Another Office Tower Goes Bust: Blackstone Walks from Manhattan Tower it Bought for $605 Million. CMBS Holders to Eat Remaining Losses

Older office towers are besieged. Working-from-home and hybrid-work aren’t helping. The losses are huge.

By Wolf Richter for WOLF STREET.

Another older office tower is going to cost lenders an arm and a leg, after it already cost PE firm Blackstone an arm and a leg. Blackstone is walking away from the 26-story 621,000-square-foot office tower at 1740 Broadway in Midtown Manhattan that it had bought in 2014 for $605 million. The two biggest tenants moved out well before their leases expired: L Brands, occupying 77% of the rentable area (lease expires March 31); and law firm Davis & Gilbert, which had 15.8% of the space. Now the building is mostly vacant.

The property, built in 1950, is the collateral for a $308 million loan that was originated by Deutsche Bank and securitized into a single-asset single-borrower CMBS in 2015. This CMBS is backed by only the loan on this building, and there is no diversification within it. Now Blackstone is letting the holders of the CMBS have the building and eat the losses.

“This asset faces a unique set of challenges, and we are working diligently to find a solution that is in the best interests of all parties involved, including our investors and lender,” a Blackstone spokesperson told the Commercial Observer.

“It’s the smartest move for their investors,” one source told the Commercial Observer.

Investing more money to upgrade the building, on top of the $308 million in existing debt, didn’t make any sense, particularly with the continued uncertain recovery of the Midtown submarket, another source told the Commercial Observer.

Blackstone’s investment – it purchased the tower for $605 million – had been written down before the pandemic due to the broader challenges in both the Midtown office submarket and the asset, and the pandemic only accelerated those pressures, particularly on the leasing front, sources told the Commercial Observer.

In Manhattan, 18.6% of the total office space was on the market for lease at the end of Q4, according to Savills. And new buildings are being completed and add to the total availability, and when their lease expires, companies can upgrade to the latest and greatest, and they can downsize and upgrade, and what’s left behind are these vacant older office towers.

These reports of vacant older office towers going back to lenders are piling up, as the shift to working-from-home and to hybrid arrangements has reduced the need for corporate office space. Companies are moving out of older buildings and are upgrading to newer and often smaller spaces. And as new office towers are still being built, the older office towers end up vacant.

Lenders get to eat the often huge losses while the future of these older office towers remains uncertain.

We got some ideas of how big the losses can be when the older office towers were sold in foreclosure sales. All this can take years.

For example, in Houston’s Energy Corridor, the 450,000-square-foot Two Westlake Park defaulted on a $87.5 million loan in 2018 and was sold in mid-2020 in a foreclosure sale for $18 million. After fees and expenses, the CMBS holders booked a loss of 82%. The vacant Three Westlake Park in the same complex, once “valued” at $121 million, was sold last month at a foreclosure sale for $20.6 million. After fees and expenses, the CMBS holders booked a loss of 88%.

Last week, in Chicago Downtown, where 23.2% of the total office space is on the market for lease, two huge older office buildings, each with over 1.3 million square feet, were sent back to the lenders: the 175 West Jackson Blvd. and the 135 South LaSalle St. This is now a happening everywhere, tower by tower, in slow motion and will spread over years.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  150 comments for “Another Office Tower Goes Bust: Blackstone Walks from Manhattan Tower it Bought for $605 Million. CMBS Holders to Eat Remaining Losses

  1. John Apostolatos says:

    That is what Jay is so afraid of–much of the economy being held up by junk collateral. With some bond portfolios about to crater as yields rise, another repo crisis is right around the corner.

    And we are now sanctioning and threatening Chinese officials too.

    • 2banana says:

      There is some irony there.

      With the Chinese swimming in trillions of Fed debt notes, with better relations, they would buy stuff like this building exactly as the Japanese did.

      • nnn says:

        Not anymore

        • cas127 says:

          “they would buy stuff like this”

          The CCP started turning that “save a dumb round-eye” spigot off years ago.

        • historicus says:

          China and Japan call J Powell and ask him….”What’s your bid for all this paper with negative yields?”

          No wonder the Saudis and the Chinese starting to deal oil in yuans.
          Imagine Jay Powell and his legacy…

        • KWHPete says:


          No the US dollar will lose its reserve status as a result of the financial war declared on Russia and as a result nobody will want to hold dollars as reserves that can be confiscated or declared to be illegal to hold or deal in.

        • Augustus Frost says:

          Agree with the above post but will also add that one of these days, the US will be required to make good on one or more security guarantees, maybe simultaneously.

          If it declines to do so or fails in the effort, it’s credibility will be shattered with a direct knock-on effect to the USD.

        • historicus says:

          KHW Pete
          “nobody will want to hold dollars as reserves that can be confiscated ”

          If you have dollars, the purchasing power IS BEING CONFISCATED. My point….. and to Mr. Powell.

      • SocalJimObjects says:

        I think they’d rather buy farmlands than buildings. With farms, they get to feed their huge population. Buildings? Only their conglomerates would be interested in those.

        • historicus says:

          Foreigners owning US farmland and shipping production back home?
          And here I thought trade deficits don’t matter.
          I suspect they do…..big time.

        • joe2 says:

          Interesting, buy farmland. Maybe foreigners are the only ones able to afford fertilizer.

        • Arnold Handelman says:

          These office towers must be rezoned to residential or mixed use, and converted to apartments, possibly with some lower floors being a hotel.
          To be viable, they must be purchased at a fraction of their valuation as office towers.

        • Anthony A. says:

          Joe, the foreigners are the ones making the fertilizer.

        • roddy6667 says:

          They are buying farms. The Chinese bought Smithfield Foods, the largest US pork producer.

      • Sams says:

        With what recently happened to assets owned by anyone with Russian connections, others might be careful about investing in the USA.

      • Augustus Frost says:

        They would be better off buying and hoarding commodities than functionally useless US commercial real estate which may be subject to sanctions.

        Buying US based real estate doesn’t really do China any good. They can’t move the building and all it gets them is more fiat USD as rent and capital gains.

