Out of the highlighted content web part does not support custom formatting.
You can only Choose either of default layout: Cards, List, Filmstrip, or Carousel.
However there is a SPFx web part sample, developed by community members which support custom HTML templates. You can find it at:
Content Query web part
You are leaving one critical step out of your deployment process; you are also missing additional debug steps you really need to perform in addition to what you describe.
There are two tasks you need to perform prior to gulp build and deployment into the app catalog site/library.
Ensure that you increment the version in your project’s package....
Well, you're almost there actually with #. Just don't put plain #.
Edit your specific Hero image, select "From a Link", copy the address bar your current page URL removing all additional query strings, and then add #.