I am seeking help from this community to come up a creative solution on how to make a minor/elegant modification to direct the steam exhaust to go outside and away from the house. Right now, it will fill up the gated utility room area and go up to the eve of the front porch area (may cover up the house vent at times). It's not possible to direct it to the rooftop per my contractor. This is in San Francisco area. Thank you so much for your suggestion and ideas in advance.
The fact that this is PVC (type IV ducting) tells me this should already be a condensing unit, so the amount of steam should already be minimal.
There's nothing stopping you from projecting that pipe further away from your house as long as it doesn't get withing 3 feet of your neighbor.
Based on your interior pictures, I'd recommend just drilling another hole in he side of your house closer to where your unit (which is generally the preferred way to vent the unit), which should move the steam far enough from your house vent based on the pictures you provided.
Else, if you think you are still likely to have issues with the exhaust, you really should move it up to the roof / chimney.
However, as long as you don't obstruct the airflow, you could minimize the steam of the current outside vent by running it into something like a dryer vent bucket: https://www.homedepot.com/p/Everbilt-Indoor-Dryer-Vent-Kit-TDIDVKHD6/203626526
Be aware, that the exhaust from high efficiency water heaters is acidic and will eat away at any metals that might be part of your pail setup.