This is an excerpt from a book about Donald Trump by George H. Ross, Donald Trumps Executive Business and Legal Advisor. I am trying to figure out how it works:
“When Trump invests in a real estate project, he typically puts up less of his own money than you might think. For example, he will often erect a building to either rent out the available space or sell the residential units in it. Typically, his investors in the project will put up 85 percent while trump puts up 15 percent. Then he and his partners get a fixed rate of return on their cash investments. However, the return accrues and is not paid until there are cash proceeds to distribute. When units are sold, Trump uses the excess funds over and above the mortgage to be applied to the accrued interest. When the accrued interest has been paid, available funds are used to repay the cash investment of the partners. When all partners get back all their money plus the accrued interest, additional proceeds are divided among the partners. But the split of the excess funds is no longer 85 percent for the partners and 15 percent for trump. Now, the split of the profits could be 50-50, 40-60, or 25-75, depending on certain variables inherent in the transaction. It depends on the interest rate paid to the outside partners. The higher the rate of interest the outside partners get, the lower the percentage they get. The lower the rate of interest paid to the outside partners, the higher the percentage they get.”
I understand that he puts up 15 percent and his partners 85 percent. But thereafter, it says they then get a fixed rate of return on their cash investments and that the returns accrues. What does that mean?