      • Javert Chip says:

        The Chinese have worse real estate problems than we do…read up on Evergrande & like companies.

        • roddy6667 says:

          They are taking care of it. The people with homes under construction will get them completed. Bond holders inside China will get their dividends. Foreigners, not so much. They have a manufacturing economy with a massive trade surplus. The goverrnment can swoop in and change things overnight. It is of great importance to take care of the huge middle class.

        • c_heale says:

          Saying the Chinese have worse problems than the USA, doesn’t make the USA’s problems any less intractable.

    • Raj says:

      Hi Wolf,

      More than 6 months ago, when Fed and Govt said that “INFLATION IS TRANSITORY”, you called out that Inflation will stick and even increase.

      Now they are saying “Saudi Arabia selling Oil in Yuan will not hurt the Dollar”. Can you help present some insights on this?

      I am worried not only because of Fed track record of lies or their incompetancy, but because the following info that I gathered. US runs a trade deficit of ~$355 Billion/year with China and China needs those dollars to buy Crude. China buys ~3.7 Billion barrels/year that at $100/Barrel costs ~$370 Billion/year. So now that they don’t need these excess dollars to buy oil, they can increase price of their imports to US causing higher inflation and lower Dollar.

      What if this spreads and Saudis and rest of Opec, imitates Russia, and start selling crude in lieu of their imports to other countries or local currency of other countries like India, Japan, Taiwan, Australia etc?

      • Eastern Bunny says:

        Saudi kingdom will collapse as soon as the implicit US support is withdrawn.
        The will go the way of Sadam or Kadaffi, just give it some time to see if they mend their ways.
        It’s pure typical arab hubris with no understanding of geopolitical dynamics.

        • Raj says:

          Withdrawing support will just cause China to replace us in Opec. We will need to stay there, use our empire (the 10 aircraft career battle groups), to change regime to a cousin of current prince who will obey us again. Don’t know if we retain the effective usage of our empire that we enjoyed 20 years ago.

        • Sit23 says:

          When Captain Lawrence united the Arabs to fight the Germans/Turks in WW1, he said his biggest problem was stopping them fighting each other instead of their common enemy. Which by total coincidence was also his bosses’ enemy as well. Fighting each other has been normal Arab behaviour for the last 6000 years.

        • cas127 says:

          “It’s pure typical arab hubris with no understanding of geopolitical dynamics.”

          DC petrodollar pimps, trade-deficit junkies…is that you?

          Saudi may not be all that stable, but the thought that the “Victors of Iraq and Afghanistan*/50 yr trade-deficit addicts are really going to save the day…well…that is one hot take.

        • historicus says:

          The Chinese will throw their arm around the Saudis…

        • Implicit says:

          In the hundred Year chess game, the United States has lost a castle a bishop. They have made some bad moves, and the debt has hurt them. Corrupted totalitarianism is haunting them.
          It’s tough to have “One World Order” with several participants cheating while playing at the same time.
          I wonder if the Blackstone oligarch is worried about their credit score haha

        • c_heale says:

          All humans have been fighting over land and power for the last 6000 years.

      • Wolf Richter says:


        It’s good and inevitable that the currency of the second largest economy becomes a more widely used “trading currency.” The RMB is still a minuscule trading currency right now. The dollar and the euro are about even as trading currencies and are far ahead of the others. When the euro became a big trading currency, it didn’t hurt the dollar either. The dollar-demise people made a huge fuss about this Saudi-China deal. But I don’t see it as any kind of issue for the dollar.

        This is unrelated to “reserve currencies,” where the dollar is #1, the euro #2 and the yen #3. The RMB doesn’t even matter yet.

        Then there is the role as “investment currency,” where the RMB is still minuscule as well.

        The problem with the RMB is that it’s not fully convertible and that there are capital controls, which continues to be a handicap.

        • Raj says:

          Thanks for the explanation. Also, agree that capital controls will limit RMB and the Dollar is way ahead of RMB.

          I heard that many countries need Dollars only to buy crude oil because latter was “only” sold in Dollars before. Is that incorrect?

        • historicus says:

          “The problem with the RMB is that it’s not fully convertible and that there are capital controls,..”

          Could the Chinese rectify these issues? Are they in the process now? And if they did, how quick would be the ramifications regarding the dollar’s status? I suspect it could be a rapid switch over. Something seems afoot.

        • Sams says:

          The problem that has appeared with the US dollar is sanctions. Assets in US dollars and USA are now frozen for political reasons.

          Investments in US dollars and assets might no longer be viewed as “safe” by all investors. Especially if the now frozen assets in the end get confiscated.

        • Raj says:

          Good point Sam and Historicus. Is Dollar fully convertible if assets can be frozen, trades sanctioned and countries can be cut off from Swift system?

          Is this threat of sanctions coupled with degrading US relations what is causing Saudis to hedge with RMB?

          Looks like there is enough meat here to have a dedicated article.

        • Wisdom Seeker says:

          The deeper problem with the RMB is that it’s the currency of a totalitarian communist government. Just ask the Chinese tech shareholders who were thrown under the bus: China is uninvestable to outsiders.

          I suppose the problem with ANY fiat currency is the nature of the issuing government and its policies. Some countries are thought of as “cleanest dirty shirts”, but there’s a limit to how clean a shirt can be – in a dirty world, no shirt can stay clean as the others get steadily more soiled. So when other currencies go bad, the economy of a “clean” currency gets clobbered by exchange-rate shifts. Just ask the Swiss – the legendary Swiss Franc had to be boat-anchored to the sinking Euro after the 2011 crisis, to prevent a huge Swiss econ crisis. That allowed them to print up a lot of Francs, but the currency itself couldn’t stay too strong and the desirability of the legendary Swiss bonds was crushed.

      • A says:

        It’s also worth remembering Saudi started talking with China about pricing oil in RMB in 2016. So now they’re just… talking some more

        China started a global program to buy oil in RMB in 2018 but obviously that hasn’t gone too far.

        There’s a lot of “talking abouts” around this topic.

