How would I write the first two chapters as one entire chapter using an objective 3rd person narrator?
Since the chapters are all like diary entries I'm unsure how to do this. I understand that you would change the 'I's' to Link/Shelter but that's it - how would i change, for example, Shelter's daily routine orders 8 which goes like this: It has happened again. I was on my way to inspect theatreland when two dossers approached me. One - the scruffier of the two - asked me for change. I responded in my usual way, and as I passed on I distinctly heard them laughing. I hope for their sakes that they manage to retain that sense of humour because they'll need it quite soon, I never forget a face and our next meeting will prove far more amusing for me than for them. By golly it will.
I thought about having him speak these thoughts and feelings out loud to his cat/himself but how would that be any different to a First-person narrator?
Help! Confused a lot!!
To switch to a third person narrator means that you need to change to a grammatiocal third person and use exposition, e.g. "As Shelter was on his way to inspect ..."
The important aspect of shifting to a third person narrator is deciding how to manage point of view. As Wayne Booth details in his Rhetoric of Fiction, third person narrators can be either limited or omniscient, and have distinct tones, voices, and attitudes. They can be impersonal tools of exposition or have distinct voices, and they can be intrusive or not.
Next, in switching to third person, think about how to reorganize the material to be chronologically coherent. You need to create a timeline that incorporates all the material from both chapters by figuring out their relative chronologies and synthesizing them into a single timeline.
X.J. Kennedy's Introduction to Fiction is a good resource on how to write narrative exposition.