TEMECULA ---- An ambitious project is under way to build a higher-education complex where residents can earn a degree, purchase an affordable apartment, shop and check out an outdoor concert without ever leaving a 34-acre property near Diaz Road and Dendy Lane.

The City Council recently approved a deal with Capistrano Beach developer AGK Group LLC that set the project in motion. The project could go before the city's Planning Commission for approval by the end of the year or early 2005. The developer plans to have the apartments and a portion of the education center completed by fall 2006, according to city reports.

City and education officials are touting the project as the first of its kind in California, in which local agencies partner with a developer to build a higher-education facility during a time when state dollars are scarce.

The education complex would include three four- to five-story buildings with more than 115,000 square feet of classroom space available for lease by local colleges, universities and trade schools.

Cal State San Marcos, Mt. San Jacinto College and UC Riverside have committed to lease space at the center, said Joan Sparkman, who chairs the board of Mt. San Jacinto and lead the charge for creating a higher education complex in Temecula. She added that two trade schools have also expressed interest in setting up nursing, teaching and MBA programs at the complex.

Sparkman said there's already a demand for higher education locally.

"We've got 4,000 students who are taking night classes at local high schools or in available storefronts," Sparkman said. "They're here already."

Under the agreement between AGK and the city, the city "loaned" the developer 34 acres of land ---- valued at $3.8 million ---- which is owned by the city's redevelopment agency. That loan will be forgiven in 55 years as long as the developer continues to pay deposits on the property and provide low-income housing there, according to city reports.

Kading will be in charge of financing the project. A.G. Kading, the company's president, could not be reached for comment this week.

In exchange, city residents would get an education complex as well as 50,000 square feet of retail shops, a 23,000-square-foot conference center, a research-and-development building, an outdoor amphitheater with grass, a day-care center and 273 apartments ---- 50 units of which are designated for low-income housing.

Jeff Comerchero, a city councilman who chairs Temecula's redevelopment agency, said the project is key to attracting more high-tech companies to the area.

"We've long since recognized that it's important to have a university environment here, particularly for research and high-tech companies," Comerchero said. "They need a place to tap into that kind of talent."

The move comes after several months of talks and environmental reviews on the property, which has been the location for various community events such as rodeos and the Great Temecula Tractor Race.

The environmental report concluded that the project would cause "significant" pollution, particularly to air quality, during construction. The project would also worsen traffic congestion at intersections surrounding the Interstate 15 interchange at Winchester Road, according to city reports.

The agreement approved by the council includes ways to mitigate the negative effects of the project, according to city reports.

Talks are scheduled to begin this spring between the developer and college officials, said Robert Sheath, provost of Cal State San Marcos. Sheath said the university is looking to offer the same programs it currently offers in Temecula, such as teacher credentialing, and possibly courses in nursing and business.

Students from Riverside County account for nearly 17 percent of Cal State San Marcos' current enrollment and nearly 6 percent of students transferring from other colleges. Having a campus in Temecula that offers affordable housing would be a big plus given the school's on-campus housing in San Marcos, dubbed University Village, only accommodates 450 students.

"One of the issues we have down here is the amount of affordable housing for students," Sheath said.

The education complex would also allow the university to strengthen partnerships with other campuses, such as Mt. San Jacinto and UC Riverside, he added.

While Cal State San Marcos is still committed to the project, exactly when it can participate is a bit hazy given state budget cuts for California State University programs, Sheath said. The school has 900 fewer full-time students during the school year than expected.

"It may delay our ability to do it, but it won't reduce our commitment," Sheath said. "We need to have those kinds of discussions because when we entered into this, we weren't in this situation."

This is the second developer to pursue a higher-education center to the northwest corner of Temecula. In 2001, a proposal from an Arcadia-based developer fell through.