        • Nathan Dumbrowski says:

          Everything starts with discussion. Then testing the water to see the global implications and reactions. Then some small sales. Then eliminate the middle man. What could go wrong?

        • Old Ghost says:

          Since we are talking oil here…….

          Moscowtimes is saying:

          2 hours ago — Russia will force Europe to start paying for gas supplies in rubles, President Vladimir Putin said Wednesday in televised remarks.

      • joe2 says:

        Yep. If you have ever been in business, you know that personal trust is everything. Regulations, government licenses, permissions, contracts, are something to dance around, but trust – that is something earned over many drinks and confessions. In vino veritas.

      • Lune says:

        I’ll take a stab at this.
        First, understand that, at this time, oil is priced in dollars. Even if you’re buying embargoed Venezuelan or Iranian oil, the price will be set in dollars. Why? Mainly because the primary markets for setting the price of oil, WTI (West Texas Intermediate) and Brent, are priced in dollars.

        What this means is that, even if you actually end up paying in RMB, or Pesos, or whatever, the contract will almost always be based on either WTI or Brent prices.

        Ok fine, you might say. Pricing is WTI but doesn’t it matter if China ends up paying in RMB? Not really, but regardless, they won’t do it. Why? Because then you have to manage the risk of fluctuating currency. For example, let’s say WTI is currently $100/bl. So you price out how many Yuan that is, and pay in Yuan. Fine. But what about a contract to deliver oil in 6 months? You can look that price up in WTI right now, and let’s say it’s also $100/bl. Okay. But what will the exchange rate of Yuan/$ be in 6 months? If you don’t know, then that adds an additional layer of uncertainty to your pricing.

        Can you hedge that uncertainty? Sure, you can buy a futures contract that locks in your 6-month Yuan/$ exchange rate right now. But all those hedges have a cost. Why would you willingly add on that cost that other people paying directly in dollars don’t have? It will leave you at a competitive disadvantage.

        So for the vast majority of oil buyers / sellers — who are private industries and don’t give a rat’s ass about “patriotic” concerns if they can shave a few pennies off their costs — it doesn’t make sense to layer on additional complexity to an already complex deal.

        But maybe China and its state-owned companies are willing to eat the additional cost and complexity of paying in Yuan for their oil. So they willingly do it. Now Saudi Arabia has a bunch of Yuan that they don’t know what to do with. Sure, some of it will be used to purchase Chinese goods, but SA runs a budget surplus with China, so they will inevitably start accumulating Yuan.

        This becomes problematic for 2 reasons. First, SA’s currency is pegged to the dollar. That peg is easy to maintain as long as you’re selling oil in dollars, since you’ll have plenty of dollars to defend the peg when needed. Indeed, that’s why they do it. But how do you defend a dollar peg with Yuan? You can’t.

        Secondly, what exactly do you do with the excess Yuan? RMB does not circulate outside of China, by design. There are strict capital controls, and given that overall China runs a giant trade surplus, there aren’t a lot of Yuans circulating in the global economy being used. With the dollar, pretty much every single country in the world has a parallel economy (official or unofficial) run using dollars, every country can easily convert their currency into and out of dollars, and every country has long official and unofficial means of managing dollar transactions and dollar flows into and out of their country. You can buy a property in anywhere from Greenland to Borneo with dollars. You can buy stocks, bonds, and other assets of almost any country / company / source you can imagine with dollars. Can you do the same with Yuan? No. So what are you going to do with your big stash of Yuan aside from stuff it under your mattress? If you add it to your sovereign wealth fund so as to invest it, what exactly can you buy with it?

        While China is a massive, diversified economy and can afford the hit of a few percentage points of extra cost on their side of their oil transactions, SA is a one-trick pony, and they can’t afford to sell their main product for something like the Yuan that really has no value to them.

        As if all the economic risks aren’t enough, finally, there’s an even bigger risk: political. Buying in Yuan is not a big deal for China, because they control the Yuan. Accumulating Yuan for Saudi Arabia is a very, very big deal (and potential danger), because they don’t control the currency. They don’t control the USD either, but if you’re a country looking to depend on one of the main worldwide currencies on which to base your economy, which one would you choose? Sure, the US is currently crushing Russian companies by taking advantage of the dollar’s power. But it’s not like China isn’t known to do the same. Chinese borrowers like Evergrande have openly, legally defaulted on external bonds while paying domestic Chinese bonds. If you’re a foreigner looking to invest your Yuans, and your only option is to buy Chinese assets, do you look at what Evergrande did to its non-Chinese lenders and think twice? You should… And if that’s not enough, then consider how many countries now are regretting joining their Belt and Road Initiative, which is basically converting countries into Chinese debt slaves and forcing them to sell off national assets like ports and airports to China.

        If SA is chafing under the American thumb, they should watch what China will do to Russia, when Russia is forced to become a Chinese vassal state after all this Ukraine mess is over. The Chinese will gut their national resources and squeeze more money and treasure out of the country than the worst oligarch ever did. If that’s the new master SA wishes to bow to, I say… go right ahead.

        At the end of the day, despite everything we say to denigrate Powell and everyone else currently (mis-)managing the US economy, we are still the cleanest dirty sheet. Forget about China, even Europe is worse. Witness what they did to Greece just to save a few German and French banks. Ask Jack Ma what his experience has been depending on China’s economic transparency and rule-of-law.

        Bottomline is that for all these reasons, both economic and political, the dollar’s status as the currency of global trade is going nowhere, least of all giving way to the RMB.

      • Julian says:

        What of it? Let them buy their oil in yuan. So what?

        It’s a storm in a teacup.

        Sitting here in 2022 the Future looks rosy over the next 5-7 years.

        I would advise investing in stocks and real estate now rather than bemoan missing out on the coming boom.

    • cas127 says:

      “junk collateral”

      1) Just goes to show how self-deluding valuation analyses can be.

      2) Along these lines, also shows how “comparables-based” valuation can be little more than a self-reinforcing madness of crowds.

      3) As a consequence of number 2, there is the bad danger of cascade failure/domino collapse as all the lazy valuation “experts” simultaneously wake up and realize their peers are imbeciles.

