District officials and private developers who negotiated a complex $12.5 million deal to spur the redevelopment of the depressed Shaw area agreed yesterday the venture is risky and that the city could lose up to $6.25 million if plans fall through.

Under the agreement, the city acquired the former Children's Hospital site and five nearby properties from developer Jeffrey N. Cohen on Feb. 1 as an interim step in helping Cohen and a nonprofit Shaw community group to develop retail and office space and 1,000 units of low-cost housing on the sites.

A consortium of banks headed by the National Bank of Washington provided short-term financing to get the deal off the ground, with the city agreeing to repay the loan in a year and being assured of recovering at least half of its investment with revenues from the proposed redevelopment or from Cohen.

Yesterday, Cohen, Deputy Mayor Curtis McClinton and community leader Ibrahim Mumin praised the deal as a bold public-private venture to redevelop a troubled area that could not attract private capital without the assistance of the city government.

"We're trying to recreate the kind of U Street that it used to be, where people walked down the street on Sunday dressed up," Mumin said.

However, Cohen and McClinton conceded that the city and developers have never attempted so complicated a deal, with no guarantees of success.

To make the overall project work, Cohen and the Shaw-Coalition Redevelopment Corporation, the nonprofit group, must raise private and public financing totaling $140 million.

"You have to give us the benefit of the doubt," Cohen said. " . . . We're doing so many things here that don't have answers."

McClinton, deputy mayor for economic development, said he drove a hard bargain in negotiating the deal, noting that Cohen and his wife have personally assumed responsibility for repaying half of the loan within three years if the development flops.

"Jeff didn't get what he wanted, I'll tell you that," McClinton said.

During a press conference announcing the venture, held in the unheated balcony of the closed Lincoln Theatre, officials and the developers were vague on when any construction would begin although they said they hoped that renovation of the theater would begin before the end of the year with the redevelopment of the other parcels occurring within five years.

Cohen, a close friend of Mayor Marion Barry who has sought to develop some of the Shaw parcels during the last few years, said: "The negotiations were tougher than people thought . . . . Everybody has left a lot on the table. I've got a lot left in this deal."

The deal with the city comes at a time when Cohen said he is selling much of the real estate he owns in the city.

He said he has a contract with the Texas development company Trammel Crow to sell five parcels near 14th and I streets NW, including the Parkside Hotel. That deal is scheduled to close next month, Cohen said.

He added that he also has sold an office building at 1710 Connecticut Ave. NW and plans to sell two other Connecticut Avenue office buildings.

The Shaw project includes redeveloping the old Children's Hospi-tal site, the Lincoln Theatre, the Manhattan Laundry and Thompson's Dairy, as well as generating revenue to be used by the community to help subsidize housing costs and provide job opportunities.

Under the unusual agreement, the city acquired the properties with the intention of leasing or selling them back to the nonprofit community group and a Cohen partnership to be developed.

A partnership controlled by Cohen received $11 million in bank loans.

A year from now, the city is required to repay the loans, plus interest expected to total $1.5 million.

The $11 million purchase price is 57 percent more than the city's property tax assessment of about $7 million for the sites.