Retail on the ground floor is grandfathered. If it sits empty too long I lose it

How the lapse works decides this, and it splits two ways depending on the state and sometimes the individual ordinance. Some jurisdictions read a discontinuance clause as a strict clock, so six months of no commercial activity ends the right whether you meant to abandon it or not. Others read abandonment as requiring intent, and the time period is evidence rather than the trigger, which means active marketing, a maintained certificate of occupancy, utilities on, signage up, and a documented leasing file can preserve the use. Which rule applies to your parcel is a question for a land use attorney in your state, not something you want to infer from the text alone.

Before you plan anything, get a written zoning verification letter from the municipality describing the current legal status of both uses. That letter is also what a lender or a buyer will want, and if the city's file disagrees with your understanding, better to find out while you have a paying tenant in there.

The thing that bites owners of nonconforming mixed-use hardest is casualty. If the building suffers major damage, many ordinances bar rebuilding a nonconforming use past some percentage of value, and a standard property policy pays to rebuild what was there rather than what the code now allows. Ordinance or law coverage exists for exactly that gap and it is usually a sublimit you have to buy up. Check your declarations page for the limit, not just whether the endorsement is listed.

On the conversion question, run it as a value comparison rather than a rent comparison. Two apartments cost you the retail's higher rent per foot, and they also remove the tenant concentration and the zoning risk. If your appraiser is already discounting the retail income for the nonconforming status, you may be paying for that risk in valuation without getting paid for it in rent.

Your $53k is about $22/sf. Two apartments out of 2,400 sf, call it $1,600 each, is $38k gross and you're now paying heat, water and turnover on units you weren't before, so net drops further than the $15k gap suggests. Plus the conversion itself, plumbing stacks and egress windows, is not cheap in a 1920s building.

So the conversion only pencils if you assign real probability to a long vacancy. What I'd want to know is what the actual re-tenanting market looks like on that block. One storefront with no commercial neighbors, in a residential zone, with a six month gun to your head, is a rough leasing assignment at any rent.