      4) On a marginally related note – boy, what a half-useful tool single asset CMBS is. As Wolf notes, there is no diversification created…which is one of the few useful things that financial jiggery-pokery can actually accomplish. Single asset CMBS still creates segmentation by risk appetite, which is useful, but nowhere near as useful as diversification.

      I just picture the poor saps on the *bottom* of this CMBS waterfall…they aren’t losing 80% of their invt…they are losing 100%…in “safe”, “collateralized” real estate…probably for some “massive” 6% yield circa 2014.

      Just shows how many assets are craptastic in the long reign of ZIRP.

      • Implicit says:

        As wolf suggested in an earlier article the FED is likely to stop selling more mbs during QE.
        The member banks will likely will be nudged to buy these securities if the demand is slow.
        Ultimately, like with Blackstone in this article, defaults will go to the shareholders holding these instruments

        • Implicit says:

          I meant start selling

        • Implicit says:

          Qt sorry. Need more coffee

        • Wisdom Seeker says:

          Implicit, I feel your pain here!

          A lot of what people thought they understood about assets, valuations, markets and investing is going to be turned upside down, flipped inside out and then exploded.

          Habits of thought and behavior built up over 40-odd years of “low inflation, decreasing interest rates and QE” are hard to break.

          The future is unknown but inflation is back after 40 years, QT is definitely beginning, and bondholders are facing greater drawdowns than anyone has experienced in a longgggg time.

    • historicus says:

      “We FORCED the investor to take more risk.” former Fed Gov Fisher.

      Well, that means you skew the risk / return ratios as the investors are FORCED to chase any yield. They are forced to do what they normally would not do. They are pushed farther out the limb….by decisions at the Fed.
      “sometimes falling feels like flying, for a little while.”

      • cas127 says:

        “They are forced to do what they normally would not do.”

        But the DC political class got to hold on to their BS jobs for a few extra years due to ZIRP creating (at a fatal cost to the public) an illusion of economic “normality”.

        And shouldn’t all of America be hewn to the tainted interests of a few political scumbags?

  2. 2banana says:

    That is you, future and current pension promises.

    “Now Blackstone is letting the holders of the CMBS have the building and eat the losses.”

    • JM says:

      Good, because they didn’t earn those pensions. You can’t contribute a dime and collect $5.00 and expect the taxpayers to flip the bill for the $4.90 deficit. All gov pensions should align with social security TAX. Work until 62-68 and collect a max % of your prior salary. And yes, you are free to have a Roth/401 or whatever supplemental retirement account you desire.

      • RepubAnon says:

        Actually, the promise of those pensions was part of the employees’ promised compensation – and they’re not all government employees. So, they did work for those pensions, and made pension fund contributions as well. Pretty harsh to tell them we had to raid their pension funds to pay the CEO enough to buy another Florida mega-mansion.

        I realize the current business model is for the C-level executives to get the golden parachutes and for the worker bees to get a free shopping cart to use when collecting aluminum cans to cash in – but the workers are catching on. This may explain why so many are quitting.

        Oh, and those Roth /401(k) funds are getting hit as well…

        • Jpollard says:

          Just a question
          Occupancy in commercial buildings in most major cities is down , so that means fewer workers are working in these buildings . How can residential rents go up when there are fewer workers in these cities ?

      • MarkinSF says:

        Yeah. Let’s just break all commitments and contracts with worker bees. The Billionaire class is really hurting these days.

      • Flea says:

        R-u. Dilussional no one pays a dime to get 5$ propaganda

    • ru82 says:

      Yep. It will not even hurt Blackstone’s credit rating either I am guessing. Simon Property just walks away from mall loans too. They just do jingle mail to the bank.

      But for some reason it does not prevent them at all from buying more properties all the time.

      How come that does not work very well for the consumer?

      Now you know why Blackstone is buying so many single family homes. If there is a recession, they will not take a financial hit. The good thing is neither will the pension funds that bought the MBS. GSE have guaranteed them all.

      So I am guessing buying SFHs will be a forever business for Blackstone and why not. Buy some houses, bundle loans into MBS and collect some fees, get the loans guaranteed by the GSEs, and collect more fees as investors will be falling hand of feet to buy them.

      They really have not risk even if they overpay for a house. So what if the rent does not cover the interest payments.

      • Hargraves says:

        Any home owned by a corporation is a justifiable sitting duck for squatters and housing activists.

        Our elected sheriff has said that evicting people during the pandemic from corporate owned housing is their last priority.

        Corporations are not people my friend. Pro No Fly Zone Mitt Romney, who said that, is a four time draft dodger.

        • exiter says:

          The US Supreme Court established that corporations are people. They have refused to distinguish between real and fictional people, which categories were established by Old English law.

          In 1886 Santa Clara v Union Pacific RR [?] the “headnotes” by the Court Reporter said corps are people, whereas the SC itself never debated or said such. Since that time, the USSC has refused to take up that apparent error, as absurd as it sounds..

          Again IIRC, there was a case in the 1970’s wherein that issue was actually raised after the SC agreed to hear a case [certiorari]. At that point, the Chief Justice of the USSC announced, out of the blue sky, that the SC made a mistake when it granted certiorari and the entire case was then disappeared.

          The 1886 “error” was again involved in 2010 United Citizens v Fed Elections Committee, and again the real people v fictional people distinction along with the “headnotes” error were utterly ignored.

          Of course, this must be a joke. I am not a lawyer.

          Thus we have the creation of Corporations As Monsters.

        • phleep says:

          This country and its wealth and widespread ease would never have been formed in anything like its splendors and fat-of-the-land we all live on, without privately owned limited-liability corporations. There are upsides and downsides, as with any form of organization. We are evolving now, not all for the bad, through a cluster of serious challenges.
          “And there have always been and there always will be the same percentage of winners and losers. Happy f**ks and sad sacks, fat cats and starving dogs in this world. …”
          — John Tuld, Margin Call
          I would say yeah, with a few variances, local in time and space.

        • Anthony A. says:

          If corporations are “people”, then can they be prosecuted and sentenced to prison for a crime? If not, why not?

