Appraisal – Brewery and Distillery, San Francisco

Appraisal

Brewery and Distillery

Fair Market Value

Orderly Liquidation Value

as of 1-March-2023

Prepared 25-March-2023

Stainless steel fermentation tanks in a brewery.
Stainless steel fermentation tanks in a brewery.

Fair Market Value 3/1/2023 =                     $ 557,651

Orderly Liquidation Value 3/1/2023 =        $ 390,356

Prepared for / Client:

Client

Prepared by / Appraiser:

Christopher Nugent, ASA

BCAM LLC

10810 Red Sun Ct, Highlands Ranch, CO, 80126

+1.415.515.1110

chris.nugent@bcamasset.com

Contents

1.0       Project Overview

            1.1       Intended Use, Scope, and Premise of Value

            1.2       Definitions

            1.3       Market Overview

            1.4       Equipment Description

            1.5       Secondary Market

2.0       Valuation

            2.1       Methodology

            2.2       Procedures

            2.3       Conclusion of Value

3.0       Limiting Conditions, Qualifications, Certification

            3.1       Limiting Conditions

            3.2       Appraiser Qualifications

            3.3       Appraiser Report Certification

Appendix A – Valuation Worksheet

Appendix B – Equipment Photos

1.0       Project Overview

This report is a written appraisal of brewery/distillery facilities and assets located in San Francisco, CA (the “Equipment”, or “Property”). The Equipment is owned by Client, the appraisal was contracted by Client (the “Client”) and the appraisal was conducted by Bluechip Asset Management (“Bluechip”).  

1.1       Intended Use, Scope, and Premise of Value

1.1.1    Intended Use

The intended use of this report is for the Client to use in assessing value of the assets for potential sale, who would be new operators of a brewery/distillery operation.

1.1.2    Scope

The scope of this appraisal is a written appraisal of the subject Equipment. The appraiser inspected the Equipment that is the subject of this appraisal on 2/17/2023 in San Francisco.

1.1.3    Premise of Value

The premises, or standards, of value are Fair Market Value and Orderly Liquidation Value, as defined by the ASA:

Fair Market Value is an opinion expressed in terms of money, at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts, as of a specific date.

Orderly Liquidation Value is an opinion of the gross amount, expressed in terms of money, that typically could be realized from a liquidation sale, given a reasonable period of time to find a purchaser (or purchasers), with the seller being compelled to sell on an as-is, where-is basis, as of a specific date.

Forced Liquidation Value is an opinion of the gross amount, expressed in terms of money, that typically could be realized from a properly advertised and conducted public auction, with the seller being compelled to sell with a sense of immediacy on an as-is, where-is basis, as of a specific date.

1.2       Definitions

According to the American Society of Appraisers Valuing Machinery and Equipment publication, the three types or causes of appraisal depreciation traditionally recognized by appraisers are physical deterioration, functional obsolescence, and economic obsolescence. The traditional definitions of these terms are as follows:

Physical deterioration is a form of depreciation where loss in value or usefulness of a property is due to the using up or expiration of its useful life caused by wear and tear, deterioration, exposure to various elements, physical stresses, and similar factors.

Functional obsolescence is a form of depreciation in which the loss in value or usefulness of a property is caused by inefficiencies or inadequacies of the property itself, when compared to a more efficient or less costly replacement property that new technology has developed. Symptoms suggesting the presence of functional obsolescence are excess operating cost, excess construction (excess capital cost), over-capacity, inadequacy, lack of utility, or similar conditions.

Economic obsolescence (sometimes called “external obsolescence”) is a form of depreciation where the loss in value of a property is caused by factors external to the property. These may include such things as the economics of the industry; availability of financing; loss of material and/or labor sources; passage of new legislation; changes in ordinances; increased cost of raw materials, labor, or utilities (without an offsetting increase in product price); reduced demand for the product; increased competition; inflation or high interest rates; or similar factors.

