The housing market stinks. That's just fine with apartment magnate Bryce Blair and with shareholders in his REIT.

The housing boom made life hard for apartment developer Bryce Blair. The bust is good news for his real estate investment trust, AvalonBay Communities (nyse: AVBPRH - news - people ), and for long-term investors looking for an opportune time to buy in.

The company owns 53,000 apartments, mostly in built-up cities like Washington, D.C., New York, San Francisco and Seattle. The properties are 97% occupied. Their average monthly rent of $1,800 is nearly triple the national average.

But what really makes AvalonBay stand out is that it's a builder rather than a buyer. Blair is currently spending $2.2 billion to build 6,800 apartments and is looking for more sites to build on. Says the soft-spoken Harvard M.B.A., "Development has always been a big part of who we are."

Development? The word has spooked investors. AvalonBay's shares have dropped by 32% since the start of 2007 to $101, which is slightly more than the 28% decline for apartment REITs as a whole.

Blair may be on a building spree, but he's no Donald Trump. AvalonBay is sitting on $13.3 billion in assets and just $3.8 billion in debt, giving it the second-lowest leverage ratio among REITs tracked by research firm Green Street Advisors.

Hedge fund manager Jon A. Fosheim made 19% last year shorting REITs and remains short today, although less so. One REIT he has been loading up on is AvalonBay. Fosheim especially likes the REIT's 13% discount to its net asset value of $121 a share.

Time appears to be on Blair's side. Over the past several years the housing boom was drawing customers away from firms like AvalonBay. The collapse in home prices is now sending people in the other direction. Also, the number of Americans 20 to 34, the prime apartment-renting years, will rise from 61 million now to around 65 million five years hence.

All told, AvalonBay should be able to deliver 8% average annual earnings growth over the next five years, figures Bear Stearns (nyse: BSC - news - people ) analyst Ross Smotrich, who has a buy on the stock. The stock trades at 21 times its adjusted funds from operations (net plus depreciation minus maintenance-level capital outlays).

Blair himself is a 49-year-old New Englander predisposed against letting his ego, or the industry's periodic mood swings, suck him into dumb investments. After graduating from the University of New Hampshire with a civil engineering degree, and then from Harvard Business School, Blair began his real estate career in 1985 with flamboyant Dallas developer Trammell Crow. Blair left Crow with his former boss, Richard Michaux, to start AvalonBay in 1993. He took over as chief executive when Michaux retired in 2002.

Unlike Crow and Trump, who tend to build splashy properties when the real estate market is on an upswing, Blair shuns glitz. AvalonBay is headquartered in Alexandria, Va., but Blair spends much of his time on the road or working out of offices in the low-rent Fan Pier section of Boston, near his family. Rather than a salesman, Blair is a numbers guy, and right now the numbers tell him to build.

Blair avoids high-growth meccas like Atlanta, Las Vegas and Phoenix, which have lots of land and few zoning restrictions. It doesn't do AvalonBay any good, he says, "if the local economy generates 50,000 jobs but our competitors build 80,000 apartments."

In New York City Blair's property scout is Fred S. Harris, formerly head of the New York Metropolitan Transit Authority's real estate department. Harris tracked down a plot that the Cathedral of St. John the Divine had received permission to lease for 99 years.

For that parcel, AvalonBay didn't have to battle condo developers, who are prohibited by state law from building on leased land. AvalonBay is now spending $125 million to develop 296 apartments on the Upper West Side Manhattan site. Building costs (like rents) are high in Manhattan, but Blair is trying to keep expenses in check by using in-house construction crews and paying subcontractors bonuses to deliver work at the lowest possible cost.

Blair expects to complete the building early next year and to get $6,000 a month for a 1,200-square-foot, three-bedroom unit. Here is why building makes sense, despite the migraine caused by lawyers and inspectors: If you take the easy route, buying a completed and occupied building, you are likely to net only 4.5% of your purchase price. That's a far cry from the 6.5% AvalonBay earns on average from the properties it builds. Says Blair: "For every company that can build an apartment community, there are 50 that can buy them."

Blair is keen on select suburbs, too. Although land can be relatively abundant, suburbs present other social and economic barriers that limit competition. In Danvers, Mass., 40 minutes from downtown Boston, Blair has spent seven years and $85 million converting a mental asylum into 433 rental apartments and 64 condominiums. Before AvalonBay could dirty a shovel, it had to win approval from 11 "stakeholders," in a town where houses typically fetch $600,000 each. The objections included everything from the desirability of preserving the historic facade to the need to pump Mozart into stalls at a nearby Thoroughbred farm to calm jittery horses during construction.

Avalon holds on to most of its completed projects. On those it has sold over the past nine years, AvalonBay says it has cleared an average of 60% over its construction costs. Such gains have boosted the net asset value of the REIT's shares at an average annual clip of 24% since 2003, Green Street estimates.

That gain (which compares with 17% for the average apartment REIT) more than makes up for Avalon's somewhat stingy yield of 3.5% (versus the average 4.6%).

What housing chill? Bryce Blair says it's a great time to be building apartments.

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