The Washington Project for the Arts -- which feared that it would lose its downtown exhibition space -- is close to an agreement with the buyers of the building that would permit it to remain there until 2005.

As no papers have been signed, and something like $1 million must be raised, the arrangement may yet founder. But both sides agree a deal is likely.

The deal on the property at Seventh and D streets NW would allow the WPA's artists to keep a foothold in a now-thriving, once-decaying neighborhood that their presence helped revitalize. If such an outcome seemed remote, it is because it hasn't happened often. In Greenwich Village, SoHo, Chicago's Old Town, Provincetown and elsewhere, experimental artists have been priced out of the neighborhoods they pioneered.

"We may have pulled the rabbit out of the hat," said James F. Fitzpatrick, the Arnold and Porter attorney who is WPA's president. "There still are details to iron out, but I believe we have a meeting of the minds on most of the major issues."

"Let's not count our chickens yet," cautioned Harvey Jacobson. A patent attorney, he is one of six general partners in Jenifer Building Associates and, as their representative, holds a contract on the property.

"It is true that we appear to be close to an agreement with the WPA. I believe we've found a formula that is mutually acceptable. It would be good for the building, good for the area, good for the whole city. But things could still fall through."

Word of the apparent progress of the negotiations comes just in time for the WPA's 10th anniversary event, "A Phantasmic Undersea Carnival," to be held Saturday night at the Yale Steam Laundry on New York Avenue NW.

Jacobson's partnership reportedly has agreed to pay approximately $2.4 million for the building. Projected improvements -- which would include renovation of the property, the installation of an elevator, and the addition of two half-floors -- will require an additional $5.6 million.

Though discussions continue, the broad outlines of the deal have already been negotiated. Tuesday evening, the WPA's board approved them unanimously. "We insisted on five points," said Fitzpatrick. "They are:

"One: Our arrangements must insure the long-term security of the WPA. The lease that we've discussed would hold for nine years -- and be renewable for another nine. We'd have to move out for a year or so while the building was being renovated, but we wouldn't go far. The possibility of obtaining temporary quarters in the immediate vicinity has already been explored.

"Two: We want to preserve something very much like our present space. "We'd like to keep the entire second floor, the entire third floor and about as much space as we now have on the ground floor, though the ground floor space would probably be diffrently configured.

"Three: We have to agree on rents that we can afford.

"Four: We want some equity participation in the project. That, of course, will cost us. But we want to be more than just renters. We've tried to structure an agreement whereby we'd have an opportunity to share in, say, 10 percent of the appreciated value of the building if we decided to depart after nine years, or 18.

"Five: And we'd like to build what I call a nest egg for the WPA. Our equity participation is structured in such a way that we'd have a cache of money if we had to leave. That's crucial. The money we're providing is not going to vanish. We're trying to assure a permanent future for the WPA."

For the project to succeed, WPA will have to raise about $1 million. Less than half of that would be spent on equity participation. About $100,000 would be used for renovation. The remainder would be invested to ensure payment of future rents.

A WPA building fund, headed by trustee Robert Lehrman, has already been established.

Sculptor Alan Stone and artist Suzanne Codi (both are members of the board and Stone is now its chairman) are already planning a fund-raising art sale to be held at Gallery Row across the street on Sunday, June 15. All the objects sold there are to be donated by artists and will cost $100 each.

WPA's location could not easily be bettered. It is a sort of bridge between the National Museum of American Art, the National Portrait Gallery and the museums on the Mall. The lot was once the site of the photographic studio of Alexander Gardner, and it was there that Gardner made the last life portrait of Abraham Lincoln. Mathew Brady's studio was just across the street.

The WPA, which opened in 1985 at 1227 G St. NW, was forced to leave that property when the site was acquired for the new Hecht Co. department store. When its present building was being purchased, many artists feared it would have to move again.

The WPA, however, had important allies when it entered negotiations. The District government has long urged the preservation of a community arts presence in the downtown area. So has the Pennsylvania Avenue Development Corp.

"We've had a long-term commitment to an arts corridor on Seventh Street," said James Rich, PADC's director of development, "and I think it fair to say both parties were aware of our position. We urged both sides to continue negotiations, and we're delighted they came to the table in a cooperative spirit. We want this thing to work. I know it's not final, but the prospects do look good."

PADC's plans call for between 1,200 and 1,500 housing units in the immediate neighborhood. About 225 will be built at Market Square immediately across D Street from the WPA; another 200 are now planned for the corner of Sixth Street and Pennsylvania Avenue NW, and proposals for redeveloping the Lansburgh Building site call for an additional 225 there.

The city government also urged accommodation. "If you're going to the city for building permits, it's a lot better to have your applications on the top of the pile than on the bottom," said one WPA official. "The buyers understood that."

"We entered negotiations with a rather high-powered delegation," said Jock Reynolds. "Our key people were Jim Fitzpatrick from Arnold and Porter, Eddie Lenkin of the Lenkin development company, Suzanne Gitner of Randall H. Hagner & Co., the commercial real estate people, and Max Berry. They're all members of the board. And Max is a former head of PADC. I think they got our message."

"What we have here is a classic case of creative synergy," said Fitzpatrick. "We brought the buyers a chance to secure the active support of various governmental agencies. They've brought to us -- in a spirit of good will -- an opportunity to stay here on reasonable terms. When we entered negotiations, we figured the buyers had a choice: They could make love or war."