They already caused the harm by losing the 1st deal.

The crazy thing was that we didn’t lose cash flow by doing this because the mortgage pay down reduced more expenses than we lost in income from selling the properties!

They have agreed to sponsor multiple deals with students and then backed out of them causing their students to lose significant amounts of earnest money.

A more general observation on this topic, intended for you and any future readers - find out from the agency that has control over this area exactly what it takes to LOSE grandfathered status.

As far as OOS investing, please read the many posts from people in HCOL areas, especially California, who are losing money on OOS properties (myself included). 

Which ultimately leads investors' to lose confidence in them and of course their trust.It sounds like most LPs prefer GMs who have been through multiple real estate cycles.

I've seen friends do business with friends, no contract, no position just a handshake and lose $200k.

If your focus is on land development, my advice would be to place a greater emphasis on learning the zoning code. 

In my experience, about 80% of them will break the lease early and you'll lose money because you negotiated a lower price!

Most of them are going to lose money or with a tiny profit from I can see.eg. lot aqiuisition at $250k, 4000 sqft of house will be $800k to build.