In mid-December, the District of Columbia's urban renewal agency sold a choice parcel of real estate at 12th and G streets NW to a group headed by Bethesda developer Nathan Landow for $2.5 million, or $130 a square foot -- about a quarter of the going rate for prime downtown land.

Other developers have paid from $500 to more than $600 a square foot for nearby sites, and the Landow tract is atop Metro Center and only two blocks from the new Convention Center. Critics of the sale have accused the city of a giveaway and have persuaded the U.S. Department of Housing and Urban Development to inquire about it.

At a time when the deficit-ridden city government is pleading for new sources of revenue, the critics feel the price should have been higher. They also are concerned that the Landow sale will set a precedent for the sale later this summer of a much larger Metro Center parcel across G Street to prominent developers Oliver T. Carr Jr. and Theodore R. Hagans Jr.

Ralph Werner, former general counsel tol the Redevelopment Land Agency (RLA) who now represents the owners of small businesses being displaced by the urban renewal program, said the site was "vastly undervalued.It's a significant write-down on the value." He said there was "significant concern that they [the RLA] are going to do the same thing for Carr."

Yet in the intricate world of real estate economics -- made more complicated by the restrictions of the District's urban renewal plan and the spectacular surge of downtown land prices -- the issue is not clear-cut.

The price paid by Landow and his partners was set by an independent appraiser, and the sale followed procedures that have been standard practice at the RLA for years.

There is no evidence of any impropriety, and officials at HUD say they have found nothing wrong with the transaction.

City officials and real estate experts say the difference between what the Landow group paid and what other recent sites have brought on the open market reflects the restrictions imposed on the developers by the urban renewal plan -- in effect, it is the cost to the District of th public-policy objectives written into the plan more than a decade ago.

James Clay, assistant director of housing and community development for the District, defended the sale at the time it was approved, saying, "The urban renewal plan expresses public policies which, on many occasions, are counter to market dynamics."

The plan requires that community-based business be able to lease in the development, that parking be restricted and that site plans and design by reviewed by several agencies. In addition, RLA policy requires that the developer have minority partners and that minorities participate in construction.

"I think the public policy is right in this case," Clay said, "not only just to sell the land for the highest amount of money, but to create jobs, create shopping, help downtown to create opportunities for minority businessmen."

Landow is a prominent Democratic Party fund-raiser in Maryland who had close ties to the Carter administration. His partners in the Metro Center venture include realtor Jerry Lustine and members of the law firm of Hudson, Leftwich & Davenport; the Leftwich is former RLA Board member Willie Leftwich.

The RLA voted Dec. 16 to sell them 19,162 square feet, or just under half an acre, on the southwest corner of 12th and G streets NW, for $2.5 million, of $130.47 a square foot. Other parcels recently sold in the area have brought prices ranging from $535 to $615 a square foot.

Part of the community interest in the Landow transaction and the upcoming sale to Carr and Hagans results from the fact that the cash-strapped city administration of Mayor Marion Barry is under pressure from Congress, the City Council and community groups to raise as much money as possible from land sales to ease the city's financial crisis.

Ironically, whatever price Carr and Hagans are required to pay, no money raised from the disposition of urban renewal sites can be used to meet city payrolls or pay suppliers until the RLA repays the money it borrowed from HUD to buy the sites in the first place. That debt totals more than $80 million, according to D.C. Housing Director Robert L. Moore.

The sale of the land around Metro Center represents the culmination of a long, complex urban renewal process that began in the 1960s. The downtown area of the city was depressed, land values plummeted and merchants were following the money flow to the new commercial center west of 15th Street. The RLA, then an autonomous agency, now part of the city government, began acquiring land.

The objective was to package the land and offer it to developers at a price low enough to induce them to come into an area that they would raised in resales was to repay the loans from HUD.

The official urban renewal plans, which were approved by the City Council and thus have the force of law, impose on potential developers requirements for minority ownership, affirmative action and aid to displaced small businesses.

