Your question is very confusing because you claim to know what it's worth but then say you can't find anything comparable in that price range.
It sounds like you are trying to justify selling this property to your tenant at a discount, which makes no sense. Why would you bend over backwards to find a replacement property instead of working to find your tenant a comparable property? In fact, you should tell your tenant to hire you as a REALTOR so you get paid for your time.
If your not interested in moving to a B or C neighborhood don't! Easy as that. If you are looking for something that makes sense as an investment property right now that would probably only be found in B or C neighborhoods has the prime A to A+ areas of Harvard and Yale abosolutely make no sense in investing in.
I understand you want to be nice to your tenants and give them the property at a bit of a discount, you want to upgrade your rentals, and would like to make some money. If you can't do those 3 things which seem to be important to you then don't do it.
Hope this helps the post a little convoluted but I hope it helped.
Forget what your tenant wants, that is irrelevant. You are in business to make money not help out others.
My guess is that based on the value of the property and the likely rental income that you have negative cash flow. You should look into selling and reinvesting to increase cash flow. That should be your primary goal not selling at a loss to a tenant.
Forget your tenant, think business and remove your emotions from your decisions.
@Ingrid B. I wouldn't have given him a price if I wasn't wiling to sell it to him for that price. Whether intended or not you're baiting and switching him. Sure it's not a legal thing. But it's an ethical thing. Tell him what you'll do and stick to it.
But be warned that it may be optimistic to think that you and your tenant will remain on the same terms if he feels like you're going back on your word - sales contract or not.
Thanks for the feedback everyone. This property has positive cash flow and we aren’t urged to sell. You are right, remove the emotion and think realistically as investor. If I can’t find comparable exchange or spending more on higher interest rate if I do find an exchange than what my mortgage now is, there is no sense of selling it just to help the tenant. Cheers.