A subsidiary of a Maryland savings and a loan and a local construction firm have received a $554,000 federal Urban Development Action Grant to help finance the renovation of an old boarded-up warehouse at 14th and U Sts. NW, across from the city's new municipal office building.

First Maryland Financial Services Corp., a division of First Maryland Savings and Loan, and Duro Construction Co. plan to convert the 83-year-old warehouse at 1436 U St. NW from a unsightly pigeon roost into an office building which would open in the fall of 1984 along with the the $39 million municipal building.

The UDAG award is a rarity for Washington, which has managed to win only four of the much-sought-after federal grants since the program's inception five years ago. The U.S. Department of Housing and Urban Development started the program to spur private investment in undesirable and economically depressed city neighborhoods.

The 1968 riots following the assassination of civil rights leader Dr. Martin Luther King started at 14th and U, and the destruction that followed transformed the corner from a crossroads for middle class black Washington into a notorious hub synonymous with drug trafficking and other illicit activities.

"We hope this project in connection with the new city office building will bring about the revitalization of the area and a return of the kind of people who use office space," said city Housing Director James E. Clay.

"It's an anchor to attract other people," he continued. "We can draw professionals who will live and work in the area."

The warehouse renovation is exactly the kind of private development that city officials hope the municipal buildings will spawn in the low-income neighborhood.

The area began experiencing something of a renaissance five or six years ago when real estate speculators bought up many of the Victorian homes in the area, reconditioned them and sold them at inflated prices to middle class blacks and whites, but high interest rates halted that revival.

Charles Gueli, executive vice president of Duro, a firm specializing in interior renovations, said "I think that the area has a great deal of potential. We are on the cutting edge of development. . . . We like the idea of getting in early. We know there is a lot of risk there, but we think it will work."

Gueli said he expects to rent space in the building to businesses doing a lot of work with the city government. "If it wasn't for the city's building, we wouldn't be there," he said. "The area has an image problem, and people are waiting to see how things develop."

Duro and its partner, First Maryland Financial Services, intend to spend $2.1 million in private funds plus the federal funds to convert the warehouse into 29,325 square feet of rentable office space, according to HUD officials.

But before any federal funds can be spent, the city must sign one set of agreements with HUD and a second set with the developers.

HUD gives UDAG funds to cities such as Wahsington, which in turn lend the money to developers. Washington then will lend the $554,000 to the developers at 6 percent interest for 20 years. But there is a moratorium on principal and interest payments for the first six years, although the interest will accrue during that period, city officials said.

"We want to give the project a chance to perform," said city housing official James E. Kerr.

The private developers convinced city and federal officials that the federal money was needed to subsidize the mortgage. Gueli said the rents in the building -- which will begin at $14 a square foot -- could not repay the $1.7 million, 30-year mortgage from First Maryland Savings and Loan. That mortgage carries a minimum interest rate of 13 percent and will be adjusted quarterly, according to the UDAG application submitted by the city to federal officials.

Construction is scheduled to begin in June.

The warehouse, known as the Bennett Building, has been a popular piece of real estate, having four different owners in the last nine years, with the sales price escalating from $64,750 in September 1974 to $302,450 last year. The city currently has assessed the property, which includes a small parking lot in front of the building, at $292,000, according to a directory published by Rufus S. Lusk and Son, a real estate publishing company.

For many years, The Society of St. Vincent DePaul owned the warehouse and ran a used-furniture business there. In September 1974, the society sold the building and the parking lot to Rocco Lupino for $64,570, according to Lusk. Three years later, in September 1977, Lupino sold the property to Emerson C. Marion of 1104 Ninth St NW for $85,000, according to Lusk.

Less than a year later, in April 1978, Martin sold the property for $150,000 to Robert B. Miller, a real estate enterpreneur who owns several rental properties in the District and was once in the business of buying and renovating homes in the central city.

On July 17, 1980, Miller sold the property for $365,000 to a partnership which he headed and the same day received a $272,750 mortgage from First Maryland Savings and Loan, according to records filed at the D.C. Recorder of Deeds.

But two years later, Miller defaulted on that loan, and the bank foreclosed. At the September 1 foreclosure auction, the successful bidder, Jay Ehrlich, bought the property for $302,450, according to the land records, but bank official Julian Seidel said Ehrlich gave the property back to the bank last November.

Miller applied to the city for a UDAG grant in November 1981, and about the time that HUD received the application, the bank had announced the foreclosure. Seidell said the application was amended to reflect the new owners.