the smallest pricing losses during the recession, recorded an increase of 2%, the largest quarterly price increase among the CCRSI’s four regional indices. The Northeast Index was only 19.8% below its peak value at the end of the third quarter. By comparison, pricing was 34.8% below peak value in the South, and down 36.4% and 40.1% in the West and Midwest, respectively.

Further color on the quarterly CCRSI regional results includes the following:

All property types in the Northeast except retail showed price increases, led by office at 2.1%, multifamily (1.3%) and industrial, barely, at 0.1%. The Northeast retail index declined by 3.34%.

In the West, the composite index posted a 1.36% quarterly increase, offsetting declines over the same period last year. Retail led all gainers at 10.1%, followed by multifamily at 0.2%. However, a 3.7% decline in office prices wiped out gains made in the region since the third quarter of 2010. The West’s industrial index continued its two-year decline, falling another 1.7% in the third quarter.

The composite index edged up slightly by 0.5% in the South during the quarter, but is still 2.6% below the same time last year. Price gains were mainly in retail (8.9%) and industrial (6.7%). But a big quarterly decline of 6.4% in office mostly offset those gains.

Of the four regions, the Midwest is still waiting for prices to reach bottom, with the Midwest Composite Index declining by another 0.8% in the third quarter and currently 9.8% below the same period last year. Prices for all property types except for office continued to fall in the quarter and overall, the Midwest’s prices are 40.4% below their peak — the largest decline among the four regions.

Increased deposits, commercial loans, transactional accounts, plus reduction in nonperforming loans point to positive trend
The recapitalization, deleveraging and derisking efforts by Puerto Rico’s banks over the past year have begun to bear fruit, which is evident in recent results, including the third-quarter (3Q) that ended Sept. 30.

Alfredo Padilla, commissioner of the local Financial Institutions Office, said banks operating on the island showed improvement during 3Q, especially when looking at total deposits, loan production (especially commercial loans) and the level of nonperforming loans in the system.

“Local banks during 3Q showed improvement; nonperforming loans remain stable, with a trend toward reduction,” Padilla commented to CARIBBEAN BUSINESS. “Loan production has improved, mainly in the commercial area, and that is very positive.”

COMMERCIAL LOANS ARE UP

Padilla said commercial-loan production over the past four quarters—$9.9 billion in 4Q 2010; $10.3 billion in 1Q 2011, $10.4 billion in 2Q 2011 and $11.3 billion in 3Q 2011—clearly show an improving trend.

“Another positive area is deposits, where you also see an increase, from $38.15 billion in 2Q 2011 to $39.65 billion in 3Q 2011. Transactional accounts are also increasing,” Padilla added.

Transactional accounts (deposit accounts that allow for withdrawals by check, automated-teller machines [ATMs] and debit cards) have grown from $14.7 billion in 1Q 2011 to $15.4 billion in 2Q 2011 and $16.2 billion in 3Q 2011—their highest point since 2005, he said.

“Savings and money-market accounts also show growth. What this means is that the system’s core-deposit base has experienced sustained growth, while brokered certificates of deposits, or CDs, have been diminishing,” Padilla noted.

In his opinion, these numbers are the result of economic activity, which is a positive trend, since the island’s economy is beginning to pick up.

“Despite the economic crisis, people’s trust and confidence in local banks is there, which is evident in the growth of deposits in our banking system. Local deposits have held up and are increasing, and that is also very positive,” the local bank regulator said.

While nonperforming loans experienced a slight decline in 3Q 2011, compared with the previous quarter, Padilla noted they have remained stable and point to further reductions. However, nonperforming loans are still high, at about 8% of banks’ total-loans portfolio, versus 5% in the mainland U.S.

“It will take another 12 to 18 months for the local banking system to deal with these nonperforming loans in their portfolios. This is manageable through effective loss-mitigation programs,” Padilla commented, adding that nearly half the nonperforming loans are mortgages.

While mortgage originations waned during 3Q 2011, Padilla was quick to point out this was normal, and picked up as a result of the government’s housing-incentives program, which helped absorb some of the local market’s housing demand.

“It got to the point where those growth levels in originations couldn’t be sustained, since the number of consumers purchasing homes was already defined,” Padilla said. “However, mortgage originations are continuing, but at a slower pace.”

Gov. Luis G. Fortuño recently signed legislation into law to extend certain components of the housing-incentives program until December 2012.

For Padilla, the growth in commercial loans is 3Q’s most significant event because, once this segment picks up steam, it will have a multiplier effect on many other areas, he said.

“It will be very interesting to watch local consumers’ behavior through retail sales during this holiday season. Everything hints that it is going to be positive, since we have noticed a lot of movement out there,” Padilla indicated, pointing to the opening of new retail stores and expansion of others in recent months.