THE COLORFUL images of Fats Waller and Bessie Smith painted on the facade of the Royal Theater reflect a past as a film and musical venue designed especially for Philadelphia's African-American community.

The Royal, on South Street near 15th, was built in 1920 and is on the city's historic register.

But the building has been vacant for more than 40 years, and nearby residents and business owners have become frustrated as it deteriorated into blight.

Rather than becoming an anchor to spark development, they said, the Royal had become an anchor that weighed progress down.

But that may soon change.

Earlier this week, officials from Universal Companies and Carl Dranoff Properties met with members of the South of South Street Neighborhood Association to talk about a joint venture to bring new rental apartments and commercial space to the site.

Lauren Vidas, board chairwoman of SOSNA, said a packed house attended a meeting at the SOSNA office, on Christian Street near 19th, on Wednesday evening.

She reported that most people seemed happy that Dranoff, who has partnered with Kenny Gamble, founder of Universal Companies on a number of projects is now getting involved with revamping the Royal.

Developers told SOSNA they plan to put about 45 rental apartments, some facing Kater Street, to the rear of the property, and others on South Street, with commercial space at the street level. The historic facade of the Royal is expected to remain.

"Some near neighbors have expressed concerns about having a project of this scope and density and how it would fit in with their neighborhood," Vidas said.

But she added that the plan calls for providing one parking space for every two units, which will help address some concerns.

Neither Dranoff Properties nor Universal Companies representatives returned messages to the Daily News yesterday.

Gamble's Universal Companies bought the Royal from the Preservation Alliance in 2000.

Jessie Frisby Hyden, a former president of the South Street West Business Association, said many business owners rarely complained when the former owner, investor Michael Singer, allowed the Royal to deteriorate for 30 years since the 1970s.

Last year, investor Juan Levy went to court to try to have real-estate developer Ori Feibush made conservator of the Royal.

Neither Levy nor Feibush could be reached for comment.

Vidas said many people are optimistic, even though the latest project is still in the early phases.

She said residents have confidence now that Dranoff is involved because of his proven success with Symphony House, which was developed as a partnership with Gamble, and other projects on nearby Broad Street.

"A lot of folks are really excited to see the project move forward," Vidas said.

"This building could become the crown jewel of South Street."