The Commerce Department will provide $608,600 to clean up a Georgia Avenue junkyard that has become famous as part of the view from the Harambee House Hotel.

The grant to the city is part of renewed on the part of the District government and the Commerce Department's Economic Development Administration (ED) to salvage dreams of prosperous development of the area near Howard University and Hospital and the historic LeDroit Park.

Besides cleaning up the junkyard, the salvage operation includes saving Harambee House, trying to convince Metro to stretch its subway line five blocks closer to the hotel off attempts by fast-food restaurants to claim that part of the avenue.

The center of the dreams is Harambee House, the brainchild of restauranteur Ed Murphy. Harambee House opened with great fanfare in 1978, only to fall into financial disarray a short year later.

Commerce's EDA -- which supported Murphy's efforts to build the hotel as a centerpiece of minority development -- has aquired the property, on which $4.3 million still is owed, and terminated a lease with the Murphy Hotel Co. which was in default on a $2.9 million debt.

Plans call for the District of Columbia Development Corp. (DCDC) to acquire the hotel with a moratorium on on principal and interest payments on the unpaid balance of $4.3 million until the hotel can be sold to a private developer.

"EDA feels, and we feel, that it can work," said D.C. Housing Director Robert Moore. Hotel occupancy in the District is running about 70 percent. He said Harambee House was "a nice facility in terms of the quality of the rooms. The facilits have not been exploited."

Although the transaction is complicated by litigation by the hotel's former operators, the city ultimately plans to negotiate sale to local black entrepreneurs. It was for that reason that the EDA decided to turn the hotel over to the city, said Moore and Deputy Assistant Secretary of Commerce George T. Karras. Karras has overseen development of Harambee House since its inception.

If the EDA were to sell the hotel, the agency would have to put it out to bid nationally and sell to the highest bidder. But to maintain the hotel as the showpiece it was intended to be means keeping the notion of local minority ownership alive.

Moore and Karras said there has been considerable interest in the project from developers. The property is appraised at between $5 million and $7 million, and the mortgage carries a 6 percent interest rate.

Making a success out of the hotel, however, requires overcoming its problems and increasing occupancy. Cleaning up the junkyard, an eyesore that Murphy long has chafed over, will help. The District will provide $152,150 to complete the $760,750 total cost of the project, which includes removing three buildings, junk, scrap and foundation walls.

As an interim use, the city plans to provide parking on the junkyard site after it has been aquired and the junkyard is relocated.Moore said developers have expressed an interest in housing or commercial development for the site.

City officials are negotiating with Metro in an effort to locate a subway station closer to the hotel, hospital and university. If the effort succeeds, it also would make Harambee House considerably more convenient to the convention center being built downtown.

At the same time, federal and city officials have been on guard against development that could transform Georgia avenue into a honky-tonky fast-food strip. "We've talked to all the landowners between Barry Place and Florida Avenue, and they have agreed in principle to cooperate with the city -- to go for maximum development as opposed to low-use and low-density fast-food development," said Moore.

Karras said the issue was whether the private sector would develop the area with an eye on short-term gains or long-term gains that might be had from "making it the attractive corridor it once was."

The hotel is being managed in the interim by American Hotel Management, a firm retained by the EDA. Occupancy has ranged from 8 percent to 27 percent in recent weeks as the hotel was being picketed by Murphy associates, Moore said.