The midfield maestro bagged the prestigious award after he helped guide Croatia to the World Cup final in Russia.
Solari, who took charge at Real on a permanent basis last month, reckons the playmaker is a worthy winner.
He said: “He is an exceptional player, he has shown throughout his career, not only in Madrid but before and the Croatian team.
“Self-improvement, he has grown up in a difficult context.
“I do not know if that helped him, but the quality I do not know where he got it from, but there he is.”
Modric, 33, has been a standout performer for Real in recent years.
However, his win is controversial.
Juventus superstar Cristiano Ronaldo finished in second.
Atletico Madrid forward Antoine Griezmann made up the top three.
Lionel Messi was placed in fifth spot.
Barcelona boss Ernesto Valverde admited over the weekend that he was shocked Messi had been overlooked.
“It surprises me as much as anyone else,” he said.
“Messi’s been named the best player in the Champions League this season after the first, second and fifth round of fixtures – and he didn’t play in the third and fourth games because he was injured.
“That’s not us saying that, either, it’s [an award] picked by UEFA.
“It’s a little strange he is not in the running.
“To those that are among the final three, congratulations.
“Everyone is free to think what they want, but it is strange, yes [that Messi is not shortlisted].”
Ronaldo – who has scored over 500 career goals – made no secret of his desire to win the Ballon d’Or again.
“I said many times, winning a sixth Ballon d’Or is not an obsession,” the Portuguese legend told France Football.
“And I do not ask the question in these terms. I already know, in my heart, that I am one of the best players in history.”