Is this a viable ideal, or are there too many what ifs?

That would be ideal.

I met with an agent and her clients yesterday and today and a spec home we have for sale.  They really liked the house but want to have a similar home built on another lot I own in the same community that has better v...

This sounds like in an ideal situation, even with no problems from the city, neighbors, delays in materials or labor, etc..?

Its a suite for property management, probably for 20+ units.

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A civil law practice rather than a real estate practice is probably more suited to the lawsuit you are contemplating.  

If yo have a clear expectation why rents or property value should go up then of course consider it (Below market rents for example) But don't bother if you are just guessing. you will get into a situation where wishful thinking causes you to buy a less then ideal property.

We owe about $400K on our home worth about $700-$750K, so ideally I would like to downsize and get a good chunk of that equity out to use for investments.

Ideally you'll end up with 3 qualified tenants after your first round of showings and be able to fill all three units!