They also limit the uese to which the sites can be put, encouraging mixed uses and discouraging the proliferation of lucrative but monotonous office buildings such as those on the K Street corridor.

While the restrictions limit the value of the land owned by the RLA, the opening of Metro subway service, the construction of the Convention Center and other forces have driven up the price of free-market downtown real estate. The discrepancy, now as much as $400 a square foot, is the price of implementing the urban renewal plan.

The Landow sale raised questions because the RLA approved it two months after the National Food Processors Association bought a parking lot at 14th Street and New York Avenue NW for $530 a square foot at auction -- a price that was then a record for that part of town.

According to a real estate expert familiar with the details of the purchase, the site was "super-prime, ready to go, the best deal going," in contrast to the RLA sites, which are restricted.

His first reaction on hearing of the Landow sale, he said, was, "Good price! Rip-off! But it's not that simple."

The site bought by the food processors, he said, is vacant, which Landow's tract is not. It has three-street access for cars and no restrictions on how many spaces can be put in its underground parking garage, while the Landow site has only one-street access and tight restrictions on parking. The food processors' site is also free of the design-approval requirements of the urban renewal sites.

Minutes of the RLA meeting at which the sale was approved show that the RLA's directors earlier had balked at a value of $1.7 million set by the appraiser, Anthony Reynolds, and asked him to review his calculations based on more recent data. He did, and came back with the $2.5 million figure.

Reynolds, who has been appraising Washington real estate for many years, is said by other real estate experts to be reliable. He is one of the two appraisers whom the RLA has engaged to put a sale value on the three parcels on the north side of G Street, totaling 200,000 square feet, where Carr and Hagans hope next year to develop a Hilton Hotel, a new Hecht Co. department store and an office building.

Landow, who plans to construct a 10-story office building on the 12th and G site after the vacant shops there are razed, said in a telephone interview, "At the time this award was made, it was very fair. You can't relate other sites to this. There was one price that was considered fair and equitable by both parties and then there was anothe price, and that was the price that was paid."

Landow described 12th and G as "a fringe area. You're not looking at Connecticut and K." He said that "this was not even 14th and New York, where you are building for a single-purpose use and don't have design restrictions, you don't have minority equity. You have to talk about the good things this does for the city -- it's a run-down area. It looks like a bomb was dropped on it."

Reynolds said he would have explained his calculations to the RLA if the members had asked him to, but they did not. Since the RLA, has client for this appraisal, has declined to make his report public, he would not comment on the Landow transaction.

But he discussed in general terms how an appraiser would view such a parcel.

There is, for example, a requirement that the design be approved by agencies such as the National Capital Planning Commission. That, he said, increases the risk in buying the property, especially at the current high interest rates, because the developer faces the prospect of delay in construction while loan payments mount up.

Also, he said, it is more difficult technically, and thus more costly, to build over or next to a subway line.

Reynolds has already submitted to the RLA his appraisals of the parcels scheduled to be sold to Carr and Hagans. He declined to reveal it. According to James E. Kerr, development administrator in the Housing Department, a second appraisal has been ordered and the RLA will set the price according to whichever is higher. He said a public hearing on the terms of the sale would he held in July and that construction is scheduled to begin in January.

If the price is $400 a square foot, the proceeds to the RLA would be about $80 million, or just enough to cover the debt the city owes HUD for money borrowed to purchase the land. But $400 a square foot appears to be the absolute maximum that anyone anticipates.

Carr has already said that a price of $350 to $400 would be "more realistic" than the prices above $500 recently paid for nearby sites.

Lawrence Press, planning director for the Housing Department, said, "The price is not going to be $400. It's going to be less. The restrictions on the property are a liability on the property. How much they translate into money is going to be the issue." CAPTION: Picture, Developer Nathan Landow bought a parcel of land at 12th and G streets NW from the D.C. Redevelopment Land Agency for $130 a square foot -- about 75 percent less than the going rate for prime downtown property. By Sharon Farmer for The Washington Post