      • Ted says:

        They really have not risk even if they overpay for a house. So what if the rent does not cover the interest payments. Ask Zillow if it matters.

        • ru82 says:

          Different story. Zillow owned the houses. Blackstone does not. The MBS holders own the house which really means the GSEs (Fannie, Freddie, and Ginnie) owns the house. Well maybe I should say the tax payers.

          As soon as Blackstone quickly bundles the loans into a MBS and sells them…they are removed from the risk of the renter not paying.

      • Flea says:

        First rule of business ,use somebody else’s money and skim the profits,we need political change no more lobbying,all board of directors,corrupt,

      • Augustus Frost says:

        It’s the fund managers who usually allow it. They don’t care because it isn’t their money.

        • COWG says:


          True that…

          “ securitized into a single-asset single-borrower CMBS in 2015”

          Wonder who the single borrower was…

          I think a lot of people don’t realize that at the level Blackstone plays, it only takes a couple of phone calls to make these kind of deals…

          “ Hey, sorry you lost on that one… I’ll make it up to you on another deal we got cooking…”

    • Sit23 says:

      Check the CMBS holders. They will have been sold the bonds by Blackstone using really high valuations done by Blackstone’s tame valuer. But the suckers financing the bond purchases will have had no say or input into the investments. They will be subject to fund managers’ commission driven decision making.

      • phleep says:

        “the suckers financing the bond purchases will have had no say or input into the investments.”

        So they were forced into this setup? Not.

        Why do so many commenters seem to think there is a magical deus ex machina supposed to exist, waving a magic wand of some sort of absolution from risk, some magic insurer to fix bad decisions?
        “Oh, its the bad elites.” Then golly, read the fine print and don’t sign on!

        • Wisdom Seeker says:

          Actually many WERE “forced into” owning these defective securities.

          Workers are pretty much forced to invest in a 401K by the tax incentives, corporate matching, etc.

          The typical 401K has no options to select specific investments. The mutual fund options are very limited. Mostly “target retirement date” funds or broad-market funds.

          Workers have no say in what those funds invest in. Try setting up a portfolio that excludes, say, bank bonds, defense stocks, companies with low credit ratings, and tech monopolists. You can’t do it without a lot of special effort, maybe quitting your job to roll the 401K to an IRA, etc.

          But those workers are a captive market for whoever issues a bond or a stock – someone there to buy it. Especially in a mania where there’s too much money loose in the system and people get desperate to “invest” in anything, regardless of asset quality.

          Great for issuers… In a down market, not so good for 401K owners.

  3. polecat says:

    Blackstone should eat their ‘losses’,not punt them off to ‘other’ invester ‘chumps’!
    This is, in great part, why shit is the way it is..

    • 2banana says:

      It is a voluntary business deal.

      You lend me money and, if I default, you get the building I used as collateral.

      Millions of Americans did just that in the last housing bust.

      If company or person would simple just “eat the losses” then they should get a much better deal when borrowing the money as there is much less risk to the lender.

      When enough idiot investors get burned, the rest will be much more careful in lending and this will lead to a much more normal non bubble market.

    • phleep says:

      Fault of the investor chumps then. It was in the deal! Or should a fairy godmother appear with pixie dust after the fact, to save them from bad choices?

      What I am pointing out is fundamental to liberty in its contractual forms. This is the core of the rule of law with free choosing persons. China is the place that undoes things by fiat.

      Otherwise I’m sure you can find a Mao cap for cheap online.

  4. . says:

    Sam Zell is holding the bag after the hurried transfer from L brands after Epstein debacle

  5. NJGeezer says:

    Think that was an intentional clever pun by Wolf, “an arm and a let”. “Let” as in “to lease”. I liked it.
    Keep up the great work, Mr. Richter.

    • Prophet says:

      Second to last sentence, first paragraph:

      “…and law firm Davis & Gilbert, with had 15.8% of the space. “

  6. Good opportunity for patient bottom feeders.

    • 2banana says:

      We have a long way to go before bottom.

    • Wolf Richter says:

      Yes, maybe. The towers in Houston’s Energy Corridor that I mentioned and linked were bought for a song. The new cost basis is now very low. The buyer can remodel them and lease them for a LOT less than others. That’s ultimately how office rents come down — and in the process, it will put even greater pressure on other office buildings.

      • Gattopardo says:

        Funny how this time around it is CRE that’s falling apart first. In the last crash, residential led the way, for entirely different reasons, and we all waited for (feared) the CRE shoe to drop. But the shoe kind of bounced around and landed on the bed rather than the floor.

        A few years from now we may all be saying “damn, I should’ve known when commercial started to fall apart that the end of the show was coming…”

        • Judy says:

          Not funny at all – covid crushed CRE. People responded somewhat rationally to lockdowns and work from home and got out of the cities. They irrationally bought and will get screwed bigly if they cant make payments over the next decade or so as thats how long they will be underwater IMO.

      • Frank says:

        And without any gov intervention/bailouts, cheaper office space is created, available to a new generation of entrepreneurs. Out with the old and in with the new. How Capitalism is supposed to work. Painful but necessary churn.

      • Greg says:

        Houston and Calgary went through hell in the late 20-teens with the prolonged bear market in energy. Cities in the oil patch are no strangers to the boom and bust cycle. As we enter another commodities/energy up cycle, property may not “recover” as rapidly as it did last time around. Energy companies downsized considerably and there are just far fewer experienced engineers and specialists left in the industry (let alone factor in the new environment for remote working).

      • JJ says:


        Your excellent blog entries about the deeply troubled commercial office market inspired me to research a building close to home for me: The former AT&T tower in downtown St. Louis. AT&T moved out five years ago, and now the 44-story, 1.4 million sq ft. monstrosity has been completely vacant ever since. A terrible eyesore considering it’s the LARGEST building in St. Louis, and largest by area in the entire state of Missouri.
        AT&T sold the building for $205 million in 2006, and a recent opening bid was….$2.35 million.
        Locals are contemplating that a complete demolition is the only way forward even though the tower was built in 1986.
        Any owner would be killed by the upkeep expenses even if the building is acquired free of charge.

