**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM****10-K**







(MARK
      ONE)


**x** **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934**





**For
      the fiscal year ended December 31, 2006**


**OR**


** ̈** **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT
      OF 1934**


**FOR
      THE TRANSITION PERIOD FROM ___________ TO _____________**


**Commission
      file number** **333-44467-01** ****




**Essex
      Portfolio, L.P.**


(Exact
      name of Registrant as Specified in its Charter)





**California**
            
            **77-0369575**(State or Other Jurisdiction of Incorporation or
                Organization)
            
            (I.R.S.
                Employer Identification Number)





**925
      East Meadow Drive**


**Palo
      Alto, California    94303**


(Address
      of Principal Executive Offices including Zip Code)


**(650)
      494-3700**


(Registrant's
      Telephone Number, Including Area Code)





Securities
      registered pursuant to Section 12(b) of the Act: None





Securities
      registered pursuant to Section 12(g) of the Act: None ****





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes **x** No ** ̈**





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes ** ̈** No **x**




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes **x** No ** ̈**





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of Registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K, or any amendment to
      this Form 10-K. ** ̈**





Indicate
      by check mark whether the registrant is a large accelerated filer, and
      accelerated filer, or a non-accelerated filer.





Large
                accelerated filer**x**
            Accelerated
                filer** ̈**
            Non-accelerated
                filer** ̈**




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).


Yes ** ̈** No **x**





DOCUMENTS
      INCORPORATED BY REFERENCE:


The
      following document is incorporated by reference in Part III of the Annual Report
      on Form 10-K: Proxy statement for the annual meeting of stockholders of Essex
      Property Trust, Inc. to be held May 8, 2007.










**Essex
      Portfolio, L.P.**


**2006
      ANNUAL REPORT ON FORM 10-K**





**TABLE
      OF CONTENTS**


**Part
                I.**
            
            
            **Page**Item
                1.
            
            Business
            1Item
                1A.
            
            Risk
                Factors
            7Item
                1B.
            
            Unresolved
                Staff Comments
            18Item
                2.
            
            Properties
            18Item
                3.
            
            Legal
                Proceedings
            24Item
                4.
            
            Submission
                of Matters to a Vote of Security
                Holders
            24**Part
                II.**Item
                5.
            
            Market
                for Registrant's Common Equity, Related Stockholder
                Matters and Issuer Purchases of Equity Securities
            25Item
                6.
            
            Selected
                Financial Data
            26Item
                7.
            
            Management's
                Discussion and Analysis of Financial Condition and
                Results of Operations
            29Item
                7A.
            
            Quantitative
                and Qualitative Disclosures About Market Risks
            39Item
                8.
            
            Financial
                Statements and Supplementary Data
            40Item
                9.
            
            Changes
                in and Disagreements with Accountants on Accounting and
                Financial Disclosure
            40Item
                9A.
            
            Controls
                and Procedures
            40Item
                9B.
            
            Other
                Information
            41**Part
                III.**Item
                10.
            
            Directors,
                Executive Officers and Corporate
                Governance
            41Item
                11.
            
            Executive
                Compensation
            41Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters
            41Item
                13.
            
            Certain
                Relationships and Related Transactions , and Director
                Independence
            41Item
                14.
            
            Principal
                Accounting Fees and Services
            41**Part
                IV.**Item
                15.
            
            Exhibits
                and Financial Statement Schedules
            42**Signatures**
            
            
            S-1




ii
 *Table
          of Contents*


**PART
      I**




As
      used
      herein, the terms “Company” and “Essex” mean Essex Property Trust, Inc., a
      Maryland real estate investment trust, those entities controlled by Essex
      Property Trust, Inc., unless the context indicates otherwise and the term
“Operating Partnership” refers to Essex Portfolio, L.P., a California limited
      partnership, formed on March 15, 1994 as to which the Company owns an
      approximate 90.4% general partnership interest, as of December 31, 2006 (except
      with regard to Item IA., Risk Factors of this Form 10-K, wherein all reference
      to the “Company” shall be deemed to be references to the Company and the
      Operating Partnership, unless the context indicates otherwise).




**Forward
      Looking Statements**




This
      Form
      10-K contains forward-looking statements within the meaning of Section 27A
      of
      the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
      1934. Such forward-looking statements are described in Item 7, Management’s
      Discussion and Analysis of Financial Condition and Results of Operations, in
      the
      section, “Forward Looking Statements.” Our actual results could differ
      materially from those set forth in each forward-looking statement. Certain
      factors that might cause such a difference are discussed in this report,
      including Item 1A, Risk Factors of this Form 10-K.




**Item
      1. Business**




**OVERVIEW**




Essex
      Portfolio, L.P. (the “Operating Partnership”) is engaged in the ownership,
      acquisition, development and management of multifamily apartment communities,
      and effectively holds the assets and liabilities and conducts the operating
      activities of Essex Property Trust, Inc. (the “Company”). The Company is a
      real estate investment trust (“REIT”) and is the sole general partner of the
      Operating Partnership and as of December 31, 2006 owns a 90.4% general
      partnership interest. Members of the Company’s Board of Directors, senior
      management and certain third-party investors own limited partnership interests
      of approximately 9.6% in the Operating Partnership. As the sole general partner
      of the Operating Partnership, the Company has control over the management of
      the
      Operating Partnership. The Operating Partnership either controls or has
      significant influence over the Properties (as defined below). In this report,
      the terms “we”, “us” and “our” refer to Essex unless indicated
      otherwise.




The
      Company has elected to be treated as a REIT for federal income tax purposes,
      commencing with the year ended December 31, 1994 as the Company completed an
      initial public offering on June 13, 1994. In order to maintain compliance with
      REIT tax rules, the Operating Partnership utilizes taxable REIT subsidiaries
      (“TRS”) for various revenue generating or investment activities. The TRSs are
      consolidated by the Operating Partnership.




The
      Operating Partnership is engaged primarily in the ownership, operation,
      management, acquisition, development and redevelopment of real estate. The
      majority of our real estate consists of apartment communities. As of December
      31, 2006, the Operating Partnership owned or held an interest in 130 apartment
      communities, aggregating 27,553 units, located predominantly along the West
      Coast (collectively, the “Properties”, and individually, a “Property”). Our
      other properties included two recreational vehicle parks (totaling 338 spaces),
      three office buildings (totaling approximately 166,340 square feet), which
      the
      Operating Partnership primarily occupies and uses as office space, and one
      manufactured housing community (containing 157 pads). The Operating Partnership
      currently has five development projects, with 908 units in various stages of
      development (together with the Properties, the “Portfolio”).





The
      Company’s and the Operating Partnership’s website address is http://www.essexpropertytrust.com .
      The
      Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current
      reports on Form 8-K and all amendments to those reports, and the Proxy Statement
      for its Annual Meeting of Stockholders are available, free of charge, on our
      website as soon as practicable after we file the reports with the Securities
      and
      Exchange Commission (“SEC”).





**BUSINESS
      OBJECTIVES AND STRATEGIES**




The
      following is a discussion of our business objectives and strategies in regards
      to real estate investment and management. One or more of these criteria may
      be
      amended or rescinded from time to time without stockholder
      vote.


1
 *Table
          of Contents*


**Business
      Objectives**




The
      Operating Partnership’s primary business objectives are to increase unitholders’
value by investing in properties located in supply constrained markets, and
      by
      improving operating results and the value of our Properties, while maintaining
      a
      strong balance sheet. The Operating Partnership intends to achieve these
      objectives by:




·
            Pursuing
                an occupancy and rent rate growth strategy that capitalizes on the
                locations of our Properties;


·
            Expanding
                the Operating partnership Portfolio through acquisitions, development
                and,
                when appropriate, re-development of apartment communities in selected
                major metropolitan areas;


·
            Optimizing
                financial performance through a portfolio asset allocation program,
                and to
                increase or decrease investments in a market based on projected changes
                in
                regional economic and local market conditions;
                and


·
            Maintaining
                a conservative leverage ratio by identifying and utilizing capital
                resources that provide a lower cost of
                capital.





The
      Operating Partnership cannot assure our shareholders that we will achieve our
      business objectives.




**Business
      Strategies**




***Research
      Driven Approach*** *-* The
      Operating Partnership believes that successful real estate investment decisions
      and portfolio growth begin with extensive regional economic research and local
      market knowledge. Utilizing a proprietary research model that the Operating
      Partnership has developed over the last two decades, the Operating Partnership
      continually assesses markets where we currently operate, as well as markets
      where the Operating Partnership considers future investment opportunities by
      evaluating:




·
            Markets
                in major metropolitan areas that have regional population primarily
                in
                excess of one million, thereby creating liquidity, which is an important
                element when modifying the geographic concentration of the Operating
                Partnership’s portfolio in response to changing market
                conditions;


·
            Demand
                for housing that is greater than supply driven by: (i) low availability
                of
                developable land sites where competing housing could be built; (ii)
                political growth barriers, such as protected land, urban growth
                boundaries, and potential lengthy and expensive development permit
                processes; and (iii) natural limitations to development, such as
                mountains
                or waterways;


·
            Markets
                where rental demand is enhanced by expensive for-sale housing;
                and


·
            Housing
                demand that is based on proximity to jobs, high quality of life and
                related commuting factors, as well as potential job
                growth.




Recognizing
      that all real estate markets are cyclical, we regularly evaluate the results
      of
      our regional economic, as well as, our local market research and adjust the
      geographic focus of our portfolio accordingly. The Operating Partnership seeks
      to increase its portfolio allocation in markets projected to have the strongest
      local economies and to decrease such allocations in markets projected to have
      declining economic conditions. Likewise, the Operating Partnership also seeks
      to
      increase its portfolio allocation in markets that have attractive property
      valuations and to decrease such allocations in markets that have inflated
      valuations and low relative yields.




***Property
      Operations*** - The
      Operating Partnership manages its Properties by focusing on strategies that
      will
      generate above-average rental growth, tenant retention/satisfaction and
      long-term asset appreciation. The Operating Partnership intends to achieve
      this
      by utilizing the strategies set forth below:




·
            *Property
                Management**-*The
                Chief Operating Officer, Divisional Managers, Regional Portfolio
                Managers
                and Area Managers are accountable for the performance and maintenance
                of
                the Properties. They supervise, provide training for the on-site
                managers,
                manage budgeted expectations against performance, monitor market
                trends
                and prepare operating and capital
                budgets.


·
            *Capital
                Preservation -*The Capital and Maintenance department is responsible for the planning,
                budgeting, and completion of major deferred maintenance and capital
                improvement projects at the Operating Partnership’s
                Properties.


·
            *Business
                Planning and Control -*Comprehensive
                business plans are implemented in conjunction with every investment
                decision. These plans include benchmarks for future financial performance,
                based on collaborative discussions between on-site managers and senior
                management.


·
            *Development
                and Redevelopment -*The Operating Partnership focuses on acquiring and developing apartment
                communities in supply constrained markets, and redeveloping our existing
                communities to improve the financial and physical aspects of our
                communities.


2
 *Table
          of Contents*


**CURRENT
      BUSINESS ACTIVITIES**




**Acquisitions**




Acquisitions
      have been a significant growth component of the Operating Partnership’s
      business. During 2006, we completed a series of acquisitions that added to
      the
      Operating Partnership’s overall Portfolio.




·
            In
                January 2006, the Operating Partnership acquired two apartment communities
                - Chimney Sweep and CBC, aggregating 239 units, located in Goleta,
                California for a combined price of approximately $57.1
                million.




·
            In
                September 2006, the Operating Partnership acquired Hillsdale Garden,
                a
                697-unit apartment community located in San Mateo, California for
                approximately $97.3 million. The property is subject to a ground
                lease
                with annual payments of $46,000 that will expire in
                2047.




·
            In
                October 2006, the Operating Partnership acquired Belmont Terrace,
                a
                71-unit apartment community located in Belmont, California for
                approximately $14.7 million in a transaction structured as an UpREIT.




·
            In
                December 2006, the Operating Partnership acquired Camino Ruiz Square,
                a
                160-unit apartment community located in Camarillo, California for
                approximately $32.9 million.




**Dispositions**




As
      part
      of the Operating Partnership’s strategic plan to own quality real estate in
      supply-constrained markets, we continually evaluate our Properties and sell
      those which no longer meet our strategic criteria. The Operating Partnership
      may
      use the capital generated from the dispositions to invest in higher-return
      Properties or repay debts. The Operating Partnership believes that the sale
      of
      these Properties will not have a material impact on our future results of
      operations or cash flows nor will their sale materially affect our ongoing
      operations. Generally, any impact of earnings dilution resulting from these
      dispositions will be offset by the positive impact of our acquisitions,
      development and redevelopment activities.




·
            In
                January 2006, the Operating Partnership sold Vista Capri East and
                Casa
                Tierra apartment communities for approximately $7.0 million and in
                March
                2006, the Operating Partnership sold Diamond Valley Recreational
                Vehicle
                Park for approximately $1.3 million, for a combined gain of $3.1
                million.




·
            In
                June 2006, the unconsolidated joint venture property, Vista Pointe,
                a
                286-unit apartment community located in Anaheim, California, was
                sold for
                approximately $46 million. The Operating Partnership’s share of the
                proceeds from the transaction totaled $19.3 million, resulting in
                an $8.8
                million gain on the sale, and $8.2 million for fees and a promote
                distribution.




·
            In
                December 2006, the Operating Partnership sold Emerald Palms, a 152-unit
                apartment community located in San Diego for approximately $20.5
                million,
                for a gain of approximately $6.7
                million.




·
            During
                2006 the Operating Partnership undertook a condominium conversion
                of the
                Peregrine Point property, a TRS, in Issaquah, Washington. In April
                2006,
                the property was reclassified from a rental property to real estate
                under
                development. During the third and fourth quarters of 2006, the Operating
                Partnership sold 45 of the 66 available condominiums, for an aggregate
                gain of $2.0 million, net of taxes and expenses. The 21 remaining
                units
                are expected to be sold in the first four months of
                2007.




·
            City
                Heights, a 687-unit community located in Los Angeles was classified
                as
                held for sale as of December 31, 2006, and was sold to a third party
                for a
                gain in February 2007.




**Development
      and Predevelopment Pipeline**




The
      Operating Partnership defines development activities as new properties that
      are
      being constructed, or are newly constructed and, in the case of development
      communities, are in a phase of lease-up and have not yet reached stabilized
      operations; or, in the case of TRS development projects, have not yet been
      sold.
      As of December 31, 2006, the Operating Partnership had two development projects
      comprised of 513 units for an estimated cost of $167.3 million, of which $126.9
      million remains to be expended (excluding development
      projects owned by Essex
      Apartment Value Fund II, L.P.). The Operating Partnership also incurred $0.7
      million in costs related to a joint venture development with a third-party.




3
 *Table
          of Contents*


The
      Operating Partnership defines the predevelopment pipeline as new properties
      in
      negotiation or in the entitlement process with a high likelihood of becoming
      development activities. As of December 31, 2006, the Operating Partnership
      had
      development communities aggregating 1,845 units that were classified as
      predevelopment projects. The estimated total cost of the predevelopment pipeline
      at December 31, 2006 is $557.0 million, of which $514.8 million remains to
      be
      expended. The Operating Partnership had four other development projects owned
      by
      TRS entities that are under development aggregating 120 units. The estimated
      total cost of the other development projects at December 31, 2006 is $42.0
      million, of which $21.8 million remains to be expended. The following table
      sets
      forth information regarding the Operating Partnership’s development
      pipeline:





**As
                of 12/31/06 ($ in millions)****Development
                Pipeline**
            
            **Location**
            
            **Units**
            
            **Estimated**
              **Project
                Cost****(1)**
            
            **Incurred**
              **Project
                Cost**
            
            **Projected**
              **Stabilization**Development
                ProjectsNorthwest
                Gateway
            
            
            Los
                Angeles, CA
            
            
            275
            
            $
            71.1
            
            $
            28.2
            
            
            Oct-08100
                Grand
            
            
            Oakland,
                CA
            
            
            238
            
            
            96.2
            
            
            12.2
            
            
            May-09513
            
            
            167.3
            
            
            40.4Predevelopment
                projects
            
            
            various
            
            
            1,845
            
            
            557.0
            
            
            42.2
            
            
            Dec-09
                to Jul-14Other
                projects (TRS)
            
            
            various
            
            
            120
            
            
            42.0
            
            
            20.2
            
            
            Mar-07
                to Mar-09Develoment
                joint venture
            
            
            Seattle,
                WA
            
            
            -
            
            
            0.7
            
            
            0.7
            
            
            -Consolidated
                Development Pipeline
            
            2,478
            
            $
            767.0
            
            $
            103.5




(1)  Includes
      incurred costs and estimated costs to complete these development projects.




**Redevelopment
      Pipeline**





The
      Operating Partnership defines redevelopment communities as existing properties
      owned or recently acquired, which have been targeted for additional investment
      by the Operating Partnership with the expectation of increased financial returns
      through property improvement. During redevelopment, apartment units may not
      be
      available for rent and, as a result, may have less than stabilized operations.
      As of December 31, 2006, the Operating Partnership had ownership interests
      in
      twelve major redevelopment communities aggregating 3,648 apartment units with
      estimated redevelopment costs of $90.2 million, of which approximately $51.2
      million remains to be expended. These amounts exclude redevelopment projects
      owned by Fund II. The following table illustrates these redevelopment
      projects:





**As
                of 12/31/06 ($ in thousands)****Redevelopment
                Pipeline**
            
            **Location**
            
            **Units**
            
            **Estimated**
              **Renovation
                Cost****(1)**
            
            **Incurred**
              **Project
                Cost**Southern
                CaliforniaKings
                Road
            
            
            Los
                Angeles, CA
            
            
            196
            
            $
            6,183
            
            $
            4,400Mira
                Monte
            
            
            Mira
                Mesa, CA
            
            
            355
            
            
            6,013
            
            
            5,132Avondale
                at Warner Center
            
            
            Woodland
                Hills, CA
            
            
            446
            
            
            11,950
            
            
            9,543Pathways
            
            
            Long
                Beach, CA
            
            
            296
            
            
            10,705
            
            
            532Northern
                CaliforniaMontclaire
                - Phase I-III
            
            
            Sunnyvale,
                CA
            
            
            390
            
            
            15,090
            
            
            2,667Treetops
            
            
            Fremont,
                CA
            
            
            172
            
            
            8,266
            
            
            746Summerhill
                Commons
            
            
            Newark,
                CA
            
            
            184
            
            
            4,318
            
            
            2,809Wimbledon
                Woods
            
            
            Hayward,
                CA
            
            
            560
            
            
            9,350
            
            
            791Seattle
                MetroPalisades
                - Phase I and II
            
            
            Bellevue,
                WA
            
            
            192
            
            
            6,583
            
            
            5,703Sammamish
                View
            
            
            Bellevue,
                WA
            
            
            153
            
            
            3,342
            
            
            2,149Bridle
                Trails
            
            
            Kirkland,
                WA
            
            
            108
            
            
            5,071
            
            
            4,367Woodland/Foothill
                Commons
            
            
            Bellevue,
                WA
            
            
            596
            
            
            3,372
            
            
            227Total
                Redevelopment Pipeline
            
            3,648
            
            $
            90,243
            
            $
            39,066





(1)
            Includes
                incurred costs and estimated costs to complete these redevelopment
                projects.


4
 *Table
          of Contents*


**Debt
      Transactions**





In
      January 2006, the Operating Partnership originated a mortgage loan secured
      by
      the Fairwood Pond apartment community in the amount of $14.9 million, with
      a
      fixed interest rate of 5.31%, which matures on February 1, 2015.





In
      March
      2006, the Operating Partnership paid-off a loan secured by the Windsor Ridge
      apartment community in the amount of $11.6 million, with a fixed interest rate
      of 7.09%.





In
      March
      2006, the Operating Partnership renegotiated its revolving line of credit to
      increase the maximum principal amount to $200 million from $185 million.
      Additionally, the maturity date was extended from April 2007 to March 2009,
      with
      an option for a one-year extension, and the underlying rate, based on a tiered
      rate structure tied to the Operating Partnership’s corporate ratings, was
      reduced to LIBOR plus 0.8% from LIBOR plus 1.0%.





**Derivative
      Transactions**





As
      of
      December 31, 2006 the Operating Partnership had entered into forward-starting
      interest rate swaps totaling a notional amount of $450 million with interest
      rates ranging from 4.9% to 5.9% and settlements dates ranging from April 2007
      to
      July 2011. These derivatives qualify for hedge accounting and will economically
      hedge the cash flows associated with the refinancing of debt that matures
      between April 2007 and July 2011. The decrease in the fair value of these
      derivatives during the year ended December 31, 2006 was approximately $2.9
      million and is reflected in accumulated other comprehensive (loss) income in
      the
      Operating Partnership’s consolidated financial statements. No hedge
      ineffectiveness on cash flow hedges was recognized during the year ended
      December 31, 2006.





**Equity
      Transactions**





During
      the third quarter of 2006, the Company sold 5,980,000 shares of 4.875% Series
      G
      Cumulative Convertible Preferred Stock for gross proceeds of $149.5 million.
      Holders may convert Series G Preferred Stock into shares of the Company’s common
      stock subject to certain conditions. The conversion rate will initially be
      .1830
      shares of common stock per the $25 per share liquidation preference, which
      is
      equivalent to an initial conversion price of approximately $136.62 per share
      of
      common stock. The conversion rate will be subject to adjustment upon the
      occurrence of specified events. On or after July 31, 2011, the Company may,
      under certain circumstances, cause some or all of the Series G Preferred Stock
      to be converted into that number of shares of common stock at the then
      prevailing conversion rate. The Operating
      Partnership used the
      net proceeds from the Series G offering to pay down outstanding borrowings
      under
      the Operating
      Partnership ’s
      lines
      of credit, to fund the development pipeline and for general corporate
      purposes.




