like I said I’m out of my element on this one but these are my concerns that first popped into my head regarding this.

With more foot traffic comes more trash.If you’re looking at a rowhome- an entire side of your building is now exposed to the elements 24/7.

A/C, electric heat, electric HW, any other big-ticket items?

As others have mentioned, check with your local building department, but most municipalities require 2 points of egress, a heat source, a closet and a minimum ceiling height of 7 ft. 

Does anyone know how much (roughly) it is to convert oil to gas heat on. 2,500 sq. ft. duplex?

Pretty similar to all properties you need to have reserves to fix things even if it's new construction you'll eventually have to replace roof, heating, etc. if you hold the property for long enough

Previously only had a ground floor furnace for heating and one window A/C unit for cooling.

The city told you that you don't need permits and it is repair, so what the public adjuster said doesn't make sense (and neither the city official or the insurance company mentioned it).With a fire, they may need to replace more than one cracked tile as the heat from the fire and water may have caused the tiles to loosen from the subfloor and there might be damage you can't see.

@Christine Lai, lets connect on greenhabbing, its the direction my company is taking...you don't necessarily need LEED certified contractors  but there are elements you can incorporate into your rehab, lets connect and exchange ideas.

@Marc Possoff a few City Council members caught some heat for doing backdoor deals on the RDA lots for far below market value.