Blackstone’s Chicago Office Default Shows Distress Continues Despite Recovery
601W Companies defaulted on a $343 million Blackstone Mortgage Trust loan secured by One South Wacker Drive, a 40-story office tower in Chicago’s financial center. The loan, originated in 2018, reached its maturity deadline on June 9 and required a principal payoff that 601W could not meet. Blackstone Mortgage Trust confirmed the asset had been on its watchlist since 2022, though it represents less than 2 percent of the REIT’s portfolio. Shares of Blackstone Mortgage Trust dropped 3.7 percent to $17.48 following the announcement.
601W purchased the 1.2 million-square-foot building in 2018 for approximately $310 million and renovated it in 2020 as the pandemic emptied downtown office space. The property stands 73 percent occupied and sits two blocks from Willis Tower in the West Loop, an area that has outperformed other downtown districts. About $159 million of the original debt was securitized into a commercial mortgage-backed security. 601W, led by Mark Karasick and Michael Silberberg, also owns the Aon Center and the Old Post Office in Chicago.
Chicago’s office market shows a 27 percent vacancy rate in the central business district, and buildings continue to sell at steep discounts to pre-pandemic prices. In February, 601W bought 175 West Jackson for $41 million, an 87 percent markdown from its $306 million valuation before Covid. Kastle Systems ranks Chicago third nationally for return-to-office occupancy, and crime rates have improved, yet property values remain depressed. The default adds to a growing list of distressed Chicago office assets unable to meet debt obligations despite operational improvements.
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