District Mayor Marion Barry Jr., developers and merchants formally began an unusual cooperative venture last week that officials hope will accelerate the revitalization of the city's wholesale food industry.

Ground was broken Wednesday for a 60,000-square-foot distribution warehouse in the Capital City Market. The warehouse is the first new food distribution building to be developed on the market site in more than 30 years and will house a number of produce companies, developers said.

The development should give a major boost to city plans to renovate the area, previously known as Florida Avenue Market, as well as the larger revitalization of the District's northeast industrial corridor, officials involved with the project said.

Until Barry announced the renovation last year, the future of the market was in doubt, as wholesale food suppliers threatened to leave the area because of rundown facilities and the cost of doing business in the city.

"Basically, what we were trying to do is prevent merchants from leaving this area. With this kind of effort, we should be moving forward," said Kwasi Holman, head of the city's Office of Business and Economic Development.

Richards Associates, a private development firm, will carry out the construction, which will cost $2 million, with permanent financing provided by the Equitable Life Assurance Society through a special urban initiative program it operates. The land is being leased from the District government, which bought the site in 1983 from the Conrail Corp. as part of its plans for the marketplace.

At ground-breaking for the project last week, Barry said that market development had proved a boon for area merchants, as well as providing jobs for city residents. "It is supporting the growing restaurant industry in our city and is helping to expand and diversify the District's economic base," he said.

As part of the renovation of the marketplace, Holman said the city will announce later this month a $2.1 million street renovation project for the area. Other measures he said the city is taking include steps to improve traffic flow, clean up the area, add parking spaces and make loans to several of the companies located in the area.

Currently some 60 firms do about $300 million worth of business each year in the marketplace, Holman added. There are about 900 employes, and the new building should add another 200, he said.

Despite the general rundown nature of the area, officials involved with the latest project said the area is filled with healthy businesses that need space to grow. They said that, along with the other actions the city has planned for the old market, the building should spark a renaissance in the area and help the city retain businesses that otherwise would have moved to Baltimore or Philadelphia.

"I think the area is very viable as a business environment," said Larry Dendtler, a vice president in the Equitable's Washington regional office.

Since announcing plans for the project late last year, Richards Associates has received applications for leasing space in the building from more companies than it will be able to accommodate, said Judith W. Richards, president of the firm.

"It will give renewed faith to many of the merchants," she added. Referring also to an adjacent building that has recently been renovated, Richards said, "When customers come in to buy from these wholesalers, they're going to be impressed by the appearance of the buildings."

Mitchell Deoudes, a fresh-fruit and vegetable wholesaler who owns part of the adjacent building, predicted the new building would bring new business into the area. The new space the project and the other renovations will provide will help area merchants accommodate growing hotel and restaurant business that otherwise would have gone elsewhere, he said. "There just isn't any other space where you can put a market," he added, saying that these projects marked the first change that has taken place on the site in his 35 years in the area.

Another merchant, Nicholas Lyddane, credited the District government with foresight in helping the merchants avert economic disaster in the marketplace. "If it hadn't been done, I'm sure many merchants would have gone elsewhere. They prevented this," he said.