Veris Residential, once one of New Jersey's biggest office landlords under its former name of Mack-Cali Realty, is selling its last workplace property with high-rise views of New York City to focus on apartments — in a complete strategic shift that's rare among real estate investment trusts.

The company said it signed a binding contract last month to divest Harborside 5 at 185 Hudson St. and sell it to an undisclosed buyer. The purchaser, according to public documents, is New York-based 601W Cos. That real estate firm last year bought three other office buildings — Harborside 1, 2, and 3 in Jersey City — from Veris for $420 million.

Harborside 5's contracted sale price of $85 million compares to the office tower's $118 million book value, according to a note by Truist Securities that added that the 977,225-square-foot property was only 35% leased at an average rental rate of $44.28 per square foot. Veris declined to comment, and 610W didn't respond to an email from CoStar News seeking a comment Thursday.

The pending transaction will mark the completion of Veris's yearslong transition from a real estate investment trust focused on office properties to one exclusively focused on multifamily. The Jersey City-based firm's portfolio now consists of 7,622 apartment units across 22 properties in New Jersey, Boston, suburban New York, and Washington, D.C. Almost half the buildings are located on the Jersey City waterfront.

While Veris isn't the only REIT that's changed or been in the process of rethinking its strategy, moving from one real estate sector to a potentially more lucrative alternative, there haven't been many more than a handful.

Equity Commonwealth, a Chicago-based office REIT founded by noted real estate investor Sam Zell, has been whittling its office holdings. The firm is sitting on $2 billion in cash but hasn't decided where it wants to reinvest, though it's talked about industrial property. Elme Communities, once known as WashREIT, used to own offices, retail space and apartments, but is now 100% multifamily, according to Steve Sakwa, head of real estate research for Evercore ISI. W.P. Carey has exited its office holdings, spinning some off and selling others.

The Nareit Index, sponsored by the National Association of Real Estate Investment Trusts, is an industry tracker that includes Veris only lists two other REITs as being reclassified besides the New Jersey firm. Those are Clipper Realty, from apartments to diversified holdings, and Peakstone Realty Trust, from office to diversified. That is based on Nareit's classifications generally involving a 75% threshold for inclusion in a particular sector, according to a spokeswoman for the group.

Retail REIT and landlord Site Centers is spinning off its smaller strip malls into a separate entity, Curbline Properties, which it says will be the first public real estate company focused exclusively on these so-called convenience properties.

"Over the past three years, we have successfully transformed Veris Residential from a complex company to a pure-play multifamily REIT underpinned by a high-quality portfolio of Class A properties and a vertically integrated, best-in-class operating platform," Veris CEO Mahbod Nia said in a statement announcing the REIT's fourth quarter and full-year earnings for 2023.

Years ago, the Mack-Cali name was ubiquitous in New Jersey, displayed on the company's office portfolio across the state. But the REIT's older, outdated suburban office campuses fell out of favor with investors. And the office sector is even more troubled in the wake of the pandemic and hybrid work schedules. There was a management shake-up at the former Mack-Cali, which led to the rebranding as Veris and the new strategy to focus exclusively on owning and operating luxury apartments.

That multifamily market has been experiencing mixed results, depending on the part of the country. On the REIT's earnings conference call Thursday, Nia said Veris is in a good position to deal with that challenge.

"Almost half of our properties are located along the Jersey City waterfront with very limited supply as virtually no new projects were completed last year and approximately 1,200 units expected to be completed within the next two years," the CEO said. "Demand remains robust and vacancy rates are low, suggesting new supply is likely to be absorbed much in the same way it has been during the past decade in which the multifamily stock in the Jersey City waterfront has doubled to around 24,000 units while rents have continued to rise."

Jersey City's key attraction to tenants is that its rents are about 40% less than Manhattan and 10% less than those of downtown Brooklyn, while "offering generally newer product, more space and a wider selection of amenities," according to Nia.

Mateusz Wnek, associate director of market analytics for CoStar Group, expressed some reservations about that area of the state.

"Much of Veris’s multifamily portfolio is located in Hudson County, New Jersey, where the outlook for rent growth in 2024 is a mixed bag," he said in an email. "Supply is expected to outpace renter demand on the Jersey City waterfront in 2024, [and] vacancies will likely see a slight uptick to 3.6% by year-end, leaving it firmly below the 10-year average of 5.4%. Annual rent growth, meanwhile, is projected to climb towards 2.8% this year, up from just 1.6% in the first quarter."

Some of Veris's apartments are in Weehawken, the Port Imperial area in north Hudson County, "which should see a more balanced supply-demand picture moving forward, though rental performance continues to be adversely impacted by the recent influx of new supply," Wnek said.

"CoStar’s daily asking rent series shows that rents have been gradually declining here since mid-November, owing partly to nearly 300 units being completed since the beginning of 2023," he said. "Additionally, renter demand is projected to retreat steadily in the second half of the year, and rents are likely to decline around 1% overall from 2023’s level."

In Boston, another market where Veris has apartments, supply has outpaced demand in six of the past seven quarters, according to CoStar data. But even as the average vacancy increased during that time, overall vacancy remains just above 5.5%, a full 200 basis points below the national average. As a result, rent growth has remained within normal levels, increasing by an average of 2.6% over 2023.

The Washington, D.C. market performed similarly. Supply and demand remained relatively even throughout 2023, with vacancy rates holding steady right around 7%. By the end of 2023, yearly rent growth had more than doubled from earlier in the year, from 1.6% in the second quarter to 3.2% in the fourth quarter.

That's in stark contrast to dynamics in the Sun Belt, an area flooded by multifamily-focused REITs and other developers as rent prices took off in 2021 and 2022. This land grab and subsequent construction boom delivered 565,000 units nationwide in 2023, the highest number of new deliveries in nearly 40 years, according to a report from CoStar's Apartments.com.

That imbalance in supply has pushed vacancy rates up by more than 100 basis points and dragged down rent growth. In the South, where most of the new construction was focused, rents shrank 0.2% in 2023. In the West, which also saw a large proportion of those deliveries, rents grew just 0.4% over that time. Of the 18 markets that saw negative rent growth in 2023, all of them were in these two regions.

By contrast, the Northeast U.S. saw rents grow 2.4%. Northern New Jersey, which tied for the second highest growth rate among the nation’s top 50 markets, rents grew 3.7% in 2023, according to the Apartments.com report.

Though mainly expressing optimism, Nia himself cautioned about challenges facing Veris this year on the earnings call.

"While the fundamentals across our core markets remain strong, we are in an environment of elevated macroeconomic and capital markets uncertainty, which coupled with a moderating leasing environment, warrants a degree of caution looking ahead," he told Wall Street analysts.

Truist Securities warned about another risk in its note.

Veris "is selling its lone remaining office asset and many investors may continue to see the stock as a potential [mergers-and-acquisition] target, regardless of earnings results/guidance," Truist Securities said.

In 2022, Kushner Cos. made an unsolicited bid for Veris, which the REIT rejected. Both parties traded rancorous barbs at each other last year.

Two other buildings that were part of the Harborside office campus were also sold last year. American Equity Partners purchased Harborside 6 for $46 million. And Related Cos. last fall acquired Harborside 4, a development site, for $58 million where it plans to build a luxury multifamily property.

As of this week, Veris had about $139 million of nonstrategic assets under binding contract for sale, including its last office property, Harborside 5.

CoStar News reporter Mark Heschmeyer contributed.