This seems to be the same bug with blkdiag as occurred in Where is the mistake of this Convex optimization problem? .
My workaround there, as here, is to form the required expression by concatenation rather than using blkdiag .
else
W(:,:,i) = [W1(:,:,i) zeros(N-2,2);zeros(2,N-2) zeros(2)];
Note: of course, the last block row can be combined into zeros(2,N), but I wrote it as I did for readability.
This executed without error for me, although unbounded without adding what are presumably your additional unprovided constraints.