Depreciation

The difference in value between an existing old asset and a new asset taken as a standard of comparison. Appraisal depreciation is a measure of value inferiority.

Economic Useful Life

The estimated period of time over which it is anticipated an asset may be profitably used for the purpose for which it was intended. This time span may be limited by changing factors of obsolescence and/or physical life.

Remaining Economic Life

The anticipated remaining time for the commercial utilization of an asset. This time span may be limited by changes in economic conditions, factors of obsolescence or physical life.

1.3       Market Overview

Over the past decade, the craft beer and crafter distillery industry has transformed into one of the fastest growing segments of alcoholic beverage sales in the United States. Through this time period, thousands of new brewers have entered the market due to a shift in consumer preferences toward the high quality, fine ingredients, and wide variety of flavors that craft breweries deliver.

The global brewery equipment market amounted to $22.5 billion in 2022, growing at a fast 5.6% annual rate through 2027. The primary market segmentation is microbrewery vs. craft brewery, with microbrewery equipment consuming 53% of the market. The craft beer market is growing fast due to the unique taste and increasing popularity among beer consumers globally. The microbrewery equipment market consists of milling, cooling, brewhouse, fermentation, and filling equipment. The craft brewery equipment consists of various equipment such as mashing, cooling, fermentation, storage, filters, compressors, pumps, separators, and bottling/canning line equipment.

The coronavirus pandemic has had a profound effect on the microbrewery business. After a year of the pandemic, off-premise alcohol sales are way up; larger brands are the primary beneficiaries of this growth and craft producers have not seen the same effect. After more than a decade of dozens of craft brewers entering the market each year the microbrewery market hit the brick wall of the pandemic in 2020 and many microbreweries closed for good. In the last few months and through June and July 2021, most microbreweries have reopened for business, so the survivors should be OK. Fermenters, tanks, and much of the brewery production equipment declined in value through 2020 as so many stores and businesses in this sector closed, but values have recovered.

1.4       Equipment Description: Brewery/Distillery Machinery and Equipment

The subject Equipment consists of brewhouse line, fermenters, hot liquor tank, and accessory assets such as CO2 system, HVAC, boilers. In addition, the Equipment consists of two copper pot stills.

1.5       Secondary Market

The global secondary market for brewery and food processing equipment is large and diverse, with dozens of websites serving this industry segment. Other assets include a beer canning / bottling line, full kitchen, and dozens of seating and table FF&E assets.

2.0       Valuation

2.1       Methodology

The three recognized approaches to the determination of value are the sales comparison approach, the cost approach, and the income approach.  All three of these approaches must be considered when appraising machinery and equipment, though the approach which is most appropriate for a given appraisal project depends on a number of factors and variables relative to the Property, the market, and the project.

  • Sales comparison (or market) approach – the market approach to value uses comparable sales, dealer offering prices, and interviews with brokers involved in the used market sales of equipment comparable to the subject Equipment. 
    The appraiser adjusts the prices that have been paid, or offered, for assets comparable to the assets being appraised.  Adjustments are made to the comparable sales to reflect their age, condition, configuration, and salability relative to the subject asset.
  • Cost approach – the appraiser adjusts the replacement cost (new) of the subject asset for the loss in value due to physical deterioration, functional obsolescence, and economic obsolescence.  The cost approach is based on the principle of substitution:  a prudent buyer will not pay more for an asset than the cost of acquiring a substitute property of equivalent utility.  
  • Income approach – the appraiser determines the present value of the future economic benefits of owning the property. 

All three approaches were considered for this engagement. 

2.2       Procedures

This valuation was performed in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Foundation and within the machinery and equipment valuation guidelines set forth by the American Society of Appraisers.

2.2.1    Subject Property

The subject Equipment consists of brewhouse line, fermenters, hot liquor tank, and accessory assets such as CO2 system, HVAC, boilers. In addition, the Equipment consists of two copper pot stills.

