GlobeSt.com UPDATE: PDC Passes on Federal Loan for $100M M&F Redo

PORTLAND-The city’s urban renewal agency is passing on a $6.1 million federal loan that was part of an incentive package for Sage Hospitality’s $100-million acquisition and conversion of the upper floors of the historic Meier & Frank building in Downtown Portland. The city began chasing the US Department of Housing and Urban Development money in December, but a recent rule change requiring that HUD loans be guaranteed has made it less attractive. PDC officials say guaranteeing the loan would tie up too much of its money for a relatively small loan, so alternative sources will be sought.The 15-story, 650,000-sf Meier & Frank building covers a full block in the heart of Downtown Portland. The project calls for conversion of the upper 10 floors of the structure into a high-end hotel. May Department Stores Co., which owns all but one-sixteenth of the white terra cotta-clad building, would use revenue from the sale of the upper floors to renovate and compress its Meier & Frank department store into the five lower floors. The latest chunk of federal money was to come in the form of a Section 108 HUD loan. In addition to the hotel conversion, the money would have also helped fund a seismic upgrade. The good news is that other, bigger chunks of money are still in the pot.In May 2004, Denver-based Sage was granted $72.5 million in New Market Tax Credits that, when sold, will net Sage about $20 million. At that time, Sage Hospitality EVP Ken Geist told GlobeSt.com there are “probably a hundred” deal breakers that could kill the project and said it would be early this year before he can be sure the project can work. Geist was unavailable Friday morning for comment on the status of the ongoing negotiations.One of the unresolved issues is the one-sixteenth ownership May doesn’t own. The sliver of ownership is in the hands of the Oregon Episcopal School and descendants of the original land owners. Currently, Meier & Frank pays $20,000 per year to lease the piece it doesn’t own, but that amount was set in 1925. The lease expires in 2025. At last word, negotiations for M&F’s purchase of the outstanding ownership were ongoing. If everything does work out, the upper floors of the building will become a 325-room Renaissance hotel. Renaissance is a high-end brand of Marriott. The Meier & Frank building would be the first Renaissance-branded hotel in the Portland market.