Improvements vs. Equipment
Structures like grain bins, kilns, walk-in coolers, and freestanding bridge cranes are often recorded as machinery and equipment (M&E) assets by company controllers. It’s also common for commercial lenders to expect these items to be included in an M&E appraisal for collateral financing. Similarly, business buyers typically assume they can allocate M&E value from the purchase price to these fixtures.
However, the reality is more complex—there’s no universal standard for making these decisions. Each situation requires the appraiser to make a judgment call. To navigate this, we usually consider a few key questions:
Who actually owns it? Ownership matters more than who paid for the asset or who’s using it. If a landlord or any other entity besides the business technically owns the structure, it’s not a company M&E asset.
Was it appraised with the real property? If the structure was included as a permanent improvement in a real estate appraisal, it shouldn’t also be counted as M&E. Coordination between appraisers is crucial to avoid missing or double-counting assets.
Who controls access and removal? In situations like collateral financing, it’s essential to consider whether the asset can be practically removed and sold. For instance, will the landlord allow the asset to be removed by a liquidator? Lease agreements should clearly outline access and removal rights for personal property when the lease ends.
How is the asset constructed and secured? Not all structures are created equal. Some kilns arrive as one piece and can be moved easily with a forklift, while others are built on-site and anchored to a concrete foundation. Both might be listed as M&E, but only one is realistically non-permanent.
How was it booked? Sometimes the simplest solution is to leave the equipment where it was originally booked on the company’s depreciation schedule. However, this isn’t foolproof. A silo may have been booked as M&E, but the concrete footer and slab may have been booked as real property improvements.
Mistakes in classification can lead to inaccurate appraisals, double-counting, or missed opportunities in financing or asset allocation. At Capitale Analytics, we dedicate time and attention to every appraisal decision, delivering fair and accurate valuations that our clients can rely on for informed financial and operational decisions.