Loss to lease is not upside until somebody signs
Every under-rented building looks like an opportunity. What it is actually worth depends on when the leases roll, what re-letting costs, and whether the market rent was ever real.
The number and what it is not
Loss to lease is the difference between what the leases in place collect and what the same space would collect at market. It is a measurement of the gap, and it gets reported as though it were money.
It is not money. It is the maximum you could capture if every lease rolled tomorrow, every suite re-let instantly at the market rent you assumed, and none of it cost anything to do.
Three things sit between the gap and the cash
The first is time. A suite under-rented by $4 with six years left on its lease contributes nothing for six years, and a dollar in year seven is not a dollar today.
The second is cost. Capturing the gap means re-letting, and re-letting means downtime, free rent, an improvement allowance and a commission. On a five-year deal those can consume the first two years of the increase.
The third is the market rent itself, which is an assumption. It is the one number in the calculation nobody can check, and it is supplied by whoever wants the gap to look large.
The honest version
Model the gap where it actually lands: in the month each lease rolls, net of what re-letting that suite costs, at a market rent you would defend to a lender.
What survives that is upside. The headline figure is a starting point for the conversation, not a line in the return.