During
      2006, the Company issued and sold approximately 427,700 shares of common stock
      for $48.3 million, net of fees and commissions, under its Controlled Equity
      Offering program. Under this program, the Company may from time to time sell
      shares of common stock into the existing trading market at current market
      prices, and the Operating Partnership used the net proceeds from such sales
      to
      primarily fund real estate investments.




**ESSEX
      APARTMENT VALUE FUNDS**




Essex
      Apartment Value Fund, L.P. ("Fund I" and “Fund II”), are investment funds formed
      by the Operating Partnership to add value through rental growth and asset
      appreciation, utilizing the Operating Partnership's development, redevelopment
      and asset management capabilities. All of the assets in Fund I were sold during
      2004 and 2005, and Fund I is in the process of liquidation.




Fund
      II
      has eight institutional investors, including the Operating Partnership, with
      combined partner equity commitments of $265.9 million. The Operating Partnership
      has committed $75.0 million to Fund II, which represents a 28.2% interest as
      general partner and limited partner. Fund II expects to utilize leverage equal
      to approximately 65% of the estimated value of the underlying real estate.
      Fund
      II invests in apartment communities in the Operating Partnership’s targeted West
      Coast markets with an emphasis on investment opportunities in the Seattle
      metropolitan area and the San Francisco Bay Area. Subject to certain exceptions,
      Fund II has been the Operating Partnership’s primary investment vehicle during
      2005 and 2006. As of October 2006, Fund II was fully invested and closed for
      any
      future acquisitions or development. As of December 31, 2006, Fund II owned
      11
      apartment communities and 3 development projects. Consistent with Fund I, the
      Operating Partnership records revenue for its asset management, property
      management, development and redevelopment services when earned, and promote
      income if Fund II exceeds certain financial return benchmarks.




5
 *Table
          of Contents*


**Fund
      II - Acquisitions**





During
      2006, Fund II acquired the following apartment communities:





·
            Davey
                Glen, in April 2006, a 69-unit apartment community located in Belmont,
                California for approximately $13.5
                million.





·
            Renaissance,
                in September 2006, a 168-unit apartment community located in Los
                Angeles,
                California for approximately $46.3
                million.





·
            Alderwood
                Park, in September 2006, a 96-unit apartment community located in
                Newark,
                California for approximately $13.4 million.




**Fund
      II - Development Pipeline**




As
      of
      December 31, 2006, the following table sets forth information regarding Fund
      II’s development pipeline:




**As
                of 12/31/06 ($ in millions)****Development
                Pipeline - Fund II**
            
            **Location**
            
            **Units**
            
            **Estimated**
              **Project
                Cost****(1)**
            
            **Incurred**
              **Project
                Cost**
            
            **Projected**
              **Stabilization**Development
                ProjectsLake
                Union
            
            
            Seattle,
                WA
            
            
            127
            
            $
            35.4
            
            $
            10.9
            
            Jun-08Studio
                City
            
            
            Studio
                City, CA
            
            
            149
            
            
            53.3
            
            
            22.3
            
            Apr-09Chatsworth
            
            
            Chatsworth,
                CA
            
            
            119
            
            
            39.4
            
            
            9.3
            
            Sep-09Fund
                II - Development Pipeline
            
            395
            
            $
            128.1
            
            $
            42.5





(1)
            Includes
                incurred costs and estimated costs to complete these development
                projects.





**OFFICES
      AND EMPLOYEES**





The
      Operating Partnership is headquartered in Palo Alto, California, and has
      regional offices in Woodland Hills, California; Irvine, California; San Diego,
      California; Bellevue, Washington; and Portland, Oregon. As of December 31,
      2006,
      the Operating Partnership had approximately 869 employees.





**INSURANCE**





The
      Operating Partnership carries comprehensive liability, fire, extended coverage
      and rental loss insurance for each of the Properties. There are, however,
      certain types of extraordinary losses, such as, for example, losses from
      terrorism or earthquake, for which the Operating Partnership does not have
      insurance coverage.





Substantially
      all of the Properties are located in areas that are subject to earthquake
      activity. The Operating Partnership believes it has a proactive approach to
      its
      potential earthquake losses. The Operating Partnership utilizes third-party
      seismic consultants for its acquisitions and performs seismic upgrades to those
      acquisitions that are determined to have a higher level of potential loss from
      an earthquake. The Operating Partnership utilizes internal and third-party
      loss
      models to help to determine its exposure. In addition, the majority of the
      Operating Partnership’s Properties are lower density garden-style apartments
      which may be less susceptible to earthquake damage. The Operating Partnership
      will continue to monitor third-party earthquake insurance pricing and conditions
      and may consider obtaining third-party coverage if it deems it cost effective
      in
      the future.


6
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Although
      the Operating Partnership may carry insurance for potential losses associated
      with its Properties, employees, residents, and compliance with applicable laws,
      it may still incur losses due to uninsured risks, deductibles, co-payments
      or
      losses in excess of applicable insurance coverage and those losses may be
      material.





**COMPETITION**





There
      are
      numerous housing alternatives that compete with our apartment communities in
      attracting residents. These include other apartment communities and
      single-family homes that are available for rent in the markets in which the
      properties are located. The Properties also compete for residents with new
      and
      existing homes and condominiums that are for sale. If the demand for our
      Properties is reduced or if competitors develop and/or acquire competing
      properties on a more cost-effective basis, rental rates and occupancy may drop,
      which may have a material adverse affect on our financial condition and results
      of operations.





We
      face
      competition from other real estate investment trusts, businesses and other
      entities in the acquisition, development and operation of properties. Some
      of
      the competitors are larger and have greater financial resources than we do.
      This
      competition may result in increased costs of properties we acquire and/or
      develop.





**WORKING
      CAPITAL**





We
      believe that cash flows generated by our operations, existing cash balances,
      availability under existing lines of credit, access to capital markets and
      the
      ability to generate cash gains from the disposition of real estate are
      sufficient to meet all of our reasonably anticipated cash needs during 2007.
      The
      timing, source and amounts of cash flows provided by financing activities and
      used in investing activities are sensitive to changes in interest rates and
      other fluctuations in the capital markets environment, which can affect our
      plans for acquisitions, dispositions, development and redevelopment activities.





**ENVIRONMENTAL
      CONSIDERATIONS**





See
      the
      discussion under the caption, “Possible environmental liabilities” in Item 1A,
      Risk Factors, for information concerning the potential effect of environmental
      regulations on our operations.





**OTHER
      MATTERS**





**Certain
      Policies of the Operating Partnership**





The
      Operating Partnership intends to continue to operate in a manner that will
      not
      subject us to regulation under the Investment Company Act of 1940. The Operating
      Partnership has in the past five years and may in the future (i) issue
      securities senior to its common stock, (ii) fund acquisition activities with
      borrowings under its line of credit and (iii) offer shares of common stock
      and/or units of limited partnership interest in the Operating Partnership or
      affiliated partnerships as partial consideration for property acquisitions.
      The
      Operating Partnership from time to time acquires partnership interests in
      partnerships and joint ventures, either directly or indirectly through
      subsidiaries of the Operating Partnership, when such entities' underlying assets
      are real estate. In general, the Operating Partnership does not (i) underwrite
      securities of other issuers or (ii) actively trade in loans or other
      investments.





We
      invest
      primarily in apartment communities that are located in predominantly coastal
      markets within Southern California, the San Francisco Bay Area, and parts of
      the
      Pacific Northwest. The Operating Partnership currently intends to continue
      to
      invest in apartment communities in such regions. However, these practices may
      be
      reviewed and modified periodically by management.





**Item
      1A. Risk Factors**





Our
      business, operating results, cash flows and financial conditions are subject
      to
      various risks and uncertainties, including, without limitation, those set forth
      below, any one of which could cause our actual results to vary materially from
      recent results or from our anticipated future results.





***We
      depend on our key personnel*** - Our
      success depends on our ability to attract and retain executive officers, senior
      officers and company managers. There is substantial competition for qualified
      personnel in the real estate industry and the loss of several of our key
      personnel could have an adverse effect on us.





***Debt
      financing*** - At
      December 31, 2006, we had approximately $1.41 billion of indebtedness (including
      $186.3 million of variable rate indebtedness, of which $182.8 million is subject
      to interest rate protection agreements). We are subject to the risks normally
      associated with debt financing, including the following:


7
 *Table
          of Contents*


·
            cash
                flow may not be sufficient to meet required payments of principal
                and
                interest;


·
            inability
                to refinance maturing indebtedness on encumbered properties;


·
            the
                terms of any refinancing may not be as favorable as the terms of
                existing
                indebtedness;


·
            inability
                to comply with debt covenants could cause an acceleration of the
                maturity
                date; and


·
            repaying
                debt before the scheduled maturity date could result in prepayment
                penalties.





***Uncertainty
      of our ability to refinance balloon payments*** - As of
      December 31, 2006, we had approximately $1.41 billion of mortgage debt,
      exchangeable bonds and line of credit borrowings, most of which are subject
      to
      balloon payments. We do not expect to have sufficient cash flows from operations
      to make all of these balloon payments. These mortgages, bonds and lines of
      credit borrowings have the following scheduled principal and balloon payments:





2007--$69.1
      million;


2008--$179.5
      million;


2009--$24.6
      million;


2010--$156.9
      million;


2011--$155.5
      million;


Thereafter--$733.0
      million.





We
      may
      not be able to refinance such mortgage indebtedness, bonds, or lines of credit.
      The Properties subject to these mortgages could be foreclosed upon or otherwise
      transferred to the lender. This could cause us to lose income and asset value.
      We may be required to refinance the debt at higher interest rates or on terms
      that may not be as favorable as the terms of existing indebtedness.





***Debt
      financing on properties may result in insufficient cash
      flow*** - Where
      possible, we intend to continue to use leverage to increase the rate of return
      on our investments and to provide for additional investments that we could
      not
      otherwise make. There is a risk that the cash flow from the properties will
      be
      insufficient to meet both debt payment obligations and the distribution
      requirements of the real estate investment trust provisions of the Internal
      Revenue Code. We may obtain additional debt financing in the future, through
      mortgages on some or all of the properties. These mortgages may be recourse,
      non-recourse, or cross-collateralized.





As
      of
      December 31, 2006, the Operating Partnership had 69 of its 118 consolidated
      apartment communities encumbered by debt. Of the 69 properties, 53 are secured
      by deeds of trust relating solely to those properties. With respect to the
      remaining 19 properties, there are 4 cross-collateralized mortgages secured
      by 8
      properties, 6 properties, 3 properties and 2 properties, respectively. The
      holders of this indebtedness will have claims against these properties and,
      to
      the extent indebtedness is cross-collateralized, lenders may seek to foreclose
      upon properties, which are not the primary collateral for their loan. This
      may
      accelerate other indebtedness secured by properties. Foreclosure of properties
      would reduce our income and net asset value.





***Risk
      of rising interest rates*** **-** Current
      interest rates could potentially increase rapidly, which could result in higher
      interest expense on our variable rate indebtedness. Prolonged interest rate
      increases could negatively impact our ability to make acquisitions and develop
      properties at economic returns on investment and our ability to refinance
      existing borrowings at acceptable rates.





As
      of
      December 31, 2006, we had approximately $186.3 million of long-term variable
      rate indebtedness bearing interest at floating rates tied to the rate of
      short-term tax-exempt revenue bonds (which mature at various dates from 2020
      through 2034), and $93.0 million of variable rate indebtedness under our lines
      of credit, bearing interest at the Freddie Mac Reference Rate plus from 0.55%
      to
      0.59%. Approximately $182.8 million of the long-term indebtedness is subject
      to
      interest rate cap protection agreements, which may reduce the risks associated
      with fluctuations in interest rates. The remaining $34.0 million of long-term
      variable rate indebtedness was not subject to any interest rate cap protection
      agreements as of December 31, 2006. An increase in interest rates may have
      an
      adverse effect on our net income and results of operations.





***Risk
      of losses on interest rate hedging arrangements*** -
      Periodically, we have entered into agreements to reduce the risks associated
      with increases in interest rates, and may continue to do so. Although these
      agreements may partially protect against rising interest rates, they also may
      reduce the benefits to us if interest rates decline. If a hedging arrangement
      is
      not indexed to the same rate as the indebtedness that is hedged, we may be
      exposed to losses to the extent that the rate governing the indebtedness and
      the
      rate governing the hedging arrangement change independently of each other.
      Finally, nonperformance by the other party to the hedging arrangement may
      subject us to increased credit risks. In order to minimize counterparty credit
      risk, our policy is to enter into hedging arrangements only with A-rated
      financial institutions.


8
 *Table
          of Contents*


***Bond
      compliance requirements may limit income from certain
      properties*** - At
      December 31, 2006, we had approximately $186.3 million of variable rate
      tax-exempt financing relating to the Inglenook Court Apartments, Wandering
      Creek
      Apartments, Treetops Apartments, Huntington Breakers Apartments, Camarillo
      Oaks
      Apartments, Fountain Park, Anchor Village and Parker Ranch Apartments. This
      tax-exempt financing subjects these properties to certain deed restrictions
      and
      restrictive covenants. We expect to engage in tax-exempt financings in the
      future. In addition, the Internal Revenue Code and rules and regulations
      thereunder impose various restrictions, conditions and requirements excluding
      interest on qualified bond obligations from gross income for federal income
      tax
      purposes. The Internal Revenue Code also requires that at least 20% of apartment
      units be made available to residents with gross incomes that do not exceed
      a
      specified percentage, generally 50%, of the median income for the applicable
      family size as determined by the Housing and Urban Development Department of
      the
      federal government. In addition to federal requirements, certain state and
      local
      authorities may impose additional rental restrictions. These restrictions may
      limit income from the tax-exempt financed properties if we are required to
      lower
      rental rates to attract residents who satisfy the median income test. If the
      Operating Partnership does not reserve the required number of apartment homes
      for residents satisfying these income requirements, the tax-exempt status of
      the
      bonds may be terminated, the obligations under the bond documents may be
      accelerated and we may be subject to additional contractual liability.





***Adverse
      effect to property income and value due to general real estate investment risks
      -*** Real
      property investments are subject to a variety of risks. The yields available
      from equity investments in real estate depend on the amount of income generated
      and expenses incurred. If the properties do not generate sufficient income
      to
      meet operating expenses, including debt service and capital expenditures, cash
      flow and the ability to make distributions to stockholders will be adversely
      affected. The performance of the economy in each of the areas in which the
      properties are located affects occupancy, market rental rates and expenses.
      Consequently, the income from the properties and their underlying values may
      be
      impacted. The financial results of major local employers may have an impact
      on
      the cash flow and value of certain of the properties as well.





Income
      from the properties may be further adversely affected by, among other things,
      the following factors:





·
            the
                general economic climate;


·
            local
                economic conditions in which the properties are located, such as
                oversupply of housing or a reduction in demand for rental housing;


·
            the
                attractiveness of the properties to tenants;


·
            competition
                from other available space; and


·
            Essex’s
                ability to provide for adequate maintenance and
                insurance.





As
      leases
      on the properties expire, tenants may enter into new leases on terms that are
      less favorable to us. Income and real estate values also may be adversely
      affected by such factors as applicable laws (e.g., the Americans With
      Disabilities Act of 1990 and tax laws), interest rate levels and the
      availability and terms of financing. Real estate investments are relatively
      illiquid and, therefore, our ability to vary our portfolio promptly in response
      to changes in economic or other conditions may be quite limited.





***Economic
      environment and impact on operating results*** - The
      national economy and the economies of the western states in markets where we
      operate can impact our operating results. Some of these markets are concentrated
      in high-tech sectors, which have experienced economic downturns, and could
      again
      in the future. Our property type and diverse geographic locations provide some
      degree of risk mitigation. However, we are not immune to prolonged economic
      downturns. Although we believe we are well positioned to meet these challenges,
      it is possible a reduction in rental rates, occupancy levels, property
      valuations and increases in operating costs such as advertising, turnover and
      repair and maintenance expense could occur in the event of economic
      uncertainty.





***Risk
      of Inflation/Deflation*** -
      Substantial inflationary or deflationary pressures could have a negative effect
      on rental rates and property operating expenses.





***Risks
      that acquisitions will fail to meet expectations*** - We
      intend to continue to acquire apartment communities. However, there are risks
      that acquisitions will fail to meet our expectations. Our estimates of future
      income, expenses and the costs of improvements or redevelopment that are
      necessary to allow us to market an acquired property as originally intended
      may
      prove to be inaccurate. We expect to finance future acquisitions, in whole
      or in
      part, under various forms of secured or unsecured financing or through the
      issuance of partnership units by the Operating Partnership or related
      partnerships or additional equity by Essex. The use of equity financing, rather
      than debt, for future developments or acquisitions could dilute the interest
      of
      Essex’s existing stockholders. If we finance new acquisitions under existing
      lines of credit, there is a risk that, unless we obtain substitute financing,
      the Operating Partnership may not be able to secure further lines of credit
      for
      new development or such lines of credit may be not available on advantageous
      terms.


9
 *Table
          of Contents*


***Risks
      that development activities will be delayed, not completed, and/or not achieve
      expected results*** - We
      pursue apartment community development projects and these projects generally
      require various governmental and other approvals, which have no assurance of
      being received. Our development activities generally entail certain risks,
      including the following:





·
            funds
                may be expended and management's time devoted to projects that may
                not be
                completed;


·
            construction
                costs of a project may exceed original estimates, possibly making
                the
                project economically unfeasible;


·
            development
                projects may be delayed due to, without limitation, adverse weather
                conditions, labor shortages, or unforeseen complications;


·
            occupancy
                rates and rents at a completed project may be less than anticipated;
                and


·
            the
                operating expenses at a completed development may be higher than
                anticipated.




These
      risks may reduce the funds available for distribution to Essex’s stockholders.
      Further, the development of properties is also subject to the general risks
      associated with real estate investments. For further information regarding
      these
      risks, please see “Adverse Effect to Property Income and Value Due to General
      Real Estate Investment Risks.”




***The
      geographic concentration of our Properties and fluctuations in local markets
      may
      adversely impact our financial condition and operating
      results*** - We
      generated significant amounts of rental revenues for the year ended December
      31,
      2006 from properties concentrated in Southern California (Los Angeles, Ventura,
      Orange, San Diego and Riverside counties), Northern California (the San
      Francisco Bay Area), and the Pacific Northwest (the Seattle, Washington and
      Portland, Oregon metropolitan areas). As of December 31, 2006, more than half
      (76%) of our Properties were located in California. This geographic
      concentration could present risks if local property market performance falls
      below expectations. The economic condition of these markets could affect
      occupancy, market rental rates, and expenses, as well as impact the income
      generated from the Properties and their underlying asset values. The financial
      results of major local employers also may impact the cash flow and value of
      certain of the Properties. This could have a negative impact on our financial
      condition and operating results, which could affect our ability to pay expected
      dividends to our stockholders.





***Competition
      in the apartment community market may adversely affect operations and the rental
      demand for our Properties*** - There
      are numerous housing alternatives that compete with our apartment communities
      in
      attracting residents. These include other apartment communities and
      single-family homes that are available for rent in the markets in which the
      Properties are located. The Properties also compete for residents with new
      and
      existing homes and condominiums that are for sale. If the demand for our
      Properties is reduced or if competitors develop and/or acquire competing
      properties on a more cost-effective basis, rental rates may drop, which may
      have
      a material adverse affect on our financial condition and results of operations.





We
      also
      face competition from other real estate investment trusts, businesses and other
      entities in the acquisition, development and operation of properties. Some
      of
      the competitors are larger and have greater financial resources than we do.
      This
      competition may result in increased costs of properties we acquire and/or
      develop.




***Dividend
      requirements as a result of preferred stock may lead to a possible inability
      to
      sustain dividends*** **-** We
      have
      Series F Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”) with
      an aggregate liquidation preference of approximately $25 million outstanding
      and
      Series G Cumulative Convertible Preferred Stock (“Series G Preferred Stock”)
      with an aggregate liquidation preference of approximately $149.5 million
      outstanding. In addition, we are required under limited conditions to issue
      Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”) with
      an aggregate liquidation preference of $80 million and Series D Cumulative
      Redeemable Preferred Stock (“Series D Preferred Stock”) with an aggregate
      liquidation preference of $50 million in each case in exchange for outstanding
      preferred interests in the Operating Partnership. The terms of the Series B,
      D,
      F and G Preferred Stock provide for certain cumulative preferential cash
      distributions per each share of preferred stock.




These
      terms also provide that while such preferred stock is outstanding, we cannot
      authorize, declare, or pay any distributions on our common stock, unless all
      distributions accumulated on all shares of such preferred stock have been paid
      in full. Our failure to pay distributions on such preferred stock would impair
      our ability to pay dividends on our common stock. Our credit agreement limits
      our ability to pay dividends on our preferred stock if we fail to satisfy a
      fixed charge coverage ratio.




10
 *Table
          of Contents*




If
      Essex
      wishes to issue any common stock in the future (including upon the exercise
      of
      stock options), the funds required to continue to pay cash dividends at current
      levels will be increased. Essex’s ability to pay dividends will depend largely
      upon the performance of our current properties and other properties that may
      be
      acquired or developed in the future.




If
      Essex
      cannot pay dividends on its common stock, Essex’s status as a real estate
      investment trust may be jeopardized. Our ability to pay dividends on our common
      stock is further limited by the Maryland General Corporation Law. Under the
      Maryland General Corporation Law, Essex may not make a distribution on stock
      if,
      after giving effect to such distribution, either:




·
            we
                would not be able to pay our indebtedness as it becomes due in the
                usual
                course of business; or


·
            our
                total assets would be less than our total liabilities, including
                the
                liquidation preference on our Series B, Series D, Series F, and Series
                G
                preferred stock.




