III. 35% of the high-demand prime commercial space (~10,000 SF) was vacant at close and was never marketed for rent online.

If you open up the wall to do something, you will need a permit for plumbing and electrical a lot of the time because they will want to see behind the wall before you close it.

$500,000 after taxes is likely close to $325,000(maybe more or maybe less).Assuming cash-flow from rentals is offset by depreciation, you would need $325,000 of annual cash-flow from the rentals.If you can get $200 / door / monthYou would need 135 doorsYou can work on this type of math to figure out how much rentals you need.Be mindful that rentals require some type of work.

I know a HELOC normally does not come with much of a closing cost, but over the long-term, this might make the most sense. 

Has that project closed? 

The minimum down payment for a property in this price range would be roughly $27K.That said, you also need to account for bank closing costs, inspection costs, appraisal, attorney fee, and title costs.Your scenario may require a seller's concession to account for these additional expenses.Investing with $50K is totally possible in this market but your journey may be met by challenges i.e.

Now what will be the plan after they move out ( if they decide to) is probably lease to a medical corps too since the close proximity to the big hospital.

I recommend quoting your state law for right of entry, or something very close to it.I say we will inspect, but I don't give a timeline or frequency.

The problem with this option is that the equity payout would be pretty close to the same as the HELOC payments.

They're good to have open access to capital/cash/equity to a property ahead of time so you can execute a deal or purchase when the time comes on a split second decision (versus having to apply to a loan at that time which might take 20-45 days to get approved/closed/etc plus by that time you dont know what your future income/credit/assets will be like in order to qualify anyway).The second use is sleep at night factor and having a reserve of capital in the event an emergency event occurs in life.For these two reasons is why I use lines of credit.