Commercial real estate investing was once the investment domain of well-capitalized individuals, hedge funds, and opaque private non-traded REITs. However, the once inaccessible market became more penetrable with the April 2012 JOBS Act. This opened up investment opportunities in emerging growth companies including through non-traded REITS.
Today, many crowdfunded real estate companies are vying for investor dollars as each tries to outperform the others. Modiv, a seeming newcomer (but not really) to the crowdfunding space, is aiming to differentiate itself as a more stable and conservative option.
As a brand, Modiv was launched in February 2021 but the underlying company started in 2015. Through strategic mergers and acquisitions, it’s working hard to build a solid foundation for growth. Here’s what you need to know about it.
- Non-traded REIT specializing in corporate rentals
- More than $400 million in assets under management
- Must be an accredited investor to invest
- Past legal problems may be concerning
Open To Non-Accredited Investors
What Is Modiv?
Modiv, formerly known as NNN REIT and Rich Uncles, is a non-traded Real Estate Investment Trust (REIT). The company has over $400 million in assets under management, with shares owned by more than 10,000 individual investors. Most of the assets under management include office buildings, retail space, and other commercial investments.
While Modiv is marketing itself as a conservatively-managed private REIT, it’s history has not always been squeaky clean. In 2019, Rich Uncles paid $300,000 in fines to the SEC related to acting as an unregistered broker dealer and illegal radio advertising practices which took place in 2017.
Modiv is also facing an ongoing whistleblower retaliation lawsuit from a former employee whose information helped lead to the original 2019 suit. The past and ongoing legal issues may be important for investors to consider before buying into Modiv, as sponsor risk is one of the critical factors when investing in a non-public REIT.
In 2020, Modiv bought BuildingBits which offered investments to all investors regardless of income status. However, at this time, only accredited investors can buy shares of Modiv. It says that it hopes to open to non-accredited investors in the coming months.
What Does It Offer?
Modiv allows individual investors to buy shares of a non-traded REIT. This gives accredited investors (those with assets above $1 million or income above $200,000 annually) access to a corporate real estate investment that could be a valuable alternative in the investor’s portfolio.
Modiv’s share price is driven by the company’s Net Asset Value per issued share. Because of that pricing methodology, it can keep the price of a share relatively stable over time. As of May 5, 2021, a share of Modiv was $24.61. Investors must invest a minimum of $1,000 when buying initial shares.
Buy Shares Of A Non-Traded REIT
Accredited investors can buy shares of a non-traded REIT. The REIT returns at least 90% of its annual income to investors in the form of a dividend. Shares of the REIT cannot be re-sold, but Modiv may buy back shares through a repurchase agreement.
Investors who buy shares of Modiv buy into the entire portfolio. Tenants pay Modiv monthly rent. Modiv manages the properties, pays the bills on the property, and ultimately passes along the remaining profits to investors.
As a REIT, Modiv must distribute at least 90% of its net income annually. It does this through 12 monthly dividends and a potential “13th dividend” when the fund exceeds its business targets.
Industry Insiders Manage A Commercial Real Estate Portfolio
All the assets owned by Modiv are selected and managed by commercial real estate experts. The company employs banking, finance, and real estate experts to ensure the assets selected are likely to perform in the long term.
Investors do not get a say in which assets Modiv purchases for its portfolio. However, the financials of all deals are readily available to investors.
Selling Shares Subject To Repurchase Agreements
Shares of Modiv are very illiquid assets. Investors can’t sell them for at least 6 months of holding. After the six-month window, investors can’t sell to other investors. Instead, they can only re-sell to Modiv through a repurchase agreement.
The repurchase agreement outlines the price investors may be able to receive through Modiv. However, it’s important to note that Modiv isn’t obligated to repurchase shares.
Ability To Invest Through Self-Directed IRAs
Investors can buy shares of Modiv through a self-directed IRA. However, Modiv doesn’t specifically support self-directed IRAs. That means investors need to set up a self-directed account on their own before investing in Modiv.
Some crowdfunding companies have established partnerships that make it easier for investors to open self-directed IRAs. But that kind of convenience isn’t yet available with Modiv.
Are There Any Fees?
Modiv estimates that 3% of all investment dollars go towards organizational costs. These costs aren’t formal fees, since all formal fees are paid by the trust. However, the overhead costs are effectively the same as a 3% annual management fee. In the long run, Modiv is looking to lower its cost to 1.88% of all investment dollars.
Modiv’s 3% fees are a bit higher than other real estate crowdfunding sites which charge fees ranging from 1-2% in most cases. And compared to mutual funds or publicly-traded REITs, the costs of owning Modiv are very high. Mutual funds and public REITs typically have investment management fees under 1% per year.
How Do I Contact Modiv?
Modiv’s street address is 120 Newport Center Drive, Newport Beach, CA 92660. Investors interested in contacting customer service can call 888-686-6348. The customer service email address is email@example.com. Potential investors can also use the online contact form to ask Modiv specific questions.
How Does Modiv Compare?
Non-traded REITs are older investment tools. But the JOBS Act breathed new life into an old framework. There’s now quite a bit of competition in the commercial real estate crowdfunding space. Some platforms are open to all investors, while others require accreditaion. Here’s a quick look at how Modiv compares:
Open To Non-Accredited Investors?
How Do I Open An Account?
Opening an account at Modiv starts by creating an online profile. Prospective investors must prove that they meet the investment qualifications set by Modiv and the SEC. All “human” investors must be a resident of the United States. All “company” investors (such as trusts or partnerships) must be based in the United States.
Additionally, investors must prove that they meet the standards for accreditation. That means an individual has over $1 million in assets (excluding their primary home), or income over $200,000 ($300,000 for joint income) for the last two years.
An investor support team may reach out to you to request documentation to prove your status. Once Modiv verifies your investment status, an investor can officially open and fund an online account. The minimum investment is $1,000.
Is It Safe And Secure?
Modiv takes security and privacy seriously, but they can’t eliminate the risk of a data breach or another hack. The privacy of investor’s information is governed by SEC and US privacy laws.
However, the biggest risk that most Modiv investors face is the risk of poor performance. Unexpected events or unusually high costs could lead to lower or negative returns.
For example, during the throes of the pandemic, Modiv (still called Rich Uncles at that time), was receiving little to no payments from many of its largest commercial tenants. In May 2020, the company announced that it was nearing insolvency. As a result, its per-share value was reduced by 30%.
While it’s unlikely that we’ll see a commercial-real-estate-killing event like a pandemic again in the near future, other risks will always present with non-traded REITs. And if Modiv’s REIT doesn’t meet its performance expectations, it’s unlikely that the company would be willing to repurchase shares to allow investors to exit.
Is It Worth It?
Asset allocation drives over 90% of portfolio performance, and many investors only carry stocks and bonds in their portfolios. Adding commercial real estate as an alternative investment may be a wise choice. But should you make that investment in Modiv’s REIT?
For now, we feel like the answer is probably no. On the surface, Modiv looks like a non-traded REIT that is well-positioned in the marketplace. However, it’s recent legal and financial troubles makes us hesitate to recommend it.
We’ll b monitoring the company’s progress. And if Modiv is able to build a stronger track record over the coming years, we’ll update this review to let you know.
Until then, you can compare all our favorite real estate crowdfunding sites here.
Open to Non-Accredited Investors
One commercial real estate REIT
High — fund financials are filed publicly with the SEC
Monthly, with a potential 13th dividend paid out at the end of year.
Yes, but redemption is not guaranteed
Customer Service Phone Number
Customer Service Email Address
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