A deal to build a shopping, arts and residential complex at Fifth and K streets NW in the District is on the ropes, as the parties involved face a Monday deadline to renegotiate an arrangement to build the project on the site of the former National Wax Museum.

City officials and downtown activists view the three-acre site as key to creating vibrant street life in the area east of Mount Vernon Square, near Washington's soon-to-open convention center. In December 2001, the National Capital Revitalization Corp., the quasi-public organization charged with getting the city-owned property developed, selected a team led by Horning Brothers from 11 contenders to build the project.

But last week, say those familiar with the situation, the development team pulled out of the deal, saying that economic and real estate market conditions had worsened too much in the past 14 months for it to be able to build 535 housing units and extensive retail. NCRC persuaded the developers, however, to engage in a last-ditch effort to renegotiate the arrangement, with a Monday deadline for completion.

"Either we conclude the [land-disposition agreement] and come up with mutually agreeable terms by midnight Monday, or they lose their rights to that parcel," said Theodore N. Carter, chief executive of NCRC, in an interview.

Thousands of apartments are under construction or planned for the area, and the Wax Museum site, to be called Mount Vernon Walk, is to be a cultural center for the neighborhood, with a grocery store, art galleries and other retail establishments. Sources close to the NCRC and the companies said it remained uncertain yesterday whether an arrangement -- perhaps including fewer units of housing, a lower purchase price, and more flexible requirements on when a grocery store must be in place -- can be reached.

"Over the last two years, we have invested a significant amount of time and money in this unique project," developer Joseph F. Horning Jr. said in a statement. "We would like to see the development move forward expeditiously; and we are optimistic about finding common ground."

Sources sympathetic to NCRC blame the development team, saying it is reneging on its deal to develop the site. Those sympathetic to Horning say NCRC is being unrealistic about current market conditions.

"The stories clearly do not jibe," said D.C. Council member Jack Evans (D-Ward 2), who has spoken with people on both sides of the dispute. "All of it taken together, it appears that both sides got caught by a bad economic downturn, and that's unfortunate."

If the parties cannot reach a deal, the site will be up for grabs to developers once again, likely resulting in significant delays -- a prospect none too attractive to those who want the site to be developed quickly.

"Hopefully they can move to one of the other bidders who could still do the project, rather than a whole new process that would take years," said Terry Lynch, executive director of the Downtown Cluster of Congregations, which advocates downtown housing. "NCRC needs to fix this fast for their own credibility, and I think there are other development teams out there who could successfully build housing there."