Instead of the barren 50-acre industrial area south of the Capitol, picture a $750 million to $1 billion development of 2,000 to 3,200 new houses and apartments, ranging from subsidized housing to $80,000 luxury condominiums with saunas and indoor racquet and handball courts.

Visualize, instead of warehouses and blight, up to 70 hotel rooms, up to 190,000 square feet of retail stores, and up to 1 million square feet of office space, a seafood restaurant, surrounded by specialty shops.

That is how the area located between South Capitol Street, the Navy Yard, M Street SE, and the Anacostia River could best be used, according to preliminary recommendations submitted to the city by the Capitol Gateway Corp., a subsidiary of the Dravo Corp. of Pittsburgh Within eight to 12 years, the tract could be comparabel to Old Town Alexandria or the Annapolis harbor area, Capitol Gateway contends.

The Dravo Corp. was selected last October as the planner for the project Original plans called for the development of a 40-acre tract, but the corporation has asked the city to extend the boundary east by 10 acres. If the Dravo plan, after extensive review by the community and the housing department is approved by the City Council Dravo will have first right of refusal to develop the site.

A community organization composed of several local groups is determined to make certain that the South Capitol Street area does not go the way of Southwest, where thousands of residents were displaced two decades ago in the name of urban renewal. One of the preliminary suggestions in the interim report is that the percentage of subsidized housing units in the project be only 10 per cent, a figure that has been attacked by the South Capitol Stree/Buzzard Point committee.

"We've asked for 25 per cent instead of 10 per cent," said Vivian Williams, chairwoman of the committee and a 21-year resident of the area. "I've raised seven children here. I was here when they did Southwest. We've lost rack of most of the families that were displaced when that happened, and we don't want the same thing to happen again." About 80 people, all in the poverty range of income," live in the tract that would be redevloped, according to the interim report.

Williams said her committee improved, but we also want the people who are already here to get a fair share," Williams said. "We want those who want to remain to be able to do so, and we want the community residents to get jobs in the projects."

Arnold H. Mays, acting chief of the D.C. Department of Housing and Community Development's special projects division, said his office is awaiting the comments of other branches of the District of Columbia government before making up its mind about the interim report recommendations.

"The community wants more subsidized units, the developer wants less, and I guess we're somewhere in the middle," Mays said. "I can say one thing with assurance.

Mays said there is a reasonable possibility that Capitol Gateway will be allowed to extend the tract the additional 10 acres it wants, but said a decision on the request probably will not be made until the final phase one report received this summer. He said the city's Environmental Services Department now has warehouses and storing facilities on that property.

Robert J. Sule, manager of land development for Dravo, stressed that the report is only an interim one that will be reviewed by the city and the community. The number of subsidized housing units depends "on how many the city can finance," he said.

"We really offered them four development schemes - one for low density, medium low density, medium density, and medium high density," Sule said. "We're asking the District what it likes best. The final plan probably will be bits and pieces of each one." Dravo is being paid $200,000 for the first half of the planning. Both phases of the planning should be finished in about a year.

Sule said the corporations plans for the South Capitol Street area reflect President Carter's interest in revitalizing America's cities.

"What better place than at the foot of the Capitol to take a blighted area and revitalize it?" Sule asked.