How reliable is Mercan's buy back guarantee?

@tkrunning’s Golden visa guide mentions Mercan as a relatively low risk option (limited downside but also limited upside) due to their buy back guarantee.

But talking to Mercan it seems the buy back isn’t guaranteed by them at all, but rather by various subsidiaries specifically created to manage their Portuguese hotels, none of which have actually opened yet. So legally if the subsidiary guaranteeing your buy back goes bankrupt, I think Mercan is under no legal obligation to fulfill the buy back guarantee at all? They can simply create a new subsidiary.

So it seems the reality might be that you’re getting limited upside but still have the possibility of losing your entire investment (except for some fractional share of a hotel building of unknown value)? Or is there some information I’m missing here?

1 Like

I had this question. Watching the online presentation gave me some peace of mind. Here’s why.

  • Each project stands alone.

  • There is no commercial mortgage, since the hotel is being funded by investment from people seeking the GV.

  • The hotels can break even with about 30% occupancy.

  • The payment to initial investors does begin for a year.

  • Cash flow above expenses is being held to pay back investors.

  • Not all investors will exercise the payback clause at the same time.

I have no connection to Mercan.

I don’t earn a commission by recommending them.

I’m just a guy trying to figure out what is the best fit for my family.

What I wrote is my current understanding of how it works.

You will have to do your own due diligence, and satisfy yourself of these items.

There is little certainty in life. No matter what you do in Portugal, there will be some kind of risk. Each has to evaluate and choose which kind of risk they can live with.

Good luck

1 Like

30% for breakeven seems awfully low. If true, then hotels must be massively profitable.

There is some amount of shared risk in that the entity that’s managing the Marriott is the same one that’s managing the other Hilton they already have running. Granted it’s an operating company and is just leasing the hotel from the holding company that owns the hotel, but if it goes *alls-up then no one’s making any money. (If you dig around, the name of the operating company is on the documents you sign with Mercan, and it’s also in the public news release for the Hilton Tapestry (Referência Arrojada SA)).

As Lagos said, there’s always risk. There is some black-swan risk here, which you’re paying for through that limited upside. That’s kind of just how these things go. Though some of the point is exactly that, you have a fractional share of a hotel. Assuming it does get built, the collective owners of the deed can get together and find someone else to run the hotel. etc etc. You don’t lose everything. But really what you’re paying for is that Mercan has done this a whole bunch of times already and this is Just Another Project for them and thus the odds of it going wrong because the project itself fails are pretty low.

(As opposed to currency risk or political risk or…)

1 Like

I can’t add much to what lagos and JB replied already, other than to agree with them and add some additional thoughts/perspective.

FWIW, DON’t invest any amount that you can’t afford to commit for 5+ years and possibly risk 100% loss with any GV investment (Mercan, any fund, RE, or otherwise). At least with RE purchase you’ll have something you can live in, but you could easily end up with a money pit that may be difficult and/or costly to unload if you make the wrong choice.

I’ve had similar concerns over the past few months, but have decided to proceed with one of Mercan’s projects. Mercan seems to be the 800-lb gorilla with a long track record, run by what appear to be competent canadians (who I tend to trust more than americans), and Portuguese (also less criminal than americans IMHO).

Any or all of my US holdings could end up worthless on any given day. Some are less risky than Portuguese real estate, some are more risky. Over the years, some of my smaller investments have evaporated. This has never caused any hardship because I’ve rigorously diversified and managed risk.

Sometimes I feel like I can’t get my ass and assets out of the US fast enough. Diversifying into Portugal is a big first step for me and will be the first serious currency hedge I’ve made. While I’m no George Soros, I think “betting” on the Euro is a prudent move. The Euro should hold up against the USD, and I think better than 50/50 will grow stronger relative to the dollar in the next 5-10 years. Portuguese citizenship and joining the EU club are just icing on the currency cake.

Another thing that is very telling about the Mercan projects is the fact that I won’t have the option to keep my money invested in the hotel after the GV holding period elapses. The fact that I can’t do this means that the big money behind all this stuff believes that the projects are safe bets and they don’t want to share the pie with any of the little guys longer than they have to.

Good luck!

Maybe. People can certainly make money running a successful hotel. But people can make money much faster by reselling real estate for more than they bought it.

Suppose you have 100 Golden Visa investors willing to spend €175k on a fraction of a dilapidated hotel building, and another €175k on construction to meet their €350k quota. That’s €17.5 million of purchase money and €17.5 million of construction money you have access to. If you can buy a dilapidated hotel building for say, €8 million and resell it to those investors for €17.5 million, you’ve made €9.5 million profit instantly. You also get €17.5 million in construction funds for your own construction company. At that point, you don’t really need the hotel to succeed, you’ve already made good money!

It sounds like you’re concerned that everyone involved is a crook. I doubt that’s the case, but it’s certainly a risk. If you’re not comfortable investing with Mercan or any of their partners, you shouldn’t. You don’t need a reason.

1 Like

I could not agree with your concern more. From a legal stance, they have absolutely no obligation at all. Mercan can step away and leave a bunch of gruntled investors to deal with the independent subsidiary company they formed specifically for one development.

Maybe I’m wrong, maybe not, I just would not go with them. I found the article on this site to be a bit too pushy on Mercan, it gave me the sense that their commission is too sweet not to be talked positively about.

2 Likes

After doing research, my friend 's immigration company got 10 % commission from Mercan . So let imagine, everyone speak so sweet, even no hotel open , why people care if you can get 35000 euro ? Your sense is right

Actually, it isn’t an independent subsidiary formed specifically for one development.

The contract you sign is with REFERÊNCIA ARROJADA S.A… You can independently verify that this is also the entity behind and entity operating the Se Catedral Hilton Tapestry project, which can be independently verified is a viable operational hotel backed by Hilton. I imagine with some further digging you will find it’s the operating entity behind more of Mercan’s projects. It’s not unreasonable that they have a separate entity for their .pt operations. It doesn’t seem especially reasonable they’d let a viable operating entity that owns operating assets die.

I have no intention in investing in Mercan, but mostly because it isn’t right for me. I’m just suggesting that if you dig through the paperwork there is some reason to think the whole thing is quite on the up-and-up.

Now of course there’s commissions. 10% seems high, but what do I know? 5% seems common enough. It’s probably just the cost of doing biz. But that goes to a44’s point. If you can get investors to stump up EUR17mm to buy a EUR8mm hotel and pay for the renovations, then get those same people to leave the money with you for 6 years and let you operate the hotel and keep most of the money you make operating the hotel, THAT is a pretty good biz. (You think Hilton settles for a paltry 3% return on their hotels?) You’re most likely making enough money off the deal that you don’t need to screw the investors over and take the reputational hit.

2 Likes