The subject brewhouse is a three vessel brewhouse, the three vessels being mash tun, hot liquor (hot water, in brewery parlance), and boil kettle. The brewhouse was manufactured in 2019 by American Beer Equipment (“ABE”), a major supplier of brewery equipment worldwide. The beer is then processed further in the 14 60BBL fermenters, 14’ high tanks used for fermentation of the beer. The fermenters were also made by ABE.

The Forsythe 775 gallon copper pot still is the Rolls-Royce of pot stills, according to Rybeck, a major UK-based buyer and seller of stills. The Artisan Still 300 gallon copper pot still adds further capacity for the distillery to make vodka, whiskey, and other liquors.

The two Cleaver Brooks 1.6 million BTU boilers are in excellent condition, manufactured in 2019-2020.

Accessory assets include the RMS 2 roller grist mill, Premier Stainless System keg washer, Cask ACSv5.0 6 head can filler, boiler feed system, compressor, gravity filler, exhaust system, fully equipped kitchen, and restaurant furniture.

2.2.2    Valuation Methodology

2.3       Conclusion of Value

2.3.1    Market Approach

Comparable sales were analyzed for all of the Equipment for this study. Current sales listings and auction results for sales of brewhouses, fermenters, tanks, and other brewery equipment, and for vehicles, kitchen and related equipment, and for all accessory equipment were reviewed to determine current Fair Market Value and Orderly Liquidation Value for the subject Equipment. Websites studied include probrewer.com, beveragefactory.com, cask.com, morebeer.com, and other brewery equipment marketplaces, and also general equipment marketplace websites such as machinio.com and bid-on-equipment.com.

In addition, equipment values were discussed with experienced food production and brewery equipment brokers and dealers.

A discount of 30% was applied to the Fair Market Value to determine Orderly Liquidation Value, as the market for this brewery and food processing equipment is good but not that liquid, and the Equipment would require extensive deinstall and moving costs to remove from the facility for sale.

2.3.2    Cost Approach

The cost approach was considered but not used as market information was available for the subject equipment.

2.3.3    Income Approach

The Income Approach was considered but not used, since it is difficult to attach revenue specifically for individual assets in the subject Equipment list.

2.3.4    Summary of Valuation Methodology

Opinions and conclusions of value are based primarily on the market approach to value.

2.3.5    Conclusion of Value

The valuation worksheet is included in Appendix A.

Fair Market Value 3/1/2023 =                     $ 557,651

Orderly Liquidation Value 3/1/2023 =        $ 390,356

3.0       Limiting Conditions, Qualifications, Certification

3.1       Limiting Conditions

This appraisal is based in part on information from and representations of the Client, which are assumed to be correct and accurate.  This includes representations by these parties that the Subject Property is accurately represented by the list of assets included, and that any other assets found during the inspection would also be included. No warranty is or will be given as to the veracity of this information. 

The ownership interest appraised is that which was represented to be that of Kilroy Realty as property owner.  No research or due diligence was performed with respect to this ownership, so that no assurances can be made as to title, encumbrances, or legal status of the Subject Property. 

The Property is subject to fluctuations in value due to the regular cycles and fluctuations in the brewing equipment market. While the estimated values are believed to be accurate as of the appraisal date, changing market conditions which can have a material impact on property value are common in the industrial machine market. We assume no responsibility for such changes in market conditions and assume no responsibility to update this valuation to reflect events which occur after the appraisal date. 

This appraisal is intended for use solely for the purposes stated herein and shall not be used by any other parties or for any other purposes.  Neither the appraisal report nor any portion thereof may be distributed to any third parties without the express written permission of the appraiser.  No right to testimony in court by the appraiser is granted by this engagement; time and fees for such testimony are to be separately negotiated and engaged if required.

Appendix A – Valuation Worksheet

Appendix B – Equipment Photos

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