But being that it's increased so much it's got us thinking... 

On the flip side, you're going to have to ask yourself if you have any attractive alternates in which to invest your money and, preferably, are you willing to live in the in the new investment (i.e. house hack a multi-family property) or significant downgrade your standard of living accommodation.

The tenant may withhold the difference between the old rent rate and the new increased rate.

It seems here in the Bay Area, it is starting to soften, DOM increasing, some sellers having to accept lower than listing price.

This change alone stands to gain me ~$150k+ in equity due to the increase in NOI.My concern is that firing this PM may prove complicated due to his status as a tenant.

List all apartment amenities, possible local attractions/neighborhood features and what is included in the rent/not included. 

Also.. with any luck, local meetings will have people doing actual investing around the area and hopefully can give you documents that have been used in that area, or if you notice there are no active meetings around you, you could always start one and see who it attracts.

Is it better to do a small increase and increase my chances of them staying?

Rehab the kitchen and whatever else to make it a more attractive rental and then refinance or get a HELOC to pull the money back out for a down payment on a new house?

Office space and housing  rents are increasing.