We are debating on renovating the basement to add additional living space for the first unit (2 bedroom and a full bath).

We looked into this for a parcel in the city of San Francisco and found that side walks are considered public spaces and the city dictates how they are cared for.

I tried to comp it but there is only retail space showing for lease.

I would price out the construction costs on both intentions and then make a decision and consider the maintenance costs of either type if you plan on keeping it long term.Its location and demand in that area should effect your decision too as well as site accessibility,  land research, the land contour plus how you might use any extra space or the current zoning allowance or the utilities that exist.

@Sylvia B.Frank Rolfe, an expert in the mobile home space, has a wonderful way of making complex things very concise and simple.

One bedroom units are the market space you will be competing in. 

This is similar but different ;-)I am planning on building an addition on my home that would be a great room on the main floor, and ALSO have a finished space in the walk out lower level for an office for both my rental business but MORE so an office/showroom for my 'day job' of construction/remodeling.

I would try to find a way to do some sort of desk and TV in each room so that they have the choice to work in their room or work in a communal space.

It was time to re-fi a commercial property BUT FIRST the build out needed to be completed on a new tenant's space. 

I think a cleaner option would be you are basically earning income for renting out the roof space to a panel company.