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Modiv has two private REITs with distinct investment strategies. Both REITs are open to investments from all investors, but COVID-19 has strained both of them.
- Low investment minimums
- Its NNN REIT has no external manager, thus no complicated fee structure
- Both of Rich Uncles REITs were drastically impacted by the COVID-19 outbreak.
Bankruptcy Protection 5/ 10
Deal Flow 2/ 10
Deal Transparency 4/ 5
Diversified Fund Options 3/ 5
Due Diligence 4/ 10
Ease of Use 8/ 10
Fees & Commissions 8/ 10
Investment Minimums 5/ 5
Investor Resources 8/ 10
Leadership 4/ 5
Non-accredited Investor Offerings 5/ 5
Platform Financials 4/ 5
Skin in the Game 5/ 5
X Factors 5/ 5
Total 70 / 100
Modiv, formerly Rich Uncles, is a non-traded real estate investment trust (REIT) that owns a real estate crowdfunding platform. That makes it unique in the crowdfunding real estate sector as it’s the first platform completely owned by its investors.
Modiv is also the largest crowdfunded equity REIT in the United States. It has raised roughly $400 million directly from investors.
Currently, Modiv manages two nontraded REITs:
- Modiv: The REIT had 40 wholly-owned properties at the time of the review in 14 states, including 15 retail, 14 office, and 11 industrial properties. It also has a 72.7% tenant-in-common interest in an office property. Overall, the REIT controls more than 2.3 million square feet of aggregate leasable space. It leases its properties to creditworthy tenants under triple net agreements. The REIT is internally managed and owns the fintech crowdfunding platform.
- BRIX REIT: Modiv also manages the BRIX REIT, which focuses on acquiring and owning purpose-built student and multifamily housing as well as quick-service restaurants, convenience stores, and fitness centers. It hired RW Holdings NNN REIT as its advisor in February of 2020. However, COVID-19 had a devastating impact on the company's tenants. As a result, it decided in September to proceed with an orderly plan to liquidate the REIT's assets over the next 12 months.
Because Modiv is self-managed and owns an advisory division, it can launch new REIT products in the future and earn fees on behalf of its investors. That led it to launch an industry consolidation strategy in 2020 to acquire other crowdfunding platforms. The company bought the REITless Investment Platform and BuildingBITs and intends to seek Securities and Exchange Commission (SEC) qualification on an updated Regulation A+ offering in the future that combines elements of both platforms.
Summary: Is Modiv a good investment?
Modiv acquires properties leased to credit-worthy tenants under long-term, triple net agreements. Those agreements supply the REIT with predictable rental payments that it uses to support a monthly dividend. Further, many of these facilities are mission-critical to its customers because they serve as key office or industrial locations, which helps reduce the REIT's risk. That's a solid investment strategy employed by several large, publicly traded REITs.
Modiv pros and cons
- While Modiv closed to nonaccredited investors upon its rebranding in 2021, it plans to launch new products aimed at those investors in the future.
- Low investment minimum of $1,000.
- The Modiv pays a monthly dividend. It also aims to pay a 13th dividend each year, based on its performance.
- Modiv is unique in the crowdfunding space in that it has no sponsor. It acquired that entity, as well as the fintech platform, in 2019, making it internally managed with no external advisor collecting fees.
- Diversification via a portfolio of properties.
- A redemption plan that enables a REIT investor to sell some of their shares before maturity.
- Modiv has one of the most investor-friendly structures among public, nonlisted REITs.
- Very open and transparent management team.
- Investors can't invest in individual properties.
- The REIT can suspend redemptions and dividends during a market downturn, which was the case for both during the COVID-19 outbreak of 2020.
- The REIT has a limited operating history and thus hasn't experienced a real estate market downturn until recently.
- The COVID-19 outbreak impacted both REITs, leveling a devastating blow to the BRIX REIT.
Is Modiv legit? How strong is it?
Modiv is a legitimate company formed by real estate industry veterans. However, it's worth noting that the SEC conducted an investigation into the company's sales and advertising practices in 2017. It settled with the SEC in 2019. One of the outcomes was that the REIT acquired its external advisor and merged two of its affiliated REITs.
Modiv regularly files reports with the SEC for its REITs. Those reports keep investors apprised of financial performance as well as other important information, such as dividend declarations, property acquisitions, and redemption suspensions.
Modiv had grown its net asset value (NAV) from its $10 per share offering price (which commenced on July 20, 2016) up to $10.27 by the end of 2019. The REIT had also paid a monthly dividend since its inception at an annualized rate of $0.70 per share, or a 7% yield on its initial offering price.
However, as has been the case with many commercial real estate investments, the COVID-19 outbreak has impacted the REIT. Some of its tenants have withheld rent, which forced the company to reduce its dividend to a 3.5% yield on the initial offering price. Meanwhile, its NAV declined to $7 per share. The NAV has since improved by 9.7% and was $23.03 at the time of this review after accounting for a three-for-one reverse stock split in 2021.
