The Pennsylvania Avenue Development Corporation's directors have voted to acquire the Kann's Department store site downtown as its first step toward assembling a four-block area for major residential development across from the National Archives.

The site, where the store has stood vacant since it closed in 1975, is expected to be the first piece of property acquired by the corporation, which received its first funding last February of $29 million for revitalizing the avenue and surrounding areas. Some of that money will probably be spent on buying the Kann's site, for which no price has been set.

The Kann's property is the southeast corner of an area known as the Market Square development. Plans call for a townhouse complex, which corporation officials liken to an Italian hill village, in which townhouses would step down on different levels towards a central plaza. The complex, bounded by Pennsylvania Avenue on the south, E Street on the north, 9th Street on the West and 7the Street on the East, would be surrounded by high-rise apartments.

The corporation plans to buy the land where housing is desired and lease it back to a developer who would build the complex. The corporation's concept for the type of development desired for the Market Square area is only a guide for the developer, who may come up with his own proposals, but the corporation must approve his plans.

The Pennsylvania Avenue Development Plan's design for the Market Square area calls for a triangular park on the southern edge of the complex, where Market Space Street now runs, and across the avenue from the site of the old center market. The area would be used for facilities including restaurants, exhibitions and an open air market.

Behind the park, on the southern edge of the complex, would be high rise buildings, with shops and restaurants at street level. Office space would be available on a few floors above that, with the top several floors reserved for apartments looking south toward the Mall and the Potomac River.

The concept calls for 750 housing units in the Market Square complex, ranging from efficiency apartments to two bedroom townhouses. What is now 8th Street between the Archives and the National Portrait gallery would become a pedestrian mall through the middle of the complex. Underground parking for 1,000 cars is also included in the plan.

PADC counsel Peter T. Meszoly said that "the board has directed us to immediately proceed with acquisition" of the Kann's site and that fair market value estimates for the site have been prepared. The corporation may acquire the property either by making an offer to the owner and working out a mutually acceptable price or by taking the property through eminent domain with the price worked out later.

Meszoly would not say what the fair market value estimates for the site were, but property tax assessments of the value of the 35,256 square feet of land and improvements on it sent the figure at $1,962,000.

The owner of the Kann's property is L. S. Good & Co., of Wheeling, W. Va. Kann's, a Wahsington establishment for 82 years, closed its downtown and Arlington stores early in 1975. The firm said at the time that Metro subway construction and the planned Pennsylvania redevelopment were to blame.

Part of the $29 million PADC received in February may be used to buy the Willard Hotel at 14th and Pennsylvania. No further acquisitions in the Market Square area are expected in this fiscal year, said Meszoly.

A U.S. Court of Claims decision in January this year set the stage for the U.S. government to acquire the historic Willard Hotel, but complicated legal questions must be cleared up before title passes to the Pennsylvania Avenue Development Corporation - a process that may take more than a year from now.

The Kann's site acquisition is expected to move much more quickly.

Meszoly said that the PADC wants to pay the owners of the Willard the estimated fair market value of the hotel immediately to get title to the property, with the amount paid to be deducted from the amount ultimately settled on as the money owed the owners by the United States. The courts have ruled that the U.S. owes the owners certain fees such as interest on the building which will add to its overall cost.

So far, the Justice Department, which represents the United States in the proceedings, has balked at that plan, he said. "We have appealed to higher levels in Justice," said Meszoly. "Any other solution may take a year or 18 months before we can get clear title to the property."

Unlike the Market Square proposal, in which no developer has yet shown interest, several developers have indicated an interest in renovating the Willard. OliveCarr and Intercontinental: MAT Associates, Trust House and Forte; and the Radisson Hotel Chain have expressed interest in the Willard.

While the title question remains unresolved "the building is deteriorating badly," said Meszoly. "It's been vacant since 1968. It may reach a point where restoration is unfeasible," said Meszoly.