***Resale
      of shares pursuant to our effective registration statement or that are issued
      upon conversion of our convertible preferred stock may have an adverse effect
      on
      the market price of the shares*** - The
      Operating Partnership has the following effective registration statements,
      which
      allows for the resale into the public stock of common stock held by
      stockholders, as specified in the registration statements:





·
            A
                registration statement, declared effective in 2003, which covers
                the
                resale of up to 6,513,490 shares, including (i) up to 2,769,875 shares
                issued, or potentially issuable, in connection with the acquisition
                of
                John M. Sachs, Inc., a real estate company, (ii) up to 2,270,490
                shares of
                common stock that are issuable upon exchange of limited partnership
                interests in the Operating Partnership and (iii) up to 1,473,125
                shares
                that are issuable upon exchange of limited partnership interests
                in
                certain other real estate
                partnerships;


·
            Registration
                statements, declared effective in 2006, that cover (i) the resale
                of up to
                142,076 shares issuable in connection with our Waterford and Vista
                Belvedere acquisitions and (ii) the resale of shares issuable in
                connection with the exchange rights of our 3.625% Exchangeable Senior
                Notes, as to which there is a principal amount of $225 million
                outstanding.





During
      the third quarter of 2006, the Company issued, pursuant to a registration
      statement, 5,980,000 million shares of 4.875% Series G Cumulative Preferred
      Stock for estimated gross proceeds of $149.5 million; such shares are
      convertible, subject to certain conditions, into common stock, which could
      be
      resold into the public market.





The
      resale of the shares of common stock pursuant to these various registration
      statements or that are issued upon conversion of our outstanding convertible
      preferred stock may have an adverse effect on the market price of our
      shares.





***The
      exchange and repurchase rights of Exchangeable Senior Notes and Series G
      Preferred Stock may be detrimental to holders of common stock
      -*** The
      Operating Partnership has $225 million principal amount of 3.625% Exchangeable
      Senior Notes (the “Notes”) outstanding which mature on November 1, 2025. The
      Notes are exchangeable into the Company's common stock on or after November
      1,
      2020 or prior to November 1, 2020 under certain circumstances. The Notes are
      redeemable at the Operating Partnership's option for cash at any time on or
      after November 4, 2010 and are subject to repurchase for cash at the option
      of
      the holder on November 1 st in the
      years 2010, 2015 and 2020, or upon the occurrence of certain events. The Notes
      are senior unsecured and unsubordinated obligations of the Operating
      Partnership.





In
      2006,
      the Company sold 5,980,000 million shares of 4.875% Series G Cumulative
      Convertible Preferred Stock (the “Series G Preferred Stock”) for gross proceeds
      of $149.5 million. Holders may convert Series G Preferred Stock into shares
      of
      the Company’s common stock subject to certain conditions. The conversion rate
      will initially be .1830 shares of common stock per $25 share liquidation
      preference, which is equivalent to an initial conversion price of $136.62 per
      share of common stock (the conversion rate will be subject to adjustment upon
      the occurrence of specified events). On or after July 31, 2011, the Company
      may,
      under certain circumstances cause some or all of the Series G Preferred Stock
      to
      be converted into shares of common stock at the then prevailing conversion
      rate.
      Further, if a fundamental change occurs, as defined in the articles
      supplementary for the Series G Preferred Stock, then the holders may require
      Essex to repurchase all or part of their Series G Preferred Stock subject to
      certain conditions.





The
      exchange of the Notes and/or Series G Preferred Stock for common stock would
      dilute stockholder ownership in the Company, and such exchange could adversely
      affect the market price of our common stock and our ability to raise capital
      through the sale of additional equity securities. If the Notes and Series G
      Preferred Stock are not exchanged, the repurchase price of the Notes and Series
      G Preferred Stock may discourage or impede transactions that might otherwise
      be
      in the interest of the holders of common stock. Further, these repurchase rights
      may be triggered in situations where Essex needs to conserve its cash reserves,
      in which event such repurchase might adversely affect Essex and its common
      stockholders.


11
 *Table
          of Contents*


***Our
      future issuances of common stock, preferred stock or convertible debt securities
      could adversely affect the market price of our common
      stock*** **-** In
      order
      to finance our property acquisition and development activities, we have issued
      and sold common stock, preferred stock and convertible debt securities. For
      example, in 2005, the Operating Partnership sold $225 million principal amount
      of 3.625% Exchangeable Senior Notes, which are exchangeable into the Company’s
      common stock under certain conditions. In 2006, the Company issued 5,980,000
      million shares of 4.875% Series G Cumulative Convertible Preferred Stock for
      gross proceeds of approximately $149.5 million. During 2006, pursuant to a
      Controlled Equity Offering program that the Company entered into with Cantor
      Fitzgerald & Co., the Company issued and sold approximately 427,700 shares
      of common Stock for $48.3 million, net of fees and commissions. The Company
      may
      in the future sell further shares of common stock pursuant to a Controlled
      Equity Offering program with Cantor Fitzgerald & Co.





Future
      sales of common stock, preferred stock or convertible debt securities may dilute
      stockholder ownership in the Company and could adversely affect the market
      price
      of the common stock.





***Our
      Chairman is involved in other real estate activities and investments, which
      may
      lead to conflicts of interest -*** Our
      Chairman, George M. Marcus is not an employee of Essex, and is involved in
      other
      real estate activities and investments, which may lead to conflicts of interest.
      Mr. Marcus owns interests in various other real estate-related businesses and
      investments. He is the Chairman of The Marcus & Millichap Company, or
“TMMC,” which is a holding company for certain real estate brokerage and
      services companies. TMMC has an interest in Pacific Property Company, a company
      that invests in apartment communities.





Mr.
      Marcus has agreed not to divulge any information that may be received by him
      in
      his capacity as Chairman of Essex to any of his affiliated companies and that
      he
      will abstain his vote on any and all resolutions by the Essex Board of Directors
      regarding any proposed acquisition and/or development of a multifamily property
      where it appears that there may be a conflict of interest with any of his
      affiliated companies.  Notwithstanding this agreement, Mr. Marcus and his
      affiliated entities may potentially compete with us in acquiring and/or
      developing multifamily properties, which competition may be detrimental to
      us.
      In addition, due to such potential competition for real estate investments,
      Mr.
      Marcus and his affiliated entities may have a conflict of interest with us,
      which may be detrimental to the interests of Essex’s stockholders.





***The
      influence of executive officers, directors and significant stockholders may
      be
      detrimental to holders of common stock*** - As of
      December 31, 2006, George M. Marcus, the Chairman of our Board of Directors,
      wholly or partially owned 1,759,267 shares of common stock (including shares
      issuable upon exchange of limited partnership interests in the Operating
      Partnership and certain other partnerships and assuming exercise of all vested
      options). This represents approximately 7.5% of the outstanding shares of our
      common stock. Mr. Marcus currently does not have majority control over us.
      However, he currently has, and likely will continue to have, significant
      influence with respect to the election of directors and approval or disapproval
      of significant corporate actions. Consequently, his influence could result
      in
      decisions that do not reflect the interests of all our stockholders.





Under
      the
      partnership agreement of the Operating Partnership, the consent of the holders
      of limited partnership interests is generally required for any amendment of
      the
      agreement and for certain extraordinary actions. Through their ownership of
      limited partnership interests and their positions with us, our directors and
      executive officers, including Mr. Marcus, have substantial influence on us.
      Consequently, their influence could result in decisions that do not reflect
      the
      interests of all stockholders.





***The
      voting rights of preferred stock may allow holders of preferred stock to impede
      actions that otherwise benefit holders of common stock*** **-** In
      general, the holders of our outstanding shares of preferred stock do not have
      any voting rights. However, if full distributions are not made on any
      outstanding preferred stock for six quarterly distributions periods, the holders
      of preferred stock who have not received distributions, voting together as
      a
      single class, will have the right to elect two additional directors to serve
      on
      our Board of Directors.




These
      voting rights continue until all distributions in arrears and distributions
      for
      the current quarterly period on the preferred stock have been paid in full.
      At
      that time, the holders of the preferred stock are divested of these voting
      rights, and the term and office of the directors so elected immediately
      terminates. While any shares of our preferred stock are outstanding, Essex
      may
      not, without the consent of the holders of two-thirds of the outstanding shares
      of each series of preferred stock, each voting separately as a single
      class:




12
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·
            authorize
                or create any class or series of stock that ranks senior to such
                preferred
                stock with respect to the payment of dividends, rights upon liquidation,
                dissolution or winding-up of our business;


·
            amend,
                alter or repeal the provisions of Essex’s Charter or Bylaws, including by
                merger or consolidation, that would materially and adversely affect
                the
                rights of such series of preferred stock; or


·
            in
                the case of the preferred stock into which our preferred units are
                exchangeable, merge or consolidate with another entity or transfer
                substantially all of its assets to another entity, except if such
                preferred stock remains outstanding with the surviving entity and
                has the
                same terms and in certain other circumstances.




These
      voting rights of the preferred stock may allow holders of preferred stock to
      impede or veto actions that would otherwise benefit the holders of our common
      stock.




***The
      redemption rights of the Series B preferred units, Series D preferred units,
      Series F preferred stock and Series G preferred stock may be detrimental to
      holders of Essex common stock -*** **** Upon
      the
      occurrence of one of the following events, the terms of the Operating
      Partnership’s Series B and D Preferred Units require it to redeem all of such
      units and the terms of Essex’s Series F Preferred Stock and the Series G
      Preferred Stock provide the holders of the majority of the outstanding Series
      F
      Preferred Stock and Series G Preferred Stock the right to require Essex to
      redeem all of such stock:




·
            Essex
                completes a “going private” transaction and its common stock is no longer
                registered under the Securities Exchange Act of 1934, as amended;


·
            Essex
                completes a consolidation or merger or sale of substantially all
                of its
                assets and the surviving entity’s debt securities do not possess an
                investment grade rating;


·
            Essex
                fails to qualify as a REIT; or


·
            in
                the case of Series G preferred stock, Essex common stock is not traded
                on
                a major exchange.




The
      aggregate redemption price of the Series B Preferred Units would be $80 million,
      the aggregate redemption price of the Series D Preferred Units would be $50
      million, the aggregate redemption price of the Series F Preferred Stock would
      be
      $25 million and the aggregate redemption price of the Series G Preferred Stock
      would be $149.5 million, plus, in each case, any accumulated
      distributions.




These
      redemption rights may discourage or impede transactions that might otherwise
      be
      in the interest of holders of common stock. Further, these redemption rights
      might trigger situations where Essex needs to conserve its cash reserves, in
      which event such redemption might adversely affect Essex and its common
      holders.




***Maryland
      business combination law may not allow certain transactions between Essex and
      its affiliates to proceed without compliance with such
      law*** **-** Under
      Maryland law, “business combinations” between a Maryland corporation and an
      interested stockholder or an affiliate of an interested stockholder are
      prohibited for five years after the most recent date on which the interested
      stockholder becomes an interested stockholder. These business combinations
      include a merger, consolidation, share exchange, or, in circumstances specified
      in the statute, an asset transfer or issuance or reclassification of equity
      securities. An interested stockholder is defined as any person (and certain
      affiliates of such person) who beneficially owns ten percent or more of the
      voting power of the then-outstanding voting stock.




The
      law
      also requires a supermajority stockholder vote for such transactions. This
      means
      that the transaction must be approved by at least:




·
            80%
                of the votes entitled to be cast by holders of outstanding voting
                shares;
                and


·
            Two-thirds
                of the votes entitled to be cast by holders of outstanding voting
                shares
                other than shares held by the interested stockholder with whom the
                business combination is to be effected.




The
      statute permits various exemptions from its provisions, including business
      combinations that are exempted by the board of directors prior to the time
      that
      the interested stockholder becomes an interested stockholder. These voting
      provisions do not apply if the stockholders receive a minimum price, as defined
      under Maryland law. As permitted by the statute, the Board of Directors of
      Essex
      irrevocably has elected to exempt any business combination by us, George M.
      Marcus, William A. Millichap, who are the chairman and a director of Essex,
      respectively, and TMMC or any entity owned or controlled by Messrs. Marcus
      and
      Millichap and TMMC. Consequently, the five-year prohibition and supermajority
      vote requirement described above will not apply to any business combination
      between us and Mr. Marcus, Mr. Millichap, or TMMC. As a result, we may in the
      future enter into business combinations with Messrs. Marcus and Millichap and
      TMMC, without compliance with the supermajority vote requirements and other
      provisions of the Maryland General Corporation Law.




***Anti-takeover
      provisions contained in the Operating Partnership agreement, charter, bylaws,
      and certain provisions of Maryland law could delay, defer or prevent a change
      in
      control*** **-** While
      Essex is the sole general partner of the Operating Partnership, and generally
      has full and exclusive responsibility and discretion in the management and
      control of the Operating Partnership, certain provisions of the Operating
      Partnership agreement place limitations on Essex’s ability to act with respect
      to the Operating Partnership. Such limitations could delay, defer or prevent
      a
      transaction or a change in control that might involve a premium price for our
      stock or otherwise be in the best interest of the stockholders or that could
      otherwise adversely affect the interest of Essex’s stockholders. The partnership
      agreement provides that if the limited partners own at least 5% of the
      outstanding units of partnership interest in the Operating Partnership, Essex
      cannot, without first obtaining the consent of a majority-in-interest of the
      limited partners in the Operating Partnership, transfer all or any portion
      of
      our general partner interest in the Operating Partnership to another entity.
      Such limitations on Essex’s ability to act may result in our being precluded
      from taking action that the Board of Directors believes is in the best interests
      of Essex’s stockholders. As of December 31, 2006, the limited partners held or
      controlled approximately 9.6% of the outstanding units of partnership interest
      in the Operating Partnership, allowing such actions to be blocked by the limited
      partners.




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Essex’s
      Charter authorizes the issuance of additional shares of common stock or
      preferred stock and the setting of the preferences, rights and other terms
      of
      such preferred stock without the approval of the holders of the common stock.
      We
      may establish one or more series of preferred stock that could delay, defer
      or
      prevent a transaction or a change in control. Such a transaction might involve
      a
      premium price for our stock or otherwise be in the best interests of the holders
      of common stock. Also, such a class of preferred stock could have dividend,
      voting or other rights that could adversely affect the interest of holders
      of
      common stock.





Essex’s
      Charter, as well as Essex’s stockholder rights plan, contains other provisions
      that may delay, defer or prevent a transaction or a change in control that
      might
      be in the best interest of Essex’s stockholders. Essex’s stockholder rights plan
      is designed, among other things, to prevent a person or group from gaining
      control of us without offering a fair price to all of Essex’s stockholders. The
      Bylaws may be amended by the Board of Directors to include provisions that
      would
      have a similar effect, although Essex presently has no such intention. The
      Charter contains ownership provisions limiting the transferability and ownership
      of shares of capital stock, which may have the effect of delaying, deferring
      or
      preventing a transaction or a change in control. For example, subject to
      receiving an exemption from the Board of Directors, potential acquirers may
      not
      purchase more than 6% in value of the stock (other than qualified pension trusts
      which can acquire 9.9%). This may discourage tender offers that may be
      attractive to the holders of common stock and limit the opportunity for
      stockholders to receive a premium for their shares of common stock.





The
      Maryland General Corporations Law restricts the voting rights of shares deemed
      to be “control shares.” Under the Maryland General Corporations Law, “control
      shares” are those which, when aggregated with any other shares held by the
      acquirer, entitle the acquirer to exercise voting power within specified ranges.
      Although the Bylaws exempt Essex from the control share provisions of the
      Maryland General Corporations Law, the Board of Directors may amend or eliminate
      the provisions of the Bylaws at any time in the future. Moreover, any such
      amendment or elimination of such provision of the Bylaws may result in the
      application of the control share provisions of the Maryland General Corporations
      Law not only to control shares which may be acquired in the future, but also
      to
      control shares previously acquired. If the provisions of the Bylaws are amended
      or eliminated, the control share provisions of the Maryland General Corporations
      Law could delay, defer or prevent a transaction or change in control that might
      involve a premium price for the stock or otherwise be in the best interests
      of
      Essex’s stockholders.





***Essex’s
      joint ventures and joint ownership of Properties and partial interests in
      corporations and limited partnerships could limit Essex’s ability to control
      such Properties and partial interests*** **-** Instead
      of purchasing properties directly, we have invested and may continue to invest
      as a co-venturer. Joint venturers often have shared control over the operation
      of the joint venture assets. Therefore, it is possible that the co-venturer
      in
      an investment might become bankrupt, or have economic or business interests
      or
      goals that are inconsistent with our business interests or goals, or be in
      a
      position to take action contrary to our instructions or requests, or our
      policies or objectives. Consequently, a co-venturer’s actions might subject
      property owned by the joint venture to additional risk. Although we seek to
      maintain sufficient influence over any joint venture to achieve its objectives,
      we may be unable to take action without our joint venture partners’ approval, or
      joint venture partners could take actions binding on the joint venture without
      our consent. Should a joint venture partner become bankrupt, we could become
      liable for such partner’s share of joint venture liabilities.





From
      time
      to time, we, through the Operating Partnership, invest in corporations, limited
      partnerships, limited liability companies or other entities that have been
      formed for the purpose of acquiring, developing or managing real property.
      In
      certain circumstances, the Operating Partnership’s interest in a particular
      entity may be less than a majority of the outstanding voting interests of that
      entity. Therefore, the Operating Partnership’s ability to control the daily
      operations of such an entity may be limited. Furthermore, the Operating
      Partnership may not have the power to remove a majority of the board of
      directors (in the case of a corporation) or the general partner or partners
      (in
      the case of a limited partnership) of such an entity in the event that its
      operations conflict with the Operating Partnership’s objectives. The Operating
      Partnership may not be able to dispose of its interests in such an entity.
      In
      the event that such an entity becomes insolvent, the Operating Partnership
      may
      lose up to its entire investment in and any advances to the entity. We have,
      and
      in the future may, enter into transactions that could require us to pay the
      tax
      liabilities of partners, which contribute assets into joint ventures or the
      Operating Partnership, in the event that certain taxable events, which are
      within our control, occur. Although we plan to hold the contributed assets
      or
      defer recognition of gain on their sale pursuant to the like-kind exchange
      rules
      under Section 1031 of the Internal Revenue Code, we can provide no assurance
      that we will be able to do so and if such tax liabilities were incurred they
      can
      expect to have a material impact on our financial position.


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***Dedicated
      investment activities and other factors specifically related to Fund
      II*** - Fund
      II involves risks to us such as the following:




·
            our
                partners in Fund II might remove Essex as the general partner of
                Fund
                II;


·
            our
                partners in Fund II might become bankrupt (in which event we might
                become
                generally liable for the liabilities of Fund
                II);


·
            our
                partners in Fund II might have economic or business interests or
                goals
                that are inconsistent with our business interests or
                goals;


·
            our
                partners in Fund II might fail to fund capital commitments as
                contractually required; or


·
            our
                partners in Fund II might fail to approve decisions regarding Fund
                II that
                are in our best interest.





We
      will,
      however, generally seek to maintain sufficient influence over Fund II to permit
      it to achieve its business objectives.





***Investments
      in mortgages and other real estate securities*** - We may
      invest in securities related to real estate, which could adversely affect our
      ability to make distributions to stockholders. We may purchase securities issued
      by entities which own real estate and invest in mortgages or unsecured debt
      obligations. These mortgages may be first, second or third mortgages that may
      or
      may not be insured or otherwise guaranteed. In general, investments in mortgages
      include the following risks:





·
            that
                the value of mortgaged property may be less than the amounts owed,
                causing
                realized or unrealized losses;


·
            the
                borrower may not pay indebtedness under the mortgage when due, requiring
                us to foreclose, and the amount recovered in connection with the
                foreclosure may be less than the amount
                owed;


·
            that
                interest rates payable on the mortgages may be lower than our cost
                of
                funds; and


·
            in
                the case of junior mortgages, that foreclosure of a senior mortgage
                would
                eliminate the junior mortgage.





If
      any of
      the above were to occur, cash flows from operations and our ability to make
      expected dividends to stockholders could be adversely affected.





***Possible
      environmental liabilities*** - Under
      various federal, state and local laws, ordinances and regulations, an owner
      or
      operator of real estate is liable for the costs of removal or remediation of
      certain hazardous or toxic substances on, in, to or migrating from such
      property. Such laws often impose liability without regard as to whether the
      owner or operator knew of, or was responsible for, the presence of such
      hazardous or toxic substances. The presence of such substances, or the failure
      to properly remediate such substances, may adversely affect the owner’s or
      operator’s ability to sell or rent such property or to borrow using such
      property as collateral. Persons exposed to such substances, either through
      soil
      vapor or ingestion of the substances may claim personal injury damages. Persons
      who arrange for the disposal or treatment of hazardous or toxic substances
      or
      wastes also may be liable for the costs of removal or remediation of such
      substances at the disposal or treatment facility to which such substances or
      wastes were sent, whether or not such facility is owned or operated by such
      person. Certain environmental laws impose liability for release of
      asbestos-containing materials (“ACMs”) into the air, and third parties may seek
      recovery from owners or operators of real properties for personal injury
      associated with ACMs. In connection with the ownership (direct or indirect),
      operation, management and development of real properties, the Operating
      Partnership could be considered an owner or operator of such properties or
      as
      having arranged for the disposal or treatment of hazardous or toxic substances
      and, therefore, may be potentially liable for removal or remediation costs,
      as
      well as certain other costs, including governmental fines and costs related
      to
      injuries of persons and property.





Investments
      in real property create a potential for environmental liabilities on the part
      of
      the owner of such real property. We carry certain limited insurance coverage
      for
      this type of environmental risk. We have conducted environmental studies which
      revealed the presence of groundwater contamination at certain Properties. Such
      contamination at certain of these properties was reported to have migrated
      on-site from adjacent industrial manufacturing operations. The former industrial
      users of the Properties were identified as the source of contamination. The
      environmental studies noted that certain Properties are located adjacent to
      any
      possible down gradient from sites with known groundwater contamination, the
      lateral limits of which may extend onto such properties. The environmental
      studies also noted that at certain of these properties, contamination existed
      because of the presence of underground fuel storage tanks, which have been
      removed. In general, in connection with the ownership, operation, financing,
      management and development of real properties, we may be potentially liable
      for
      removal or clean-up costs, as well as certain other costs and environmental
      liabilities. We may also be subject to governmental fines and costs related
      to
      injuries to persons and property.


