Mayor Marion Barry said yesterday that the D.C. government agreed to acquire the old Children's Hospital site and other properties in the Shaw area for future development at the behest of community leaders and not because the land belonged to his longtime friend, Jeffrey N. Cohen.

Barry said in response to questions that he stayed clear of the talks between Deputy Mayor Curtis McClinton, Cohen and a nonprofit community group that resulted in the $12.5 million land deal Feb. 1.

"I've demonstrated in my 20 years of public service in this town that we don't mix up friendship and business-ship," Barry said during his monthly news conference.

The mayor also said he was surprised and shocked to learn, about the time the city began negotiating the deal last year, that Cohen had extensive land holdings in Shaw.

"The only piece of property I knew he owned was Children's Hospital," Barry said. "I was shocked. I didn't know he had all that money, quite frankly."

Cohen's holdings were the subject of numerous newspaper reports and were generally known by community leaders and city officials for at least three years. And community leader Ibrahim Mumin and school board member Edna Frazier-Cromwell (Ward 1) first approached the mayor about the development project in January 1983, according to Mumin, about 10 months before McClinton was appointed deputy mayor for economic development and became involved in the project.

"Jeff has been trying to develop the old Children's Hospital site since 1978," Mumin, president of the nonprofit Shaw-Coalition Redevelopment Corporation, said yesterday. "As far as I know, it was no secret the other sites were part of the properties owned by Jeff."

Under the agreement, the city acquired the property from Cohen as an interim step in helping Mumin's nonprofit group and Cohen develop retail and office space and 1,000 units of low-cost housing on the site.

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 its investment with revenues from the proposed redevelopment or from Cohen.

About $7 million of the loan went to pay off liens previously incurred on the property by Cohen-related businesses; $4 million covered Cohen's legal fees, closing costs and other expenses associated with the property, and up to $1.5 million went to cover the interest charges on the loan.

Barry said the bank financing was necessary because there was no money in the current D.C. budget to acquire the land. City officials say they plan to use federal community development block grant funds to pay off the banks in a year.

The city could lose up to $6.25 million if all the development plans fall through, according to McClinton. However, Barry said there are a number of ways the city could recover its costs, including selling the property to a different developer. The mayor boasted that risky ventures to spur jobs and economic development have become the hallmark of his administration.

"I'm probably one of the most innovative and daring mayors when it comes to economic development that there is in the country," Barry said.

The Shaw area, near 13th and V streets NW, was once a vibrant area but fell on hard economic times after the 1968 riots and became a haven for drug dealers and prostitutes.

Barry's decision in 1982 to build the new D.C. Municipal Center on the northwest corner of 14th and U streets NW, coupled with plans to extend the Metro subway service to the area, have sparked renewed interest in the area among investors and developers.

Cohen and the Shaw-Coalition Redevelopment Corporation will attempt to raise private and public financing totaling $140 million to finance the proposed Samuel C. Jackson Plaza project, including the redevelopment of the old Children's Hospital site, the Lincoln Theatre, the Manhattan Laundry and Thompson's Dairy.

Cohen, 35, a close friend of the mayor's for years, resigned yesterday as chairman of the National Bank of Commerce to devote full time to the project. Cohen will retain the title of chairman of Commerce Bancorp Inc., the holding company that owns the bank.

Cohen also is selling off much of the remainder of his real estate holdings, including five parcels near 14th and I streets NW, an office building at 1710 Connecticut Ave. NW, and two other Connecticut Avenue office buildings.

"I'm dedicating the next five years of my life to making the Shaw project a reality," Cohen said. "It's an exciting challenge and a new way of doing development in an existing urban neighborhood."