Blackstone's defaulted NYC office tower loan up for sale at a 50% discount

Blackstone defaulted on the $308 million mortgage on a Manhattan office tower more than a year ago — and the debt is now up for sale at a discount of more than 50%.

Special servicer Midland Loan Services was hired by brokerage Jones Lang LaSalle to sell Blackstone’s loan, which is backed by 1740 Broadway, a 26-story Art Deco-style tower between 55th and 56th streets, according to Bloomberg, citing people familiar with the matter.

JLL has packaged the debt into a commercial mortgage-backed security for $150 million, Bloomberg reported — a 51% discount.

Given the handsome discount the loan is getting, sources told the outlet that the building could be eligible for an office-to-residential conversion.

The skyscraper has been losing value since 2014, when the mortgage was originated and 1740 Broadway was appraised at $605 million, according to loan documents reviewed by Bloomberg.

At the time, Blackstone’s EQ — its US office portfolio company — had just bought the 600,000-square-foot property from real-estate investment trust Vornado. It was reportedly full of tenants paying below-market rents, with a source telling The Post that EQ “overpaid for the building by at least $100 million.”

The debt was sent to special servicing in March 2022, when Blackstone shocked the real-estate world by transferring a $308 million loan on the building.

How could one of the worlds biggest landlords quit on a relatively modest $308 million loan, after they spent a fortune on modernizing the building with a new lobby and restaurant? one observer mused to The Post at the time.

Blackstone ceased funding operating shortfalls at the building and stopped paying the mortgage as of March 2022, according to Bloomberg.

Midland, however, has yet to foreclose on the tower, though it’s unclear why.

We wrote this property off two years ago, and in the event a buyer is identified, we will work collaboratively to transfer the ownership, a Blackstone spokesperson told The Post.

Representatives for Midland Loan Services, JLL and Blackstone did not immediately respond to The Post’s request for comment.

As of September 2023, the occupancy at 1740 Broadway was a mere 7.4%, according to capital markets firm GlobalCapital.

The tower is just one of many empty office buildings scattered across New York City, which is in a so-called “urban doom loop” caused by an influx of working from home during the pandemic — a trend that has stuck despite return-to-office mandates.

The doom loop concept is defined by empty office towers, which destroy quality of life and eventually drive residents out.

In the Big Apple, occupancy has only bounced back to 48.4% since the pandemic.

At the start of 2020, however, office occupancy was a strong 90% — before it plummeted to 10% upon the outbreak of COVID-19.

After shouldering a wave of defaults from landlords, banks are sitting on as much as $160 million in losses on loans to the commercial real estate market, according to researchers from Columbia, Stanford, the University of Southern California and Northwestern, per aworking paper publishedby the National Bureau of Economic Research last month.

The grim findings support an earlier calculation by Morgan Stanley that showed lenders would need to negotiate more than $1.5 trillion of their commercial real estate portfolios by the end of 2025 in order to avert defaults.