Kane,
We have ranked two apartment complexes in local search using the same domain. So I do agree, separate websites may not help local search unless Google limits the same domain from ranking more than 2-3 times.
Ranking organically is very hard to do beyond the 9th or 10th position for key words like "apartments in Forest Lake". Big players like Apartments.com and Zillow have really concurred that space. There are some long tail keywords like "luxury apartments in Forest Lake" that we could link for.
Having all the apartments on one site would help the domain authority of that site because the backlinks are not spread out. This may help us reach position 8 instead of 10. Splitting the site up would allow us to capture spots 10-20.
As I write this, it seems that capturing spot 8 is better than capturing spots 10-20. What are your thoughts? Are my assumptions even accurate?