Kitty Hawk reveals its secret project, Heaviside

When a VTOL vehicle switches directions of the blades in the air, is there any sort of drop in altitude as it moves into the forward direction? Or is it a gradual type of thing as it starts angling forward?

I could see any drop before it kicks in being startling for customers, especially if the motors are less powerful than a helicopter or jet.

I noticed the video makes a cut from flying to the landing part, without showing the transition of the blades downwards from forward flight. I'd imagine this also takes some careful timing to line up properly with the ground target.

May not be exactly the same, but I don't believe there's an appreciable drop on a tiltrotor like the V-22.

There isn't - the V-22 rotors tilt continuously from vertical to horizontal rather slowly as it builds up enough speed to transition to forward flight. Same thing with Quantum's VTOL UAVs.