"We will start construction on about $500 million in new apartments this year," says W. Dean Henry, president of Foster City-based development giant Legacy Partners Residential Inc. "The very best time to be building apartments is during a slow economic time, as long as that slow period doesn't last that long. Usually, prices are down, construction labor is a bit cheaper and you see more opportunities."

About half of Legacy's current Southern California activity is in LA County, Henry adds, with much of the rest in San Diego. "We like the fundamentals of the greater Los Angeles apartment market," the executive says. "We like the strong port, the highly diversified economy that's not dependent on one or two industries [and] the 55,000 to 60,000 new jobs that the county is going to create this year. So we are going to remain very active in the LA marketplace."

Perhaps surprisingly, many builders in the tech-battered Northern California market remain bullish on their area too. "In the Bay Area, one of the big problems we have right now is that rents are going down," says Vicki Mullins, chief operating officer of Prometheus Development Co. "The rents on our portfolio have gone down 19%."

It has been even rougher in Santa Clara County, Mullins adds, where apartment rents have fallen as much as 30%. "Plus, we have high construction costs and land prices where we haven't seen any relief. But we're in it for the long run, and we think the returns will get [back] up there."