The real estate crowdfunding industry is ever-evolving. It has quickly adapted to new regulations, shifting investor demand, and the volatile commercial real estate market. Platforms that haven't kept pace have fallen behind while those embracing changes have emerged as leaders.
One platform in that latter group is Rich Uncles (now Modiv), which has shifted its strategy over the past year. That change reflects in its recently unveiled rebranding to Modiv. Here's a closer look at what the company's pivot means for real estate investors.
The evolution of Modiv
Rich Uncles started as a fintech crowdfunding platform that raised capital for a few non-traded real estate investment trusts (REITs) that it formed. However, due in part to some regulatory and legal issues, the company has since combined two of the non-traded REITs into one entity: RW Holdings NNN REIT.
Meanwhile, it's in the process of winding down a third REIT that it manages (BRIX REIT) which faced insolvency because of the impact of the COVID-19 outbreak. The company has also internalized its management team and the fintech platform of its former sponsor. Finally, it has acquired two other fintech platforms: REITless and BuildingBITs.
The company's name change reflects this shift in strategy. It also better aligns with its mission to "reimagine real estate and create a leading alternative investment manager of commercial real estate products that champions the individual investor," according to CEO Aaron Halfacre. It aims to do that "by reducing high fees." He also spoke of eliminating conflicts of interest and embracing strong corporate governance -- "aspects that have far too often been overlooked or ignored in the non-listed real estate industry."
A different kind of crowdfunding platform
Modiv is unique in the crowdfunding space. Sponsors like the management team and institutional investors such as venture capital funds own most fintech crowdfunding platforms. These platforms manage the commercial real estate investments -- single assets and non-traded REITs -- on behalf of investors, collecting fees in the process.
That ownership structure has created some misaligned incentives in the industry. Some platform fee structures potentially reward managers for making decisions that might not be in investors' best long-term interest. For example, some platforms earn fees when they sell a property, creating an incentive to monetize quickly when holding long-term might yield better returns.
Modiv has a different ownership structure as the non-traded REIT owns the fintech platform. Thus, investors in that fund participate in the upside of the commercial real estate owned by the REIT and the fintech platform.
The REIT is the largest in the crowdfunding sector as the company has raised about $400 million in capital directly from investors. It holds title to 40 triple net leased (NNN) properties, including 15 retail, 14 office, and 11 industrial properties. It also has a 72.7% tenant-in-common interest in another office property. Meanwhile, because the REIT owns the fintech crowdfunding platform, it doesn't pay any management or performance fees.
Further, since Modiv also owns the fintech platform, when it launches new investment products based on the former REITless and BuildingBITs platforms, REIT investors stand to benefit. Likewise, as it continues its fintech platform consolidation strategy, the value created by those future additions will also accrue to REIT investors.
An investor-first crowdfunding platform
Modiv is breaking the mold in the crowdfunding sector. It's the first crowdfunding platform wholly owned by investors, a unique structure that puts its investors first. That makes it stand out in this crowded sector where the aim often seems to be to make money for the platform at investors' expense.
Disclosure: Matt DiLallo owns shares of Modiv.