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Recently
      there has been an increasing number of lawsuits against owners and managers
      of
      apartment communities alleging personal injury and property damage caused by
      the
      presence of mold in residential real estate. Some of these lawsuits have
      resulted in substantial monetary judgments or settlements. The Operating
      Partnership has been sued for mold related matters and has settled some, but
      not
      all, such matters, which matters remain unresolved and pending. Insurance
      carriers have reacted to mold related liability awards by excluding mold related
      claims from standard policies and pricing mold endorsements at prohibitively
      high rates. The Operating Partnership has, however, purchased pollution
      liability insurance, which includes limited coverage for mold, although the
      insurance may not cover all pending or future mold claims. The Operating
      Partnership has adopted programs designed to manage the existence of mold in
      its
      properties as well as guidelines for promptly addressing and resolving reports
      of mold to minimize any impact mold might have on residents or the property.
      The
      Operating Partnership cannot assure you that it will not be sued in the future
      for mold related matters and cannot assure you that the liabilities resulting
      from such current or future mold related matters will not be substantial. The
      costs of carrying insurance to address potential mold related claims may also
      be
      substantial.





California
      has enacted legislation commonly referred to as “Proposition 65” requiring that
“clear and reasonable” warnings be given to consumers who are exposed to
      chemicals known to the State of California to cause cancer or reproductive
      toxicity, including tobacco smoke. Although we have sought to comply with
      Proposition 65 requirements, we cannot assure you that we will not be adversely
      affected by litigation relating to Proposition 65.





Methane
      gas is a naturally-occurring gas that is commonly found below the surface in
      several areas, particularly in the Southern California coastal areas. 
Methane is a non-toxic gas, but can be ignitable in confined spaces. 
Although naturally-occurring, methane gas is not regulated at the state or
      federal level, some local governments, such as the County of Los Angeles, have
      imposed requirements that new buildings install detection systems in areas
      where
      methane gas is known to be located.





Methane
      gas is also associated with certain industrial activities, such as former
      municipal waste landfills. Radon is also a naturally-occurring gas that is
      found
      below the surface. The Operating Partnership cannot assure you that it will
      not
      be adversely affected by costs related to its compliance with methane gas
      related requirements or litigation costs related to methane or radon
      gas.





The
      Operating Partnership has almost no indemnification agreements from third
      parties for potential environmental clean-up costs at its Properties. The
      Operating Partnership has no way of determining at this time the magnitude
      of
      any potential liability to which it may be subject arising out of unknown
      environmental conditions or violations with respect to the properties formerly
      owned by the Operating Partnership. No assurance can be given that existing
      environmental studies with respect to any of the Properties reveal all
      environmental liabilities, that any prior owner or operator of a Property did
      not create any material environmental condition not known to the Operating
      Partnership, or that a material environmental condition does not exist as to
      any
      one or more of the Properties. The Operating Partnership has limited insurance
      coverage for the types of environmental liabilities described above.





***General
      uninsured losses*** - The
      Operating Partnership carries comprehensive liability, fire, extended coverage
      and rental loss insurance for each of the Properties. There are, however,
      certain types of extraordinary losses, such as, for example, losses for
      terrorism or earthquake, for which the Operating Partnership does not have
      insurance coverage. Substantially all of the Properties are located in areas
      that are subject to earthquake activity. In January 2007, the Operating
      Partnership canceled the earthquake policy and established a wholly owned
      insurance subsidiary. Through this subsidiary, the Operating Partnership is
      self-insured as it relates to earthquake related losses.





Although
      the Operating Partnership may carry insurance for potential losses associated
      with its Properties, employees, residents, and compliance with applicable laws,
      it may still incur losses due to uninsured risks, deductibles, co-payments
      or
      losses in excess of applicable insurance coverage and those losses may be
      material.


16
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***Changes
      in real estate tax and other laws*** -
      Generally we do not directly pass through costs resulting from changes in real
      estate tax laws to residential property tenants. We also do not generally pass
      through increases in income, service or other taxes, to tenants under leases.
      These costs may adversely affect funds from operations and the ability to make
      distributions to stockholders. Similarly, compliance with changes in (i) laws
      increasing the potential liability for environmental conditions existing on
      properties or the restrictions on discharges or other conditions or (ii) rent
      control or rent stabilization laws or other laws regulating housing may result
      in significant unanticipated expenditures, which would adversely affect funds
      from operations and the ability to make distributions to
      stockholders.





***Changes
      in financing policy; no limitation on debt -*** We have
      adopted a policy of maintaining for a debt-to-total-market-capitalization ratio
      of less than 50%. The calculation of debt-to-total-market-capitalization is
      as
      follows: total indebtedness divided by the sum of total indebtedness plus total
      equity market capitalization. As used in this calculation, total equity market
      capitalization is equal to the aggregate market value of the outstanding shares
      of common stock (based on the greater of current market price or the gross
      proceeds per share from public offerings of the outstanding shares plus any
      undistributed net cash flow), assuming the conversion of all limited partnership
      interests in the Operating Partnership into shares of common stock and the
      gross
      proceeds of the preferred units. Based on this calculation (including the
      current market price and excluding undistributed net cash flow), our
      debt-to-total-market-capitalization ratio was approximately 28% as of December
      31, 2006.





Our
      organizational documents do not limit the amount or percentage of indebtedness
      that may be incurred. Accordingly, the Board of Directors of Essex could change
      current policies and the policies of the Operating Partnership regarding
      indebtedness. If we changed these policies, we could incur more debt, resulting
      in an increased risk of default on our obligations and the obligations of the
      Operating Partnership, and an increase in debt service requirements that could
      adversely affect our financial condition and results of operations. Such
      increased debt could exceed the underlying value of the Properties.





***We
      are subject to certain tax risks*** - ** Essex
      has
      elected to be taxed as a REIT under the Internal Revenue Code. Essex’s
      qualification as a REIT requires it to satisfy numerous requirements (some
      on an
      annual and quarterly basis) established under highly technical and complex
      Internal Revenue Code provisions for which there are only limited judicial
      or
      administrative interpretations, and involves the determination of various
      factual matters and circumstances not entirely within Essex’s control. Although
      Essex intends that its current organization and method of operation enable
      it to
      qualify as a REIT, it cannot assure you that it so qualifies or that it will
      be
      able to remain so qualified in the future. Future legislation, new regulations,
      administrative interpretations or court decisions (any of which could have
      retroactive effect) could adversely affect Essex’s ability to qualify as a REIT
      or adversely affect its stockholders. If it fails to qualify as a REIT in any
      taxable year, Essex would be subject to U.S. federal income tax (including
      any
      applicable alternative minimum tax) on its taxable income at corporate rates,
      and would not be allowed to deduct dividends paid to its shareholders in
      computing its taxable income. Essex may also be disqualified from treatment
      as a
      REIT for the four taxable years following the year in which it failed to
      qualify. The additional tax liability would reduce its net earnings available
      for investment or distribution to stockholders, and it would no longer be
      required to make distributions to its stockholders. Even if Essex continues
      to
      qualify as a REIT, it will continue to be subject to certain federal, state
      and
      local taxes on its income and property.





The
      Operating Partnership has established several taxable REIT subsidiaries
      (“TRSs”). Despite Essex’s qualification as a REIT, its TRSs’ must pay U.S.
      federal income tax on their taxable income. While Essex will attempt to ensure
      that their dealing with its TRSs’ does not adversely affect its REIT
      qualification, it cannot provide assurance that it will successfully achieve
      that result. Furthermore, Essex may be subject to a 100% penalty tax, or its
      TRSs’ may be denied deductions, to the extent its dealings with its TRSs’ are
      not deemed to be arm’s length in nature. No assurances can be given that Essex’s
      dealings with its TRSs’ will be arm’s length in nature.





From
      time
      to time, we may transfer or otherwise dispose of some of our Properties. Under
      the Internal Revenue Code, any gain resulting from transfers of Properties
      that
      we hold as inventory or primarily for sale to customers in the ordinary course
      of business would be treated as income from a prohibited transaction subject
      to
      a 100% penalty tax. Since we acquire properties for investment purposes, we
      do
      not believe that our occasional transfers or disposals of property are
      prohibited transactions. However, whether property is held for investment
      purposes is a question of fact that depends on all the facts and circumstances
      surrounding the particular transaction. The Internal Revenue Service may contend
      that certain transfers or disposals of properties by us are prohibited
      transactions. If the Internal Revenue Service were to argue successfully that
      a
      transfer or disposition of property constituted a prohibited transaction, then
      Essex would be required to pay a 100% penalty tax on any gain allocable to
      Essex
      from the prohibited transaction and Essex’s ability to retain future gains on
      real property sales may be jeopardized. Income from a prohibited transaction
      might adversely affect Essex’s ability to satisfy the income tests for
      qualification as a REIT for U.S. federal income tax purposes. Therefore, no
      assurances can be given that Essex will be able to satisfy the income tests
      for
      qualification as a REIT.


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**Item
      1B. Unresolved Staff Comments.**





None **.**





**Item
      2. Properties**





Our
      core
      apartment Portfolio as of December 31, 2006 (including partial ownership
      interests) was comprised of 130 apartment communities (comprising 27,553
      apartment units), of which 13,285 units are located in Southern California,
      7,490 units are located in the San Francisco Bay Area, 5,441 units are located
      in the Seattle Metropolitan Area, and 1,337 units are located in the other
      areas
      including Portland, Oregon and Houston, Texas. The Operating Partnership’s
      apartment communities accounted for 99% of the Operating Partnership’s property
      revenues for the year ended December 31, 2006.





**Occupancy
      Rates**





The
      130
      apartment communities had an average Same-Properties occupancy (as defined
      in
      Item 7), based on “financial occupancy,” during the year ended December 31,
      2006, of approximately 96.4 %. With respect to stabilized apartment communities
      with sufficient operating history, occupancy figures are based on financial
      occupancy (the percentage resulting from dividing actual rental revenue by
      total
      possible rental revenue). Actual rental revenue represents contractual revenue
      pursuant to leases without considering delinquency and concessions. Total
      possible rental revenue represents the value of all apartment units, with
      occupied units valued at contractual rental rates pursuant to leases and vacant
      units valued at estimated market rents. We believe that financial occupancy
      is a
      meaningful measure of occupancy because it considers the value of each vacant
      unit at its estimated market rate. Financial occupancy may not completely
      reflect short-term trends in physical occupancy and financial occupancy rates
      as
      disclosed by other REITs may not be comparable to our calculation of financial
      occupancy.





As
      of
      December 31, 2006, the headquarters building was 100% occupied by the Operating
      Partnership and the Southern California office building was 95% occupied, based
      on physical occupancy. With respect to office buildings, occupancy figures
      are
      based on “physical occupancy” which refers to the percentage resulting from
      dividing leased and occupied square footage by rentable square footage. With
      respect to recreational vehicle parks, manufactured housing communities, or
      apartment communities which have not yet stabilized or have insufficient
      operating history, occupancy figures are based on “physical occupancy” which
      refers to the percentage resulting from dividing leased and occupied units
      by
      rentable units.





For
      the
      year ended December 31, 2006, none of the Operating Partnership’s Properties had
      book values equal to 10% or more of total assets of the Operating Partnership
      or
      gross revenues equal to 10% or more of aggregate gross revenues of the Operating
      Partnership.





**Apartment
      Communities**





Our
      apartment communities are generally suburban garden apartments and town homes
      comprising multiple clusters of two and three story buildings situated on three
      to fifteen acres of land. The apartment communities have on average of 212
      units, with a mix of studio, one, two and some three-bedroom units. A wide
      variety of amenities are available at each apartment community, including
      covered parking, fireplaces, swimming pools, clubhouses with complete fitness
      facilities, volleyball and playground areas and tennis courts.





The
      Operating Partnership selects, trains and supervises a full team of on-site
      service and maintenance personnel. The Operating Partnership believes that
      the
      following primary factors enhance our ability to retain tenants:





·
            well
                built communities that have been well maintained since acquisition;
                and


·
            proactive
                customer service approach.





**Office
      Buildings**





The
      Operating Partnership’s corporate headquarters is located in a two-story office
      building with approximately 17,400 square feet located at 925 East Meadow Drive,
      Palo Alto, California. The Operating Partnership acquired this property in
      1997.
      The Operating Partnership also owns an office building in Southern California
      (Woodland Hills), comprised of approximately 38,940 square feet building, of
      which the Operating Partnership occupies approximately 11,200 square feet at
      December 31, 2006. The building has nine third-party tenants occupying
      approximately 26,000 feet. The largest single tenant occupies approximately
      10,900 square feet. The Operating Partnership acquired the Woodland Hills
      property in 2001. The Operating Partnership has a mortgage loan receivable
      on an
      office building with approximately 110,000 square feet located in Irvine,
      California, which is consolidated under FIN 46R.


18
 *Table
          of Contents*


**Recreational
      Vehicle Parks and Manufactured Housing Community**





The
      Operating Partnership owns two recreational vehicle parks (comprising of 338
      spaces), acquired in the Operating Partnership’s December 2002 acquisition of
      John M. Sachs, Inc., located in El Cajon, California.





The
      Operating Partnership owns one manufactured housing community (containing 157
      sites), acquired in the Operating Partnership’s December 2002 acquisition of
      John M. Sachs, Inc., located in Vista, California.


19
 *Table
          of Contents*


The
      following tables describe the Operating Partnership’s Properties as of December
      31, 2006. The first table describes the Operating Partnership’s apartment
      communities and the second table describes the Operating Partnership’s other
      real estate assets.




**Apartment
                Communities****(1)**
            
            **Location**
            
            **Units**
            
            **Rentable
                Square Footage**
            
            **Year
                Built**
            
            **Year
                Acquired**
            
            **Occupancy****(2)****Southern
                California**Alpine
                Country
            
            Alpine,
                CA
            
            108
            
            81,900
            
            1986
            
            2002
            
            97%Alpine
                Village
            
            Alpine,
                CA
            
            306
            
            254,400
            
            1971
            
            2002
            
            97%Barkley,
                The(3)(4)
            
            Anaheim,
                CA
            
            161
            
            139,800
            
            1984
            
            2000
            
            98%Bonita
                Cedars
            
            Bonita,
                CA
            
            120
            
            120,800
            
            1983
            
            2002
            
            96%Camarillo
                Oaks
            
            Camarillo,
                CA
            
            564
            
            459,000
            
            1985
            
            1996
            
            96%Mountain
                View
            
            Camarillo,
                CA
            
            106
            
            83,900
            
            1980
            
            2004
            
            98%Cambridge
            
            Chula
                Vista, CA
            
            40
            
            22,100
            
            1965
            
            2002
            
            97%Woodlawn
                Colonial
            
            Chula
                Vista, CA
            
            159
            
            104,500
            
            1974
            
            2002
            
            95%Mesa
                Village
            
            Clairemont,
                CA
            
            133
            
            43,600
            
            1963
            
            2002
            
            98%Parcwood(5)
            
            Corona,
                CA
            
            312
            
            270,000
            
            1989
            
            2004
            
            92%Coral
                Gardens
            
            El
                Cajon, CA
            
            200
            
            182,000
            
            1976
            
            2002
            
            95%Tierra
                del Sol/Norte
            
            El
                Cajon, CA
            
            156
            
            117,000
            
            1969
            
            2002
            
            97%Grand
                Regency
            
            Escondido,
                CA
            
            60
            
            42,400
            
            1967
            
            2002
            
            99%Valley
                Park(6)
            
            Fountain
                Valley, CA
            
            160
            
            169,700
            
            1969
            
            2001
            
            95%Capri
                at Sunny Hills(6)
            
            Fullerton,
                CA
            
            100
            
            128,100
            
            1961
            
            2001
            
            97%Wilshire
                Promenade
            
            Fullerton,
                CA
            
            149
            
            128,000
            
            1992(7)
            
            1997
            
            98%Montejo(6)
            
            Garden
                Grove, CA
            
            124
            
            103,200
            
            1974
            
            2001
            
            97%CBC
                Apartments
            
            Goleta,
                CA
            
            148
            
            91,538
            
            1962
            
            2006
            
            98%Chimney
                Sweep Apartments
            
            Goleta,
                CA
            
            91
            
            88,370
            
            1967
            
            2006
            
            96%Hampton
                Court (Columbus)
            
            Glendale,
                CA
            
            83
            
            71,500
            
            1974(8)
            
            1999
            
            96%Hampton
                Place (Lorraine)
            
            Glendale,
                CA
            
            132
            
            141,500
            
            1970(9)
            
            1999
            
            95%Devonshire
            
            Hemet,
                CA
            
            276
            
            207,200
            
            1988
            
            2002
            
            91%Huntington
                Breakers
            
            Huntington
                Beach, CA
            
            342
            
            241,700
            
            1984
            
            1997
            
            98%Hillsborough
                Park
            
            La
                Habra, CA
            
            235
            
            215,500
            
            1999
            
            1999
            
            98%Trabuco
                Villas
            
            Lake
                Forest, CA
            
            132
            
            131,000
            
            1985
            
            1997
            
            99%Marbrisa
            
            Long
                Beach, CA
            
            202
            
            122,800
            
            1987
            
            2002
            
            99%Pathways
            
            Long
                Beach, CA
            
            296
            
            197,700
            
            1975(10)
            
            1991
            
            97%Bunker
                Hill
            
            Los
                Angeles, CA
            
            456
            
            346,600
            
            1968
            
            1998
            
            98%City
                Heights(11)
            
            Los
                Angeles, CA
            
            687
            
            424,100
            
            1968
            
            2000
            
            95%Cochran
                Apartments
            
            Los
                Angeles, CA
            
            58
            
            51,400
            
            1989
            
            1998
            
            98%Kings
                Road
            
            Los
                Angeles, CA
            
            196
            
            132,100
            
            1979(12)
            
            1997
            
            98%Marbella,
                The
            
            Los
                Angeles, CA
            
            60
            
            50,108
            
            1991
            
            2005
            
            97%Park
                Place
            
            Los
                Angeles, CA
            
            60
            
            48,000
            
            1988
            
            1997
            
            98%Windsor
                Court
            
            Los
                Angeles, CA
            
            58
            
            46,600
            
            1988
            
            1997
            
            98%Marina
                City Club(13)
            
            Los
                Angeles, CA
            
            101
            
            127,200
            
            1971
            
            2004
            
            98%Renaissance(5)
            
            Los
                Angeles, CA
            
            168
            
            154,268
            
            1990
            
            2006
            
            95%Mirabella
            
            Marina
                Del Rey, CA
            
            188
            
            176,800
            
            2000
            
            2000
            
            98%Mira
                Monte (Mira Woods Villa)
            
            Mira
                Mesa, CA
            
            355
            
            262,600
            
            1982(14)
            
            2002
            
            97%Hillcrest
                Park (Mirabella)
            
            Newbury
                Park, CA
            
            608
            
            521,900
            
            1973(15)(16)
            
            1998
            
            97%Fairways(17)
            
            Newport
                Beach, CA
            
            74
            
            107,100
            
            1972
            
            1999
            
            97%Country
                Villas
            
            Oceanside,
                CA
            
            180
            
            179,700
            
            1976
            
            2002
            
            96%Mission
                Hills
            
            Oceanside,
                CA
            
            282
            
            244,000
            
            1984
            
            2005
            
            96%Mariner's
                Place
            
            Oxnard,
                CA
            
            105
            
            77,200
            
            1987
            
            2000
            
            97%Tierra
                Vista(18)
            
            Oxnard,
                CA
            
            404
            
            387,100
            
            2001
            
            2001
            
            97%Monterey
                Villas (Village Apartments)
            
            Oxnard,
                CA
            
            122
            
            122,100
            
            1974(19)
            
            1997
            
            97%Monterra
                del Mar (Windsor Terrace)
            
            Pasadena,
                CA
            
            123
            
            74,400
            
            1972(20)
            
            1997
            
            96%Monterra
                del Rey (Glenbrook)
            
            Pasadena,
                CA
            
            84
            
            73,100
            
            1972(21)
            
            1999
            
            95%Monterra
                del Sol (Euclid)
            
            Pasadena,
                CA
            
            85
            
            69,200
            
            1972(22)
            
            1999
            
            96%Villa
                Angelina(6)
            
            Placentia,
                CA
            
            256
            
            217,600
            
            1970
            
            2001
            
            98%**(continued)**




20
 *Table
          of Contents*




**Apartment
                Communities****(1)**
            
            **Location**
            
            **Units**
            
            **Square
                Footage**
            
            **Year
                Built**
            
            **Year
                Acquired**
            
            **Occupancy****(2)****Southern
                California (continued)**Fountain
                Park
            
            Playa
                Vista, CA
            
            705
            
            608,900
            
            2002
            
            2004
            
            92%Highridge(6)
            
            Rancho
                Palos Verdes, CA
            
            255
            
            290,200
            
            1972
            
            1997
            
            94%Bluffs
                II, The(23)
            
            San
                Diego, CA
            
            224
            
            126,700
            
            1974
            
            1997
            
            99%Summit
                Park
            
            San
                Diego, CA
            
            300
            
            229,400
            
            1972
            
            2002
            
            96%Vista
                Capri - North
            
            San
                Diego, CA
            
            106
            
            51,800
            
            1975
            
            2002
            
            97%Brentwood
                (Hearthstone)(6)
            
            Santa
                Ana, CA
            
            140
            
            154,800
            
            1970
            
            2001
            
            97%Treehouse(6)
            
