Is it permissible to purchase a building from the one-third of the deceased's wealth designated for charitable causes, then to make it an endowment and spend its revenues on charitable and benevolent causes?

Yes, what your grandfather did was correct, and there is no harm in dedicating the bequeathed one-third to the construction of an endowment (waqf), as this is among the acts of righteousness that the grandfather specified for the one-third. This is based on the Prophet, peace and blessings be upon him, who said: "When a person dies, his deeds cease except for three: a continuous charity (sadaqah jariyah), knowledge from which benefit is derived, or a righteous child who prays for him." The continuous charity is the endowment. This is what the Prophet, peace and blessings be upon him, guided Umar, may Allah be pleased with him, to do when he wanted to spend his wealth on acts of righteousness. Acts of goodness and righteousness are many, including: endowments, charity, spending [in Allah's cause], building mosques, constructing schools and hospitals, and sponsoring orphans.