What is the cost of construction per square foot in Southern
California for an multi-family (apartments) units. Does it make sense
to build an aprtment building or to purchase one already occupied.
Also what areas in southern california will give the best return on
investment for a $2m apartment construction project

You can get very detailed and reliable construction cost info from:
<A HREF="http://www.rsmeans.com">R.S. Means Company Construction Cost
Info</A>

Generally new construction involves substantially higher risk than
purchasing
an existing building. It can also return a higher reward. Southern
California average gross income per unit runs from $3700/yr in San
Diego to $6300/yr in Orange County. Gross rents run from $6900/yr in
San Diego to $9800/yr in Orange County. (April 2001 data from the
Urban Land Institute).

Assuming a $2m sales price, with $500K down, you can generate about
$55K per
year as income from a project. About 10-11 units in a fairly new
(under 10 years old building), with a high occupany rate. Assume about
$1.05-$1.10 per sq ft/month in rents. (A 1100 sq ft apt renting for
$1200/month).

A 12,000 sq ft new construction project, excluding land costs would be
about $120/sq ft (residential grade fit and finish). Construction cost
of about $1.5M for 11 units. If you could find an acre to acre and a
half of land for around $300,000 + $200,000 for prep/parking and
landscaping, it might make sense.
Commercial grade fit and finish could easily push the cost per sq ft
to $200.
Construction financing, architect's fees and permits could add another
$200K to the cost. The total might be $2.2 million to $4.0 million.

Thank you so much for your answer. Looks like u know this stuff pretty
well. One clairification though , what is the difference between
regular vs commercial grade building as mentioned in your comments