Fundrise is one of the most hyped developments in real estate in recent years. Is it a major shift in real estate investment? Maybe, maybe not. If nothing else, Fundrise and the surrounding hype/criticism exposes the dual nature of real estate as both an investment and the critical element of how we build our cities.

In last week’s Washington Post, Jonathan O’Connell sought to burst the bubble by soliciting the opinions of various real estate and financial experts on the terms and conditions that Fundrise offers to potential investors:

“I would never recommend this kind of investment for my clients,” said Russell McAlmond, president of Evergreen Capital Management. “It has almost every kind of risk imaginable that one may have with commercial real estate. If it works and they find a tenant, you may receive some kind of return, but by taking huge risks.”

Said Derek Tharp, of Mote Wealth Management: “They may have noble intentions and it may work, but if anybody does do this, this should be money they could otherwise just flush down the toilet.”

The problem with the evaluation of these experts is that the mis-diagnose the purpose of an investment in a Fundrise offering. Emily Badger responds in Atlantic Cities: 

Crowdfunded real estate isn’t an important idea because it may enable the lady next door to make it big like a real-estate developer. It’s an important idea because it changes the trajectory of neighborhoods. The crowdfunding mechanism changes what gets built. O’Connell’s query with wealth investors – who have no reason to be interested in this question – misses this point.

This isn’t to say that the wealth managers aren’t correct; investing all of one’s savings into Fundrise would not be a wise investment. But they approach Fundrise with a fundamentally different mindset than one does if they think of it as Kickstarter for cities. It’s not as if donors (perhaps a more useful term in this case than ‘investors’) are rigorously investigating the potential returns of such investments – Gawker raised more than $200,000 to buy a video of Toronto Mayor Rob Ford allegedly smoking crack, after all.

The combination of common purpose, a large base of donors/investors allows for individuals to risk little individually (some Fundrise shares are as small as $100) while potentially pooling resources at a sufficient scale to have an impact. I suppose one of the wealth managers could make the case that the $100 share would be better invested in an IRA, but that likely misunderstands why someone would buy such a share (or why someone gives money to a Kickstarter campaign, or to a political candidate).

So, will it work? That is, will it deliver quality projects while satisfying the demands of investors (whatever those demands may be – if they exist at all) so that people will still give up their money for new projects? Matt Yglesias is skeptical (for a variety of legal and technical reasons), but notes that if it works, it could do so by slaying neighborhood opposition to new development:

Still, the main reason I want to believe isn’t because I hope for a huge return, it’s about politics. Specifically the toxic local politics that too often loads the dice against change and new businesses. Here in Washington, even a proposal as innocuous as replacing a vacant storefront with a functioning restaurant attracts politically potent complaints about noise and traffic…

The real promise of Fundrise is that it gives pro-growth members of the community a way to become literally and figuratively invested in the success of a project. A building owned by hundreds of local people, rather than owned as part of a pooled investment vehicle marketed to pension funds, is one that’s much more likely to get a sympathetic hearing from local authorities. It’s also one that’s much more likely to inspire people to show up to meetings and hearings and make the case for development and expansion. As George Mason University Law School’s David Schleicher has observed, despite the stereotype of politically powerful real-estate developers, in practice most cities’ legal framework “creates a peculiar procedure that privileges the intense preferences of local residents opposed to new building.”

The other potential benefit isn’t just in cutting through local politics, but in better aligning the dual roles of real estate investment and city building. In a profile of Fundrise in the New York Times, founder Ben Miller put it this way:

They realized that who the investors are and where the money comes from determine what gets built: distant private equity backers who see a deal as simply an investment vehicle tend to put up cookie-cutter projects and strip malls anchored by chain stores — hardly what the community may want or need.

“Who your money is affects what you build, but no one ever thinks about that,” said Benjamin Miller, who also co-founded a site called Popularise that lets developers solicit input from the community. “We’re taking an institutional asset and changing who gets to invest in it.”

In other words, a great deal of real estate development simply follows the path of least resistance. If Fundrise really takes off, it will do so by changing that path on the finance side. The Fundrise management team is also selling themselves, as they are essentially asking for silent partners for these projects. If their investors are to help smooth over an approvals process, they’ll need to feel involved enough in the concept to lend their support – in addition to their cash.

They are selling the chance to help shape the city more than they are selling the chance to invest in it.