A prominent developer owes the city $1.5 million under terms of a loan agreement, but the city is letting him pay about a third of that, and is forfeiting a share of potential profits in the successful Promenade at Inner Harbor East apartment complex.

John Paterakis of H&S; Properties Development Corp. built the 113-unit apartment building, starting in 1995, with the help of a $1.49 million no-interest, 25-year loan. The loan is federal money administered by the city's Department of Housing and Community Development.

Under the deal, Paterakis was to repay the loan to the city if he refinanced a separate, $10 million loan secured for the project.

Paterakis is refinancing. But the city's Board of Estimates agreed yesterday to allow him to repay just $568,000.

City Comptroller Joan Pratt cast the lone vote against the deal, calling it a "sweetheart deal" for a big developer.

"This city can ill afford to give away $500,000 ... when you have people at the department of education being laid off during this holiday season," she said.

"The document agreed upon by the developer and the city indicated that we would receive the full $1.4 million, so why would the city not honor that and why would the developer not honor that?" she said. "I know why the developer won't honor that - the rich get richer. And the citizens of Baltimore get poorer."

Paterakis could not be reached for comment yesterday.

Supporters of the deal said the city would benefit. They said having $568,000 in city coffers today is more valuable than receiving $1.5 million about 20 years from now, when the loan was to come due.

"If they don't refinance, we get nothing for 20 years," said Doug Austin, HCD's deputy commissioner for development.

Mayor Martin O'Malley noted that many developers regard this type of loan - an Urban Development Action Grant (UDAG) - as something they can walk away from. For many years, the mayor said, the collection rate on the loans had been "abysmal" and "nonexistent" because cities had wide discretion to forgive the debts if a project's financing went sour. He said the collection rate has improved in recent years.

"Developers regard UDAGs as something you don't have to pay back," he said. "Now we can get some dollars back."

City Real Estate Officer Joseph A. Wesolowski spoke against the deal, in part because the city did not have time to estimate how much it would be forfeiting on its share of potential profits from the apartment complex, which is 97 percent occupied.

Under the loan agreement, the city would receive 5 percent of the net proceeds if the complex were sold before the loan is paid. Over the life of the loan, the city also was entitled to 12 percent of the project's annual net cash flow, after the developer took a 15 percent return.

As part of the deal for the loan to be repaid early, the city gave up its share of annual and sale profits without knowing what they might amount to, Wesolowski said.

The city did not have time to have the project appraised to estimate those profits because H&S; was pushing the city to act yesterday, so it could refinance by the end of the year, he said. H&S; was supposed to provide the city with audited financial statements every year showing its net annual cash flow, but never did, he said.

Officials from H&S; said they would provide the statements for the complex.

O'Malley said it would be "a long, long time" before the city would have seen any profits, if ever, because the deal allows the developer to take its profits first.

"I think this is a good deal for the city," he said.