Mercan valuations, safety of investment, buy back 'guarantee'

Hi all,

I’ve been looking at Mercan for the Portuguese GV because they offer GV qualifying investments at the lowest level of only 280K Euros.

I’m looking at the Lagos Marina project, and I’m a bit concerned.

  1. Doing the math, the project costs 400K Euros per hotel room (each investor pays in 280K Euros, 107M Euro total investment to renovate 270 rooms), and it’s just a renovation project - there is already a hotel there. This seems extraordinarily high, making me question the legitimacy of the project in its entirety. How can they turn a profit if rooms in the area go for just $100 a night and it costs so much to renovate the place? A profit is required to buy back my share.

  2. The buy back is not truly guaranteed, if Mercan fails to buy back your share when you demand buy back, they can pay you 3-4% annually rather than buy back your share. This is a very low rate.

  3. They offer no analysis to support profitability, no income analysis, no comparable market rates to justify the valuation. The information provided was just pretty renderings and a year-6 valuation of 113M Euro which they claim was based on income analysis.

Can anyone speak to these questions? Of course Mercan will give their answer, but I’m curious what the group thinks.

I thought Mercan was totally legitimate but after identifying those two questions, I started to wonder whether this is a pyramid or other sort of scam.



They do provide more analysis if you ask for it; I’ve gotten revenue/profit projections, costs, etc etc from them. Presumably they will provide it to you. Whether or not you believe those numbers is another matter.

Renovation projects can cost more than new-build. Yet sometimes you have no choice but to renovate because of existing covenants or lack of available space for new-build etc. There are several dead hotels in prime locations in Lagos that are no doubt heavily encumbered with debts from the 2008 crash that banks or others keep marked to par on their books and the only way to get the place is to take over that debt - but there is literally nowhere else in town you are going to build, either - because of all of the regs you can’t just go buy something else and knock it down and build what you want, and there really literally is nowhere else to build that matters other than one spot just south of the old town on a hill, and it’s been bought and a bunch of luxury villas are getting built on it. This is not the US. You cannot use US metrics or logic, period. It will not work. If that makes you uncomfortable, then walk away.

Of course the buy back isn’t guaranteed - they could go bankrupt for that matter. I will note that the stuff I’ve seen is that if they hold beyond year 6, the rate of return starts jumping considerably, meaning they do have a financial incentive to pay you out. It was in the fine print. Maybe that’s changed, I do not know.

Your EUR100/night number is IME suspect. Any revenue projections are going to require a curve - Lagos like most of the Algarve is primarily a summer destination, and Lagos is becoming one of the prime destinations as stuff farther east is just getting overrun. I would not be surprised to see those rooms going for 300-400/night 100% occupancy all summer… and 20%@150 all winter. That is prime, prime real estate where it is.

Do not discount the value of the asset as a whole. If you can return 2-3%/yr on an asset hard on the Lagos marina to pay the bills, you’ll get fantastic returns on cap gains of the asset. Mercan is looking at the long game here. Remember they are not in this to provide you with high return, they are in this to provide themselves high return in the long run, using your money in the short term at low interest rates, which you are giving them in exchange for the GV.

I am of the opinion that Mercan has been around for far too long, with too many projects done worldwide, to be a fraud. But that’s me. I also know zippo about the project other than the quick glossy. I have spent quality time walking around Lagos, though. And I support @lagos in that I found them perfectly willing to provide more detailed analysis on request.

There has been very little discussion of Mercan projects here for a while now AFAIK; it has mostly gone elsewhere. So this is probably not your best resource.


Thanks for your helpful reply.

First, I do not view this as an ‘investment,’ I view it as a cost and a way to get a residence visa and a chance at an EU passport.

Second, Mercan seems legit when I speak to them and they’ve been easy to deal with. That said, this is a large amount of money and I’m just trying to do my due diligence.

My goal at this stage is to determine the risk of Mercan not returning my capital after 6-8 years when I presumably have my passport in hand.

As far as the average daily rate, I understand rates and vacancy are seasonal. For comparison, the Marina Club Lagos Resort has a daily rate of $212USD in July according to, I just checked. Vacancy may vary between 30 and 50% annually, who knows.

