New York City
1. The question is answered in 13.19. In your scenario, the unit must retreat first to the hex occupied by friendly units and then one hex further (or more if there are more friendly units).
Rule 13.19 wrote:
...When more than one retreat path is available to a retreating unit, it must, if possible, be moved into a hex that is: 1) not adjacent to any enemy unit and 2) is empty of all friendly units. (Case #1 takes precedence over case #2.) Being unable to satisfy either or both of these preferences is not fatal to the retreating unit, but the rule must be observed when possible.
One or more retreating units that can only retreat in such a way as to enter a hex with other friendly units wherein they will be overstacked make the retreat then immediately retreat one more hex.
2. I think the retreat compass on the main map is in effect...