I think he calls it "pre-development" & goes over subdividing, entitlements, permits, etc.  

Class C transitioning to Class B: more renovated homes, higher income tenants and homeowners moving in, nice cafes, shops, restaurants, coffee shops opening up.An extreme example of Class C to B is in San Francisco - when I was a kid, what was not a safe neighborhood and had lower income people, is now in high demand and tech workers making $200,000+ are living there and people walking around at night going to restaurants and shop. 

If your leasing application process is thorough and well thought out, and if your lease agreement has been well drafted by your local attorney and if it includes clauses that permit you/your property manager enough latitude to maneuver and anticipate undesirable tenant behaviors, both actions and inactions, and you have operational processes which align with enforcement of your lease, then you've done all you can do to reduce this inherent risk of an undesirable tenant.  

Another consideration is the permitting process and local zoning quirks, which can slow you down or force design changes mid-stream.

From simple rules like permits to outright bans so that is a huge risk IMHO.

Our local towns and rental assistance programs really appreciate those that try to work with their tenants which has helped me several times through easier permitting processes.

NYC DOB considers a shelter a 'community facility with sleeping quarters' and may require a special permit for this use.Thanks Abel, You provided me with the right search terms to dig deeper. 

Plus, they are watching their co-workers one at a time move this way and they want to "jump on the train" and join them by owning property here. 

And I have below clause in the leaseRental Application: Only those people indicated on Tenant’s rental application are permitted to reside at the Premises, with the exception of any minor children born to, or adopted by, Tenant.

Does that mean I'm all set and can break it up in to separate units, or do I need to get a permit or rezone or other things?