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I think it would be better if you just don't mention that he was that close to getting the job. Just thank him, explain your reason (focus more on his strengths but don't forget to mention where he needs improvement), and end it positively.
You just have to deliver the normal spiel. Don't need to tell the candidate the why you truly have to reject him. Just give him a little feedback then wish him luck.
Thank you for considering us at X company. The selection process for the next round was highly competitive and we have decided to move forward with a candidate whose qualifications better fit our needs at this time. Gratitudes, gratitudes, ending.
I don't tell them whether they are close or not because I just don't want to add to that...but I do tell them they did great, they are going in another direction but I do tell them any actionable/constructive feedback that I think could help them moving forward