Penn Branch Shopping Center, a mix of shops and D.C. government offices that has long been envisioned for redevelopment, is facing foreclosure and headed to auction next week.

The developer, ICG Properties, bought Penn Branch in December 2005 and spent nearly eight years working with residents and elected officials to upgrade the dated center, spending nearly $500,000 on designs and plans along the way.

Located at the corner of Pennsylvania and Branch avenues, the center is bordered by middle class neighborhoods and residents have long been pushing for improvements. Mayor Vincent C. Gray, council member Yvette Alexander (D-Ward 7) and former council chair Kwame Brown all live in the area.

But after paying more than $24 million for the property near the peak of the market, ICG was unable to clear the redevelopment plans with its lender, according to company principal David Stern.

About $20 million remains on a loan the company took out to buy the property and eventually ICG began defaulting on loan payments, Stern said. Special servicing firm CW Capital — an expert in handling distressed real estate — put the loan into foreclosure proceedings and Alex Cooper Auctioneers now plans a foreclosure auction May 8. The listing is online, and bidders are being asked for a $1 million deposit.

Stern said he was profoundly disappointed by the demise of his plans. His company is likely to lose $5 million it used to buy the property, and he said he felt even worse for the residents who had met with him on numerous occasions to hash out the plans.

“That’s an occupational hazard of real estate. But the community gets hurt by this, the city gets hit by this, and the bond holders are going to presumably take a hit,” he said.

Stern and his company are still at work on a downtown office building and new sanctuary for the Third Church of Christ, Scientist just north of the White House, which ICG is building with JBG Cos. Robert A.M. Stern is the architect.

But the chance to burnish a neighborhood project east of the Anacostia River, one he worked on for eight years, is about to pass him by.

“It’s really sad. The city was willing to commit. The neighborhood was one the best neighborhoods we ever worked with…the neighborhood deserved better than this. It’s really a shame.”

Follow Jonathan O’Connell on Twitter: @oconnellpostbiz