If he is a high income earner, he likely won't benefit from a tax perspective as the losses will be deemed passive.Furthermore, you may be adding complexities(splitting of income, filing a partnership tax return, hiring an attorney, LLC Fees) which may just eat up the money you wanted to share with him.

Currently, I have this following DP3 policy that will be the renewal:SECTION I – PROPERTY COVERAGES LIMIT OF LIABILITY PREMIUMCoverage A – Dwelling $265,400Coverage B – Other Structures $5,308 IncludedCoverage C – Personal Property $5,000 IncludedCoverage D – Fair Rental Value* $26,540 IncludedCoverage E – Additional Living Expense*:*Coverage D and E combined, limited to 10% of Coverage A for the same loss (see policy).SECTION I – DEDUCTIBLES:In case of a property loss, we only cover that part of the loss over the deductible(s) stated:All Other Perils other than Hurricane Deductible:HURRICANE DEDUCTIBLE: 2% of Coverage A Sinkhole Deductible: Not Included$2,500$5,308SECTION II– LIABILITY COVERAGESCoverage L – Personal LiabilityCoverage M– Medical Payments to Others$100,000 $0.00$2,000 Included☺️ If anyone has any ideas on this I would appreciate some conversation.

What are my options to hold them accountable or recover some of the losses?

Like any investment I'm certain that with the potential for good profits there is the potential for losses. 

Cost segregation is a time value of money play so taking large losses upfront in the form of bonus depreciation makes the most sense when rental income and the property owner's tax rate is highest.

Like wearing shades at a resort's pool with hooters waitresses they paid to hang out with and a lambo rented from Turo. 

In your friend's situation, the loss would not be the amount he has spent improving the property, but the value of the property as improved by the partial construction. 

Loss of Use / Loss of Rents: Normally, there is a 20% included limit.

Have you considered cutting losses?

Cut your losses fast and live on to fight another day.