The main one being material participation. 

1.Activities That CountTo meet the material participation criteria, you must log your hours in a detailed and ongoing logbook throughout the year.

This would help us benchmark and explore simpler alternatives while understanding how complex the structure mentioned above truly is.I assume they are not actively managing their business?

Denver Creative Housing, Denver Sublets, Roomies, Roommates, and so on, there are a few good ones)Also, I use Roomies as well because it is a site specific to finding roommate tenants, and there is a huge demand for it as well, so it is a great alternative to fill vacancies for houses if your owners are open to it and you price it correctly. 

They took on more projects than they can handle just as a number of market variables turned against them: materials costs and availability and staffing, both back office and subs, just to name a couple.

Am I approaching this the right way, or am I missing a better alternative?

I would look at wisp as an alternative comparison when talking to realtors. 

Materialism is his love language.

In one of the posts some of their marketing materials (not sure how old it is) had him listed as CFO but also noted he worked as a fractional CFO.

However, as W2 earners, these losses are considered passive and can only offset passive income unless you or your spouse qualify as a Real Estate Professional (REPS) by meeting the 750-hour and material participation requirements or STR is used.