What exactly is peak equity, how do you calculate it; and what deals does it apply to? For example on a stabilized acq, I’d imagine your intial equity outlay equals your peak equity. So no need to calculate it.
| +24 | Thoughts on institutional RE investment advisory roles — between the LP and GP? | 5 | 1d |
| +22 | New to real estate - how to start? | 6 | 12h |
| +18 | Early career advice. | 9 | 3d |
| +18 | Untrended YoC - Construction Escalation Included? | 10 | 23h |
| +17 | Best WLB in RE Originations? | 10 | 18h |
| +16 | LIHTC Developer Comp | 3 | 4d |
| +12 | Is RE cooked for the medium term? Feels like it | 3 | 12h |
| +12 | The Capital Bifurcation: Private GPs are handing the keys back to Public REITs | 3 | 1h |
| +7 | Analyst Comp | 11 | 4d |
| +7 | Harrison Street | 5 | 18h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Peak equity is simply the total equity that is input into a deal. Using leverage can lower your peak equity. Your peak equity would rise after initial acquisition if you had to drawdown further equity into the deal and is not offset by debt/revenue etc
+sumif("capital costs (i.e., your acquisition or development spend, the equity funding, the loan proceeds, the exit valuation, and then closing costs)",""&0)
Its the maximum equity invested in a deal at any point in time over the deal lifetime.
To calculate, just calculate the respective cummulative levered cash flow for the respective quarter / month and the use a MIN function over that time series.
when you use a sum of all the negative cashflows (sumif = ""&0) on a monthly basis vs a minimum function of the cumulative levered cashflow, you get two different answers for peak equity.
is there an industry wide agreed method or is it open to interpretation?
There is no agreed upon method. It’s up to you to decide what makes sense.
Some of the answers here are not clear/inaccurate so I'm going to try and give a better explanation.
Peak equity is the highest sum of equity invested in the deal at any point in time over the course of the investment. In other words, it is NOT simply the total equity invested (i.e. initial equity plus any capital calls) - if there is a capital event such as a refinancing that would result in capital distributions that reduce your equity balance in the deal before a later capital call is made, then your peak equity will be lower than total equity invested over the course of the time horizon.
The easiest way to calculate it is to have a running equity balance tracker in your model that sums all equity from the initial investment and any capital calls and deducts any income from refis or partial sales, and then run a MAX function on that row.
I understand peak equity as the maximum equity injection in any investigated period, i.e. if you're modelling on a monthly basis, what is your maximum unlevered/levered cash outflow in any given period (month). Cannot you just use a simple MIN function on UFCF/LFCF line?
Voluptas id in ipsum facilis ut. Minima provident et ea sit aliquam harum est. Facilis maxime aut incidunt fuga blanditiis soluta libero nam.
Minus occaecati quae aperiam provident sit repudiandae vitae. Consectetur facere in exercitationem eos occaecati nihil. Ullam laborum vero eveniet et vel quia.
Omnis veniam rerum beatae odio. Eum debitis qui quis qui quaerat. Dignissimos modi quos fugit est similique laborum minima. Quos dolorem vitae et voluptas quo.
Nesciunt eveniet quia suscipit non voluptatibus. Iusto incidunt voluptatibus occaecati earum. Dolor ut adipisci quo quisquam accusamus iure voluptatem tempora. Iure quis ut sed officia.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...