            Santa
                Ana, CA
            
            164
            
            135,700
            
            1970
            
            2001
            
            95%Carlton
                Heights
            
            Santee,
                CA
            
            70
            
            48,400
            
            1979
            
            2002
            
            98%Meadowood
            
            Simi
                Valley, CA
            
            320
            
            264,500
            
            1986
            
            1996
            
            95%Hidden
                Valley (Parker Ranch)(24)
            
            Simi
                Valley, CA
            
            324
            
            310,900
            
            2004
            
            2004
            
            97%Shadow
                Point
            
            Spring
                Valley, CA
            
            172
            
            131,200
            
            1983
            
            2002
            
            96%Lofts
                at Pinehurst, The (Villa Scandia)
            
            Ventura,
                CA
            
            118
            
            71,100
            
            1971(25)
            
            1997
            
            96%Pinehurst(26)
            
            Ventura,
                CA
            
            28
            
            21,200
            
            1973
            
            2004
            
            99%Woodside
                Village
            
            Ventura,
                CA
            
            145
            
            136,500
            
            1987
            
            2004
            
            96%Walnut
                Heights
            
            Walnut,
                CA
            
            163
            
            146,700
            
            1964
            
            2003
            
            93%Avondale
                at Warner Center
            
            Woodland
                Hills, CA
            
            446
            
            331,000
            
            1970(27)
            
            1997
            
            96%**13,285**
            
            **10,911,384**
            
            
            
            
            
            **96%****Northern
                California**Belmont
                Terrace
            
            Belmont,
                CA
            
            71
            
            72,951
            
            1974
            
            2006
            
            91%Carlmont
                Woods(5)
            
            Belmont,
                CA
            
            195
            
            107,200
            
            1971
            
            2004
            
            98%Davey
                Glen(5)
            
            Belmont,
                CA
            
            69
            
            65,974
            
            1962
            
            2006
            
            90%Brookside
                Oaks(6)
            
            Cupertino,
                CA
            
            170
            
            119,900
            
            1973
            
            2000
            
            97%Point
                at Cupertino, The (Westwood)(18)
            
            Cupertino,
                CA
            
            116
            
            135,200
            
            1963(28)
            
            1998
            
            98%Harbor
                Cove(5)
            
            Foster
                City, CA
            
            400
            
            306,600
            
            1971
            
            2004
            
            96%Waterstone
                at Fremont (Mountain Vista)(29)
            
            Fremont,
                CA
            
            526
            
            433,100
            
            1975
            
            2000
            
            94%Stevenson
                Place (The Apple)
            
            Fremont,
                CA
            
            200
            
            146,200
            
            1971(30)
            
            1983
            
            96%Treetops
            
            Fremont,
                CA
            
            172
            
            131,200
            
            1978(31)
            
            1996
            
            96%Wimbledon
                Woods
            
            Hayward,
                CA
            
            560
            
            462,400
            
            1975(32)
            
            1998
            
            95%Alderwood
                Park(5)
            
            Newark,
                CA
            
            96
            
            74,624
            
            1987
            
            2006
            
            98%Summerhill
                Commons
            
            Newark,
                CA
            
            184
            
            139,000
            
            1987(33)
            
            1987
            
            97%Regency
                Towers(5)
            
            Oakland,
                CA
            
            178
            
            140,900
            
            1975
            
            2005
            
            93%San
                Marcos (Vista del Mar)
            
            Richmond,
                CA
            
            432
            
            407,600
            
            2003
            
            2003
            
            96%Mt.
                Sutro
            
            San
                Francisco, CA
            
            99
            
            64,000
            
            1973
            
            2001
            
            97%The
                Carlyle
            
            San
                Jose, CA
            
            132
            
            129,200
            
            2000
            
            2000
            
            96%The
                Enclave(5)
            
            San
                Jose, CA
            
            637
            
            525,463
            
            1998
            
            2005
            
            93%Waterford,
                The
            
            San
                Jose, CA
            
            238
            
            219,600
            
            2000
            
            2000
            
            97%Esplanade
            
            San
                Jose, CA
            
            278
            
            279,000
            
            2002
            
            2004
            
            97%Hillsdale
                Garden Apartments(34)
            
            San
                Mateo, CA
            
            697
            
            611,505
            
            1948
            
            2006
            
            95%Bel
                Air (The Shores)
            
            San
                Ramon, CA
            
            462
            
            391,000
            
            1988(35)
            
            1997
            
            95%Foothill
                Gardens
            
            San
                Ramon, CA
            
            132
            
            155,100
            
            1985
            
            1997
            
            97%Twin
                Creeks
            
            San
                Ramon, CA
            
            44
            
            51,700
            
            1985
            
            1997
            
            97%Le
                Parc Luxury Apartments (Plumtree)
            
            Santa
                Clara, CA
            
            140
            
            113,200
            
            1975(36)
            
            1994
            
            98%Marina
                Cove(37)
            
            Santa
                Clara, CA
            
            292
            
            250,200
            
            1974
            
            1994
            
            98%Bristol
                Commons
            
            Sunnyvale,
                CA
            
            188
            
            142,600
            
            1989
            
            1997
            
            97%Montclaire
                (Oak Pointe)
            
            Sunnyvale,
                CA
            
            390
            
            294,100
            
            1973(38)
            
            1988
            
            94%Summerhill
                Park
            
            Sunnyvale,
                CA
            
            100
            
            78,500
            
            1988
            
            1988
            
            99%Windsor
                Ridge
            
            Sunnyvale,
                CA
            
            216
            
            161,800
            
            1989
            
            1989
            
            97%Vista
                Belvedere
            
            Tiburon,
                CA
            
            76
            
            78,300
            
            1963
            
            2004
            
            98%**7,490**
            
            **6,288,117**
            
            
            
            
            
            **96%****(continued)**


21
 *Table
          of Contents*




**Apartment
                Communities****(1)**
            
            **Location**
            
            **Units**
            
            **Square
                Footage**
            
            **Year
                Built**
            
            **Year
                Acquired**
            
            **Occupancy****(2)****Seattle,
                Washington Metropolitan Area**Cedar
                Terrace
            
            Bellevue,
                WA
            
            180
            
            174,200
            
            1984
            
            2005
            
            96%Emerald
                Ridge-North
            
            Bellevue,
                WA
            
            180
            
            144,000
            
            1987
            
            1994
            
            97%Foothill
                Commons
            
            Bellevue,
                WA
            
            360
            
            288,300
            
            1978(39)
            
            1990
            
            98%Palisades,
                The
            
            Bellevue,
                WA
            
            192
            
            159,700
            
            1977(40)
            
            1990
            
            96%Sammamish
                View
            
            Bellevue,
                WA
            
            153
            
            133,500
            
            1986(41)
            
            1994
            
            98%Woodland
                Commons
            
            Bellevue,
                WA
            
            236
            
            172,300
            
            1978(39)
            
            1990
            
            97%Canyon
                Pointe
            
            Bothell,
                WA
            
            250
            
            210,400
            
            1990
            
            2003
            
            97%Inglenook
                Court
            
            Bothell,
                WA
            
            224
            
            183,600
            
            1985
            
            1994
            
            95%Salmon
                Run at Perry Creek
            
            Bothell,
                WA
            
            132
            
            117,100
            
            2000
            
            2000
            
            97%Stonehedge
                Village
            
            Bothell,
                WA
            
            196
            
            214,800
            
            1986
            
            1997
            
            97%Park
                Hill at Issaquah(42)
            
            Issaquah,
                WA
            
            245
            
            277,700
            
            1999
            
            1999
            
            97%Peregrine
                Point
            
            Issaquah,
                WA
            
            21
            
            85,900
            
            2003(43)
            
            2003
            
            48%Wandering
                Creek
            
            Kent,
                WA
            
            156
            
            124,300
            
            1986
            
            1995
            
            99%Bridle
                Trails
            
            Kirkland,
                WA
            
            108
            
            73,400
            
            1986(44)
            
            1997
            
            94%Evergreen
                Heights
            
            Kirkland,
                WA
            
            200
            
            188,300
            
            1990
            
            1997
            
            98%Laurels,
                The
            
            Mill
                Creek, WA
            
            164
            
            134,300
            
            1981
            
            1996
            
            98%Morning
                Run(5)
            
            Monroe,
                WA
            
            222
            
            221,786
            
            1991
            
            2005
            
            98%Anchor
                Village(6)
            
            Mukilteo,
                WA
            
            301
            
            245,900
            
            1981
            
            1997
            
            95%Castle
                Creek
            
            Newcastle,
                WA
            
            216
            
            191,900
            
            1997
            
            1997
            
            97%Brighton
                Ridge
            
            Renton,
                WA
            
            264
            
            201,300
            
            1986
            
            1996
            
            95%Forest
                View
            
            Renton,
                WA
            
            192
            
            182,500
            
            1998
            
            2003
            
            96%Fairwood
                Pond
            
            Renton,
                WA
            
            194
            
            189,200
            
            1997
            
            2004
            
            96%Fountain
                Court
            
            Seattle,
                WA
            
            320
            
            207,000
            
            2000
            
            2000
            
            97%Linden
                Square
            
            Seattle,
                WA
            
            183
            
            142,200
            
            1994
            
            2000
            
            97%Maple
                Leaf
            
            Seattle,
                WA
            
            48
            
            35,500
            
            1986
            
            1997
            
            98%Spring
                Lake
            
            Seattle,
                WA
            
            69
            
            42,300
            
            1986
            
            1997
            
            98%Tower
                @ 801(5)
            
            Seattle,
                WA
            
            173
            
            118,500
            
            1970
            
            2005
            
            95%Wharfside
                Pointe
            
            Seattle,
                WA
            
            142
            
            119,200
            
            1990
            
            1994
            
            98%Echo
                Ridge(5)
            
            Snoqualmie,
                WA
            
            120
            
            124,539
            
            2000
            
            2005
            
            95%**5,441**
            
            **4,703,625**
            
            
            
            
            
            **96%****Portland,
                Oregon Metropolitan Area**Jackson
                School Village
            
            Hillsboro,
                OR
            
            200
            
            196,800
            
            1996
            
            2000
            
            95%Landmark
            
            Hillsboro,
                OR
            
            285
            
            282,900
            
            1990
            
            1996
            
            97%Meadows
                @ Cascade Park
            
            Vancouver,
                WA
            
            198
            
            199,300
            
            1989
            
            1997
            
            97%Village
                @ Cascade Park
            
            Vancouver,
                WA
            
            192
            
            178,100
            
            1989
            
            1997
            
            97%**875**
            
            **857,100**
            
            
            
            
            
            **97%****Other
                areas and property owned by a TRS**St.
                Cloud
            
            Houston,
                TX
            
            302
            
            306,800
            
            1968
            
            2002
            
            91%Camino
                Ruiz Square(45)
            
            Camarillo,
                CA
            
            160
            
            105,448
            
            1990
            
            2006
            
            97%**462**
            
            **412,248**
            
            
            
            
            
            **93%****Total/Weighted
                Average**
            
            
            
            **27,553**
            
            **23,172,474**
            
            
            
            
            
            **96%**




22
 *Table
          of Contents*




**Other
                real estate assets****(1)**
            
            **Location**
            
            **Tenants**
            
            **Rentable
                Square Footage**
            
            **Year
                Built**
            
            **Year
                Acquired**
            
            **Occupancy****(2)****Office
                Buildings**925
                East Meadow Drive
            
            Palo
                Alto, CA
            
            1
            
            17,400
            
            1988
            
            1997
            
            100%(46)17461
                Derian Ave(47)
            
            Irvine,
                CA
            
            3
            
            110,000
            
            1983
            
            2000
            
            100%(48)22110-22120
                Clarendon Street
            
            Woodland
                Hills, CA
            
            9
            
            38,940
            
            1982
            
            2001
            
            96%(49)**Total
                Office Buildings**
            
            
            
            **13**
            
            **166,340**
            
            
            
            
            
            **99%****Recreational
                Vehicle Parks**Circle
                RV
            
            El
                Cajon, CA
            
            179
                spaces
            
            
            
            1977
            
            2002
            
            (50)Vacationer
            
            El
                Cajon, CA
            
            159
                spaces
            
            
            
            1973
            
            2002
            
            (50)**Total
                Recreational Vehicle Parks**
            
            
            
            **338
                spaces****Manufactured
                Housing Community**Green
                Valley
            
            Vista,
                CA
            
            157
                sites
            
            
            
            1973
            
            2002
            
            (50)**Total
                Manufactured Housing Community**
            
            **157
                sites**




(1)
            Unless
                otherwise specified, the Operating Partnership has a 100% ownership
                interest in each Property.


(2)
            For
                apartment communities, occupancy rates are based on financial occupancy
                for the year ended December 31, 2006; for the office buildings,
                recreational vehicle parks, manufactured housing communities or properties
                which have not yet stabilized or have insufficient operating history,
                occupancy rates are based on physical occupancy as of December 31,
                2006.
                For an explanation of how financial occupancy and physical occupancy
                are
                calculated, see “Properties-Occupancy Rates” in this Item
                2.


(3)
            The
                Operating Partnership has a 30% special limited partnership interest
                in
                the entity that owns this apartment community. This investment was
                made
                under arrangements whereby the Essex Management Corporation (“EMC”) became
                the general partner and the existing partners were granted the right
                to
                require the applicable partnership to redeem their interest for cash.
                Subject to certain conditions, the Operating Partnership may, however,
                elect to deliver an equivalent number of shares of the Company’s common
                stock in satisfaction of the applicable partnership's cash redemption
                obligation.


(4)
            The
                property is subject to a ground lease, which, unless extended, will
                expire
                in 2082.


(5)
            This
                property is owned by Fund II. The Operating Partnership has a 28.2%
                interest in Fund II which is accounted for using the equity method
                of
                accounting.


(6)
            The
                Operating Partnership holds a 1% special limited partner interest
                in the
                partnerships which own these apartment communities. These investments
                were
                made under arrangements whereby EMC became the 1% sole general partner
                and
                the other limited partners were granted the right to require the
                applicable partnership to redeem their interest for cash. Subject
                to
                certain conditions, the Operating Partnership may, however, elect
                to
                deliver an equivalent number of shares of the Company’s common stock in
                satisfaction of the applicable partnership’s cash redemption obligation.


(7)
            In
                2002 the Operating Partnership purchased an additional 21 units adjacent
                to this property for $3 million. This property was built in
                1992.


(8)
            The
                Operating Partnership completed a $1.6 million redevelopment on this
                property in 2000.


(9)
            The
                Operating Partnership completed a $2.3 million redevelopment on this
                property in 2000.


(10)
            The
                Operating Partnership is in the process of performing a $10.7 million
                redevelopment on this property.


(11)
            The
                Operating Partnership owns the land and has leased the improvements
                to an
                unrelated third party. The leasehold interest entitles the Operating
                Partnership to receive a monthly payment for the 34-year term of
                the land
                lease and promote fees upon sale. The property was sold in February
                2007
                to a third-party.


(12)
            The
                Operating Partnership is in the process of performing a $6.2 million
                redevelopment on this property.


(13)
            This
                property is subject to a ground lease, which, unless extended, will
                expire
                in 2067.


(14)
            The
                Operating Partnership is in the process of performing a $6.0 million
                redevelopment on this property.


(15)
            The
                Operating Partnership completed an $11.0 million redevelopment on
                this
                property in 2001.


(16)
            The
                Operating Partnership completed an additional $3.6 million redevelopment
                on this property in 2005.


(17)
            This
                property is subject to a ground lease, which, unless extended, will
                expire
                in 2027.


(18)
            The
                Operating Partnership had a 20.0% ownership interest this property.
                In
                2004, the Operating Partnership acquired the remaining
                80%.


(19)
            The
                Operating Partnership completed a $3.2 million redevelopment on this
                property in 2002.


(20)
            The
                Operating Partnership completed a $1.9 million redevelopment on this
                property in 2000.


(21)
            The
                Operating Partnership completed a $1.9 million redevelopment on this
                property in 2001.


(22)
            The
                Operating Partnership completed a $1.7 million redevelopment on this
                property in 2001.


(23)
            The
                Operating Partnership had an 85% controlling limited partnership
                interest
                in this propertyas
                of December 31, 2006, and during January 2007 the Operating Partnership
                acquired the remaining 15% partnership interest.


23
 *Table
          of Contents*


(24)
            The
                Operating Partnership and EMC have a 74.0% and 1% member interests,
                respectively, in this property.


(25)
            The
                Operating Partnership completed a $3.5 million redevelopment on this
                property in 2002.


(26)
            The
                property is subject to a ground lease, which, unless extended, will
                expire
                in 2028.


(27)
            The
                Operating Partnership is in the process of performing a $12.0 million
                redevelopment on this property.


(28)
            The
                Operating Partnership completed a $2.7 million redevelopment in 2001.


(29)
            The
                Operating Partnership has a preferred limited partnership interest
                in this
                property.


(30)
            The
                Operating Partnership completed a $4.5 million redevelopment on this
                property in 1998.


(31)
            The
                Operating Partnership is in the process of performing an $8.3 million
                redevelopment on this property.


(32)
            The
                Operating Partnership is in the process of performing a $9.4 million
                redevelopment on this property.


(33)
            The
                Operating Partnership is in the process of performing a $4.3 million
                redevelopment on this property


(34)
            The
                property is subject to a ground lease, which unless extended, will
                expire
                in 2047.


(35)
            The
                Operating Partnership completed construction of 114 units of the
                property’s 462 total units in 2000.


(36)
            The
                Operating Partnership completed a $3.4 million redevelopment on this
                property in 2002.


(37)
            A
                portion of this Property on which 84 units are presently located
                is
                subject to a ground lease, which, unless extended, will expire in
                2028.


(38)
            The
                Operating Partnership is in the process of performing a $15.1 million
                redevelopment on this property.


(39)
            The
                Operating Partnership is in the process of performing a joint $3.4
                million
                redevelopment at these properties.


(40)
            The
                Operating Partnership is in the process of performing a $6.6 million
                redevelopment on this property


(41)
            The
                Operating Partnership is in the process of performing a $3.3 million
                redevelopment on this property.


(42)
            The
                Operating Partnership had an approximate 45% preferred limited partnership
                interest in this property. In 2004 the Operating Partnership acquired
                the
                remaining 55% partnership interest.


(43)
            The
                Operating Partnership converted this property into condominiums and
                sold
                45 units during 2006.


(44)
            The
                Operating Partnership is in the process of performing a $5.1 million
                redevelopment on this property and completed construction of 16 units
                of
                the property’s 108 units in 2006.


(45)
            The
                property is owned by a TRS.


(46)
            The
                Operating Partnership occupies 100% of this
                property.


(47)
            The
                Operating Partnership has a mortgage receivable, and consolidates
                this
                property pursuant to FIN 46R.


(48)
            The
                Operating Partnership occupies 4.6% of this
                property.


(49)
            The
                Operating Partnership occupies 29% of this
                property.


(50)
            The
                Operating Partnership leased these three properties in 2003 to an
                unrelated third party for approximately 5 years with an option to
                purchase
                the property in approximately 2007.





**Item
      3. Legal Proceedings**





In
      April
      2004, an employee lawsuit was filed against the Company in the California
      Superior Court in the County of Alameda. In this lawsuit, two former Operating
      Partnership maintenance employees sought unpaid wages, associated penalties
      and
      attorneys’ fees on behalf of a putative class of the Operating Partnership’s
      current and former maintenance employees who were required to wear a pager
      while
      they were on call during evening and weekend hours. In June 2005, the Operating
      Partnership settled the lawsuit for $1.5 million.





Recently
      there has been an increasing number of lawsuits against owners and managers
      of
      apartment communities alleging personal injury and property damage caused by
      the
      presence of mold in residential real estate. Some of these lawsuits have
      resulted in substantial monetary judgments or settlements. The Operating
      Partnership has been sued for mold related matters and has settled some, but
      not
      all, of such matters. Insurance carriers have reacted to mold related liability
      awards by excluding mold related claims from standard policies and pricing
      mold
      endorsements at prohibitively high rates. The Operating Partnership has,
      however, purchased pollution liability insurance, which includes some coverage
      for mold. The Operating Partnership has adopted programs designed to manage
      the
      existence of mold in its properties as well as guidelines for promptly
      addressing and resolving reports of mold to minimize any impact mold might
      have
      on residents or property. Liabilities resulting from such mold related matters
      and the costs of carrying insurance to address potential mold related claims
      may
      also be substantial. The Operating Partnership is subject to various other
      lawsuits in the normal course of its business operations. Accordingly, such
      lawsuits, as well as the class action lawsuit described above, could result
      in
      substantial costs and diversion of resources and could have a material adverse
      effect on the Operating Partnership’s financial condition, results of operations
      or cash flows.




**Item
      4. Submission of Matters to a Vote of Security
      Holders**





During
      the fourth quarter of 2006, no matters were submitted to a vote of security
      holders.


24
 *Table
          of Contents*


**Part
      II**





**Item
      5. Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities**





***Securities
      Authorized for Issuance under Equity Compensation
      Plans***





See
      our
      disclosure in the 2007 Proxy Statement under the heading “Equity Compensation
      Plan Information”, which disclosure is incorporated herein by
      reference.




***Issuance
      of Registered Equity Securities***




Period
              
              Total
                  Number of Shares Sold
              
              Average
                  Price per Share
              
              Proceeds
                  (net of fees and commissions)5/24/06
                  to 10/17/06
              
              
              427,700
              
              $
              115.16
              
              $
              48,273,142




During
      2006, pursuant to a registration statement and its Controlled Equity Offering
      program, the Company issued and sold approximately 427,700 shares of common
      stock for $48.3 million, net of fees and commissions. The Operating Partnership
      used the net proceeds from the offerings to pay down outstanding borrowings
      under the Operating Partnership’s lines of credit, to fund real estate
      investments and for general corporate purposes.




