Money on this spec is short term-ordinary income....

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If the purchase is executed after a year, you'll be taxed at your long-term capital gains rate instead of your ordinary income rate, and you'll eliminate all of the self-employment tax on the transaction (15.3% on first $132,900). 1031 becomes possible too.

Like @Cole Britting said, anywhere in Manhattan south of Harlem is going to be safe, even Harlem and north of there are very safe relative to how they were 20 years ago. 

Some have told me that they get taxed at lower capital gains tax rates, while others have said you get a 1099-DIV which would get taxed at ordinary income tax rates.

You get to deduct other ordinary and necessary expenses against your passive rental income don’t you ? 

My current CPA informed me that since the property was owned by the LLC for less than a year, the capital gains would be treated as ordinary income.

This is a little bit tricky @Joseph Furmansky however if you look into what state law says in NY I'm sure you can find somewhere that it makes a comment that they're to return the place to you in the same condition less ordinary wear and tear.

“…has not constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business.." you should be okay.

Interest income is taxed at ordinary rates and you can subtract legitimate investment expenses whether in an entity or not.Your friend could certainly open a separate bank account and track his lending income and expenses separately in any accounting program he might use.