        • Flea says:

          Mutual of Omaha is building office tower in Omaha 50 story tallest building in Omaha ,executives are idiots ,

        • Wolf Richter says:

          Thanks! Very interesting. We often forget about the plight of downtowns that haven’t had any office booms in years/decades.

          Do you know who now owns the building? Lenders?

    • robert says:

      Instead of buying one of those 200 million dollar apartments with only 20,000 sq ft, someone could buy the building when it’s flogged off. The view of the Park isn’t great but it’s only a short walk. Make a six-floor apartment and rent out the rest until the market comes back.

  7. Half Bankrupt says:

    “sent back to the lenders: the 175 West Jackson Blvd. and the 135 South LaSalle St.”

    Time for Chicago’s Financial District to reinvent itself.

    • historicus says:

      Casinos ….. that’s the politicians answer..
      TAXES! And its right around the corner…

      • phleep says:

        They can legalize and tax fentanyl.

        • Hal says:

          Illinois/Chicago already legalized/taxed weed. There’s pot stores everywhere in Illinois now. Of course, it’s still against federal law, but the feds are looking the other way.

          Big difference between weed and fentanyl. I assume that crazy idea was sarcasm?

        • khowdung flunghi says:

          Someone recently suggested dropping lots of fentanyl around Downtown Los Angeles as a solution to the homeless problem…

        • Dan Romig says:

          Speaking of cannabis and opioids, Prince had this to say in ‘Sign ‘o’ The Times:’

          “In September my cousin tried reefer 4 the very first time
          Now he’s doing horse, it’s June”

          Prince wrote and sang that smoking pot is a gateway to heroin adiction in his song. Perhaps Prince should have been using cannabis instead of opioids for his self-administered medication.

          A musical genius from my hometown is dead from a fentanyl overdose, and every time I hear that song on my radio station, I shake my head.

          As the song continues:

          “Some say a man ain’t happy
          Unless a man truly dies
          Oh why
          Time, time”

    • Tom S. says:

      I can guarantee you that Chicago’s financial district and employees are going to be just fine. Chicago is an extraordinarily wealthy city, like New York it’s more of a wealth disparity problem than anything.

      Even Blackstone will be fine, looks like they hold about 28 billion in securities, so this is a small haircut.

    • historicus says:

      The Federal Reserve building at LaSalle and Jackson will be the only building left with occupants.
      Now, isnt that a microcosm of what the Fed has done? They survive.

  8. Depth Charge says:

    This news is very bullish for stocks. Hurry up and buy some. Moonshot, incoming.

  9. Pete says:

    Imagine if millennials lived on one floor, took their kids to school on another, then worked on another floor, with hopefully nearby, theatres, parks, ballfields, YMCA’s and stadiums. Does Sam Zell imagine this…PJS

    • Gabby Cat says:

      If you read the fourth industrial revolution, the smart cities, is just as you described. As part of your employment you will be provided a nice home that houses your child’s school, gym, and entertainment. It will become a working benefit. Some think this is a new and wonderful idea. In theory, it is. However, in practice it turns to crap in a hand basket. Just watch October Sky. If you lose your job your family losses their home.

    • historicus says:

      The failing shopping malls near me are converting to apartments with close proximity to restaurants…and shops.
      That’s the new “neighborhood” concept.
      Seems to be a success.

  10. JimQ says:

    Wolf – we counted 50 cranes in London on our last visit several years ago. Are they looking at the same dynamics?

  11. magoomba says:

    They will make dandy homeless shelters.

  12. ru82 says:

    I just read this. From November. Floating interest rate loan. What was Blackstone thinking?

    Blackstone’s real estate investing arm is following up its record third quarter with a massive refinancing package.

    Blackstone Real Estate Income Trust nabbed close to $1.1 billion in debt to refinance a 13-property multifamily portfolio, spanning 5,450 apartments across nine markets, most of which are in the Sun Belt.

    The two-year, interest-only and floating-rate commercial mortgage-backed securities loan was originated by Wells Fargo, Bank of America and Société Générale, the Commercial Observer reported.

    The loan is set to mature in October 2023, although there are three one-year extension options available, according to the Observer.

    S&P Global Ratings reports that the occupancy rate of the portfolio had risen to 96 percent as of September, up from 91 percent last year.

    Blackstone is coming off the best third quarter in its 36-year history, fueled in no small part by the performance of its real estate holdings. The firm’s real estate investments swelled to $230 billion in the third quarter, appreciating 36 percent year-over-year and bringing in distributable earnings of $2.6 billion.

    • historicus says:

      and there is the answer to
      “Why was the Fed supporting the real estate market for all these years?”
      and the answer to
      Cui Bono? (40 billion a month of MBS purchases)

  13. ru82 says:

    Just came across a real estate investment company. They do Turnkey single family homes rentals

    You just invest a minimum of $50k and they buy and rent the homes. They say the have been in business since 2003.

    Beside that you can go buy one of the rental homes on their site. They have about 100 for sale. They do the whole cash on cash and cap rate for 10 to 30 years for you. LOL Easy Peasy.

    Predictable Income with Short Term Notes
    Monthly income with 17.5% interest per year.

    You don’t have to chase the unpredictable returns offered by the stock market!

    Norada Capital Management offers investors opportunities to invest in Promissory Notes with fixed rates of return ranging from 12% up to 17.5% per year.


    The current investment is provided through corporate Promissory Notes as follows:

    NOTE TERM: 24 or 36 month term.
    NOTE RATE: 12% to 15% per year.
    BONUS RATE: 5% paid at maturity.
    MAX RETURN: 17.5% per year.
    PAYMENTS: Monthly payments.
    PAYOFF: Repaid at maturity.
    MINIMUM: $50,000 minimum.
    START DATE: 1st of the month.

    • LKinAZ says:

      “Corporate promissory notes” – hmmm.

      • Beardawg says:

        Yes… guessing NOT backed by Deeds of Trust, but rather, a Private Placement Memorandum (PPM) which allows the executives of the company to appropriate funds in any which way they want…and…if markets turn, there is a “strong possibility” you could lose your investment.

