An Assessment Professional recently posed a question on this topic: When is lost income from non-rented apartment units a valid charge as an expense, and when is it not? The answer is usually related to scale.
Emerging virtual model displays aside, many larger professionally managed multifamily complexes still employ a project office; some space devoted to leasing, along with model units to show prospective renters.
Non-rented areas at an apartment complex may also include administrative offices and other space, such as a clubhouse.
It is when the non-rented space includes actual apartment units (that could otherwise be leased) that the question of validity arises for valuation purposes.
If no other administrative space is available (as in a clubhouse or building devoted to leasing), use of an apartment unit or two as “model units” may be consistent with best practice management if the property contains 30 to 40 or more units.
But an allowance for lost rent on an operating statement for a smaller apartment project becomes questionable in an inverse manner. For example, in a 12 unit project, if one unit is used to facilitate managing the other 11 units, that is wasteful and atypical of market practice.