***Unregistered
      Sale of Equity Securities and Use of Proceeds***





During
      October 2006, the Operating Partnership acquired Belmont Terrace, a 71-unit
      apartment community located in Belmont, California. As part of the consideration
      for this acquisition, the Operating Partnership issued approximately 72,685
      partnership units, representing limited partnership interests in the Operating
      Partnership, to the sellers of this property. Such units were valued in
      aggregate at approximately $7.7 million. Such units were issued in a private
      placement and pursuant to the exemption from registration set forth in Section
      4(2) of the Securities Act of 1933, as amended. After one year after issuance,
      the units are exchangeable on a one-for-one basis into shares of Essex common
      stock. Were all of such units to be exchanged for common stock, then Essex
      would
      issue 72,685 shares of common stock, which is less than 1% of the number of
      its
      shares of common stock currently outstanding.


25
 *Table
          of Contents*


**Item
      6. Selected Financial Data**




The
      following tables set forth summary financial and operating information for
      the
      Operating Partnership from January 1, 2002 through December 31,
      2006.





**Years
                Ended December 31,****2006**
            
            **2005****(1)**
            
            **2004****(1)**
            
            **2003****(1)**
            
            **2002****(1)****(Dollars
                in thousands, except unit and per unit amounts)****OPERATING
                DATA:****REVENUES**Rental
                and other property
            
            $
            343,044
            
            $
            310,970
            
            $
            274,170
            
            $
            240,969
            
            $
            202,627Management
                and other fees from affiliates
            
            
            5,030
            
            
            10,951
            
            
            23,146
            
            
            6,027
            
            
            5,604348,074
            
            
            321,921
            
            
            297,316
            
            
            246,996
            
            
            208,231**EXPENSES**Property
                operating expenses, excluding depreciation and
                amortization
            
            
            117,783
            
            
            107,710
            
            
            96,701
            
            
            80,289
            
            
            63,304Depreciation
                and amortization
            
            
            80,147
            
            
            76,848
            
            
            68,609
            
            
            53,796
            
            
            41,501Amortization
                of deferred financing costs
            
            
            2,743
            
            
            1,947
            
            
            1,560
            
            
            1,187
            
            
            743General
                and administrative
            
            
            22,235
            
            
            19,148
            
            
            18,042
            
            
            9,549
            
            
            8,636Interest(2)
            
            
            72,898
            
            
            70,784
            
            
            60,709
            
            
            49,985
            
            
            41,641Other
                expenses
            
            
            1,770
            
            
            5,827
            
            
            -
            
            
            -
            
            
            -297,576
            
            
            282,264
            
            
            245,621
            
            
            194,806
            
            
            155,825Earnings
                from operations
            
            
            50,498
            
            
            39,657
            
            
            51,695
            
            
            52,190
            
            
            52,406Gain
                on the sales of real estate
            
            
            -
            
            
            6,391
            
            
            7,909
            
            
            -
            
            
            145Interest
                and other income
            
            
            6,176
            
            
            8,524
            
            
            3,077
            
            
            668
            
            
            6,882Equity
                (loss) income in co-investments
            
            
            (1,503
            )
            
            18,553
            
            
            40,683
            
            
            2,349
            
            
            4,647Minority
                interests
            
            
            (4,979
            )
            
            (5,340
            )
            
            (4,550
            )
            
            (4,696
            )
            
            (4,760
            )Income
                from continuing operations before income tax provision
            
            
            50,192
            
            
            67,785
            
            
            98,814
            
            
            50,311
            
            
            59,320Income
                tax provision
            
            
            (525
            )
            
            (2,538
            )
            
            (257
            )
            
            -
            
            
            -Income
                from continuing operations
            
            
            49,667
            
            
            65,247
            
            
            98,557
            
            
            50,311
            
            
            59,320Income
                from discontinued operations (net of minority interests
            
            
            30,180
            
            
            33,053
            
            
            5,251
            
            
            6,455
            
            
            14,310Net
                income
            
            
            79,847
            
            
            98,300
            
            
            103,808
            
            
            56,966
            
            
            73,630Write
                off of Series C preferred units offering costs
            
            
            -
            
            
            -
            
            
            -
            
            
            (625
            )
            
            -Write
                off of Series E preferred units offering costs
            
            
            -
            
            
            -
            
            
            (1,575
            )
            
            -
            
            
            -Amortization
                of discount on Series F preferred equity
            
            
            -
            
            
            -
            
            
            -
            
            
            (336
            )
            
            -Distributions
                on preferred units - Series F
            
            
            (1,953
            )
            
            (1,953
            )
            
            (1,952
            )
            
            (195
            )
            
            -Distributions
                on preferred units - Series G
            
            
            (3,192
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Distributions
                on preferred units - limited partners
            
            
            (10,238
            )
            
            (10,238
            )
            
            (14,175
            )
            
            (17,996
            )
            
            (18,319
            )Net
                income available to common units
            
            $
            64,464
            
            $
            86,109
            
            $
            86,106
            
            $
            37,814
            
            $
            55,311Per
                unit data:Basic:Net
                income from continuing operations available to common
                units
            
            $
            1.34
            
            $
            2.10
            
            $
            3.20
            
            $
            1.34
            
            $
            1.97Net
                income available to common units
            
            $
            2.52
            
            $
            3.40
            
            $
            3.41
            
            $
            1.59
            
            $
            2.66Weighted
                average common units outstanding- (in thousands)
            
            
            25,560
            
            
            25,344
            
            
            25,255
            
            
            23,737
            
            
            20,812Diluted:Net
                income from continuing operations available to common
                units
            
            $
            1.32
            
            $
            2.06
            
            $
            3.17
            
            $
            1.33
            
            $
            1.95Net
                income available to common units
            
            $
            2.48
            
            $
            3.35
            
            $
            3.38
            
            $
            1.58
            
            $
            2.63Weighted
                average common units outstanding- (in thousands)
            
            
            26,030
            
            
            25,694
            
            
            25,490
            
            
            23,948
            
            
            21,008Cash
                dividend per common unit
            
            $
            3.36
            
            $
            3.24
            
            $
            3.16
            
            $
            3.12
            
            $
            3.08




26
 *Table
          of Contents*




**As
                of December 31,****2006**
            
            **2005****(1)**
            
            **2004****(1)**
            
            **2003****(1)**
            
            **2002****(1)****BALANCE
                SHEET DATA:**Investment
                in real estate (before accumulated depreciation)
            
            $
            2,669,187
            
            $
            2,431,629
            
            $
            2,371,194
            
            $
            1,984,122
            
            $
            1,762,221Net
                investment in real estate
            
            
            2,204,172
            
            
            2,042,589
            
            
            2,041,542
            
            
            1,718,359
            
            
            1,554,209Real
                estate under development
            
            
            103,487
            
            
            54,416
            
            
            38,320
            
            
            55,183
            
            
            143,818Total
                assets
            
            
            2,485,840
            
            
            2,239,290
            
            
            2,217,217
            
            
            1,916,811
            
            
            1,806,299Total
                secured indebtedness
            
            
            1,186,554
            
            
            1,129,918
            
            
            1,161,184
            
            
            976,545
            
            
            823,389Total
                unsecured indebtedness
            
            
            225,000
            
            
            225,000
            
            
            155,800
            
            
            12,500
            
            
            126,500Cumulative
                convertible preferred equity
            
            
            145,912
            
            
            -
            
            
            -
            
            
            --
            
            
            --Cumulative
                redeemable preferred equity
            
            
            24,412
            
            
            24,412
            
            
            24,412
            
            
            24,412
            
            
            -Partners'
                capital (less redeemable preferred equity)
            
            
            774,217
            
            
            737,497
            
            
            752,991
            
            
            787,396
            
            
            741,870








**As
                of and for the years ended December 31,****2006**
            
            
            
            **2005****(1)**
            
            
            
            **2004****(1)**
            
            
            
            **2003****(1)**
            
            
            
            **2002****(1)****OTHER
                DATA:**Interest
                coverage ratio(2)
            
            
            2.9
            
            X
            
            
            2.8
            
            X
            
            
            3.1
            
            X
            
            
            3.2
            
            X
            
            
            3.5
            
            XSame-Property
                gross operating margin(3)(4)
            
            
            67
            %
            
            
            
            
            66
            %
            
            
            
            
            65
            %
            
            
            
            
            66
            %
            
            
            
            
            68
            %Average
                Same-Property monthly rental rate per apartment unit(4)(5)
            
            $
            1,224
            
            
            
            
            $
            1,149
            
            
            
            
            $
            1,055
            
            
            
            
            $
            1,088
            
            
            
            
            $
            1,108Average
                Same-Property monthly operating expenses per apartment unit(4)(6)
            
            $
            414
            
            
            
            
            $
            395
            
            
            
            
            $
            331
            
            
            
            
            $
            325
            
            
            
            
            $
            310Total
                apartment units (at end of period)
            
            
            27,553
            
            
            
            
            
            26,587
            
            
            
            
            
            25,518
            
            
            
            
            
            26,012
            
            
            
            
            
            23,699Same-Property
                occupancy rate(7)
            
            
            96
            %
            
            
            
            
            97
            %
            
            
            
            
            96
            %
            
            
            
            
            96
            %
            
            
            
            
            95
            %Total
                Properties (at end of period)
            
            
            130
            
            
            
            
            
            126
            
            
            
            
            
            131
            
            
            
            
            
            132
            
            
            
            
            
            123







**Years
                Ended December 31,****2006**
            
            
            
            **2005****(1)**
            
            
            
            **2004****(1)**
            
            
            
            **2003****(1)**
            
            
            
            **2002****(1)****(Dollars
                in thousands)****RECONCILIATION
                OF NET INCOME TO ADJUSTED EBITDA****(2)****:**Net
                income
            
            $
            79,847
            
            
            
            
            $
            98,300
            
            
            
            
            $
            103,808
            
            
            
            
            $
            56,966
            
            
            
            
            $
            73,630Interest
                expense
            
            
            72,898
            
            
            
            
            
            70,784
            
            
            
            
            
            60,709
            
            
            
            
            
            49,985
            
            
            
            
            
            41,641Tax
                expense
            
            
            525
            
            
            
            
            
            2,538
            
            
            
            
            
            257
            
            
            
            
            
            -
            
            
            
            
            
            -Depreciation
                and amortization
            
            
            80,147
            
            
            
            
            
            76,848
            
            
            
            
            
            68,609
            
            
            
            
            
            53,796
            
            
            
            
            
            41,501Amortization
                of deferred financing costs
            
            
            2,743
            
            
            
            
            
            1,947
            
            
            
            
            
            1,560
            
            
            
            
            
            1,187
            
            
            
            
            
            743Gain
                on the sales of real estate
            
            
            -
            
            
            
            
            
            (6,391
            )
            
            
            
            
            (7,909
            )
            
            
            
            
            -
            
            
            
            
            
            (145
            )Gain
                on the sales of co-investment activities, net
            
            
            -
            
            
            
            
            
            (18,116
            )
            
            
            
            
            (39,242
            )
            
            
            
            
            -
            
            
            
            
            
            (705
            )Minority
                interests
            
            
            4,979
            
            
            
            
            
            5,340
            
            
            
            
            
            4,550
            
            
            
            
            
            4,696
            
            
            
            
            
            4,760Income
                from discontinued operations (net of minority interest)
            
            
            (30,180
            )
            
            
            
            
            (33,053
            )
            
            
            
            
            (5,251
            )
            
            
            
            
            (6,455
            )
            
            
            
            
            (14,310
            )Adjusted
                EBITDA(2)
            
            
            210,959
            
            
            
            
            
            198,197
            
            
            
            
            
            187,091
            
            
            
            
            
            160,175
            
            
            
            
            
            147,115Interest
                expense
            
            
            72,898
            
            
            
            
            
            70,784
            
            
            
            
            
            60,709
            
            
            
            
            
            49,985
            
            
            
            
            
            41,641Interest
                coverage ratio(2)
            
            
            2.9
            
            X
            
            
            2.8
            
            X
            
            
            3.1
            
            X
            
            
            3.2
            
            X
            
            
            3.5
            
            X





(1)
            The
                above financial and operating information from January 1, 2002 through
                December 31, 2003 reflect the retroactive adoption of FIN 46R and
                SFAS No.
                123. The 2005 balance sheet and results of operations for 2005, 2004,
                2003, and 2002 have been reclassified to reflect discontinued operations
                for properties sold subsequent to December 31, 2005 or held for sale
                as of
                December 31, 2006.




(2)
            Interest
                coverage ratio represents earnings before minority interests, gain
                on
                sales of real estate, interest expense, taxes, depreciation and
                amortization (“adjusted EBITDA”) divided by interest expense. The
                Operating Partnership believes that the interest coverage ratio is
                useful
                to readers because it is frequently used by investors, lenders, security
                analysts and other interested parties in the evaluation of companies
                in
                our industry. In addition, the Operating Partnership believes that
                this
                ratio is useful in evaluating our performance compared to that of
                other
                companies in our industry because the calculation of the adjusted
                EBITDA
                component of the interest coverage ratio generally eliminates the
                effects
                of financing costs, income taxes, and depreciation and amortization,
                which
                items may vary for different companies for reasons unrelated to operating
                performance.


27
 *Table
          of Contents*




The
      adjusted EBITDA component of the interest coverage ratio, however, is not a
      recognized measurement under U.S. generally accepted accounting principles,
      or
      GAAP. When analyzing our operating performance, readers should use the interest
      coverage ratio and its adjusted EBITDA component in addition to, and not as
      an
      alternative for, net income, as determined in accordance with GAAP. Because
      not
      all companies use identical calculations, our presentation of the interest
      coverage ratio and its adjusted EBITDA component may not be comparable to
      similarly titled measures of other companies. Furthermore, the interest coverage
      ratio is not intended to be a measure of free cash flow for our management’s
      discretionary use, as it does not consider certain cash requirements such as
      income tax payments, debt service requirements, capital expenditures and other
      fixed charges. The amounts shown for the interest coverage ratio and adjusted
      EBITDA may also differ from the amounts calculated under similarly titled
      definitions in our debt instruments, which can be further adjusted to reflect
      certain other cash and non-cash charges and are used to determine compliance
      with financial covenants and our ability to engage in certain activities such
      as
      incurring additional debt and making certain restricted payments.




(3)
            Gross
                operating margin represents rental revenues and other property income
                less
                property operating expenses, exclusive of depreciation and amortization,
                divided by rental revenues and other property income.




(4)
            A
                stabilized apartment community, or “Same-Property” apartment units (as
                defined in Item 7), are those units in properties that the Operating
                Partnership has consolidated for the entire two years as of the end
                of the
                period set forth. The number of apartment units in such properties
                may
                vary at each year-end. Percentage changes in averages per unit do
                not
                correspond to total Same-Property revenues and expense percentage
                changes
                which are discussed in Item 7—Management’s Discussion and Analysis of
                Financial Condition and Results of Operations.





(5)
            Average
                Same-Property monthly rental rate per apartment unit represents total
                scheduled rent for the same property apartment units for the period
                (actual rental rates on occupied apartment units plus market rental
                rates
                on vacant apartment units) divided by the number of such apartment
                units
                and further divided by the number of months in the period.





(6)
            Average
                Same-Property monthly expenses per apartment unit represents total
                monthly
                operating expenses, exclusive of depreciation and amortization, for
                the
                same property apartment units for the period divided by the total
                number
                of such apartment units and further divided by the number of months
                in the
                period.





(7)
            Occupancy
                rates are based on financial occupancy. For an explanation of how
                financial occupancy is calculated, see Item 7 - Managements Discussion
                and
                Analysis of Financial Condition and Results of
                Operations.


28
 *Table
          of Contents*


**Item
      7. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations**





The
      following discussion and analysis should be read in conjunction with the
      accompanying consolidated financial statements and notes thereto. These
      consolidated financial statements include all adjustments which are, in the
      opinion of management, necessary to reflect a fair statement of the results
      and
      all such adjustments are of a normal recurring nature.





**OVERVIEW**





The
      Operating Partnership acquires, develops, redevelops and manages apartment
      communities in selected residential areas located primarily in the West Coast
      of
      the United States. The Company is a self-administered and self-managed REIT
      that
      owns all of its interests in its real properties, directly or indirectly,
      through the Operating Partnership. The Company is the sole general partner
      of
      the Operating Partnership and, as of December 31, 2006, had an approximately
      90.4% general partner interest in the Operating Partnership.





The
      Operating Partnership investment strategy has two components: constant
      monitoring of existing markets, and evaluation of new markets to identify areas
      with the characteristics that underlie rental growth. Our strong financial
      condition supports our investment strategy by enhancing our ability to quickly
      shift our acquisition, development, and disposition activities to markets that
      will optimize the performance of the portfolio.





As
      of
      December 31, 2006, the Operating Partnership had ownership interests in 130
      apartment communities, comprising 27,553 apartment units. The Operating
      Partnership’s apartment communities are located in the following major West
      Coast regions:





***Southern
      California*** (Los
      Angeles, Ventura, Orange, Riverside and San Diego counties)


***Northern
      California*** (the San
      Francisco Bay Area)


***Seattle*** ** ***Metro*** (Seattle
      metropolitan area)


***Other
      Regions*** **** (Portland
      metropolitan area, Houston, Texas, and property owned by a TRS)





As
      of
      December 31, 2006, the Operating Partnership also had ownership interests in
      three office buildings (with approximately 166,340 square feet), two
      recreational vehicle parks (comprising 338 spaces) and one manufactured housing
      community (containing 157 sites).





As
      of
      December 31, 2006, the Operating
      Partnership’s development pipeline was comprised of two development projects, seven
      predevelopment projects, four TRS projects, and one joint venture development,
      aggregating 2,478 units, with total incurred costs of $103.5 million, and
      estimated remaining project costs of approximately $663.5 million for total
      estimated project costs of $767.0 million.





By
      region, the Operating Partnership's operating results and rent growth analysis
      are as follows:





***Southern
      California Region*** :
      As of
      December 31, 2006, this region represented 48% of our apartment units. During
      the year ended December 31, 2006, Same-Property (as defined below) revenues
      increased 5.8% as compared to 2005. The Operating Partnership expects in 2007
      new residential supply of 24,200 single family homes and 18,300 apartment units
      which represents a total new supply of 0.8% of existing stock. The Operating
      Partnership expects this region to add 99,000 new jobs and generate market
      rent
      growth of approximately 4.5% in 2007.





***Northern
      California Region*** :
      As of
      December 31, 2006, this region represented 27% of our apartment units.
      Same-Property revenues increased 8.4% in 2006 as compared to 2005. The Operating
      Partnership expects in 2007 new residential supply of 9,000 single family homes
      and 7,300 apartment units which represents a total new supply of 0.7% of
      existing stock. The Operating Partnership expects this region to add 55,000
      new
      jobs and generate market rent growth of approximately 6.75% in
      2007.





***Seattle
      Metro Region*** **:** As of
      December 31, 2006, this region represented 20% of our apartment units.
      Same-Property revenues increase 9.2% in 2006 as compared to 2005. The Operating
      Partnership expects in 2007 new residential supply of 10,500 single family
      homes
      and 3,200 apartment units which represents a total new supply of 1.3% of
      existing stock. The Operating Partnership expects this region to add 38,000
      new
      jobs and generate market rent growth of approximately 7.5% in 2007.





***Other
      Regions*** :
      As of
      December 31, 2006, the Portland region represented 3% of our apartment units,
      and the remaining 2% of our units relate to a property located in Houston,
      Texas
      and a property owned by a TRS. For the Portland metropolitan area Same-Property
      revenues increased 7.0% in 2006 as compared to 2005. The Operating Partnership
      expects in 2007 for the Portland metropolitan area new residential supply of
      11,000 single family homes and 3,400 apartment units which represents a total
      new supply of 1.8% of existing stock. The Operating Partnership expects the
      Portland metropolitan area to add 27,000 new jobs and generate market rent
      growth of approximately 5.0% in 2007.


29
 *Table
          of Contents*


The
      Operating Partnership’s consolidated apartment communities are as
      follows:





**As
                of December 31, 2006**
            
            **As
                of December 31, 2005****Apartment
                Homes**
            **%**
            
            **Apartment
                Homes**
            **%**Southern
                California
            13,285
            48%
            
            13,382
            50%Northern
                California
            7,490
            27%
            
            6,557
            25%Seattle
                Metro
            5,441
            20%
            
            5,471
            21%Other
                Regions
            1,337
            5%
            
            1,177
            4%Total
            27,553
            100%
            
            26,587
            100%





**RESULTS
      OF OPERATIONS**





***Comparison
      of Year Ended December 31, 2006 to Year Ended December 31,
      2005***





Average
      financial occupancy rates of the Operating Partnership’s stabilized apartment
      communities or “Same-Properties” (properties consolidated by the Operating
      Partnership for each of the years ended December 31, 2006 and 2005) decreased
      to
      96.4% for the year ended December 31, 2006 from 96.6% for the year ended
      December 31, 2005. Financial occupancy is defined as the percentage resulting
      from dividing actual rental revenue by total possible rental revenue. Actual
      rental revenue represents contractual rental revenue pursuant to leases without
      considering delinquency and concessions. Total possible rental revenue
      represents the value of all apartment units, with occupied units valued at
      contractual rental rates pursuant to leases and vacant units valued at estimated
      market rents. We believe that financial occupancy is a meaningful measure of
      occupancy because it considers the value of each vacant unit at its estimated
      market rate. Financial occupancy may not completely reflect short-term trends
      in
      physical occupancy and financial occupancy rates as disclosed by other REITs
      may
      not be comparable to our calculation of financial occupancy.





The
      regional breakdown of the Operating Partnership’s Same-Property portfolio for
      financial occupancy for the years ended December 31, 2006 and 2005 are as
      follows:





**Years
                ended**
              **December
                31,****2006**
            
            **2005**Southern
                California
            96.3%
            
            96.5%Northern
                California
            96.7%
            
            97.1%Seattle
                Metro
            96.9%
            
            96.7%Other
                Regions
            95.2%
            
            95.3%





The
      following table sets forth a breakdown of these revenue amounts, including
      the
      revenues attributable to Same-Properties.