Super high level, it’s hard to imagine they’ll make more than 8% cash on cash return on the 107M Euros raised, given $200 rates year round, 40% operating margin and only 10% vacancy - extremely generous assumptions. 4% cash on cash returns seem more reasonable.

Given that they don’t return any money to investors for the first 5 operating years, if they saved every dime of that, they’d be at 20-40% returned and saved after the first 5 years of operating. It would still take an additional 7.5-15 years to return the money to all of the investors, from the time investors are allowed to start requesting money back (year 6).

So when they say you can demand buy back at year 6, this seems suspicious to me, which leads to the clause in their contract that provides a way for them to deny buy back and instead pay me interest.

No, the rate they pay back does not jump considerably at any time. If they fail to buy back, they pay 3% the first year and 4% after that. It’s not nothing, but if they hold my money for 12 years total it’s not good.

As far as the buy back not being ‘guaranteed’, they advertise “buy back guaranteed” so those are their words, not mine. I’d imagine a punitive interest rate of 12% or even higher given the ‘guarantee’ language, not 4%.

I agree they have a significant operating history, but they have very limited history operating in Portugal, and none of their investments there have completed and paid out investors. So, I’m just trying to be diligent.

Kind regards


I’ve said this elsewhere up in the big mercan chain I’m quite sure.

You’re right. There isn’t a chance of it happening. But that’s not what is happening.

The way to think about this is that you are funding a construction loan. Construction loans are hard, and they’re expensive. This is also the theory behind Rock Capital - Artur and Pedro flat out admit that it’s a great way to get “construction loans” without paying 10%+p.a. and having to be bound by all the restrictions and covenants that would come with a bank loan. For Rock, they intend to sell to get the cash back. For Mercan, I quite imagine they will mortgage the finished property like basically everyone else anywhere in the world does to free up the capital - but it is way easier and cheaper to get a mortgage on a finished, operational property than it is on something like a reno. So really your bet is that they (a) finish the property (b) get it running (c) it makes enough operationally to fund a conventional commercial mortgage, at which point they give you your money back. And I bet if you ask them the question that way they will admit to it. But understanding that requires more knowledge of how the world works than the average investor is going to have. As to your EUR107mm build out, I don’t know anything about the property in question but they may well be paying a pretty penny to get it given the locale.

The numbers you need to achieve that are a lot, lot lower.

Unwrap all of this, and what you are looking at is a 3% Mercan corp 5 year note partially secured by the property, with an option to extend, structured in such a way as to meet GV requirements. Great deal? No. Totally off the wall? No. Mercan is a huge operational company with real track record to show. Open market for general-obligation bonds, they’d pay what, 6%?

$212/night still seems low. that feels like a covid-recovery number and it’ll be more as things recover.

In any case, I would encourage you to consider the other threads and the very, very long wait times that everyone is experiencing, and whether you want to wait 2 years to get a visa on top of your 5 years, versus your other options.


Fantastic reply, thanks.

Actually, they just shared a business plan with me. It’s shocking to me that they do not share this right away. I guess most investors just hand over hundreds of thousands quite easily.

You’re correct about the plan. I believe they intend to take on bank financing or sell to pay back investors.

Which brings us to the real question, is the hotel plan viable? Will it turn enough of a profit to secure bank financing or to sell in order to pay back investors?

The $212 number is actually higher than what their business plan shows - and even with that, they are estimating 1-3M Euros in operating income. The 400K per room number still strikes me as insanely high, suspiciously high.

I’m having an American real estate lawyer look at the deal more closely.


I don’t think they sell. I think they operate 'em. Think about it. You put up say $10mm. You get $90mm of basically free 5 year locked in financing, to go build a hotel. You probably even get to pay yourself reasonable costs for managing the buildout out of that 90mm. You get to get the place operational with someone else’s money. At the end of 5 years, you’re in basically nothing, and all you have to do is get a mortgage on the finished, operational hotel, and all you have to do is mortgage the property to buy out the initial investors. Why the hell would you sell it? It’s probably throwing cash like mad!

