Blackstone wrote down its stake in this Chicago office building to $0. Now it’s talking with lenders on the debt coming due.

Transferring a loan to special servicing signals a kickstart of discussions between a borrower and a lender when loans in bond deals look to be at risk of default. The loan comes due in July.

Blackstone, one of the world’s largest investors in commercial real estate, has long been a favored borrower for Wall Street, often receiving the lowest lending rates available and ample access to debt.

But more borrowers with maturing debt this year have been seeking debt extensions, loan modifications or simply handing back properties to lenders as an era of cheap and abundant credit has ended.

Related: Debt on trophy office buildings is starting to buckle as loans come due

In a sign of the times for beleaguered office buildings as more workers take advantage of work-from-home or hybrid arrangements with their employers, Blackstone wrote down its investment in the Chicago property, acquired from Shorenstein Realty Services in 2015 (with past owners including Vornado
VNO,
+2.41%
and heirs to U.S. political paterfamilias Joseph P. Kennedy), to zero last year. That means it no longer has an economic value, which can occur when the debt on a building exceeds the value of the property.

Tenants of the former Apparel Center, once home to some 1,000 apparel-trade showrooms, have included the Chicago Sun-Times, in the years after its nearby midcentury-modern headquarters was demolished to make way for Trump International Hotel & Tower Chicago, and a Holiday Inn hotel.

“The property is experiencing the well-known headwinds facing U.S. traditional office buildings lacking first-class modern amenities and this location in the River North submarket has been particularly challenging, which is why we effectively wrote this investment down to zero last year,” Blackstone said in a statement.

Occupancy of the building, conjoined with the renovated Art Deco masterpiece Merchandise Mart by a skyway across Orleans Street, was last pegged at 75.4% in December, down from 92.1% when the floating-rate loan was originated five years ago by Goldman Sachs
GS,
-0.42%,
according to KBRA. Nationally, office buildings sit roughly half-empty three years since the pandemic shutdowns of 2020.

The borrower is a Blackstone affiliate, the Blackstone Real Estate Partners VIII fund, which reported a 16% return for the fund through the first quarter of 2023. Globally, Blackstone manages $585 billion in real estate.

“What you own matters, and U.S. traditional office represents less than 2% of our global portfolio today vs. more than 60% in 2007, Blackstone said about its exposure to the office sector. “We intentionally pivoted toward sectors like logistics and data centers, which are benefitting from exceptionally strong macro-tailwinds and supply/demand fundamentals.”

A Blackstone spokesperson said the transfer didn’t signal the borrower was handing back the keys to the 1976 complex, a concrete-clad design of the Chicago-based global architecture firm Skidmore, Owings & Merrill, to its lender. Meanwhile, the original $310 million loan is nonrecourse, meaning the lender can’t pursue any other of Blackstone collateral to repay the debt.

Related:  Losing the trophy? A $45 billion mortgage bill is coming due for some of America’s signature commercial properties.

Stocks were mostly lower on Tuesday, with the Dow Jones Industrial Average
DJIA,
-0.69%
roughly unchanged, the S&P 500 index
SPX,
-1.12%
down 0.3% and the Nasdaq Composite Index
COMP,
-1.26%
off 0.2%, at last check. Blackstone shares were up 0.8% Tuesday, but are down some 21% over the past year.