Your PSF will be much lower than it would be adding one small unit per lot.One thing to note is more than 4 units or more than one ADU changes the financing that is available.  

If you haven't gotten an insurance quote yet, you should go do that now; those insurance costs have been skyrocketing for the last few years and are changing the math on many of my properties.Personally (and I mean this--it's personal to each of us), nothing about the deal you're describing excites me. 

This partitioning of the property and doing a simultaneous closing completely changed the trajectory of the deal.

S8 can change their limits any time though so that's some instability there.

I suspect it's due to the change in the housing market and economy.  

If they push back, you might consider adjusting the rent to reflect the change.

One key factor to confirm is whether the STR permit is transferable, as regulations can change.

They also, last minute, changed an 8 bed Fourplex to a 6 bed.

I wonder if things have changed over the past few years. 

I've done it twice in Reno, NV and it's changed my life.