The BRIX REIT, on the other hand, had paid a 6%-yielding dividend on its $5 per share NAV from its inception in 2018 until March of 2020. However, the REIT has been devastated by the COVID-19 outbreak. Many of its tenants stopped paying rent, with its largest filing for bankruptcy.
Because of that, the BRIX REIT's NAV plummeted to $0.32 per share following a review of its property values. After a thorough evaluation of its options, BRIX concluded that the best outcome was to conduct an orderly wind down of the REIT.
While Ray Wirta remains the chairman of Rich Uncles, each REIT has a separate CEO, both of whom have extensive experience in commercial real estate. Aaron Halfacre leads Modiv. His former positions include president at RealtyMogul, CIO of Campus Crest, and senior leadership positions at Cole Real Estate Investments, BlackRock (NYSE: BLK), and Green Street Advisors.
Bill Broms, meanwhile, leads BRIX REIT. He formerly founded and led Realty Dividend, an investment company focused on net-lease assets and multifamily properties. He also held senior leadership positions at Cole Real Estate Investments and Realty Income Corporation (NYSE: O).
These executives bring a wealth of experience and industry knowledge to Modiv’s REITs. Each executive has an extensive track record of acquiring and managing real estate throughout the cycle. That experience helped them navigate these entities through the industry's recent downturn.
How Modiv works: How are investments sourced?
Modiv uses the capital raised from investors via its crowdfunding platform to acquire single-tenant net lease (STNL) assets that it leases to credit-worthy tenants via long-term agreements. It invests in a diversified portfolio of commercial real estate classes, including retail, industrial, and office. Its investment committee uses a strict set of criteria to evaluate potential acquisitions by the REIT. These include:
- Location-specific attributes such as traffic counts, ingress and egress, proximity to population centers, and demographic indicators.
- Credit-related attributes, such as evaluating the credit quality of the tenant (the REIT has leased 50% of its portfolio to investment-grade tenants).
- Term, which includes base lease term, option periods, and contractual rent increases.
- Market fundamentals, such as lease and price rates per square foot of several comparable assets as well as replacement cost, land value, and the cap rate compared to other assets in the market.
Who can invest in Modiv?
Modiv’s predecessor launched with the idea of making real estate investing accessible to all investors. However, the company is currently only open to accredited investors. Modiv plans to launch new offerings in the coming year open to nonaccredited investors.
What is the minimum Modiv investment?
Modiv had an initial $1,000 investment.
What are Modiv’s fees?
Modiv is an internalized company, meaning it has no external manager and therefore doesn't pay any advisory or sponsor fees. While it does have general and administrative costs like other companies, it doesn't pay the typical fee of 3% of the gross offering proceeds to an external advisor or sponsor.
Modiv’s returns: What should you expect?
Modiv typically pays a monthly dividend. However, because of the impact the COVID-19 outbreak had on the commercial real estate industry, the company had reduced its payout from a 7% yield on its initial $10 per share NAV to 3.5%. It also reduced its NAV to $7 per share. The NAV has subsequently recovered by 9.7% and was $23.03 at the time of this review, reflecting a three-for-one reverse stock split. Thus, investors have lost about 23% of this initial investment minus dividends.
When (and how) can you sell Modiv’s investments?
Modiv investors can request a share repurchase directly from the company’s website. However, they'll pay a fee based on how long they've owned shares.
Here's how the REIT structures its repurchase plan:
|How Long Have You Owned Shares?||Percentage of the Net Asset Value You'll Receive|
|Less than one year||97% of the most recently published NAV per share.|
|At least one year, but less than two||98% of the most recently published NAV per share.|
|At least two years, but less than three||99% of the most recently published NAV per share.|
|At least three years||100% of the most recently published NAV per share.|
Going mobile: Is there a Modiv app?
Modiv does not currently have a mobile app for investors, it does have a mobile-optimized website for both of its REITs.
Modiv’s risks: Is Modiv safe to invest with?
Investing in commercial real estate can be risky, which has been evident to investors in Modiv’s REITs. The Modiv REIT has experienced a 23% decline in its NAV in the wake of the COVID-19 outbreak, while the BRIX REIT has experienced a near total loss. Because of that, the entity will wind down operations, and investors in BRIX REIT will almost certainly suffer substantial losses.
However, Modiv remains a viable investment option. While some of its tenants have struggled due to the COVID-19 outbreak and have withheld rent, most properties continue to perform as expected.
Still, it is a riskier option than many of the large, publicly traded REITs focused on single-tenant net lease properties since they have greater scale and access to capital. Because of that, investors might want to consider those alternatives before buying shares of Modiv. However, it is the largest in the crowdfunding industry and has an investor-first approach because it owns the fintech platform. That makes it a unique opportunity in the sector as investors can participate in the upside of its commercial real estate portfolio and growing fintech crowdfunding platform.
Disclosure: Matt DiLallo owns shares of Modiv and BRIX REIT.
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