The District's urban renewal agency, waiving its rules requiring minority ownership, yesterday sold a city-owned warehouse to the heirs of Joseph P. Kennedy for construction of a $20 million furniture market.

The seven-story warehouse at Fourth and D streets SW will be developed by the Kennedy-owned Merchandise Mart, Inc., which has proposed turning it into a wholesale center with between 200 and 250 furniture display rooms, a scaled-down version of the company's huge showroom palace in Chicago.

For the last three years, the city's Redevelopment Land Agency has attempted to encourage minority involvement in lucrative urban renewal projects by enforcing an unwritten rule that development teams be at least one-fourth minority-owned.

But that policy was dropped during the Merchandise Mart negotiations when lawyers for the Kennedy family insisted they could not alter two Kennedy trust funds that do not allow ownership outside the family.

In exchange for waiving the minority equity rules, city officials said yesterday they negotiated a "tough" affirmative action plan requiring the Kennedys to lease all parking, restaurant and security concessions at the mart to minority companies. In addition, the Kennedy lawyers have agreed that 30 percent of the construction jobs and mart staff positions will go to minorities.

"It was a question of trade-offs," said city housing director Robert Moore, who has strictly enforced the minority ownership rule on other city projects. "We wanted the public benefits of minority participation on the project, but we decided they could be handled in other ways."

"Because of the nature of the trusts, minority equity wasn't a consideration; it wasn't possible," said George Keys, a lawyer for Merchandise Mart. "The trusts were established to benefit the Kennedys."

Keys said two separate limited partnerships are being formed to purchase the Southwest warehouse. One partnership, called WDC Associates, consists of a trust for the children of former ambassador Joseph P. Kennedy; the other called, Fourth and D Street Partners, consists of the Kennedy grandchildren.

The agreed-upon price for sale of the 103,795-square-foot building yesterday was $3 million, or $29 a square foot.

Moore said Merchandise Mart has agreed to renovate and expand the existing warehouse on its own, saving the city $1 million that it has budgeted for demolishing the abandoned structure.

The proposed furniture marketplace has been strongly supported by city officials, including Mayor Marion Barry, who say it will bring vast economic benefits to the District. According to a recent study by the city's Office of Business and Economic Development, the project will create 180 new construction jobs and 515 permanent jobs to staff the showrooms. It will also attract tourists and convention visitors and bring in $3.3 million in annual tax revenue to the city.