Calculating EM on a deal with re-investment of cash flows

What is the correct way to calculate EM on a deal where you hit a peak equity investment, begin to see the capital account returned, then drawn up again but never to that same initial level of exposure?

I've seen some people just do total Distributions / Contributions but that seems like it's overstating the denominator because part of the contributions would be coming out of RE. I've also seen total distributions / peak equity which seems wrong because it's not netting out distributions which were reinvested.

I believe the correct method should be net profit + peak equity / peak equity (or net profit / peak equity + 1) but I guess I'm just looking for confirmation.

 

Either you're in a JV and there are EM hurdles in the waterfall in which case the calculation is negotiated or you're just doing it as part of your return metrics in which case it doesn't really matter.

Personally I think it should total cash flow to equity / total equity invested. The easiest way to model this would be sumif negative CASH FLOW to equity in excel. If you're stabilized and you're able to pay for capex, TI / LC with cash flow there is no real additional equity investment. If you have negative cash flow (likely to loss of tenant and cost to retenant) and have to feed the property then I would count it.

 

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