Anyway, to lagos’ original point, yes, the information is there, you just have to ask for it, and yes, most people probably aren’t sophisticated enough to understand the numbers even if it’s given to them.

As for that 400k, as I said, this is Europe, not the US. Everything costs more. And I bet they are having to pay off someone else’s bad debt. You don’t go bankrupt in Europe, you just keep your bad debt marked to par til someone gets desperate enough to pay you par, and the government takes your bad debt and shoves it into a “bad debt bank” - in Portugal it’s called Novo Banco. When you’re government-funded you can wait until inflation marks down your bad debt for you. Ask them. I bet they’re paying an insane number for the property itself. And they have no choice. As long as the income projections support it, move on.

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Thanks again for your comments.

Re: selling or raising bank financing, the central questions are:

  1. What are the cash flows? I don’t think the property will be “throwing cash like mad.” They’re raising 107M from foreign investors, but I don’t believe cash flows will beat 3M optimistically, and may even be 1-2M. Their own financial model has them at 3M annual cash flows, and that must be optimistic rather than conservative.

That’s a tiny capitalization rate of 1-3% if they intend to finance at the 107M valuation to pay back investors. See what I mean? That presents risk to investors.

Re: 400K, you’re right, this is Europe. Sorry, why does everything “cost more in Europe?” This is just not true. For starters, any labor involved in building should be less than half the price of the US. Second, I’ve seen some evidence that major construction projects are much cheaper in Europe.

If they are indeed paying someone’s bad debt, that should be made clear to investors, as it means the cash raised to finance the project is potentially more than the valuation when it comes time to sell or refinance. See what I mean?

Bottom line: I am questioning whether they’ll be able to sell or raise financing at this lofty valuation, and therefore whether they’ll be able to pay back investors. Whatever the reason is, the 400K per room renovation costs are sky high and I haven’t seen a good explanation for this, leading me to question whether they’ll be able to pay investors back.


Ok. I’m just punting anyway. I have no further explanations.

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I appreciated all of your replies! :slight_smile:

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I am not qualified to comment at all on the Mercan investment. But everything both Gary and Jeff have said seems reasonable with one exception - Jeff’s view on costs and rental prices.

As someone who has been involved in recent renovations in both the US and Portugal my view is that costs in Portugal are between 50% and 66% of similar work done on the West Coast of the US. So considerably cheaper in Portugal, not more expensive.

And as someone who manages a very nice short term rental property in the best part of Cascais (I manage it on behalf of my parents who bought it in the 1980’s and if I had my way they would have sold it last year because I don’t think we will see those prices again for a very long time) short term rental prices now are at peak season rates because of UK school and uni holidays.

Pre covid a very good BnB with two bedrooms in the best location in Cascais during peak season would go for around 150 per night and about 100 off season. It is about 160 per night now, but two weeks ago it was about 120. So probably hasn’t changed much. And Lagos is normally considerably cheaper - we rented a nice AirBnB (three bedroom, swimming pool, close to the beach) in Lagos for under 100 euro per night in peak season in 2019.

Air BnB vacancy pre-Covid was also fairly high (around 10-15% in Cascais), as are maintenance costs and taxes, and I think vacancies would be a lot higher in the Algarve (a lot of weekend visitors even in winter in Cascais, a lot less in the Algarve). In winter outside UK school holidays Lagos is a bit of ghost town. So I don’t think 25% vacancy or more is an unrealistic assumption. Of course a lot depends on the property and how it is marketed and to whom, and how it is priced

But I don’t know hotel prices, apart from having stayed for a few nights last week in a 4 star downtown Lisbon hotel and having paid about 100 per night.But Jeff’s number of 300-400 with 100% occupancy in peak season does seem a fair bit higher than I would personally (with very little knowledge) expect - I would have thought something closer to his winter season numbers in peak season.

One more thing on “guarantees”. In many jurisdictions there is a strong legal definition involving recourse and balance sheet. This is not the case in Portugal, and you have to look at the underlying entity providing the guarantee and it’s balance sheet. It is not uncommon to have a man of straw behind the guarantee. So it the guarantee by Mercan or by an SPV?

