District officials had the option to lease an impoundment lot for $225,000 a year when they ditched that plan and decided to rent property in Prince George's County for nearly $1 million a year, it was revealed at a D.C. Council hearing yesterday.

D.C. Council member Jim Graham (D-Ward 1), chairman of the committee that oversees the Office of Property Management, said during the hearing that e-mails between city officials raise questions about the decision to lease the impound lot at 4800 Addison Rd. from developer Douglas Jemal.

After the city signed the three-year lease in August 2001, records show, more than $260,000 had to be spent to make the lot usable, including $136,000 for paving, $35,000 for rental equipment and $25,000 for fencing.

"All of this stinks!" Graham said. He pointed out that the city's lease price was nearly 10 times the fair market value and that hundreds of thousands of dollars had to be spent to make it useful. "These are all precious taxpayer dollars."

It was the second hearing Graham has held this month to question the Williams administration on why it entered into the expensive lease and later made an urgent appeal to the council to approve a contract to buy the property for $12.5 million. Jemal purchased the property four years ago for $1.5 million.

In May 2001, the city's property management director, Timothy F. Dimond, sent an e-mail to the director of the Department of Public Works saying that his office had identified a lot "currently available" from Pepco with 204 spaces that the city could lease for $225,000 a year. Leslie Hotaling, the public works director, responded that she did not have any idea where her agency would get the money to pay for the lease, according to the e-mails.

About the same time, Michael Lorusso, then the deputy director of property management, was negotiating with Jemal to lease eight acres of property for an impound lot. Lorusso would eventually sign a lease with the developer for nearly $1 million a year.

"They had an option," Graham said. "They put it aside so they could make a $998,000 deal. It might say they were very anxious to lease the Addison Road property. That begs the $64,000 question: Who was profiting?"

Lorusso was fired last month, and the D.C. auditor is investigating the lease and the city proposal to purchase the property.

At yesterday's hearing, several witnesses, including Dimond and Jemal, testified about two deals negotiated by Lorusso, who was the city's key negotiator with Jemal. The deals involved the purchase of the 37-acre property on Addison Road for $12.5 million and the sale of a historic city firehouse on Massachusetts Avenue NW to the developer for $350,000.

The Addison Road property's appraiser, Donald Morris, testified that he initially estimated that the property would sell at about $4 million with the three-year lease. He said Lorusso was surprised that the appraisal was so low. The next day, Lorusso informed Morris that there was a nine-year lease extension on the property, which prompted Morris to increase the property's value. City officials have since said that there is no extended lease. Morris also said the city's rental rate appeared to be nearly 10 times the rent for similar industrial property.

Dimond testified that he was unaware that a nine-year extension had been added to the lease and that he had not discussed the contract with Lorusso. Dimond said that there was a "long, detailed search to identify the site." Lorusso could not be reached for comment.

Graham asked Dimond: "Wouldn't you characterize this as gross negligence? . . . It may be worse than gross negligence."

Jemal said the cost of the lease and his asking price for the property were worth it to the District "because the city had a unique need." City officials were scrambling to find a new impoundment lot after selling the old facility in Northeast Washington to private developers.

Jemal also said Lorusso, whom Jemal said he knew socially, "acted in the best interest of the city."

Jemal said he wanted to buy the firehouse, which was included as part of the deal, because it is adjacent to a downtown apartment building he was developing. His purchase of the firehouse was not contingent on the city's buying the impound lot, he said.

The lease on the impoundment lot does not expire until September 2004, giving the city time to explore other options, Graham said.

"This is an experience that has been bad, bad, bad," he said.

"All of this stinks!" D.C. Council member Jim Graham said of the city's high-priced lease and purchase plans for an impoundment lot. Douglas Jemal purchased the lot property for $1.5 million; D.C. officials tried to buy it for $12.5 million.