As the underwriting institution, I feel like this would be a valuable proposition since the upside if quite huge in case I default on the loan. 

Building spec is no small proposition.

Bottom line is I found their marketing 'machine' to be great, but their value proposition to be lacking.

Looks like you need to add Property Management to your calculations - this is always good to add even if you PM the property as your time is worth something and in the future you might want to move it to PM and then you would need to be able to account for this 10%+ cost which would bring this to a breakeven cash flow proposition(equity gain from principal paydown and potential appreciation value increase notwithstanding - which might be a big factor in SF) which then you need to cover repairs for the property which might be where the $350/mo comes from.Seems like a skinny deal at <1% rent/mo vs.

In other words, he can stop selling for at least a few months while he 'works off his debt' with you.Accepting this proposition is SIMPLE LAZINESS on your part.

I love the idea of calling the malls, but trying to figure out a % of sales in a cash business seems to be a losing proposition.

For those that could afford to buy but choose to rent, it is a value proposition.  

You will need a new agent starving with nothing else going on to entertain such a proposition.

Interesting proposition you mention here.  

(Maybe I read the post wrong however sounds like a dicey proposition to ask them to carry the note if they are in the midst of turmoil)