George Washington University will build a 13-story, $20 million office building just south of the 2000 block of I Street NW, university officials have announced.

The project, which is expected to begin in spring 1981, would be the third major office building built by the university in the vicinity of its Foggy Bottom campus.

The school built the $6.5 million Joseph Henry building at 2100 Pennsylvania Ave. and the $15 million Edison building at 1900 Pennsylvania Ave.The Henry building is leased to the National Academy of Science and the Edison building is leased to the Potomac Electric Power co.

George Washington uses the rental income from those buildings to subsidize its academic operations.

"People always ask us what we're doing in the real estate business if we're supposed to be in the business of education," said Charles E. Diehl, GW's vice president and treasurer. "But we're in the education business in such a high-rent district that we can't afford to be in the education business unless we're also in the real estate business."

Plans for the block, called Red Lion Row after a tavern in its midst, are incomplete, Diehl said. But they do include restoration of the residential character of its Victorian-era townhouses. The office building would go up behind the townhouses.

Discussions are under way with neighborhood groups over potential uses of the street and second-floor levels of the property.

Amond the proposals under consideration is construction of an enclosed courtyard between the townhouses and the office building, with space for specialty shops and small retail businesses.

Jon Nowick, chairman of the Foggy Bottom-West End Advisory Neighborhood Commission, said the groups have asked for small shops catering to neighborhood needs, such as delicatessens, boutiques and music stores. University officials have agreed to consider their requests.

GW, Nowick said, "has been very fair and open-minded in dealing with the community."

A survey of GW faculty members produced requests for bookstores, stationery shops, cafes, pizza parlors, international newsstands and sports equipment stores, among others.

The block now houses a number of small restaurants, an electrical supply store, a drapery shop and a number of vacant buildings. Almost all of the 13 buildings in the block are in run-down condition, and many lack occupancy permits.

They will be restored, Diehl said, to give the appearance of their original residential use.

Separated from Pennsylvania Avenue by a small park, the 2000 block of I street NW is one of the few remaining examples of Victorian architecture that directly overlooks the avenue. When restored, Diehl said, it could serve as an appropriate "gate-way to the university." He said the university will ask that the block be closed to traffic and blended into the park.

For several years, the university has been buying up land in the block, and in September it acquired the last major parcel for $2.1 million from electrical contractor Howard P. Foley. If construction of the office building and renovation of the Victorian townhouses begins in the spring of 1981, it would probably take two years to complete.

Since the mid-1960s, the university has been following an ambitious policy of land acquisition within its own campus area, which it defines as the blocks between 19th and 24th Streets NW, F, Street, Virginia Avenue, K Street and Pennsylvania Avenue.

From time to time, its building plans have brought it into conflict with neighborhood preservation groups. Thus the university has been especially sensitive to requests that Red Lion Row be saved.

The land acquisition policy was a direct outgrowth of GW's decision, in the early 1960s, not to move to the suburbs. "We knew this was going to be a valuable location," said Diehl. "When land here comes on the market, we have to buy it because if we don't someone else will." CAPTION: Picture 1, no caption; Picture 2, George Washington University will build a $20 million office building behind the block which includes the Red Lion Inn. By Vanessa Barnes Hillian -- The Washington Post