Generally people with substance abuse have "issues" in ALL areas of their lives -- so your neighbor the PM needs to start inspecting and enforcing all the current lease provisions. 

You'll find probates, deceased owner (pre-probate) and missing owner deals [my specialty] and substance abusers, hoarders, etc.

Additionally, does anyone have any idea the burden of proof required to evict a tenant for illicit substances?

While your reply gives me "food for thought", your lack of examples leaves your post lacking much true substance.  

@Raymond Lawton,  The optics and substance of the transaction are in favor of it not being classified as a step transaction.  .  

Curious about this, I spoke to a few buyer's agents I know who work in those small multi-families and they told me that this is simply the market.These agents did not have any idea what their client's long term investment strategy was and were not able to put together any kind of pro forma of substance. 

"Drug-related illegal activity" means the illegal manufacture, sale, distribution, purchase, use or possession with intent to manufacture, sell, distribute, or use of a controlled substance (as defined in Section 102 or the Controlled Substance Act [21 U.S.C. 802]) or possession of drug paraphernalia. b.

Cash, or "cash like substances" are the best way to buy and that means you can buy for as high as 100% (don't make a habit of this), and then refi most of your cash out to use again.  

However I am seeing a small but growing number of accountants who are willing to document an arms length market transaction and be willing to document a substance over form argument. 

I tried a google search of local companies, and didn't find much of substance.