Public adjusters are a new concept to me and I don't fully understand it.  

The factors here are several layers deep...1- The threshold decision is rooted in local ordinance and zoning...if you're in an area with tight local ordinances you're fighting with the people that live in the neighborhood before you ever reach the city zoning folks...this can go one of many ways2- ROI on the conversion...you're first stop should be with a local architect...they are worth their weight in gold when navigating a project like this and will wade through the regulatory waters much better than you...and a simple phone call may be telling to whether the conversion would be permissible.The extension of this is the cost of the renovation in relationship to the rents received...the stars would really have to align to say you should spend a significant amount of cash to convert a performing building with 4 revenue streams to serve another function (but there is more to this)...and the cost of construction (and lumber in particular) is 5 fold what it was 1.5 years ago...3- As you indicated...exit...I think the only rational reason to convert a 4-unit would be to get condo status or single family/ shared wall and sell one or both of the units to an end buyer (you are basically paying the role of a speculative developer here)...this is happening frequently in locations like Olde Towne East and Merion Village...hard to demonstrate how successful this has been, but it seems far fetched reasonable consumers would pay the same for a  free-standing SFR they would for half of a "duplex" or condo, but who knows for sure.Either way you look at it you're in a residential appraisal situation on the comparable sales approach....4 unit buildings are still "single family" homes. 

I'm not familiar with the area, but it's going to be difficult to rationalize this property as an "investment" if rental income is just 5200/mo.

But the concept of paying down their mortgages without them incurring the gift tax was an interesting one.  

David Greene touches upon this concept in his book, out of state investing, but you are much more likely to arbitrage your profits into another state and get a better ROI since California real estate is an appreciation play more than cash flow strategy.

Created a somewhat open concept.

Books are good for concepts, ideas, etc. but if you want to really learn something you should do it.

I started looking at smaller town properties in Kentucky, Illinois etc mostly because the buy in was reasonable and I could at least get proof of concept without too much risk.  

What a concept indeed! 

There's fractionalized real estate and then there is tokenization, which are different concepts.