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Report on Business Sidewalk Labs in talks with investors for Toronto smart-city infrastructure, document shows

Sidewalk Labs has been shopping for financing partners for infrastructure on Toronto’s eastern waterfront, entering into preliminary agreements with private investors and engaging in discussions with the Canada Infrastructure Bank about the proposed smart-city development, according to an internal document obtained by The Globe and Mail.

A subsidiary of Google parent company Alphabet Inc., the urban-planning firm signed a deal with the tripartite development agency Waterfront Toronto in October, 2017, to develop a 12-acre plot at the foot of Parliament Street called Quayside, with the potential to extend some aspects of planning across much larger swaths of the waterfront. The two parties have since faced criticism, including from Ontario’s auditor-general, for the project’s procurement process, governance, and potential data-collection and privacy implications.

Sidewalk has floated many public ideas about potential technologies that could be installed in its proposed Toronto community, but less has been made public about its progress toward infrastructure plans for the area. While public agreements show that Sidewalk has long planned to finance some infrastructure with the Quayside project, it has not yet been given final approval by Waterfront Toronto’s board or city council. Many concrete details are not expected until a draft “master innovation and development plan” is released to the public for consultation later this year.

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But The Globe and Mail has obtained an internal Sidewalk report to parent company Alphabet Inc. last November, in which the company said it had completed seed financing for infrastructure plans, and had entered into preliminary agreements with external investors. The company also wrote in the document that it had “discussed general capital structure with the [Canada] Infrastructure Bank.”

In an interview with The Globe and Mail’s editorial board this month, Sidewalk chief executive officer Dan Doctoroff said that “we’re fairly far along” in creating an investment company to “finance next-generation infrastructure,” but declined to comment on the identity of potential investors. He confirmed discussions with the Infrastructure Bank and said that it could “conceptually play a role in financing infrastructure on the waterfront.”

In an e-mail to The Globe, Infrastructure Bank spokesperson David Wills confirmed that “preliminary introductory discussions were held last year, which is standard for any external organization.”

During the interview, Mr. Doctoroff said that investing in light-rail transit for the eastern waterfront would be Sidewalk’s No. 1 infrastructure priority. Details from the internal Sidewalk presentation, some previously reported by the Toronto Star, show that in return for investments both in the Quayside plot of land and, potentially, across as much as 85 further acres of waterfront property, the company wants a share of incremental tax revenue and developer charges. It also hopes for a share of the increase in land value for a broader swath of waterfront that would benefit from Sidewalk’s presence in the area. In the interview, Mr. Doctoroff likened this plan to the financing of Hudson Yards in New York by the Bloomberg administration, for which he was a deputy mayor.

Sidewalk Labs is Alphabet’s bet on becoming a kind of digital layer for urban development – an attempt to rethink urban planning through data, just as Google changed how the world gathers and consumes information.

Its engagement with the Infrastructure Bank gives a glimpse into a Liberal promise to attract large outside investors such as pension funds to participate in Canadian projects dating back to the 2015 election campaign.

Finance Minister Bill Morneau announced a decision to go ahead with the bank in his 2016 economic update, providing it with a budget of at least $35-billion. It did not formally announce its first project until the summer of 2018. At that time, the bank said it would provide a $1.28-billion low-interest loan for Montreal’s REM light-rail line.

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John Brodhead, a Liberal Party veteran who helped write the party’s infrastructure promises, played a senior role in the bank’s creation as chief of staff to then-Infrastructure Minister Amarjeet Sohi. He is also a former senior aide to ex-Ontario premier Dalton McGuinty, where he worked closely with Gerald Butts, who recently resigned as principal secretary to Prime Minister Justin Trudeau. Mr. Brodhead left government in April, 2018, to join Sidewalk Labs after a brief stint working as chief of staff to the federal Indigenous Services Minister.

Federally, Waterfront Toronto reports to Infrastructure Canada. Government correspondence obtained by an Access-to-Information request shows that Mr. Brodhead was involved in Waterfront Toronto discussions before and during the Quayside request-for-proposals (RFP) process. That correspondence showed that Waterfront Toronto staff had discussed financing some of its infrastructure needs on the eastern downtown portion of the waterfront through the bank with Mr. Brodhead before the Quayside RFP process opened.

Sidewalk described Mr. Brodhead’s involvement in the conversations as “perfunctory” and said that they had nothing to do with the company.

Six months after the deal was approved, Sidewalk hired Mr. Brodhead in a role overseeing policy and strategy. His position involves connecting the project with influential people; he took part in recruiting members for an “advisory panel” of executives and prominent Canadians whose meetings are not open to the public.

Both Mr. Doctoroff and the Infrastructure Bank said Mr. Brodhead had no involvement in Sidewalk’s conversations with the bank. Asked if he believed Mr. Brodhead’s involvement might be a conflict of interest, Mr. Doctoroff said: “We’re very aware of every conflict-of-interest law and rule that actually exists, and are scrupulous in terms of abiding by them.” The Globe and Mail requested an interview with Mr. Brodhead through Sidewalk Labs, but was declined.

Waterfront Toronto spokesperson Andrew Tumilty confirmed in an e-mail the agency’s pre-RFP interaction with Infrastructure Canada staff who were responsible for the bank’s setup. “Given its mandate to invest in public transit, economic development, and green infrastructure projects, the CIB presented an opportunity to investigate financing for a bundle of infrastructure projects on the Eastern waterfront,” he wrote.

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