The D.C. Department of Housing and Community Development has selected the Dravo Corp. of Pittsburgh to prepare a plan to turn an old, rundown industrial area south of the Capitol into what is envisioned as a 40-acre tract of residences, shops, offices, and a marina - a new-town-in-town that one Dravo official said could be a new "24-hour downtown Washington."

The 40-acre tract of land stretches from South Capitol Street on the west to the Navy Yard on the east, from M Street SE on the north to the Anacostia River on the south and is adjacent to the isolated Buzzard Point area. The site is near the Arthur Capper subsidized housing project.

Announcement of the city's plans for the South Capitol Street corridor comes at a time when a number of public and private projects are planned or under way to renew large sections of the central city.

The city government has begun construction of housing along 14th Street NW, an area hard hit by the 1968 riots, and is now attempting to spur renewal of Washington's old downtown business district south of Mount Vernon Square NW.

Public and private interests have joined to develop the Fort Lincoln tract in Northeast Washington while private developers are actively renovating hundreds of row houses on Capitol Hill, in Shaw, Adams-Morgan and other central city neighborhoods north of Massachusetts Avenue NW.

District housing officials said they selected the Dravo Corp., a company involved in construction, engineering, manufacturing, transportation and natural resources development, over three other firms, primarily because Dravo was the only applicant that already owns property in the tract adjacent to South Capitol Street. About 75 per cent of the land is in private hands.

The city will pay Dravo $200,000 to develop an initial concept plan, feasibility studies, and an environmental impact study over the next six months. The initial plan must be approved by the housing department and the comunity.

Then, in a second stage, Dravo will be paid $100,000 for preparation of a detailed plan, including recommendations for all residential and commerical development, public works, land acquistion, relocation, and minority and community participation, according to a statement from the D.C. housing department.

If the more detailed plan is approved, city officials said Dravo will be given the right of first refusal to develop the 40 acre site.

Arnold H. Mays, acting chief of the housing department's special projects division, said between 40 and 60 people now live in row houses on the site. But he said it is too early to tell what, if anything, will happen to those residents.

Mays noted that the development of the site has a "potential for considerable public cost" because the hope for renewal may affect such things as site improvements, utility lines, and public schools.

"It needs some public investment or it would have been developed by private firms long ago," Mays said.

In its initial proposal to develop the South Capitol Street tract several years ago, the Dravo Corp. suggested the construction of between 3,000 and 4,000 housing units; the development of the riverfront for recreational, residential and commercial use and creation of a transportation gateway approach along the South Capitol Street corridor to Capitol Hill.

Robert J. Sule, manager of land development for Dravo, said yesterday the final plan for the area may be similar to the original proposal, but he noted, "We will know more after the feasibility study." He said it is much too early to estimate how much it will cost to develop the site but he said early figures ranged form $500 million to $750 million.

Sule said he envisioned the development as housing a broad range of family income levels and sizes.He said it probably will include high-rise, mid-rise and low-rise buildings, commercial buildings, a marina, a promenade, perhaps some restaurants, and some offices.

A city economic activity report earlier this year said the site near Buzzard Point generates about $200,000 in real estate taxes. If the area were redeveloped under Dravo's original proposal it would generate about $5.5 million in real estate taxes, the report said.

Dravo will form a subsidiary, called the Capitol Gateway Corp., to develop its plan for the area. Sule said the project tentatively has been named Capitol Gateway.

D.C. housing director Lorenzo W. Jacobs Jr. said he believes the site has "great potential because of its location ad because it is presently under-utilized," it now has a low-density mix of largely light industrial and warehouse uses.

The 40-acre tract is part of the massive, 170-acre South Capitol Street/Buzzard Point area which is targeted by the District government effort to replan and redevelop rundown neighborhoods on the edge of downtown Washington.

The Dravo Corp. currently is involved in the design of two major urban projects in New York City. One is a $400 million program to turn Roosevelet Island into a community for 20,000 persons. The other is a $1.2 billion apartment and office complex, called Battery Park City, on a 90-acre site along the Hudson River. Dravo also is planning a residential community on a 1,300-acre tract in Charles County, Md.