  14. Ted says:

    I don’t care much for Blackstone, but they couldn’t foresee the pandemic or the work from home revolution back in 2014 and they paid the price. It will be fascinating to see how this all works out in the future and, as Wolf points out, it will take years.

  15. ru82 says:

    60 minutes did a story this Sunday on the unattainable housing dream and the 30% rising rents thanks to Wall Street.

    Not sure if the number are correct but they said there is a 4 million housing deficit and the home builders are barely keeping up with current population growth.

    Basically….good luck.

    Realtytrac says there are 1.2 million zombie homes that are empty for one reason or another. They also say it would help but that extra inventory will be sucked up quickly.

    So what happens next? I have no clue.

    These higher interest rates are certainly going to effect new home buyers looking to buy. They may not be able to buy a starter home because higher interest rates will make the house payment too high. Thus demand should drop? Then again, current home owners may want to stay and not move because they have such a great interest rate. Supply will not increase?

    • historicus says:

      “Supply will not increase?”
      Typically, in a hyper inflation you hold onto your largest hard asset.
      Replacement cost of the house you live in is going up at least 10% a year.
      Thus, no supply.
      And contractors are having a heck of a time bidding on construction…..suppliers changing prices and availability.

  16. ru82 says:


    ECB balance sheet is over 9 trillion.
    FED balance sheet is 8.9 trillion
    Bank of Japan is at 6.5 trillion

    The total over 25 trillion. In 2007 the total was 3 trillion.


    The FEDs Balance would be equal to giving every U.S. family 67k dollars. Maybe they just should have taken that route instead of most of it going to the 1%?

    • historicus says:

      as a reminder, and specifically to the spending Congressmen

      a billion seconds is 32 years.
      a trillion seconds is 320 centuries!

      The word Trillion was rare in Washington pre 2009. Now it is a throw away word. Dangerous.

    • Augustus Frost says:

      If every household had an additional $67K, inflation would be worse now and previously, as there be little if any incremental production to absorb it.

      That’s what is commonly missed in evaluating income and wealth distribution trends. Most “printing” went into asset markets instead of consumption but that’s because the wealthier segment who has most of it doesn’t or can’t spend most/all of it on the same things bought by the middle or working class.

  17. Seneca's Cliff says:

    These office towers are toast. But everyone is barking up the wrong tree thinking they can be converted to residential housing or some other bubble economy use. With the coming shortages of fertilizer and diesel fuel we will need much more land and labor to feed the population. So office buildings, apartments and the concept of retirement are old news. Most of these empty relics of the “Information Age” will need to be converted to Chicken Coops, Composting facilities, market gardens, mule pens and farmworker shacks. When you get too old to plow or shear sheep, you can retire to washing lettuce or sorting eggs. We will quickly return to the historic normal of 80 or 90 percent of the population being needed for growing food, fiber and firewood.

    • c smith says:

      “With the coming shortages of fertilizer and diesel fuel…” You’re basically saying our political leaders are too dumb to let the market solve such shortages. Yes, they’re dumb, but not THAT dumb YET.

      • Sams says:

        The questions are, can the market solve shortage of fertilizer and diesel fuel or can political leaders solve this?

        The “market” will always solve this, one way or the other, political leaders too. How it is solved and what the result look like may differ. With the differences more down to history, culture and maybe a large extent geographics. Or rather what possibilities the localisation gives, that is local resources.

        • 91B20 1stCav (AUS) says:

          one person’s solution is another’s abyss…

          may we all find a better day.

  18. Kunal says:

    Still residential real estate and stocks are rising.

    No more QE, no more bond purchases by Fed, rapidity rising Fed rate, geo political tension, rising Chinese yuan, real possibility of a recession, high inflation and expected to explode due to rising energy and food shortage. And still stocks are rising and residential real estates are rising. This got to be a bullish sign and once in a lifetime buy opportunity because think what would happen when these uncertainties will subside.

    • historicus says:

      “And still stocks are rising ”
      a very strong seasonal up into April 15
      add in the scared European money coming here…

      “Sell in May and go away” may be mantra soon…

    • Michael Gorback says:

      This often happens at tops. A last hurrah.

      Lifetime SELL opportunity. The buy opportunity comes after the recession and deflation.

      • historicus says:

        who has ever seen “deflation”?
        Retracements of quick and severe inflation can not be termed “deflation” IF it occurs.

        • Michael Gorback says:

          You’re going to get a chance to see it.

        • Michael Gorback says:

          Deflationary episodes in the US






          Great Depression of 1933 (how could you forget this?)


          Great Recession of 2007 (short term memory loss?)

        • Wolf Richter says:

          Michael Gorback,

          Yes, in my lifetime there were several quarters of mild deflation (in 1974 and in 2009 actually, not 2007), and the rest of my life was inflation and rampant inflation.

    • Nathan Dumbrowski says:

      Don’t forget we are at the precipice of a massive military conflict in Europe as well. Yet stocks keep licking at the ATH. Something is wrong. Shaking my head. The punch bowl is being withdrawn yet assets are still climbing. What gives?

      • Jake W says:

        what gives is that nobody believes the fed anymore. it has no credibility. everyone is investing based on the idea that the fed will swoop in and restart QE and permanent ZIRP if the market falls by 10-20%.

        if they’re right, then cash is indeed trash, and the dollar is doomed.

        if they’re wrong, look out below.

  19. polistra says:

    Old saying: Money talks, BS walks.

  20. IanCad says:

    The Demolition Sector has a rosy future. Where can investors put their few remaining groats?

