Typically a waterfall structure is used to incentivize the developer (general partner).  

Everyone’s advice is really calming my nerves!!

When it's an unknown situation and the person doing the leg work is working to achieve that track record, then you can get better splits for the capital investor.  60/40 or more likely even an 80/20.Additionally, you can look into a waterfall model (which is kind of complex) but it creates provisions that regulate the returns to the operating partner based on the success of the project.  

Hey BP Landlords,Tenant reported a bad ceiling leak , which according to PM was caused by the water falling through between the vanity and the tub. 

Typically the General Partner receives a development fee of 5% on project costs (excluding land unless the GP led the acquisition) and is rewarded with profit sharing via a waterfall structure.   

If you are living in the property you may also elect for higher grade finishes ( waterfall center island, ect). knowing all of that I would assume $150-$175/sq.ft.as for zoning, if you have 3 story home and want a roof deck it will be more about setbacks and parapit.

They are paying a good deal below market rent and I would like to remedy that when appropriate, so I don't want to commit them or myself until things have calmed down. 

You were so kind and patient with me when I was at a high point of excitement and nerves.Due very much to your advice (and calming me down) my partner and I are on the verge of being in contract for the property (pending lawyer approval).I CANNOT properly thank you now but perhaps some day soon.I look forward to the possibility of our paths crossing again soon.Bart

@Steve Morris:D Keep calm and look it up on BiggerPockets.

Stay calm and have a beer (Or whatever you're into).