But this is not to diss the Mercan investment. I just don’t know anything about it, and a lot depends on the property, who it is marketed to and how it is marketed, the legal documents and the strength of the balance sheet behind the guarantee as well as interest rates at the time they plan to refinance and return capital. For all I know the numbers are very accurate or even conservative.

So please don’t read too much into my comments and please do your own DD.


Hi Gavin, thank you so much for your thoughts on this topic. What you said affirms my thinking, which is that the 400K per room renovation cost is astronomically high. That’s really the central question because it drives the profitability of the project and Mercan’s ability to pay investors back.

The room rental rate and occupancy also drive profitability, but I think it’s safe to say room rates will be 100-200 Euros a night and vacancy 10-30%. That’s a smaller variable in the larger equation than the 400K per room renovation cost - which appears to be 5-6X the median cost to develop a luxury hotel in the US. Maybe renovations are more expensive than new build, but 5-6X seems unreasonably high.

You’re right about the guarantee, too. It’s an SPV, not Mercan corporate, meaning it’s pretty worthless.

This investment appears to be a leap of faith.

Kind regards

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Thanks so much for your reply.

1/30th?! That’s ridiculous.

So how are they making money? They take our 280K Euro and they have to pay us back after 6-12 years. Only a small amount gets invested into purchasing the hotel and renovating it, let’s say that amount is actually 50K Euro.

What do they do with the other 230K Euro per investor in the meantime, before they pay it back? Do they take our cash and loan it back out to someone else?

They certainly don’t put it to use renovating the hotels and driving cash flow that way.

I totally agree, the fund option sounds better, but at 500K Euro it’s too much for me. I’d rather put 280K in and risk getting only half out or even a quarter than put 500K into a sketchy fund.

Kind regards


If you ask me, they’re all leaps of faith. :slight_smile: Pretending your money is safer in a fund … I don’t know. They’re regulated, sure, but that doesn’t keep them from sinking your money into a bunch of dead-end stuff and walking away, or just bungling and losing the money. I imagine this is why a lot of people do the buy-a-house thing - you can see and touch the house, and people tend to understand houses. They might get the valuation wrong because they don’t understand the market, but the house probably isn’t going away (assuming you got a lawyer who did their job right and kept you from buying a house that had clear title and boundaries and was actually for sale, and you found a home inspector who wasn’t paid off to ignore the foundation rotting due to all the damp because the place had been closed for years without a dehumidifier and they just slapped a coat of spackle and paint over it so you couldn’t see it)…

I can’t speak to the Lagos project. The Mercan project I did look closely at didn’t seem too terribly unreasonable, and they have track record. I nearly went that way myself and if I were to do it again I might still. But things change.

As to being wrong on prices, well, I make no claims to being a real estate expert. :slight_smile:

It’s all in what makes you comfortable.

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the 1/30th valuation is nothing to be concerned about, AFAIK its a common thing to value property for tax purposes much lower. Now that all of the funds are issuing annual statements it would be interested to get some idea about relative performance .

The imga fund is hardly sketchy


Which one? I googled “IMGA Portugal” they look like a fund manager of some kind, which fund are you referring to?

The one people typically invest in here is an index fund of the Portuguese stock market, imga ações Portugal

This one?
[IM Gestão de Ativos]

If I go that route, does IMGA handle the visa process and taxes in the same way Mercan/IAS does?


Yes, that fund. No they don’t, they’re just an index fund. Your lawyer would have to handle everything else

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Hi @expatdude12321 i am in the same boat as you are. Based on whatever i have studied about Mercan, i believe the initial price is over-inflated and not all may actually be required for the hotel renovation. Having said that, in the 280K option, about 35K is used for IMT and VAT. In addition, they pay a hefty commission to seller agents (have been quoted a figure of as high as 10% ie 28K or so). Thus, this corroborates only a small % may actually be used for construction. Even after knowing all this, I am struggling to figure out any strong alternatives.
ADo you believe the buyback will actually be honored?

I am speaking to a couple of investment funds next week, lets see how that shapes up. Though, i am skeptical of investing 500K with decent upfront fees and commissions built in, across most of the funds that i have studied so far.

Pls let me know if you figure out a better alternative