One of Alphabet’s subsidiaries is a company by the name of Sidewalk Labs. Some of you, I’m sure, have been following it. The goal of the company is to leverage technology in order to solve some of our biggest urban challenges.

Initially, they were fairly under the radar, but more recently they’ve become a lot more public with their projects and their mission. Here is a snippet from a recent blog post written by their CEO, Daniel L. Doctoroff: 

“The world is poised for a fourth urban-tech revolution — an age of connectivity capable of reshaping cities as much as the steam engine, electricity, and automobile have in the past. New technologies will help citizens and elected officials tackle those intractable urban challenges that Larry outlined last summer, but making sure this age imposes fewer social costs than those previous shifts is critical.”

Earlier this week it was also announced that the company is likely to enter the real estate development business and construct a new city precinct in order to pilot some of their ideas and projects. The initiative is called Project Sidewalk. 

Here is an excerpt from the Wall Street Journal:

“According to people familiar with Sidewalk’s plans, the division of Alphabet is putting the final touches on a proposal to get into the business of developing giant new districts of housing, offices and retail within existing cities.

The company would seek cities with large swaths of land they want redeveloped—likely economically struggling municipalities grappling with decay—perhaps through a bidding process, the people said. Sidewalk would partner with one or more of those cities to build up the districts, which are envisioned to hold tens of thousands of residents and employees, and to be heavily integrated with technology.”

When I read this, I immediately thought of the Port Lands area in Toronto. Not because Toronto is decaying – far from it – but because it’s a massive 880 acre site that is both adjacent to downtown and entirely underutilized. I can’t wait to see this area transformed into a thriving waterfront community.

In any event, if or when Project Sidewalk gets off the ground, it will be very interesting to see what a Google-backed real estate development company looks like.

One of the things you’ll often hear people deride at cocktail parties is the trend toward smaller urban dwellings. They get called “shoeboxes” and “cubby holes in the sky.” So let’s unpack that a bit today and try and better understand the economics behind it all.

When a new building is being developed, pretty much everything gets normalized to a per square foot (or square meter) number. 

This is important because saying that building X cost $50 million to build and building Y cost $100 million to build doesn’t tell you much if the buildings are completely different. 

However, saying that building X cost $500 per square foot to build and building Y cost $475 per square foot to build, tells you that building Y, despite being more expensive in absolute terms, was actually cheaper and/or more efficient.

The same is true on the revenue side. And typically, developers are looking (struggling) to meet a certain per square foot number in order to make the project financially feasible. 

For instance, let’s say you’re building a 100,000 sf condo building. Once you subtract the non revenue generating spaces, you might determine that you need 85,000 sf x $600 per square foot in revenue in order to make the project feasible.

But there’s a back and forth game that needs to be played here. You have to ask yourself: for the product that I’m hoping to build, does $600 psf translate into something that people can actually afford?

You might think: everyone keeps telling me at cocktail parties that condos in this city are too small. So I’m going to build a bunch of 1,800 sf, 3 bedroom condos. Based on the above, these homes would be priced at around $1.08 million (1,800 sf x $600 psf). Your on-site signage would read: “Condos coming soon. From the low $1 millions.”

But wait a minute, how many families can afford a condo north of $1 million? Some could, but definitely not the majority. So then you determine through rigorous market analysis that $600,000 would be a better number. That is something that is within reach of more families.

But then you look at the math and realize that if you build that same 1,800 sf home, your per square foot revenue number now drops to $333 psf ($600,000 / 1,800 sf). 

Given that you bought the land for $100 psf buildable (market price in the area) and that your construction costs alone are going to be $250 psf, you realize that you’re now underwater ($100 + $250 psf > $333 psf) without even adding in any soft costs (consultant fees, city fees, and so on). If you showed this to your investors on the project, they would throw you out of the room.

So instead of building that 3 bedroom condo at 1,800 sf, you say to yourself: what if I made it 1,000 sf? You’re confident that your architect could lay out a terrific condo at that size and it now magically gets your per square foot revenue number back up to $600 psf. 

This solves two problems: it returns the project to positive feasibility and it keeps the total sale price within reach of more people. It promotes greater affordability. So you go ahead and do it. Boom – shrinking urban dwelling.

All of this is not to say that this is fair or unfair, good or bad. It is simply to say that this is the way it often is.

I’m going to be speaking on a panel on May 3rd, here in Toronto, called Building T.O. Tomorrow. The topic is the future of this city.

It is being put on by the good folks at BuzzBuzzHome and it will be held in the lobby of Allied’s new Queen-Richmond Centre (134 Peter Street). If you haven’t yet been to this building, that alone makes attending worthwhile.

Here’s the event poster:

If you’d like to attend, make sure you RSVP to aleks@buzzbuzzhome.com.

On a largely unrelated note, I recently picked up the handlebar bicycle mount for my GoPro and I’m looking for some fellow city geeks who would like to ride around the city and film some – potentially cool – videos.

I find that being on a bike is one of the best ways to experience a city (at least the cities that are actually bikeable). So I’m hoping some of that magic will translate into video. If that sounds at all interesting, drop me a line.