As a proud Richmond native and resident, John Knox is determined to improve quality of life in his oft-maligned East Bay hometown. As Richmond’s bond counsel, his outside-the-box thinking is helping to make that happen.
Knox engineered an innovative $3 million social-impact bond to restore some of Richmond’s nearly 1,000 dilapidated and abandoned homes—and make them available to first-time homebuyers. A partner in Orrick’s San Francisco office, he spent nearly two years aligning public and private partners to bring the plan to life. Three years ago, Richmond tried using eminent domain to acquire underwater mortgages. “Some law professor back east cooked up the idea, and Richmond unfortunately took the bait,” Knox laments. “It was a dismal failure that caused our city real difficulty in debt markets and didn’t address these blighted properties.”
After reading about how a social-impact bond helped cut recidivism among prisoners on Riker’s Island in New York, Knox wondered, “Why can’t we create a fund to acquire and rehab houses to put them back into productive use?” Investor return is based on the program’s success in doing just that. Knox and the nonprofit Richmond Community Foundation assembled local contractors, real estate agents, Home Depot, and others to make units ready for purchase.
The bond was funded in December by Mechanic’s Bank, a longtime Richmond institution, and transactions have closed on the first few houses. The biggest challenge to acquisition? Tracking down owners. “Some died, some took off, some are hard to reach,” Knox says. “As a result, there are probate, tax delinquency, and other issues we’re working hard to straighten out.”
The bond’s five-year term lets investment funds “recycle” for the first four years as rehabilitated homes are sold and used to purchase additional properties. During the fifth year, those proceeds will be used to pay off the bond.
“We want to get rid of blight and put more lower-income folks into homes,” Knox says of the mostly modest two- bedroom, one-bathroom units. Prospective buyers go through a two-year process of learning about budgeting, saving money for a down payment, and improving their credit.
“We’re offering these houses on a no-negotiation basis to first-time owners—a chance to buy without competition at a fair price,” he explains. “We don’t want to sell too low, which undercuts the market in these neighborhoods and hurts people there who are trying to sell or refinance.”
Knox believes the collaborative effort will produce a meaningful upgrade to the city he loves. “I certainly hope so,” he says. “Richmond is my home.”