Does Raising Equity for Reserves Artificially Increase Cash on Cash Return?

[Kim Hopkins]

I'm looking at a passive real estate investment where part of their equity raise is for Tenant Improvement and Leasing Commission (TI and LC) reserves. 

When they calculate their annual cash flow, they do not include the annual estimated TI & LC since it was part of the equity raise and is in reserves. 

This increases their annual cash flow since they no longer have TI&LC as a line item. 

But more importantly, it can also increase their Cash on Cash (COC) return.

(If you just raised Equity without TI&LC, and you have Cash Flow (CF), then your COC = CF/Equity. If you raise Equity + TI&LC where TI&LC is your TI&LC for the first year for example, then the new cash on cash for that year is COC = (CF+ TI&LC)/(Equity + TI&LC). If you just play with the numbers and don't raise too much, you can increase your COC this way).

So raising additional money for TI&LC or whatever can increase your COC return. But are you really making a better return? Aren't they just taking more of your capital and giving some back slowly from reserves without it actually having anything to do with the return of the property?

Confused.