Alphabet's City-Building Unit Nears Development Deal in Toronto -- Update

10/04/17 04:56 PM EDT
By David George-Cosh and Eliot Brown 

TORONTO -- A subsidiary of Google parent Alphabet Inc. is nearing a deal to develop part of Toronto's waterfront, the first major foray of the search-engine giant into the creation of high-tech urban space, according to multiple people familiar with the deal.

Alphabet's unit, Sidewalk Labs LLC, would spearhead the so-called digital-city project, to be located along a 12-acre section of Toronto's eastern waterfront. It would create up to 3 million square feet, about the size of the Empire State Building.

Full details of the plans, including the cost, were unclear Wednesday and the agreement is still subject to approval of the board of Waterfront Toronto, an agency tasked with the city's development along the shore of Lake Ontario. The approval is expected this month, according to multiple people familiar with the project.

The cost of the project, currently dubbed Quayside, is likely to run over $1 billion, based on construction costs of similar projects.

Sidewalk has been hunting for over a year for a suitable place to build. Its chief executive, Dan Doctoroff, has described this effort as a way to showcase how modern tech and internet-connected infrastructure and buildings could improve urban life -- an approach often termed the "smart-cities" development model.

Multiple people familiar with the matter said Sidewalk executives have recently made several trips to Toronto over the past several months to discuss its bid with city officials. The Quayside proposal attracted two other bidders but Sidewalk's bid was the most compelling, according to the people familiar with the matter. Sidewalk's application to Waterfront Toronto's request for proposals was first reported by Bloomberg in May.

Building the project would thrust Alphabet further from ads and software into the physical environment of everyday lives, well beyond the connected thermostats and security cameras it has been developing.

The allure for Sidewalk in the Toronto project lies in the potential for a much larger expansion to an adjacent 750 acres earmarked for future revitalization. There, Sidewalk eventually hopes to create a giant new district over many years, people familiar with the company said.

Waterfront Toronto, the government agency that sought developers earlier this year for the site, views the smaller first site as a pilot project for the larger area. Under the expected deal, Waterfront Toronto still needs to work with Sidewalk executives to seek approval from federal, provincial and municipal government officials on the various phases of the project, one of the people familiar with the matter said.

Funding for the larger, 750-acre project is unclear, and Alphabet hasn't publicly committed to the tens of billions that would likely be needed. Alphabet has recently appeared to be more careful about spending on units other than its main Google business. For example, Alphabet halted growth plans and shed staff on its Google Fiber internet project after it proved more costly and time-consuming than expected.

A spokeswoman with Waterfront Toronto said it is still in the process of selecting its development partner and will make an announcement this fall.

Sidewalk was formed in 2015 and is the brainchild of Alphabet Chief Executive Larry Page and Mr. Doctoroff, a former New York City deputy mayor under the administration of Mayor Michael Bloomberg, who went on to run Bloomberg LP. Their vision was based on the idea that modern technology could be far better integrated into cities, benefiting governments, residents and employers.

While the unit's early public efforts involved investing in small companies -- including one called Intersection Co. that replaces phone booths with public Wi-Fi -- Mr. Doctoroff and Mr. Page harbored bigger ambitions. They wanted to build a massive new urban district well-integrated with technology, under the theory that everything from street design to zoning could be rethought, and lead to lower living costs and higher quality of life.

However, the model faces challenges. Past attempts to create such districts, including a large district in Korea, have generally failed to live up to their lofty promises. Centrally planned developments often tend to be sterile, and the rapid pace of technological change makes it difficult to integrate, said Mitchell Moss, a professor of urban policy and planning at New York University.

"Cities work because they're organically built," he said.

Mr. Doctoroff, however, has highlighted how a district solely reliant on self-driving cars could benefit with less parking, more density, and faster, cheaper transportation. Zoning and local codes, too, could be relaxed, he has said, with noise and pollution sensors that detect noxious qualities.

"The physical environment can truly converge with the digital age," Mr. Doctoroff said at a transportation event last fall. Particularly with changes from cars, "overall it's a path for a much tighter community -- a city that feels like a neighborhood."

The Sidewalk deal comes as fellow tech giant Amazon.com Inc. has said it is planning to pour billions of dollars of its own into a new North American city. Toronto Mayor John Tory stated last month that he plans to lead a bid for Amazon's second headquarters that would showcase the region's fast-growing startup sector, access to high-tech talent, and reputation as one of the world's most livable cities.

"Google being a part of this just reaffirms what we're going to be talking to Amazon about [with Toronto's bid]," said one of the people familiar with the city's proposal.

--Vipal Monga and Jack Nicas contributed to this article.

Write to David George-Cosh at david.george-cosh@wsj.com and Eliot Brown at eliot.brown@wsj.com

  

Corrections & Amplifications

This article was corrected on Oct. 4, 2017 at 5:15 p.m. ET because the acreage was incorrectly stated in the 10th paragraph.

 

(END) Dow Jones Newswires

October 04, 2017 16:56 ET (20:56 GMT)

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