**Number
                of**
            
            **Years
                Ended**
              **December
                31,**
            
            **Dollar**
            
            **Percentage****Properties**
            
            **2006**
            
            **2005**
            
            **Change**
            
            **Change**Property
                Revenues****(dollars
                in thousands)Same-Properties:Southern
                California
            
            
            53
            
            $
            174,156
            
            $
            164,550
            
            $
            9,606
            
            
            5.8
            %Northern
                California
            
            
            16
            
            
            54,887
            
            
            50,625
            
            
            4,262
            
            
            8.4Seattle
                Metro
            
            
            21
            
            
            48,663
            
            
            44,551
            
            
            4,112
            
            
            9.2Other
                Regions
            
            
            5
            
            
            10,256
            
            
            9,578
            
            
            678
            
            
            7.1Total
                Same-Property revenues
            
            
            95
            
            
            287,962
            
            
            269,304
            
            
            18,658
            
            
            6.9Non-Same
                Property Revenues (1)
            
            
            
            
            
            55,082
            
            
            41,666
            
            
            13,416
            
            
            32.2Total
                property revenues
            
            
            
            
            $
            343,044
            
            $
            310,970
            
            $
            32,074
            
            
            10.3
            %




(1)
      Includes properties acquired after January 1, 2005, ten redevelopment
      communities, three office buildings, two recreational vehicle parks, and one
      manufactured housing community.


30
 *Table
          of Contents*


*Same-Property
      Revenues* increased by $18.7 million or 6.9% to $288.0 million for the year ended 2006
      compared to $269.3 million for the year ended 2005. The increase was primarily
      attributable to an increase in rental rates of $17.4 million or 6.5%, an
      increase of $0.7 million in revenue from the ratio utility billing system
      (“RUBS”), an increase of $0.7 million in ancillary property income, and a
      decrease in rent concessions of $0.9 million compared to the year ended December
      31, 2005. Delinquency was consistent for the two years, and occupancy was stable
      for the first three quarters of 2006 compared to 2005, but in the fourth quarter
      of 2006 occupancy decreased by $0.9 million compared to fourth quarter of 2005.





*Non-Same
      Property Revenues* increased by $13.4 million or 32.2% to $55.1 million for the year ended 2006
      compared to $41.7 million for the year ended 2005. The increase in non-same
      property revenues was primarily due to eight properties acquired since January
      1, 2005.





*Management
      and other fees from affiliates* decreased
      by approximately $5.9 million or 54% for 2006 due primarily to $7.1 million
      in
      promote income recorded during 2005 related to the sale of Fund I assets, as
      compared to $1.2 million in promote income from Fund I during 2006.





*Total
      Expenses* increased $15.3 million or 5% to $297.6 million for 2006 from $282.3 million
      for
      2005. The increase was primarily due to increases in utility expense, real
      estate taxes, insurance expense, and salaries. Utility expense increased by
      $3.1
      million over the prior year due mainly to higher natural gas and electrical
      prices in the first two quarters of 2006. Real estate taxes increased $2.8
      million over the prior year due mainly to increases in assessment of properties
      in the Pacific Northwest and new acquisitions. Insurance expense increased
      $0.9
      million over prior year due to increases in earthquake and property liability
      premiums. Salaries increased mainly due to an increase in payroll salaries
      over
      the prior year, an increase in equity based compensation expense, and higher
      operating expenses due to the acquisition of eight properties in the past year.





*Interest
      expense* increased
      by $2.1 million or 3% for 2006 to $72.9 million, net of $3.9 million in
      capitalized interest, compared to $70.8 million, net of $ 1.1 in capitalized
      interest for 2005. The increase was mainly due to an increase in total
      outstanding debt of $57 million between 2006 and 2005, and higher short-term
      borrowing rates.





*Other
      expenses* decreased
      $4.1 million or 70% to $1.8 million for 2006 compared to $5.8 million for 2005.
      During 2006, the Operating Partnership incurred $970 in net pursuit costs
      related to the Operating Partnership’s attempt to acquire the Town & Country
      REIT in the first quarter of 2006 and the Operating Partnership recorded a
      $0.8
      million impairment charge on a property in Houston, Texas during the third
      quarter of 2006. During 2005, the Operating Partnership recorded the following
      other expenses: (i) a $1.5 million charge related to a legal settlement, (ii)
      $1.4 million in incentive compensation costs related to $6.1 million in interest
      income realized on The Essex on Lake Merritt participating loan in the third
      quarter of 2005, (iii) an impairment loss of $1.3 million related to a property
      in Houston, Texas in the fourth quarter of 2005, and (iv) pre-payment penalties
      and write-off of deferred charges in the amount of $1.6 million related to
      the
      early termination of various mortgage notes payable during the fourth quarter
      of
      2005.





*Gain
      on sale of real estate* was
      $0
      for 2006 compared to a gain of $6.4 million recorded for 2005 resulting from
      the
      recognition of a $5 million deferred gain due to the sale of The Essex on Lake
      Merritt and $1.4 million from TRS activity.





*Interest
      and other income* was
      comprised of $1.7 million for a gain on the sale of the Town & Country stock
      recorded during the first quarter for 2006, $0.7 million of interest income
      earned on notes receivables, $0.2 million in forfeited deposits from a potential
      disposition and approximately $1.9 million in interest income on cash balances,
      as compared to $6.1 million in interest income from the Essex on Lake Merritt
      participating loan recorded in the third quarter of 2005. Lease income from
      the
      RV parks was consistent for both periods.





*Equity
      (loss) income in co-investments* decreased $20.1 million for 2006 primarily due to gains from the sale of Fund
      I
      properties during 2005 totaling $18.1 million. For 2006 the Operating
      Partnership recorded a net loss on its investment in Fund II of $1.5 million,
      and there were no property sales in Fund I or II during 2006.





*Income
      tax provision* decreased
      by $2.0 million during 2006 due to less taxable income related to TRS
      activity.





*Income
      from discontinued operations* for 2006
      relates to the gain on sale of 45 Peregrine Point condominiums for $2.0 million,
      a gain on sale of the Vista Pointe joint venture property for $8.8 million
      plus
      fees and promote income from that sale of $8.2 million, a gain of $3.1 million
      on the sales of the Vista Capri East, Casa Tierra, and Diamond Valley
      properties, and a gain of $6.7 million on the sale of Emerald Palms property.
      Discontinued operations for 2005 relates to the sale of the Eastridge Apartments
      in the second quarter of 2005, for a gain on sale of $28.5 million, a gain
      of
      $0.7 million attributed to the sale of four small assets, and $1.2 million
      in
      rental revenues related to the Eastridge property. The City Heights apartment
      community was held for sale as of December 31, 2006, and operations for this
      property were reclassified to discontinued operations for all periods presented
      in the accompanying consolidated statements of operations.




31
 *Table
          of Contents*


***Comparison
      of Year Ended December 31, 2005 to Year Ended December 31,
      2004***





Average
      financial occupancy rates of the Operating Partnership’s 2005/2004 Same-Property
      portfolio (properties consolidated by the Operating Partnership for each of
      the
      years ended December 31, 2005 and 2004) for the year ended December 31, 2005
      increased to 96.6% from 95.4% for the year ended December 31, 2004.





The
      regional breakdown of the Operating Partnership’s 2005/2004 Same-Property
      portfolio for financial occupancy for the years ended December 31, 2005 and
      2004
      are as follows:





**Years
                ended**
              **December
                31,****2005**
            
            **2004**Southern
                California
            96.5%
            
            95.5%Northern
                California
            97.1%
            
            95.5%Seattle
                Metro
            96.7%
            
            95.2%Other
                Regions
            95.3%
            
            93.6%





The
      following table sets forth a breakdown of these revenue amounts, including
      the
      revenues attributable to 2005/2004 Same-Properties.





**Number
                of**
            
            **Years
                Ended**
              **December
                31,**
            
            **Dollar**
            
            **Percentage****Properties**
            
            **2005**
            
            **2004**
            
            **Change**
            
            **Change**Property
                Revenues****(dollars
                in thousands)2005/2004
                Same-PropertiesSouthern
                California
            
            
            45
            
            $
            119,914
            
            $
            113,574
            
            $
            6,340
            
            
            5.6
            %Northern
                California
            
            
            16
            
            
            51,727
            
            
            50,577
            
            
            1,150
            
            
            2.3Seattle
                Metro
            
            
            20
            
            
            41,079
            
            
            39,548
            
            
            1,531
            
            
            3.9Other
                Regions
            
            
            5
            
            
            9,578
            
            
            9,301
            
            
            277
            
            
            3.0Total
                2005/2004 Same-Property revenues
            
            
            86
            
            
            222,298
            
            
            213,000
            
            
            9,298
            
            
            4.42005/2004
                Non-Same Property Revenues (1)
            
            
            
            
            
            88,672
            
            
            61,170
            
            
            27,502
            
            
            45.0Total
                property revenues
            
            
            
            
            $
            310,970
            
            $
            274,170
            
            $
            36,800
            
            
            13.4
            %





(1)
      Includes properties acquired subsequent to January 1, 2004, seven redevelopment
      communities, two development communities, three office buildings, three
      recreational vehicle parks, and one manufactured housing community.





*2005/2004
      Same-Property revenues* increased by $9.3 million or 4.4% to $222.3 million for the year ended 2005
      from
      $213.0 million for the year ended 2004. The majority of this increase was due
      to
      rental rate growth of 4.0% or $5.0 million attributable to the 2005/2004
      Same-Properties located in Southern California and rental rate growth of 1.1%
      or
      approximately $0.5 million attributable to the 2005/2004 Same-Properties located
      in the Seattle Metro area. The apartment communities properties located in
      Northern California achieved rental rate growth of 0.7% or approximately $0.4
      million. Property revenues for 2005/2004 Same-Properties also increased due
      to
      an increase in occupancy from 95.4% in 2004 to 96.6% for 2005, for an increase
      in revenues of $1.9 million. Rent concessions also decreased in the second
      half
      of 2005, which increased 2005 revenues by $0.4 million for the 2005/2004
      Same-Property portfolio.





*2005/2004
      Non-Same Property Revenues* increased
      by $27.5 or 45.0% to $88.7 million for 2005 from $61.2 million for 2004. The
      increase was primarily generated from communities acquired and or developed
      and
      increased rents from redeveloped properties. Subsequent to January 1, 2004,
      the
      Operating Partnership acquired 16 apartment communities or 3,262 units and
      completed the construction of 756 units.





*Management
      and other fees from affiliates* decreased
      by approximately $12.2 million in 2005 due primarily to the promote income
      from Fund I being reduced from $18.3 million in 2004 to $7.0 million in 2005
      as
      Fund I finished the liquidation of its assets. Development and redevelopment
      fees from Fund I decreased by $1.1 million during 2005 from $1.3 million in
      2004
      to $0.2 million in 2005 as the expenditures for Fund I’s development assets
      decreased as the assets were sold in the second half of 2004 and early
      2005.


32
 *Table
          of Contents*


*Total
      Expenses* increased 15% to $282.2 million for 2005 from $245.6 million for 2004. The
      increase was due primarily to depreciation and amortization, real estate taxes,
      property operating expenses, and other expenses. For 2005 as compared to 2004,
      depreciation and amortization increased 12% or $8.2 million, real estate taxes
      increased 12% or $2.9 million, and property operating expenses increased 11%
      or
      $8.1 million due to the purchase of 16 apartment communities since January
      1,
      2004.





*Interest
      expense* increased
      17% to $70.8 million, net of $1.1 of capitalized interest for 2005, as compared
      to $60.7 million, net of $2.0 million of capitalized interest, for 2004. The
      increase was primarily due to an increase in LIBOR during 2005, and during
      the
      fourth quarter of 2005 the Operating Partnership issued $225 million in
      exchangeable bonds. The proceeds from the bond issuance were used to pay the
      lines of credit and certain mortgage notes payable, and repurchase $25 million
      in common stock.





*Other
      expenses* were
      $5.8
      million for 2005. During 2005, the Operating Partnership recorded the following
      other expenses: (i) a $1.5 million charge related to a legal settlement, (ii)
      $1.4 million in incentive compensation costs related to $6.1 million in interest
      income realized on The Essex on Lake Merritt participating loan in the third
      quarter of 2005, (iii) an impairment loss of $1.3 million related to a property
      in Houston, Texas in the fourth quarter of 2005, and (iv) pre-payment penalties
      and write-off of deferred charges in the amount of $1.6 million related to
      the
      early termination of various mortgage notes payable during the fourth quarter
      of
      2005.





*Gain
      on sale of real estate* decreased by $1.5 million for 2005 to $6.4 million compared to $7.9 million
      recorded in 2004. During 2005, The Operating Partnership recognized $5.0 million
      in gains previously deferred in 2004 on the sale of Essex on Lake Merritt and
      $1.4 million in gains from our TRS activity. The gain of $7.9 million recorded
      in the third quarter of 2004 related to the sale of The Essex on Lake
      Merritt.





*Interest
      and other income* increased
      by $5.4 million to $8.5 million for 2005 compared to $3.1 million for 2004.
      The
      increase is primarily attributable to the receipt of $6.1 million in interest
      income related to The Essex on Lake Merritt participating loan in
      2005.





*Equity
      (loss) income in co-investments* decreased by $22.1 million to $18.6 million for 2005 compared to $40.7 million
      in 2004. During 2005 the Operating Partnership recorded its pro-rata allocation
      of gains of $18.1 million on sales of Fund I properties. During 2004, the
      Operating Partnership recorded its pro-rata allocation of gains of $39.2 million
      on sales of Fund I properties and
      the
      sale of its direct interest in Coronado at Newport - North .





*Income
      tax provision* increased
      by $2.3 million during 2005 due to taxable income related to TRS
      activity.





*Income
      from discontinued operations* increased by $27.8 million to $33.1 million for 2005 from $5.3 million for
      2004,
      due primarily from the sale of the Eastridge apartments in the second quarter
      of
      2005, and the sale of four small assets during the first quarter of
      2005.





***Liquidity
      and Capital Resources***





Standard
      and Poor's has issued a corporate credit rating of BBB/Stable for Essex Property
      Trust, Inc. and Essex Portfolio L.P.





At
      December 31, 2006, the Operating Partnership had $9.7 million of unrestricted
      cash and cash equivalents. We believe that cash flows generated by our
      operations, existing cash balances, availability under existing lines of credit,
      access to capital markets and the ability to generate cash gains from the
      disposition of real estate are sufficient to meet all of our reasonably
      anticipated cash needs during 2007. The timing, source and amounts of cash
      flows
      provided by financing activities and used in investing activities are sensitive
      to changes in interest rates and other fluctuations in the capital markets
      environment, which can affect our plans for acquisitions, dispositions,
      development and redevelopment activities.





The
      Operating Partnership has a $200 million unsecured line of credit and, as of
      December 31, 2006, there was no outstanding balance on the line. This facility
      matures in March 2009, with an option for a one-year extension. The underlying
      interest rate on this line is based on a tiered rate structure tied to our
      corporate ratings and is currently LIBOR plus 0.8%. We also have a $100 million
      credit facility from Freddie Mac, which is secured by eight of Essex's apartment
      communities. As of December 31, 2006, we had $93.0 million outstanding under
      this line of credit, which bears an average interest rate of 6.2% and matures
      in
      January 2009. The underlying interest rate on this line is between 55 and 59
      basis points over the Freddie Mac Reference Rate. Fund II has a credit facility
      for $56 million. This line bears interest at LIBOR plus 0.875%, and matures
      on
      June 30, 2007. The Company has the capacity to issue up to approximately $20
      million in equity securities, and the Operating Partnership has the capacity
      to
      issue up to $250 million of debt securities under our existing shelf
      registration statements.




33
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          of Contents*


During
      the third quarter of 2006, the Company sold 5,980,000 million shares of 4.875%
      Series G Cumulative Convertible Preferred Stock for gross proceeds of $149.5
      million. Holders may convert Series G Preferred Stock into shares of the
      Company’s common stock subject to certain conditions. The conversion rate will
      initially be .1830 shares of common stock per the $25 share liquidation
      preference, which is equivalent to an initial conversion price of approximately
      $136.62 per share of common stock (the conversion rate will be subject to
      adjustment upon the occurrence of specified events). On or after July 31, 2011,
      the Company may, under certain circumstances, cause some or all of the Series
      G
      Preferred Stock to be converted into shares of common stock at the then
      prevailing conversion rate.




The
      Operating Partnership has $225 million of outstanding exchangeable
      senior notes (the “Notes”) with a coupon of 3.625% due 2025. The Notes are
      senior unsecured obligations of the Operating Partnership, and are fully and
      unconditionally guaranteed by the Company. On or after November 1, 2020, the
      Notes will be exchangeable at the option of the holder into cash and, in certain
      circumstances at Essex’s option, shares of the Company’s common stock at an
      initial exchange price of $103.25 per share subject to certain adjustments.
      The
      Notes will also be exchangeable prior to November 1, 2020, but only upon the
      occurrence of certain specified events. On or after November 4, 2010, the
      Operating Partnership may redeem all or a portion of the Notes at a redemption
      price equal to the principal amount plus accrued and unpaid interest (including
      additional interest, if any). Note holders may require the Operating Partnership
      to repurchase all or a portion of the Notes at a purchase price equal to the
      principal amount plus accrued and unpaid interest (including additional
      interest, if any) on the Notes on November 1, 2010, November 1, 2015 and
      November 1, 2020.




As
      of
      December 31, 2006, the Operating
      Partnership’s mortgage
      notes payable totaled $1.1 billion which consisted of $907.2 million in fixed
      rate debt with interest rates varying from 4.14% to 8.18% and maturity dates
      ranging from 2007 to 2015 and $186.3 million of tax-exempt variable rate demand
      bonds with a weighted average interest rate of 4.6%. The tax-exempt variable
      rate demand bonds have maturity dates ranging from 2006 to 2034, and are subject
      to interest rate caps.




The
      Company pays quarterly dividends from cash available for distribution. Until
      it
      is distributed, cash available for distribution is invested by the Operating
      Partnership primarily in short-term investment grade securities or is used
      by
      the Operating Partnership to reduce balances outstanding under its line of
      credit.





*Derivative
      Activity*





As
      of
      December 31, 2006 the Operating Partnership had entered into forward-starting
      interest rate swaps totaling a notional amount of $450 million with interest
      rates ranging from 4.9% to 5.9% and settlements dates ranging from April 2007
      to
      July 2011. These derivatives qualify for hedge accounting and will economically
      hedge the cash flows associated with the refinancing of debt that matures
      between April 2007 and July 2011. The decrease in the fair value of these
      derivatives during the year ended December 31, 2006 was approximately $2.9
      million and is reflected in accumulated other comprehensive (loss) income in
      the
      Operating Partnership’s consolidated financial statements. No hedge
      ineffectiveness on cash flow hedges was recognized during the year ended
      December 31, 2006.





*Issuance
      of Common Stock*




During
      2006, the Company issued and sold approximately 427,700 shares of common stock
      for $48.3 million, net of fees and commissions, under its Controlled Equity
      Offering program; the average price per share was $115.16. Under this program,
      the Company may from time to time sell shares of common stock into the existing
      trading market at current market prices, and the Company anticipates using
      the
      net proceeds from such sales to fund development and redevelopment pipelines.
      The Operating
      Partnership used
      the
      net proceeds from the common stock sales to pay down outstanding borrowings
      under the Operating
      Partnership’ s
      lines
      of credit, to fund real estate investments and for general corporate
      purposes.




*Capital
      Expenditures*





Non-revenue
      generating capital expenditures are improvements and upgrades that extend the
      useful life of the property. For the year ended December 31, 2006, non-revenue
      generating capital expenditures totaled approximately $814 per unit. The
      Operating Partnership expects to incur approximately $850 per unit in
      non-revenue generating capital expenditures for the year ended December 31,
      2007. These expenditures do not include the improvements required in connection
      with the origination of mortgage loans, expenditures for deferred maintenance
      on
      acquisition properties, expenditures for property renovations and improvements
      which are expected to generate additional revenue, and renovation expenditures
      required pursuant to tax-exempt bond financings. The Operating Partnership
      expects that cash from operations and/or its lines of credit will fund such
      expenditures. However, there can be no assurance that the actual expenditures
      incurred during 2007 and/or the funding thereof will not be significantly
      different than the Operating Partnership’s current expectations.


34
 *Table
          of Contents*


*Development
      and Predevelopment Pipeline*





The
      Operating Partnership defines development activities as new properties that
      are
      being constructed, or are newly constructed and, in the case of development
      communities, are in a phase of lease-up and have not yet reached stabilized
      operations; or, in the case of TRS development projects, have not yet been
      sold.
      As of December 31, 2006, excluding development projects owned by Fund II, the
      Operating Partnership had two development projects comprised of 513 units for
      an
      estimated cost of $167.3 million, of which $126.9 million remains to be
      expended. See discussion in the section, “Risks that development activities will
      be delayed or not completed and/or fail to achieve expected results” in Item 1A,
      Risk Factors, of this Form 10-K.




The
      Operating Partnership defines the predevelopment pipeline as new properties
      in
      negotiation or in the entitlement process with a high likelihood of becoming
      development activities. As of December 31, 2006, the Operating Partnership
      had
      development communities aggregating 1,845 units that were classified as
      predevelopment projects. The estimated total cost of the predevelopment pipeline
      at December 31, 2006 is $557.0 million, of which $514.8 million remains to
      be
      expended.




The
      Operating Partnership had four other development projects owned by TRS entities
      that are under development aggregating 120 units. The estimated total cost
      of
      the other development projects at December 31, 2006 is $42.0 million, of which
      $21.8 million remains to be expended. The Operating Partnership has also
      incurred $0.7 million in costs related to a joint venture development with
      a
      third party.




