This error: “(Unsupported class version number [52.0] (maximum 51.0, Java 1.7)” was caused by having an old Proguard version that didn’t support android-25 jar file format. The 1R6u1 installer has a patched Proguard (5.2.1 instead of 4.7) which fixes this.
The drive Y: is normal; UE4 4.16 patches the ant.bat on Windows to use subst with an unused drive letter during packaging so we can work around the 8K commandline limit on Windows. The file paths were too long.
Did you place your keystore file in your project’s Build/Android directory? This is where it is copied from into Intermediate/Android/APK so the signer can access it.