The tenants obviously want to stay in the property since they make visitations difficult for prospective buyers.I have very limited cash on hand, have been operating from a student and bootstrapped entrepreneur's budget, but I have come up with a possible creative proposal which I think the seller will be amenable. 

Not necessarily recommending that but it worked for me at that time.With limited funds flipping or wholesaling  can help you build up some cash to invest with.

And you are limiting yourself the opportunity of savings and quality work by looking for someone who can do two trades in one company, if there are 30 demo contractors and 59 framing, you might only have 5 companies who can do both trades, and most probably they are a self-performing GC and have a GC license.

He has a limit of 250k to spend before breaking ground.What is his best options?

If I get 20+, it's priced too low, 1-3 it's pushing the limit on price.

That deposit becomes your credit limit, so the bank is not taking a chance on you.

Anybody know what the limitations/benefits are of a vendor like this?

If you are securing the note on a loan you need to limit income contribution to those that are on the note. 

Property is in Southern California just outside the LA city limits--generally mild weather conditions.  

It seems they don't just limit themselves to real estate.I learned a hell of a lot from this about how to verify people on the net.