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PORTLAND, OR-Federated Department Stores Inc. will close its Downtown Macy’s store here at the end of the year to accelerate a renovation that is behind schedule. Located in the historic Meier & Frank building at Sixth Avenue and Alder Street, the store is scheduled to close on Dec. 30 and reopen in late 2007.

Concurrently with the department store renovation, work will continue on the conversion of the upper two-thirds of the 15-story building into a luxury boutique hotel, which remains on schedule to open in mid-2008. The 330-room hotel by Sage Hospitality Resources of Colorado will be called “the Nines.”

The combined cost of the projects is estimated at upward of $150 million. The hotel is slated to cost about $120 million. The department store renovation is estimated at about $30 million.

Designed for Meier & Frank by A.E. Doyle, the 16-story, 650,000-sf, steel-framed Meier & Frank building was constructed in phases between 1909 and 1932. The building is Oregon’s earliest example of the white terra cotta Commercial style department store. It was added to the National Register of Historic Places in 1993.

Meier & Frank previously occupied the entire building, with the top five floors being used for administration and the lower 10 floors the department store. As part of a plan to preserve both the department store and the building, M&F and Sage came up with the plan to compress the department store into the lower floors and use the upper floors for a boutique hotel.

Work on compressing the department store got underway prior to Federated’s acquisition of May Department Stores Co. The merger delayed the renovation process, which was to occur while the store stayed open, in part because the store’s design would need to change to bring it in line with Macy’s standards.

Two months ago, Macy’s officials said the renovation process could stretch into 2008 if the department store was to remain open during the project. Earlier this week, Federated said it would close the store with hope it can complete the renovation in time for the 2007 holiday season. A company source tells GlobeSt.com that part of the issue is the need to do more work than expected to the building itself.

Sage Hospitality closed on its acquisition of the top 10 floors of the building in April. Sage Hospitality EVP Ken Geist told GlobeSt.com at the time that the cost to acquire its piece of the building was $20.5 million and that in the past year overall cost of the hotel had risen to $118 million from $108 million. “Construction costs, expanded scope, schedule changes, more interest expense, and a lot more legal expanse related to the New Markets Tax Credit,” said Geist in explaining the increase.

The project won $72.5 million of New Markets Tax Credits in 2004, which at the time was the largest single allocation of federal New Markets Tax Credits in the country. The sale of the tax credits netted Sage about $23 million in cash. The city’s Portland Development Commission also is assisting in the project, providing $14 million through its seismic loan program.

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