The largest piece of private property in the District of Columbia, the 40-acre John Archbold estate on Reservoir Road NW, will be turned into a multimillion-dollar luxury housing development by C.W. Murchison Jr., the Texan who owns the Dallas Cowboys.

Officials of a company owned by Murchison said yesterday they have leased the estate, known as Hillandale, from Archbold and his family. The lease calls for payments to the Archbold family in "excess of $1 million a year" and reportedly includes "cost of living escalators" that will double the annual rental over its 99-year term.

A mixture of at least 300 detached and clustered houses, selling for $300,000 and up, will probably be built on the land, said John Williams of Hillandale Development Corp.

Murchison formed the company last month to develop the estate, a project to develop the estate, a project that real estate industry sources estimate will cost at least $75 million and take several years to build.

A housing project that big would bring the city about $10 million a year in additional real estate and income taxes, said J. Kirkwood White, assistant D.C. planning director.

It would also bring additional traffic, people and controversy to a neighborhood where any proposed development usually produces out-cries.

The estate, covering almost 16 blocks on the western edge of Georgetown is already zoned for housing, so the developer will have few administrative hurdles to clear before beginning work. A subdivision threatens to displace the R. Sareant Shriver family. Page A5 Hillandale is a few blocks away from the Foxhall Road estate of Nelson Rockefeller, where another developer plans to build about 125 houses the $300,000 to $400,000 price range. D.C. City Council member polly hackleton (D-Ward 3) who represents the neighborhood, said yesterday she hopes the development of Hillandale will include "the same kind of regulation that the Rockefeller property, agreed to let neighbors participate in planning the project. "I would hope that Hurchison would do the same thing and work with the community," added Shakleton.

Williams said the developers already plan to "meet with interested parties, public and private, so we have a project that is economically feasible and solves more problems than it creates."

The Archbold and Rockefeller family fortunes flow from the same oil wells. John D. Archbold was the original partner of John D. Rockfeller in the Standard Oil Company.

Archbold's daughter Anne built Hillandale's eight-bedroom mansion, in the style of a 14th century Italian villa, starting in 1921. She gave away part of the property to form Glover-Archbold Park, which now abuts Hillandale on the north and west sides. On the south, the estate fronts on Reservoir Road for about four blocks. And 39th Street, from Reservoir north past S Street NW forms the eastern edge of the property.

The land now is owned by Archbold Investment Co., a family company headed by John Archbold, the son of Anne, who lives in the house he is not at his country home in Upperville, Va., at his English estate, or traveling.

Williams said the developers have not decided what to do with the sprawling stucco villa. In addition to leasing the land from the Archbolds, the developers paid $600,000 for the mansion, outbuildings and gate-house now occupied by socialite Page Lee Hufty, a member of the Archbold family.

Under the agreement, Archbold can live in the house for two years, while the developers are planning their project. Hufty can stay in her residence for a year.

The other owners of Archbold Investment Co., who will share in the $1 million-a-year income from the lease, are John Archbold's four daughters, Anne Archbold Collins, Moira Archbold O'Connor, Lucie Schelling Archbold and Jennifer Archbold.

Richard Mullens, the attorney who represented Archbold in the transaction, said, "The principal factor that prompted him to do something about the property at this time was the District of Columbia property tax."

Mullens said the house was "just too costly." With an assessed value of $5 million, the highest on the city's tax rolls, the taxes on the property last year were $65,000.

Taxes were also the reason Archbold decided to lease the estate raather than sell it, Mullens said.

If the property were sold, capital gains taxes would take almost 50 percent of the money. Income from the lease will be taxed as ordinary income, presumably at lower rates. The $1 million-a-year rental amounts to an 8.5 percent return on a $12 million investment, the cash price upon which the sale was reportedly based.

The Archbolds also have an unusual two-year option allowing them, in effect, to force Murchison to buy the property, for as much as $14 million, depending on when the option is exercised.

Leasing the land creates major legal headaches for the developers, said Washington attorney E. David Harrison, who represents the Murchison interests, because land leases have never been used for residential developments in the District of Columbia.

Building houses on leased land is common practice in some areas, including Baltimore, but D.C. laws might have to be changed to make the Hillandale project feasible, the attorney said.

In another major development in Northwest Washington, California builder Dwight Mize recently signed a contract to purchase McLean Gardens, a 723-unit apartment complex on Wisconsin Avenue, and convert it to condominiums.

In Northeast, two developers have purchased 25 acres on Michigan Avenue from Trinity College and plan to build 534 town houses there.