The Hyatt Hotel Corp. is considering a multimillion-dollar expansion plan that could add hundreds of rooms to its Hyatt Regency hotel on Capitol Hill with the construction of a new building on an adjacent block. The two structures would be connected by a tunnel or a skywalk across First Street NW, a Hyatt official here said.

The deal hinges on Hyatt being able to put together the financing necessary to buy an unneeded tract of federal property at a government auction now scheduled for Sept. 29, according to John P. Kyle, a Coldwell Banker agent who is advising Hyatt.

Federal Property Resources Commissioner Carroll Jones said the sale "is going to be one of the biggest deals we'll pull off in the federal land sales program."

The land occupies about two-thirds of city Square 571--a block bordered by First and Second and D and E streets NW. Most of the remainder of the block is occupied by the National Association of Counties' building.

Part of the tract, controlled by the General Services Administration, was the site of a campus of the University of the District of Columbia until the school moved to its new Van Ness campus last year. The federal government was left with a dilapidated three-story cinder-block building that no other federal agencies wanted as office space. In addition, GSA controls adjacent parking lots totaling about an acre.

Originally, the agency had planned to sell only the former UDC building, but after Kyle and Hyatt Regency Vice President Richard C. Nelson met with GSA administrator Gerald P. Carmen in August, it decided to sell the parking lots as well.

GSA regional Public Buildings Commissioner James G. Whitlock said the agency was not influenced by Hyatt interests because a routine screening of underutilized federal properties by mid-level land sales bureaucrats in GSA's Atlanta office had already shown the addition of the parking lot along E Street would "increase the value of the property about tenfold."

"This is going to be an open, competitive sale," said Carmen. "If we don't get the fair market value, there's no deal. Everyone has an equal chance--Hyatt has no special advantage." GSA, by law, cannot disclose what it regards as the fair market value.

John Arnett, a Hyatt official here, confirmed that the company is eyeing "an annex to the hotel. We've looked at it and we're interested in it the land . It is still a matter of making a deal."

"What we're faced with is having a limited amount of time to make a huge financial commitment for that property," Kyle, of Coldwell Banker, added.

Besides Hyatt, only Shannon & Luchs has shown an active interest in the property on behalf of undisclosed interests that may want to construct either a hotel or an office building, according to agent Peggy Smith.

"I am very interested in the fact that Hyatt is interested," she said. "That could revive my clients' interest."

GSA is doing what it can to goad potential bidders. Said Jones: "If the Marriott people are smart they're going to want to make the Hyatt people squirm on this as soon as it begins to be known" that property is available on Capitol Hill. If Hyatt is successful in snaring the parcel, it would virtually assure its permanant dominance in the number of hotel rooms in the crowded Capitol Hill area, he said.

"This is the last chance for someone to get a decent-size parcel in the area," Jones added, noting that the federal govenrment "can earn, from this sale, an amount in the eight-figure category." At $100 a square foot--a "going rate" in the area according to several real estate agents--the property would be worth $8.5 million. But GSA research optimistically shows that commercial properties in the area, "when available," are selling in the range of $200 to $300 a square foot.

Some agency officials and real estate brokers speculated that GSA pressed for a quick sale in order to include the proceeds in its fiscal 1983 land sales totals. With little of the advance hoopla that usually surrounds a major sale, the agency originally set the sale of the UDC building for Aug. 31--then abruptly pulled that plan back until the parking lot could be declared excess and turned over to the sales crew to be added to the offering.

GSA has been under pressure to meet a Reagan administration target of $644 million from the sale of unneeded federal property and is barely at one-fourth of that mark as of the beginning of the month.

Kyle said that pressure for the September sale could "stop us from being able to put together the financial package we need--this is a cash sale."

Deputy Assistant Commissioner of Real Property James J. Buckley said a 45-day advance notice was "not out of the ordinary," although Whitlock said even today Buckley's troops are in Atlanta still bickering with his staff over crucial details surrounding the parking lot. That controversy is about what happens to Frederick L. Sims, a small businesman from Columbia, Md., who won a three-year federal contract in July 1983 to operate the parking concession on the property.

At that time, Whitlock contends, no one thought about pairing the parking lot with the building that was to be sold. His position now is to allow Sims to continue to operate the lot until the land is sold and then allow the new owners to take over the lease--which has a 45-day termination clause.

But Atlanta regional administrator Donald F. Layfield said that "to burden the property with this lease has the effect of limiting the options of any future owner in developing the property as that owner might see fit." Although Layfield wants Sims' lease terminated immediately, Whitlock wants to fight for the rights of the small businessman.

Sims, who has appealed his predicament to Carmen--without response--could not be reached for comment.

The parts of Square 571 under GSA control was originally acquired by the Reconstruction Finance Corporation, a quasi-federal agency, in 1947 for $1.7 million, according to GSA records.

Prospective buyers can visit an on-site information desk that has been set up in the building lobby 1 p.m. to 4 p.m.