An out-of-court settlement was reached yesterday that will set aside 68 units and provide rent subsidies for some low-income tenants in Alexandria's Bruce Street apartment complex, according to sources involved in the negotiations.

In addition, officials said yesterday that the U.S. Department of Housing and Urban Development has agreed to give the city 348 Section 8 vouchers and certificates. These rent subsidies, which city officials said could ultimately help as many as 1,000 low-income tenants in the city, pay the difference between what HUD considers the fair market rent and 30 percent of a family's income.

Along with the federal money, city officials plan to funnel between $300,000 and $500,000 into rent subsidies in the Arlandria section of the city, where the Bruce Street apartments are located. Alexandria housing officials are trying to persuade landlords at other apartment complexes to set aside units where the remaining new federal vouchers and certificates can be used.

The Bruce Street settlement, which must still be sanctioned by U.S. District Judge Harold H. Greene, follows negotiations connected to a lawsuit in U.S. District Court in Washington in which tenants alleged that renovations in two large apartment complexes discriminated against minorities.

The tenants, most of whom are Hispanic, were expected to be evicted by rising rents resulting from the renovations.

John Freeman and Conrad Cafritz, principals in the development company that is renovating the 275-unit Bruce Street Apartments, agreed yesterday to set aside 68 apartments where the federal rent subsidies could be used, according to sources familiar with the settlement.

Freeman and Cafritz also are expected to contribute what several officials said will amount to "hundreds of thousands of dollars" in rent subsidies.

"It's going to be expensive," Freeman said of the settlement. "But I'd rather put the money into low- and moderate-income housing than into legal fees. It's a better use of money."

As a result of Freeman and Cafritz's offer yesterday, Greene severed the Bruce Street developers from the lawsuit, though he must still approve details of the settlement.

The Artery Organization, the developers of the Dominion Gardens apartments in Arlandria, remains in the lawsuit. According to Artery's lawyer David Fiske, his clients are prepared to go to trial July 20.

"The breakthrough {in the lawsuit} was the availability of the HUD money," Freeman said. The developer said that without the federal funds, his and the city's subsidies could not lower the rents enough to keep tenants in their apartments.

After the run-down Arlandria apartments are renovated, many "The breakthrough was the availability of the HUD money."

-- John Freeman

one-bedroom monthly rents are expected to jump from $385 to $715. Many two bedrooms will soar from $450 to an estimated $845 a month.

In all, 1,057 apartments in Arlandria, a largely Hispanic neighborhood south of the Arlington border and near Mount Vernon Avenue, are being renovated.

Most agree that the Arlandria apartments need a face lift, but city officials worry that that its costs will put rents far beyond the reach of the many waitresses, housekeepers and laborers who live there.

Vice Mayor Patricia S. Ticer, who attended a closed City Council meeting on the matter Saturday, said, "We've been trying to achieve a set-aside in all of the {Arlandria} apartments; {the Bruce Street settlement} is an excellent beginning."

On June 23, the City Council is expected to formally announce its contribution for rent subsidies as well as the final details of the settlement with Freeman and Cafritz.

According to those working on the settlement, the Bruce Street developers have agreed not to increase the rents in certain apartments by more than 6 percent annually over a 10-year period.

In a city where the average price of a one-bedroom apartment rose 17.7 percent from May 1986 to May 1987, to a total of $630 a month, that concession was considered a major victory.