When Halstead Property inked a deal to market the Oosten condominium in 2013, there was an unusual catch: the Chinese developer behind the 216-unit Williamsburg project intended to sell 60 percent of the units itself overseas.
Halstead would be paid $5,000 for each of those deals, according to a contract between the firm and the Oosten’s developer, Xinyuan Real Estate.
Broker commissions are among the most closely guarded secrets in residential real estate, but Halstead’s June 14 lawsuit, seeking $1.3 million from Xinyuan, reveals previously undisclosed details of its agreement, including the commission rate and sales benchmarks.
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Halstead and Xinyuan both declined to comment on the contract, which was included as evidence in the lawsuit.
According to the September 2013 contract, the developer agreed to pay Halstead 4 percent commission for any direct deals, or 2.75 percent for deals that involved an outside broker. The contract also laid out quarterly sales benchmarks: Halstead was to sell 15 units within the first quarter of launching sales, followed by 10 units in the second quarter and eight units each in the third and fourth quarters.
If Halstead failed to meet the quota, its commission dropped to 3.75 percent for direct deals. If it exceeded the quota, the commission jumped to 4.25 percent. The property officially debuted in September 2014.
In addition to earning commission, Halstead took a “draw” — essentially an advance — each month in order to cover the cost of running the sales office and paying the team’s salary and benefits. In exchange, Halstead was supposed to credit Xinyuan with 50 percent of the commissions owed for each unit at the closing.
So how much was Halstead taking home? Here’s some very back-of-the-napkin math:
Xinyuan targeted a sellout of $342.7 million when it submitted an offering plan for the Oosten in late 2013. (The projected sellout is currently $395.3 million, according to the New York Attorney General’s office.) In the unlikely event that Halstead sold out the 216-unit project via direct deals only, that works out to $13.7 million in commissions. By co-brokering deals, it was in line for $9.4 million. Once it reimbursed Xinyuan for the monthly “draws” it was taking, that number falls to $4.7 million.
However, in the contract, Xinyuan said it intended to pre-sell up to 60 percent of the units — around 129 — to foreign buyers within the first four months of sales. (Xinyuan ran ads on a Chinese website in 2014.) Halstead was not able to earn commission on those deals, but was compensated $5,000 for each pre-sold unit. (The pre-sales also didn’t count toward Halstead’s quota.)
One thing that wasn’t a drag on Halstead’s commission? Friends and family discounts. Like other condo projects, the Oosten was available to a small number of the developer’s “friends and family.” But in this case there were no more than five such buyers, under terms of the contract. The developer could use its “sole discretion” to accept or reject any purchase offers.
It’s unclear exactly why Xinyuan terminated the contract with Halstead in October 2017. By that point the developer’s new leaders in mainland China had conducted an internal audit of its New York operations (sources said it looked at cost overruns at the Oosten), and essentially dismantled what was left of its U.S. team, turning operations over to Kuafu Properties.
In recent weeks, Douglas Elliman’s Sabrina Saltiel and Noble Black were tapped to market the remaining 38 units alongside Kuafu’s internal sales team.
During the first quarter of this year, Xinyuan sold two units, generating $5.2 million in revenue, according to a May 30 company filing. As of May 30, the Brooklyn project has generated $256 million and sold 174 units, or roughly 81 percent, according to the filing. Xinyuan executives have recently acknowledged the slowdown in sales, which they attributed to the mix of available condos.
“The problem is not the pricing of the units,” Xinyuan’s CFO Yuan Zhang said during a May 30 earnings call, noting that the remaining units are the building’s largest and more expensive units. “By nature, it will sell [at a] slower pace compared to smaller-sized units.”