A $343 Million Blackstone Loan Just Defaulted on a Chicago Skyscraper

A 40-story office tower in Chicago's financial center just went into default.

The $343 million loan on One South Wacker Drive matured on June 9 and the owner, 601W Companies, didn't pay it off.

This isn't some empty shell of a building. It's 73% occupied. It was renovated in 2020. It sits two blocks from Willis Tower in the West Loop - a pocket of downtown that's held up better than most.

And it still defaulted.

That tells you everything about where Chicago's office market is right now.

A $310 million bet that ran into a pandemic

601W bought the 1.2 million square foot tower for about $310 million in 2018. Blackstone Mortgage Trust originated the debt the same year, parceling roughly $159 million of it into a commercial mortgage-backed security.

The renovation wrapped in 2020. That timing couldn't have been worse. Covid emptied downtowns across the country, and Chicago's office market still hasn't recovered.

Vacancy across downtown Chicago offices is now 27%, according to CBRE. Buildings that once sold for hundreds of millions are trading at deep discounts. In February, 601W itself bought another Chicago office building - 175 W Jackson - for $41 million. That's an 87% discount to its pre-Covid price of $306 million.

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Less than 2% of the portfolio, but on the watchlist since 2022

Blackstone Mortgage Trust says this isn't a surprise. A spokesperson called it "less than 2% of BXMT's portfolio" and noted the loan has been on their watchlist since 2022, "reflecting well-known challenges in the Chicago office market."

The loan was performing - meaning 601W was making payments. The default happened because the loan hit its maturity date and the principal came due. 601W couldn't or wouldn't pay it off.

Shares of the mortgage REIT slipped 3.7% on the news.

What to watch

601W isn't walking away from Chicago. The firm still owns the Aon Center and the Old Post Office, and it's still buying - just at fire-sale prices.

The question is whether One South Wacker is an isolated maturity problem or a sign that more defaults are coming as office loans hit their deadlines. Chicago ranks third in the country for return-to-office occupancy, per Kastle Systems. Crime has improved. But office values haven't.

A 73%-occupied, recently renovated tower just defaulted in one of the better parts of downtown. That's not a great signal for the buildings in worse shape.

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