    • historicus says:

      the Fed has created a Dyspotia
      In cash……inflation gets you
      In stocks….inflation gets you AND if the market drops X%, add that to the inflation loss

      For every action, in physics and economics, there is a “reaction”….and this inflation is the ‘reaction” to the fake low rates and massive money supply increases that fueled the “magic money” of the past two years.
      Now the give back. Brace yourself….just starting. IMO

      • Khowdung Flunghi says:

        “For every action, in physics and economics, there is a “reaction”…

        The Problem? – The loss of a stable numeraire

        “In the physical world, there are constants that serve as dependable benchmarks against which to observe natural phenomena. Examples are the velocity of a falling object, the freezing point of water and the time taken for one rotation of the earth on its axis. In the economic and financial world, this degree of precision is lacking. Instead, we content ourselves with approximations, indices and averages. We pride ourselves in knowing the difference between an inflation rate of 2% per annum and 2.5% per annum. Small deviations of outcomes from expectations can trigger dramatic trading in financial instruments and result in the transfers of billions of dollars between investments. Yet, in the financial realm, can we really be sure of the value of anything? ”

        From Peter Warburton: The debasement of world currency: It’s inflation but not as we know it

  21. mike dun says:

    Indoor farming is where these buildings will end up. Or converted to much needed residential.

  22. phleep says:

    The easy cash goes into reverse and the drain may appear in various select places, then spread, so this is a canary in the coal mine?

  23. michael Engel says:

    1) A global bust.
    2) The 2y/10y inversion don’t matter. What matter is the strength of US dollar.
    3) USD might breach 2000 highs on the way to 130. Why not.
    4) US inflation export starvation to the third world.
    5) We produce wheat, corn, soybeans, oil, NG, but Egypt, India and Yemen don’t.
    6) Backwardation : what have we been doing for tp and dishwashers.
    7) Backwardation : what will a Mariupol mum do for a glass
    of water for her children.
    8) This recession will hit the poor and the middle class much more than the rich.
    9) SPY might plunge, but there will be no US starvation.

  24. Nathan Dumbrowski says:

    Just checked and the value of reverse rep operations is around $1.7T as of last night. Is that right? Source: newyorkfed.

  25. Petunia says:

    A Sheraton Hotel in NYC recently sold at a $400M loss. Keep track of the write downs, the crash is here.

  26. Finster says:

    That space is still useful for something … although likely at much lower prices.

    • Wolf Richter says:

      If someone can buy it for $100 million in a foreclosure sale, their cost structure is going to be much lower, and they can renovate it, and lease it at much lower rates than competitors, and fill up the building, and put downward pressure on the ridiculously high office rents in Manhattan. That’s what should be happening to all those older towers.

      This is kind of a good-looking building (imho), it’s got style. It’s not a blah building.

      • Jake W says:

        new york also has relatively strong historic building protection laws, so buildings like this can’t just be sold to the highest bidder for land value, which is a good thing in my opinion.

  27. MONY,MONY says:

    Interesting that 1740 Broadway was the MONY building. It was refurbished in the late 1980s. I worked for MONY and the company did a sale/leaseback and took up rental offices in other locations. Have to wonder who would buy a CMBS with only one bit of collateral. Talk about concentration risk…

    The building was once visible from Central Park which is where Tommy James and the Shondells got the “MONY, “MONY” from.

    The building abuts the Park Central Hotel where Joseph Anastasia was assassinated in 1957. Now it’s investors who are getting assassinated.

  28. Michael Engel says:

    1) AAPL, on Jan 4 2022 AAPL was a $3T company.
    2) The speed : it took 14TD to reach Jan 24 low. From Feb 9 high it took 11TD to reach Feb 24 low. From Feb 24 low to close Feb 16/17 it will
    take 20TD, if it will happen today. AAPL might terminate this bear market rally.
    3) Greed : my contractors hired more pcs workers, because each one, without adding much cost, increased profit. My last landlord in NYC , a very nice, smart lawyer, had several buildings with multi tenants and a good manager. In 2007 he closed on two more units, to expand his empire.
    4) Aubrey McBirmingham, the shale RE king, died broke when he hit
    a bridge.
    5) U cannot move RE with a click.

  29. Rebel Capitalist says:

    So what is next for these empty office buildings? Any chance they get converted to residential units? That will attract buyers or renters along with increase the housing supply.

    • Wolf Richter says:

      Rebel Capitalist,

      Just looking at this particular building, I’d say that it cannot be converted to residential. Among other things, it’s way too wide. All apartments need to have windows, and that’s hard to do in a wide building like this. This is in addition to the other issues that such a conversion would entail.

      But someone can buy it for cheap in a foreclosure sale and renovate it nicely, and they’d have a much lower cost base, and they could lease it for much less than other buildings. They could fill up the building with office tenants, and it would push down other office lease rates, which are ridiculously high in Manhattan.

  30. JJ says:


    I couldn’t find a “REPLY” button on your question post below in reference to the 44 story St. Louis AT&T tower that’s been vacant for 5 years, so I will reply separately:

    Your post (Quoted):
    “Thanks! Very interesting. We often forget about the plight of downtowns that haven’t had any office booms in years/decades.

    Do you know who now owns the building? Lenders?”

    Here are some more details I drummed up from St. Louis Post-Dispatch to help answer your questions:

    ‘AT&T sold the building in 2006 for $205 million to MB REIT, a subsidiary of Minto Holdings of Florida and Chicago-based Inland American Real Estate Trust. The deal was financed by investment bank Bear Stearns, which failed two years later amid banking turmoil during the Great Recession.

    When AT&T’s lease ended in September 2017, about 2,000 employees relocated to buildings at 801 Chestnut and 1010 Pine streets.

    That same year, U.S. Bank sued the owner and foreclosed on the building. The building has been in receivership ever since. Bondholders today hold some $113 million in debt on the building. The property was last appraised this past January for $14 million.’

  31. joe2 says:

    BlackStone will get reimbursed under the table for more than they lost. Maybe another non-competitive contract for Advice.

  32. ram says:

    Office towers in prime locations in the USA going for less than many Sydney NSW Australia residential properties. Kinda tells you that Sydney real-estate might be in an extreme bubble.

  33. Johnonymous says:

    Gee, does anyone know if any of the lenders or MBS holders spoke about the immorality of Blackstone not paying on this debt even though they have the means to do so? You know…like the lenders accused the borrowers who defaulted on their sfr mortgages during the GFC of being immoral because they chose to walk away from their homes so they could still afford to feed their families and make their car payments.

Comments are closed.