Sorry to hear you are going through this. That's a very frustrating ordeal. I have a very similar situation at a property in Kansas City. There are some beautifully renovated 125+ year old mansions in the neighborhood and other properties that are in varying states of neglect and disrepair (even some with windows boarded up on the same block).
I would not start panicking and immediately assume that you will need to sell or shift to long term rental. I've done very well with my similar property (almost all 5-star reviews, super host status, etc.) and I believe one key is ensuring that your listing clearly conveys the current situation of the neighborhood. In my listing I highlight the fact that it is a very up and coming and desirable area going through rapid redevelopment, super close proximity to many things to do, historical facts about the area, etc. I even found a few books that the neighborhood group put together that detail the history of the are and I leave copies of those in the unit.
Spin it in a positive light while still letting people know what they are getting into, provide a clean and well put together place for them, and I've found that many of my guests end up commenting on how cool the neighborhood is.
One of my first Airbnb stays was at an apartment in Bed-Stuy, Brooklyn back in 2014 and from the outside it looked like an abandoned building and the intro to a horror movie. It turned out to be a super cool place inside and I couldn't have asked for a better stay. Unfortunately, it sounds like you ran into someone who had very specific expectations and no willingness to give it a chance.
Feel free to DM me if you'd like help reviewing your listing or want to see if you can glean anything from mine.
