This is a two year old post, but it still gains my interest.

The conversations are better as you're only talking with interested and engaged folks.On the flip side, it can be a cash grab, if the sponsor is lazy or the meetup has not gained traction in the local market.

Then if we have enough appreciation we would sell it and possibly re-investing in another larger building using a 1031 exchange to defer capital gain taxes.

Will be relevant to the recognization gain/loss later on. 

My first thought was to pay off my student debt, but if there is a possibility to do something more valuable in the long run I want to know! 

What is the best way for them to go about selling this property and will they have to pay capital gains tax?

I can offer 2 things that I believe to be valuable.

They have a lot more to gain by being a good partner.One piece of advice that I would strongly encourage: Make sure that the JV agreement spells out who is responsible for what decisions.

I wanna make sure we don't mess this up and having it cost us later but this is the best and simplest termination I could find:  Mutual Termination of Lease AgreementFor good and valuable consideration,___________________, landlords, and _________________________, tenants, agree to amend and terminate the lease/rental agreement presently in force and dated _____________________.

In your case it appears that cost is lesser which means you'll be paying capital gains on at least $400k +/- in the future assuming values hold.