My only other option is to do spot treatments on the half that I own and call it a day.

Don't let the tax treatment stop you from making the right decision for you.

I just bought the East Oakland property so re-positioning has not started.

There was no agreement as to the treatment of money down. 

In your case you would have to be able to say that you had intended to build this house and hold it but there are now substantial mitigating circumstances you can demonstrate for why you are selling it so quickly.In general new construction and fix n flips do not qualify for 1031 treatment.

Link mentioned exterminators, for my lease I always make sure I inform the tenant they are responsible for pest control beyond termite treatment.

I am taking back a second lien on a property undergoing renovation. In a simultaneous transaction, I am entering a security agreement with the owner for a share of any profits from sale and (if applicable) rental, whi...

Or they might just start tearing down houses to avoid vacant houses or eye sores. 

There must be another reason, and it may be the lenders attempts to get around the tax laws.The treatment of the property would not impact the ability, or lack of ability to foreclose in the event of a default.

By assigning the option you can still sell it down the road without having to hold it for a year to get capital gains vs income tax treatment.