I am keeping my comments focused on HIGHRISE buildings in San Diego. In the case of HIGHRISE (Type I, steel and concrete)developments in the Marina District and near PetCo Park, there are sophisticated investment groups (with longer investment horizons) who are very aware of the replacement costs of steel and concrete buildings. They will recognize when the market for these units is at or near replacement costs and will be in a position to take advantage. Right now (February 2006), the replacement costs of these HIGHRISE buildings is somewhere between $550 and $650 psf). Construction costs continue to rise and the best sites are already either under construction or under the control of deep pocket developers who will wait to develop the sites so that range may continue to rise. These huge rises in construction costs will doom many of the planned HIGHRISE developments in the inferior locations and they will not be built this cycle thereby effectively controlling the supply.

The wood framed junk that is being slopped up is much more at risk. It could easily retrench back to the original proforma prices (high $200,00’s) that the developers imagined when they were first marketed to the public. That would represent about a 25% retrenchment (from high $300,000’s back to high $200,000’s).