GlobeSt.com UPDATE: PDC Approves Loan Package for Sage Hospitality

PORTLAND-The Portland Development Commission on Wednesday approved $13.9 million in low-interest loans to Sage Hospitality Resources Inc., which plans to transform the top 10 floors of the Downtown Meier & Frank building into an upscale 334-room hotel while department store consolidates its operations in the first five floors. The 15-story, 650,000-sf Meier & Frank building covers a full block in the heart of Downtown Portland. Work on the estimated $137.3-million transformation is tentatively scheduled to get under way early next year and take two years to complete. The project still needs city approval and Sage Hospitality still needs to purchase its portion of the building from Meier & Frank’s St. Louis-based parent May Department Stores. May’s pending merger into Federated Department Stores is not expected to affect the renovation plan. Shareholders in both companies will vote on the $11-billion transactions on July 13.All but $30 million of the total project cost is for the hotel. The remainder is for the department store consolidation and redesign, which will include the addition of third-party retail space on Southwest Fifth and Sixth avenues. The PDC loans are to pay for seismic and other safety improvements. The revamped department store could open in 2007 and the hotel is tentatively scheduled to open in early 2008 as a Marriott Renaissance–the first Renaissance-branded property in Portland. The existing Meier & Frank store will remain open in various forms during construction.The largest loan the PDC approved was an $8.6-million loan to Sage subsidiary Urban Heritage Portland Hotel. That 25-year loan calls for 3% interest-only payments for the first three years and then interest and principal payments after that. The PDC also approved a $2 million loan to Sage subsidiary Portland Hotel Investment Fund, which is an eight-year loan that also calls for 3% interest-only payments for the first three years and then interest and principal payments after that, plus an additional $100,000 principal payment annually.Finally, the PDC approved a $3.3-million, 15-year loan for Sage that will be interest free for the first three years and then 3% until year 10, when the loan goes interest-free again until it comes due. About $500,000 of the loan will go to May as reimbursement for its purchase of a small piece of land beneath the building that it did not already own. In February , the PDC passed on a $6.1 million federal loan that was part of incentive package for Sage Hospitality’s for the hotel project. The city began chasing the US Department of Housing and Urban Development money in December, but a rule change shortly thereafter requiring that HUD loans be guaranteed made it less attractive. PDC officials said in February that guaranteeing the loan would tie up too much of its money for a relatively small loan, so an alternative source would be sought. This loan appears to be that alternative source. The PDC’s $13.9-million loan will be combined with the $72.5 million in New Market Tax Credits that Sage was granted in May 2004. When sold, the tax credits are expected to net Sage about $20 million.