A group of investors has bought the Pulaski Building, a 10-year-old office structure near Union Station, for $40 million -- the fourth-largest price paid for a single commercial building in the District and a sign of renewed interest in that neighborhood.

A limited partnership of individual investors bought the eight-story building at 20 Massachusetts Ave. NW from FMI Financial Corp., a holding company based in Cincinnati that has interests in telecommunications, insurance and real estate.

The general partner is MLH Income Realty Partnership V, formed by Merrill Lynch Hubbard Inc., said David Young, a company vice president. Merrill Lynch Hubbard is a real estate investment company owned by Merrill Lynch & Co. The limited partners are individual Merrill Lynch clients, he said.

The group bought the building "for investment purposes," looking forward to both an appreciation in value and a reliable cash flow, Young said.

He described the neighborhood near Union Station and Capitol Hill as a "terrific area with a lot of promise in the next few years." The fully leased office building stands near the Sheraton Grand Hotel, about one block from the train station and about three blocks from the Hill.

The location is "in the pathway of the future," said Justin Hinders, a local real estate broker and investor, adding that the purchase should "further stimulate an already active neighborhood."

Last year, more than 20 sites in the area were under construction or slated for development, including at least three new hotels, two educational facilities, restaurants, stores and offices. The centerpiece is to be the $140 million overhaul of the train station building, which is to add shops, restaurants, movie theaters and offices to the existing railroad facilities.

Because of the prospects for development in the area, the buyers can expect the building to appreciate "at a little faster clip than one in a prime location," Hinders said.

The buyers also will obtain a steady income from a building that is fully leased, Young said. The U.S. Army Corps of Engineers is the major tenant, he said.

With 315,000 square feet of rentable office space, the building sold for about $127 a square foot, or well under the $200-a-square-foot rate common along prime commercial locations such as lower Connecticut Avenue NW and some stretches of K Street NW.

The $40 million price tag was the fourth highest recorded for a District building, and the highest within the last year, according to Rufus S. Lusk & Son Inc., a local real estate information service.

The largest price paid for a District building was $50 million in 1984 for an office complex at 1300 New York Ave. NW, Lusk said.

In 1983, the Shoreham Hotel at 2500 Calvert Ave. NW sold for $45 million, and an office building at 1333 New Hampshire Ave. NW sold for $43 million, Lusk said.