Lenders generally will not lend on a property where the collateral for the mortgage Is subject to demolition at the city's whim.I'm not even sure a Hard money lender will agree if a demolition order is on title.

Being the value is obviously diminished on the collateral, you would have to go after a deficiency judgement to collect the remainder owed.Note to self.... 

If "deadly fire" means that your collateral was destroyed, then your last recourse could be to a vacant piece of land or a property with a burned out shell on top of it.

If you don't have project history, you can offer collateral.

The promissory note is secured against the property as collateral by way of mortgage recorded against the deed. 

We are now talking to the mortgage lender (the same lender for the three replacement properties) about securing a significant line of credit using the apartments as collateral so we can do some other short terms deals with "cash purchases" then refi, etc.Are there any considerations or gotchas/ endangerment with this idea the regarding the original 1031 exchange?

Collateralizing the loan isn't a risk control. 

But you can expect to lose any collateral and have your personal credit ruined."

My question is as follows: is it reasonable to sell this note at a slight premium (ie. say 5% to 10%) to the unpaid balance due to the higher interest rate and good collateralization?

Yes, I believe the term is "Cross Collateralization", a few lenders I have worked with do them.