The District of Columbia government's plan to raise $9.3 million by selling 17 parcels of surplus land hit a major snag yesterday when no one offered to bid on the first presumably choice site -- the old Corcoran School on M Street in Georgetown.

Cash-strapped city officials had hoped to sell the 33,000-square-foot site across the street from the Four Seasons Hotel for at least $2 million, and more than 40 potential purchasers expressed an initial interest in bidding.

However, the auction was called off only hours before it was to be held. Despite the 40 expressions of interest, no one was willing to put up the $200,000 earnest money deposit required to take part in the bidding, according to Jean Oliver, head of the city's surplus property office.

Oliver and several real estate investors and analysts interviewed yesterday said high interest rates, difficulty in obtaining loans for commercial development and an overall slump in the real estate market may have scared off potential buyers.

Moreover, zoning restrictions on the site would limit office or commercial construction to a third of the total site, Oliver said. Most of the land is zoned for residential construction.

"They should have auctioned off this land a year ago, when financing was available and the real estate market was as hot as a firecracker," said one knowledgeable real estate analyst. "Right now the market is in shock because of high interest rates."

Others said they nevertheless were puzzled by the city's inability to attract any buyers.

"It's a terrible economic climate to be developing anything at this time," said Donald A. Brown, an investor and part owner of the Four Seasons Hotel, 2800 Pennsylvania Ave. NW, across the street from the school. "But that cancellation just didn't make sense."

Oliver said, "This is definitely not a major setback for us, although it's too bad it happened on our first property."

He said the city intends to go ahead with its plans to auction another parcel, the old Georgetown incinerator site at 31st and K streets NW, on Thursday. Oliver said the city would contact some of the 40 who expressed interest in the school site to see if there was another way the building could be sold.

The city plans to auction off nine parcels and accept sealed bids for eight others.

Mayor Marion Barry has said that the sale of the Corcoran School and the Georgetown incinerator would bring major economic returns to the city, at least $6 million for both.

The eight-room, two-story red-brick school house at 2715 M St. NW, adjacent to Rock Creek Park, was built in 1889 and was used as a public school until 1951. For the last two decades it has been used by the construction and maintenance division of the D.C. Department of Transportation.

The Citizens Association of Georgetown has urged the city to retain the building for its historical value and sell the portion of the property fronting on M Street for commercial use.

Robert C. Zimmer, a member of the association's board, contended yesterday that his group's opposition to the proposed sale discouraged buyers from stepping forward.

"We think the reason they didn't get any bids was because the developers knew the community opposed it," Zimmer said.

Other surplus properties that will be sold include old fire stations, schools and parking lots that are vacant or are used on a temporary basis by city agencies. One parking lot, at Third and E streets NW, carries a $1.4 million minimum price tag. Another lot at 13th and N streets NW is expected to bring the city at least $700,000.

City officials have estimated that more than 500 permanent jobs and 900 construction jobs will be generated by the sale and development of the surplus land.

A real estate analyst said yesterday that the city's $2 million minimum asking price for the Corcoran School site, or roughly $60 per square foot, is in line with recent real estate transactions in that area. The city probably couldn't get much more for the site because of the restrictive zoning, the analyst said.

In effect, the zoning splits the property in two for development purposes, with commercial construction restricted to about 11,000 square feet fronting on M Street and the rest zoned strictly for residential units.

Real estate developers would be prevented by the zoning from combining commercial and residential units in ways that would be considered profitable, some experts say.

Brown, a partner in JBG Associates and part owner of the Four Seasons Hotel, said his firm does not plan to purchase the Corcoran site.

"We're certainly interested in everything that happens around there but we didn't consider purchasing it," Brown said.

Brown said that the sharp decline in consumer demand for new condominium apartments, in reaction to high interest rates on mortgate loans, created a serious slump in new residential construction and lessened investors' interest in properties like the Corcoran School site.

Even when developers offer to write down or subsidize the monthly interest costs of those who buy new apartments, Brown said, people are slow to get over their fear of entering the housing market.

"When people stop buying housing , they really stop buying," he said. "It's like cows that get led in a particular direction."