A small, vacant apartment building on Georgia Avenue has been selected as the first project to be renovated under an innovative new District government program to stimulate private development of housing for low- and moderate-income families.

City housing official Shirley Diamond said the program accepted the proposal of developers Jack Matthews and William Walde for the renovation of a 21-unit building at 6921 Georgia Ave. NW. The city will buy the land on which the building sits for $175,000, then lease it back to the developers at 3 percent interest for 50 years. The developers have the option to buy the land at any time.

The city launched the $5 million program in an attempt to spur the renovation of thousands of vacant apartments.

"We bought it vacant, and it was a mess of a building," said Walde, who is also the president of Dominion Federal Savings and Loan in Virginia. But, he said, "It is a great location, just across from Walter Reed Hospital." Walde said that he hopes the renovation of the building, constructed in 1926, will be finished by September.

The city received 350 requests for applications for the program, called Land Acquisition for Housing Development Opportunities, or LAHDO, but only six proposals were received by the April 15 filing deadline. Two were rejected and three others have been held over for further consideration.

"We will consider them in the second round starting this month," Diamond said. "This is the type of program that has to build."

Diamond said that because developers must own or have an option to buy a property to qualify for the program, a good deal of "negotiating time" slows the application process.

From the outset of the program, city officials have said that privately financed projects would be highly rated in the selection process.

City housing official William Hobbs, who designed the LAHDO program, said the Georgia Avenue project "did very well -- it requires no city financing."

Hobbs added that Matthews "is an experiened developer who has done some HUD [Department of Housing and Urban Development] subsidized projects in the city. The developments have been done relatively quickly and in order."

Diamond said the Georgia Avenue renovation will yield four two-bedroom units, 16 one-bedroom units and one efficiency.

The two-bedroom apartments will be rented at the market rate, while the others will be reserved for low- or moderate-income families, she said.

Under LAHDO regulations a property must contain at least 20 units, and a minimum of 20 percent of the units must be priced for low- or moderate-income families.

The city has tried to make the program financially attractive to developers by buying the land, and in some cases the buildings, for cash and reselling them to the developers.

Since the city will own the land, the developer will pay no real estate taxes and the lease payments to the city are tax-deductible. The owners can rapidly depreciate the buildings. Accelerated depreciation of real estate is one of the most lucrative write-offs allowed by current tax law.

The city has a waiting list of 11,000 families for public housing. Developers participating in the program are under no obligation to rent to these families, but Hobbs said the city "will encourage" them.