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Is it practical, or even safe, to build the closet (shelves and all)
out of Cedar? I was planning on using Eastern Red Cedar for its
aromatic qualities but I don't know how its going to hold up under the
weight of 2 3'5.5" bars full of clothes. Would that type of Cedar (in
2' x 6' dimensions) work?

Good luck with the new space.

Cedar is fine to line a closet. As for the bars, I'd screw them into a stud
rather that just the cedar planking. If the wall is open, you can add some
extra re-inforcement if needed.

As for shelves, watch for sag. You will want to run a strip across the back
on the bottom to add rigidity, not just support the ends.