Earlier this year, the D.C. government took an unprecedented gamble when it stopped issuing building permits for a rundown 52-acre site in Southeast Washington. The move was designed to keep down the cost of the land and keep out speculators in favor of the city's handpicked developer, Capitol Gateway Corp.

Last week, the D.C. City Council left for its August recess after rejecting Mayor Marion Barry's request to extend the moratorium because a key council member thought it was not needed. In effect, the council bet that even without the moratorium, the speculators won't swoop down into the area of Southeast Washington between South Capitol Street and the Washington Navy Yard.

Council Member Charlene Drew Jarvis (D-Ward 4), who chairs the Committee on Housing and Economic Development and who helped kill the extension, said that only Capitol Gateway Corp. would benefit from the moratorium because the company would get the land cheap.

"The moratorium is to keep the price of land down," Jarvis said. "Who benefits? It's a question of maximum benefits to the city," not to a private developer, she said. Besides, she added, the current high interest rates already serve as a deterrent to speculation.

The rejection was a sharp rebuke to Barry by Jarvis, who has been on bad terms with her old poker partner ever since last year when the mayor decided to close the Upshur Street Clinic in her ward. Since then, Jarvis has been chiding the mayor for delays in sending bills to her committee, and at times her aides muse aloud about Jarvis running against Barry next year.

The stakes in the dispute are high, since Capitol Gateway represents the city's most ambitious and lucrative development enterprise in a decade. The area, a rather dreary and in many spots rundown slice of Southeast Washington, now contains only blocks of abandoned buildings and warehouses, with a few old row houses and some small businesses.

But the neighborhood represents the last big stretch of prime waterfront real estate near downtown. The city wants to keep it a slum until it is ready to buy the land, and therefore has entered into an unusual public sector-private sector alliance with Capitol Gateway. City officials hope the $400 million project can realize the more optimistic projections of $11 million in tax revenues, 4,000 permanent jobs, office buildings, stores, parks and 1,800 new housing units -- one-fifth of those for low- and moderate-income families.

Under the arrangement, the city is supposed to use its power of eminent domain and buy up all of the private property on the site, then sell it at cost to Capitol Gateway Corp.

Some Capitol Gateway supporters fear that without the moratorium on building permits, land prices may jump so high in the area that the city may find itself priced out of the market when it goes in to buy up the land.

"It could be that the price of that land could skyrocket," said Flaxie M. Pinkett, a prominent city businesswoman who is on the Capitol Gateway board of directors. After the moratorium expires Aug. 25, she said "Buyers can go in there and start driving up the price of land. It's going to hurt the city because the city has to buy that land."

Or, worse yet, Capitol Gateway's boosters fear that even if the city does manage to use its eminent domain power to buy the parcels, city officials may then find the chosen developer less interested in paying sky-high prices to take the land off the city's hands.

William T. Hannan, legal counsel of Capitol Gateway Corp., said that without the moratorium, the developer would not be able to afford the project. "There's no way you can pay market for the ground," he said. "You couldn't do it."

Pinkett said, "If the city has to pay more, then Capitol Gateway has to pay more." She added, "It could kill the whole deal. Nobody at this point has to buy (the land) from the city. It could be that nobody will want to buy it."

Capitol Gateway -- a local subsidiary of the Pittsburgh-based Dravo Corp. -- is under no obligation to buy the land, since no land disposition agreement has been signed. Hannan said the firm would be willing to buy the land so long as it is still economically feasible -- meaning cheap.

Of course, the city could always find another developer eager to move into the coveted site. But the question is how much control would the city have over any other private development in that neighborhood, meaning control over the mount of low-income housing, jobs and public access to the waterfront.

No one can say whether speculators will move in once the moratorium expires later this month. Brigid Quinn, assistant to City Council Member John Wilson (D-Ward 2), whose ward includes the project area, recalled how a small flurry of speculative building and rehabilitation started right after the Capitol Gateway project was first announced in 1977, until the council slapped on the moratorium.

Hannan said that the council rejected the emergency extension because, "typically, they just don't understand this particular operation. It was just a typical District of Columbia goof." He said he hoped the council would act swiftly when the members return to work in mid-September.

Jarvis said her committee will take up the issue again in the fall, only this time with full public hearings at the same time the committee is set to consider a more detailed plan from the developers.

But even then, Hannan said, he fully expects a fight, mostly against the idea that Capitol Gateway is getting away with a "steal," having precious Washington real estate held for them at low prices.

"The storm isn't over yet," he said. "I'm sure there'll be a lot of political fodder made over this.