The
      Operating Partnership expects to fund the development pipeline by using a
      combination of some or all of the following sources: its working capital,
      amounts available on its lines of credit, net proceeds from public and private
      equity and debt issuances, and proceeds from the disposition of properties,
      if
      any.




*Redevelopment
      Pipeline*





The
      Operating Partnership defines redevelopment activities as existing properties
      owned or recently acquired, which have been targeted for additional investment
      by the Operating Partnership with the expectation of increased financial returns
      through property improvement. The Operating Partnership’s redevelopment strategy
      strives to improve the financial and physical aspects of the Operating
      Partnership’s redevelopment apartment communities and to target at least a 10
      percent return on the incremental renovation investment. Many of the Operating
      Partnership’s properties are older and in excellent neighborhoods, providing
      lower density with large floor plans that represent attractive redevelopment
      opportunities. During
      redevelopment, apartment units may not be available for rent and, as a result,
      may have less than stabilized operations. As of December 31, 2006, the Operating
      Partnership had ownership interests in twelve major redevelopment communities
      aggregating 3,648 apartment units with estimated redevelopment costs of $90.2
      million, of which approximately $51.2 million remains to be expended. These
      amounts exclude redevelopment projects owned by Fund II.




***Alternative
      Capital Sources***





Fund
      II
      has eight institutional investors, including the Operating Partnership, with
      combined partner equity commitments of $265.9 million. The Operating Partnership
      has committed $75.0 million to Fund II, which represents a 28.2% interest as
      general partner and limited partner. Fund II expects to utilize leverage equal
      to approximately 65% of the estimated value of the underlying real estate.
      Fund
      II invests in apartment communities in the Operating Partnership’s targeted West
      Coast markets with an emphasis on investment opportunities in the Seattle
      metropolitan area and the San Francisco Bay Area. Subject to certain exceptions,
      Fund II has been the Operating Partnership’s primary investment vehicle during
      2005 and 2006. As of October 2006, Fund II was fully invested and closed for
      any
      future acquisitions or development. As of December 31, 2006, Fund II owned
      11
      apartment communities and three development projects. Consistent with Fund
      I,
      the Operating Partnership records revenue for its asset management, property
      management, development and redevelopment services when earned, and promote
      income if Fund II exceeds certain financial return benchmarks.




35
 *Table
          of Contents*


***Contractual
      Obligations and Commercial Commitments***





The
      following table summarizes the maturation or due dates of our contractual
      obligations and other commitments at December 31, 2006, and the effect such
      obligations could have on our liquidity and cash flow in future
      periods:




**(In
                thousands)**
            
            **2007**
            
            **2008
                and 2009**
            
            **2010
                and 2011**
            
            **Thereafter**
            
            **Total**Mortgage
                notes payable
            
            $
            69,108
            
            $
            204,081
            
            $
            312,403
            
            $
            507,962
            
            $
            1,093,554Exchangeable
                bonds
            
            
            -
            
            
            -
            
            
            -
            
            
            225,000
            
            
            225,000Lines
                of credit
            
            
            -
            
            
            -
            
            
            93,000
            
            
            -
            
            
            93,000Interest
                on indebtedness
            
            
            68,060
            
            
            93,658
            
            
            175,655
            
            
            140,378
            
            
            477,751Development
                commitments
            
            
            66,500
            
            
            61,900
            
            
            -
            
            
            -
            
            
            128,400Redevelopment
                commitments
            
            
            33,592
            
            
            17,585
            
            
            -
            
            
            -
            
            
            51,177Essex
                Apartment Value Fund II, L.P. capital commitment
            
            
            19,400
            
            
            8,397
            
            
            -
            
            
            -
            
            
            27,797$
            256,660
            
            $
            385,621
            
            $
            581,058
            
            $
            873,340
            
            $
            2,096,679




***Variable
      Interest Entities***




**Consolidated
      Variable Interest Entities**





In
      accordance FIN 46R, the Operating Partnership consolidates 17 Down REIT limited
      partnerships (comprising ten properties), an office building that is subject
      to
      loans made by the Operating Partnership, and building improvements owned by
      a
      third-party in which the Operating Partnership owns the land underlying the
      improvements and from which the Operating Partnership receives land lease
      payments, subordination, and property management fees. The Operating Partnership
      consolidated these entities because it is deemed the primary beneficiary under
      FIN 46R. The Operating Partnership's total assets and liabilities related to
      these variable interest entities (VIEs), net of intercompany eliminations,
      were
      approximately $269.5 million and $145.5 million, respectively, at December
      31,
      2006 and $230.9 million and $146.7 million, respectively, at December 31, 2005.




Interest
      holders in VIEs consolidated by the Operating Partnership are allocated net
      income equal to the cash payments made to those interest holders for services
      rendered or distributions from cash flow. The remaining results of operations
      are generally allocated to the Operating Partnership.




Properties
      consolidated in accordance with FIN 46R were encumbered by third party,
      non-recourse loans totaling $140.3 million and $141.8 million as of December
      31,
      2006 and 2005, respectively.




**Unconsolidated
      Variable Interest Entities**





As
      of
      December 31, 2006 the Operating Partnership is involved with two VIEs, of which
      it is not deemed to be the primary beneficiary. Total assets and liabilities
      of
      these entities as of December 31, 2006 were approximately $78.5 million and
      $58.4 million, respectively. The Operating Partnership does not have a
      significant exposure to loss resulting from its involvement with these
      unconsolidated VIEs.





***Critical
      Accounting Policies and Estimates***





The
      preparation of consolidated financial statements, in accordance with U.S.
      generally accepted accounting principles requires the Operating Partnership
      to
      make estimates and judgments that affect the reported amounts of assets,
      liabilities, revenues and expenses and related disclosures of contingent assets
      and liabilities. We define critical accounting policies as those accounting
      policies that require our management to exercise their most difficult,
      subjective and complex judgments. Our critical accounting policies relate
      principally to the following key areas: (i) consolidation under applicable
      accounting standards of various entities; (ii) assessing the carrying values
      of
      our real estate properties and investments in and advances to joint ventures
      and
      affiliates; and (iii) internal cost capitalization. The Operating Partnership
      bases its estimates on historical experience, current market conditions, and
      on
      various other assumptions that are believed to be reasonable under the
      circumstances. Actual results may differ from those estimates made by
      management.





The
      Operating Partnership assesses each entity in which it has an investment or
      contractual relationship to determine if it may be deemed to be a VIE. If such
      an entity is a VIE, then the Operating Partnership analyzes the expected losses
      and expected residual returns to determine who is the primary beneficiary.
      If
      the Operating Partnership is the primary beneficiary, then the entity is
      consolidated. The analysis required to identify VIEs and primary beneficiaries
      is complex and judgmental, and the analysis must be applied to various types
      of
      entities and legal structures.


36
 *Table
          of Contents*


Rental
      properties are recorded at cost less accumulated depreciation. Depreciation
      components on rental properties have been provided over estimated useful lives
      ranging from 3 to 30 years using the straight-line method. Development costs
      include acquisition, direct and indirect construction costs, interest and real
      estate taxes incurred during the construction and property stabilizations
      periods. Maintenance and repair expenses that do not add to the value or prolong
      the useful life of the property are expensed as incurred. Asset replacements
      and
      improvements are capitalized and depreciated over their estimated useful lives.





The
      Operating Partnership assesses the carrying value of its real estate investments
      by monitoring investment market conditions and performance compared to budget
      for operating properties and joint ventures, and by monitoring estimated costs
      for properties under development. Local market knowledge and data is used to
      assess carrying values of properties and the market value of acquisition
      opportunities. Whenever events or changes in circumstances indicate that the
      carrying amount of a property held for investment may not be fully recoverable,
      the carrying amount is evaluated. If the sum of the property’s expected future
      cash flows (undiscounted and without interest charges) is less than the carrying
      amount of the property, then the Operating Partnership will recognize an
      impairment loss equal to the excess of the carrying amount over the fair value
      of the property. Adverse changes in market conditions or poor operating results
      of real estate investments could result in impairment charges. When the
      Operating Partnership determines that a property is held for sale, it
      discontinues the periodic depreciation of that property. The criteria for
      determining when a property is held for sale requires judgment and has potential
      financial statement impact as depreciation would cease and an impairment loss
      could occur upon determination of held for sale status. Assets held for sale
      are
      reported at the lower of the carrying amount or estimated fair value less costs
      to sell. With respect to investments in and advances to joint ventures and
      affiliates, the Operating Partnership looks to the underlying properties to
      assess performance and the recoverability of carrying amounts for those
      investments in a manner similar to direct investments in real estate properties.
      An impairment charge or investment valuation charge is recorded if the carrying
      value of the investment exceeds its fair value.





The
      Operating Partnership capitalizes all direct and certain indirect costs,
      including interest and real estate taxes, incurred during development and
      redevelopment activities. Interest is capitalized on real estate assets that
      require a period of time to get them ready for their intended use. The amount
      of
      interest capitalized is based upon the average amount of accumulated development
      expenditures during the reporting period. Included in capitalized costs are
      management’s estimates of the direct and incremental personnel costs and
      indirect project costs associated with our development and redevelopment
      activities. Indirect project costs consist primarily of personnel costs
      associated with construction administration and development accounting, legal
      fees, and various office costs that clearly relate to projects under
      development.





The
      Operating Partnership bases its estimates on historical experience and on
      various other assumptions that are believed to be reasonable under the
      circumstances. Actual results may vary from those estimates and those estimates
      could be different under different assumptions or conditions.





***Forward
      Looking Statements***





Certain
      statements in this "Management's Discussion and Analysis of Financial Condition
      and Results of Operations," and elsewhere in this Annual Report on Form 10-K
      which are not historical facts may be considered forward looking statements
      within the meaning of Section 27A of the Securities Act of 1933, as amended,
      and
      Section 21E of the Securities and Exchange Act of 1934, as amended, including
      statements regarding the Operating Partnership's expectations, hopes,
      intentions, beliefs and strategies regarding the future. Forward looking
      statements include statements regarding the Operating Partnership's expectations
      as to the timing of completion of current development and redevelopment projects
      and the stabilization dates of such projects, expectation as to the total
      projected costs and rental rates of development and redevelopment projects,
      beliefs as to the adequacy of future cash flows to meet operating requirements
      and to provide for dividend payments in accordance with REIT requirements,
      expectations as to the amount of capital expenditures, expectations as to the
      amount of non-revenue generating capital expenditures, future acquisitions,
      the
      Operating Partnership's anticipated development projects in 2007, the
      anticipated performance of the second Essex Apartment Value Fund ("Fund II"),
      the anticipated performance of existing properties, anticipated results from
      various geographic regions and the Operating Partnership’s investment focus in
      such regions, statements regarding the Operating Partnership's financing
      activities, and the use of proceeds from such activities.





Such
      forward-looking statements involve known and unknown risks, uncertainties and
      other factors including, but not limited to, that the Operating Partnership
      will
      fail to achieve its business objectives, that the actual completion of
      development projects will be subject to delays, that the stabilization dates
      of
      such projects will be delayed, that the total projected costs of current
      development projects will exceed expectations, that the Operating Partnership's
      2007 development strategy will change, that such development projects will
      not
      be completed, that development projects and acquisitions will fail to meet
      expectations, that estimates of future income from an acquired property may
      prove to be inaccurate, that future cash flows will be inadequate to meet
      operating requirements and/or will be insufficient to provide for dividend
      payments in accordance with REIT requirements, that the actual non-revenue
      generating capital expenditures will exceed the Operating Partnership's current
      expectations, that there may be a downturn in the markets in which the Operating
      Partnership's properties are located, that the terms of any refinancing may
      not
      be as favorable as the terms of existing indebtedness, as well as those risks,
      special considerations, and other factors discussed under the caption “Potential
      Factors Affecting Future Operating ** Results”
      below and those discussed in Item 1A, Risk Factors, of this Form 10-K, and
      those
      risk factors and special considerations set forth in the Operating Partnership's
      other filings with the Securities and Exchange Commission (the "SEC") which
      may
      cause the actual results, performance or achievements of the Operating
      Partnership to be materially different from any future results, performance
      or
      achievements expressed or implied by such forward-looking statements. All
      forward-looking statements are made as of today, and the Operating Partnership
      assumes no obligation to update this information.


37
 *Table
          of Contents*


**Potential
      Factors Affecting Future Operating Results**





Many
      factors affect the Operating Partnership’s actual financial performance and may
      cause the Operating Partnership’s future results to be different from past
      performance or trends. These factors include those set forth under the caption
      “Risk Factors” in Item 1A. of this Annual Report on Form 10-K and the
      following:





*Development
      and Redevelopment Activities*





The
      Operating Partnership pursues multifamily residential properties and development
      and redevelopment projects from time to time. These projects generally require
      various government and other approvals, the receipt of which cannot be assured.
      The Operating Partnership's development and redevelopment activities generally
      entail certain risks, including the following:





·
            funds
                may be expended and management's time devoted to projects that may
                not be
                completed;


·
            construction
                costs of a project may exceed original estimates possibly making
                the
                project economically unfeasible;


·
            projects
                may be delayed due to, among other things, adverse weather
                conditions;


·
            occupancy
                rates and rents at a completed project may be less than anticipated;
                and


·
            expenses
                at a completed development project may be higher than
                anticipated.





These
      risks may reduce the funds available for distribution to the Operating
      Partnership's unitholders. Further, the development and redevelopment of
      properties is also subject to the general risks associated with real estate
      investments.





*Interest
      Rate Fluctuations*





The
      Operating Partnership monitors changes in interest rates and believes that
      it is
      well positioned from both a liquidity and interest rate risk perspective.
      However, current interest rates are at historic lows and potentially could
      increase rapidly to levels more in line with higher historical levels. The
      immediate effect of significant and rapid interest rate increases would result
      in higher interest expense on the Operating Partnership's variable interest
      rate
      debt. The effect of prolonged interest rate increases could negatively impact
      the Operating Partnership's ability to make acquisitions and develop properties
      at economic returns on investment and the Operating Partnership's ability to
      refinance existing borrowings at acceptable rates.


38
 *Table
          of Contents*




**Item
      7A. Quantitative and Qualitative Disclosures About Market
      Risks**





***Interest
      Rate Hedging Activities***





The
      Operating Partnership’s objective in using derivatives is to add stability to
      interest expense and to manage its exposure to interest rate movements or other
      identified risks.  To accomplish this objective, the Operating Partnership
      primarily uses interest rate swaps as part of its cash flow hedging strategy.
      Interest rate swaps designated as cash flow hedges involve the receipt of
      variable-rate amounts in exchange for fixed-rate payments over the life of
      the
      agreements without exchange of the underlying principal amount. As of December
      31, 2006, we have entered into nine forward-starting swap contracts to mitigate
      the risk of changes in the interest-related cash outflows on forecasted issuance
      of long-term debt. The forward-starting swaps are cash flow hedges of the
      variability in ten years of forecasted interest payments associated with the
      refinancing of the Operating Partnership’s long-term debt between 2007 and 2011.
      As of December 31, 2006, the Operating Partnership also had $186.3 million
      of
      variable rate indebtedness, of which $182.8 million is subject to interest
      rate
      cap protection. All of our derivative instruments are designated as cash flow
      hedges, and the Operating Partnership does not have any fair value hedges as
      of
      December 31, 2006. The following table summarizes the notional amount, carrying
      value, and estimated fair value of our derivative instruments used to hedge
      interest rates as of December 31, 2006. The notional amount represents the
      aggregate amount of a particular security that is currently hedged at one time,
      but does not represent exposure to credit, interest rates or market risks.
      The
      table also includes a sensitivity analysis to demonstrate the impact on our
      derivative instruments from an increase or decrease in LIBOR by 50 basis points,
      as of December 31, 2006.





**(Dollars
                in thousands)**
            
            **Notional
                Amount**
            
            **Maturity
                Date Range**
            
            **Carrying
                and Estimate Fair Value**
            
            **+
                50 LIBOR Basis Points**
            
            **-
                50 LIBOR Basis Points**Cash
                flow hedges:Interest
                rate forward-starting swaps
            
            $
            450,000
            
            
            2007-2011
            
            $
            (2,293
            )
            $
            12,245
            
            $
            (17,982
            )Interest
                rate caps
            
            
            182,849
            
            
            2008-2011
            
            
            20
            
            
            57
            
            
            4Total
                cash flow hedges
            
            $
            632,849
            
            
            2007-2011
            
            $
            (2,273
            )
            $
            12,302
            
            $
            (17,978
            )





***Interest
      Rate Sensitive Liabilities***





The
      Operating Partnership is exposed to interest rate changes primarily as a result
      of its line of credit and long-term debt used to maintain liquidity and fund
      capital expenditures and expansion of the Operating Partnership’s real estate
      investment portfolio and operations. The Operating Partnership’s interest rate
      risk management objective is to limit the impact of interest rate changes on
      earnings and cash flows and to lower its overall borrowing costs. To achieve
      its
      objectives the Operating Partnership borrows primarily at fixed rates and may
      enter into derivative financial instruments such as interest rate swaps, caps
      and treasury locks in order to mitigate its interest rate risk on a related
      financial instrument. The Operating Partnership does not enter into derivative
      or interest rate transactions for speculative purposes.





The
      Operating Partnership’s interest rate risk is monitored using a variety of
      techniques. The table below presents the principal amounts and weighted average
      interest rates by year of expected maturity to evaluate the expected cash flows.
      Management believes that the carrying amounts of its LIBOR debt approximates
      fair value as of December 31, 2006 because interest rates, yields and other
      terms for these instruments are consistent with yields and other terms currently
      available to the Operating Partnership for similar instruments. Management
      has
      estimated that the fair value of the Operating Partnership’s $1.13 billion of
      fixed rate mortgage notes payable and exchangeable bonds at December 31, 2006
      is
      approximately $1.22 billion based on the terms of existing mortgage notes
      payable compared to those available in the marketplace.


39
 *Table
          of Contents*





**For
                the Years Ended December 31****2007****(1)**
            
            **2008****(2)**
            
            **2009**
            
            **2010****(3)**
            
            **2011****(4)**
            
            **Thereafter**
            
            
            
            **Total**
            
            **Fair
                value**(In
                thousands)Fixed
                rate debt
            
            $
            69,108
            
            $
            179,494
            
            $
            24,587
            
            $
            156,875
            
            $
            155,528
            
            $
            546,623
            
            
            
            
            $
            1,132,215
            
            $
            1,222,195Average
                interest rate
            
            
            6.0
            %
            
            6.8
            %
            
            6.9
            %
            
            8.0
            %
            
            6.6
            %
            
            6.6
            %Variable
                rate LIBOR debt
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            93,000
            
            $
            -
            
            $
            186,339
            
            
            **(5)**
            
            $
            279,339
            
            $
            279,339Average
                interest rate
            
            
            -
            
            
            -
            
            
            -
            
            
            6.2
            %
            
            -
            
            
            4.6
            %





(1)
      $50
      million covered by a forward-starting swap at a fixed rate of 4.927%, with
      a
      settlement date on or before October 1, 2007.





(2)
      $50
      million covered by a forward-starting swap at a fixed rate of 4.869%, with
      a
      settlement date on or before October 1, 2008. Also, $25 million covered by
      a
      forward-starting swap at a fixed rate of 5.082%, with a settlement date on
      or
      before January 1, 2009.





(3)
      $150
      million covered by three forward-starting swaps with fixed rates ranging from
      5.099% to 5.824%, with a settlement date on or before January
      1, 2011.





(4)
      $125
      million covered by forward-starting swaps with fixed rates ranging from 5.655%
      to 5.8795%, with a settlement date on or before February 1, 2011. $50 million
      covered by a forward-starting swap with a fixed rate of 5.535%, with a
      settlement date on or before July, 1 2011. The Operating Partnership intends
      to
      encumber certain unencumbered assets during 2011 in conjunction with the
      settlement of these forward-starting swaps.





(5)
      $182,849 subject to interest rate caps.





The
      table
      incorporates only those exposures that exist as of December 31, 2006; it does
      not consider those exposures or positions that could arise after that date.
      As a
      result, our ultimate realized gain or loss, with respect to interest rate
      fluctuations, would depend on the exposures that arise during the period, our
      hedging strategies at the time, and interest rates.





**Item
      8. Financial Statements and Supplementary
      Data**





The
      response to this item is submitted as a separate section of this Form 10-K.
      See
      Item 15.





**Item
      9. Changes in and Disagreements with Accountants on Accounting
      and
      Financial Disclosure**





None.





**Item
      9A. Controls and Procedures**





As
      of
      December 31, 2006, we carried out an evaluation, under the supervision and
      with
      the participation of management, including our Chief Executive Officer and
      Chief
      Financial Officer, of the effectiveness of the design and operation of our
      disclosure controls and procedures pursuant to Rules 13a-15 of the Securities
      Exchange Act of 1934, as amended. Based upon that evaluation, the Chief
      Executive Officer and Chief Financial Officer concluded that our disclosure
      controls and procedures are effective in timely alerting management to material
      information relating to the Operating Partnership that is required to be
      included in our periodic filings with the Securities and Exchange
      Commission.




There
      were no changes in the Operating Partnership’s internal control over financial
      reporting, that occurred during the quarter ended December 31, 2006, that have
      materially affected, or are reasonably likely to materially affect, the
      Operating Partnership’s internal control over financial reporting.




***Management’s
      Report on Internal Control Over Financial Reporting***




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting (as defined in Rule 13a-15(f) under the
      Securities Exchange Act of 1934, as amended). Our management assessed the
      effectiveness of our internal control over financial reporting as of
      December 31, 2006. In making this assessment, our management used the
      criteria set forth by the Committee of Sponsoring Organizations of the Treadway
      Commission (“COSO”) in Internal Control-Integrated Framework. Our management has
      concluded that, as of December 31, 2006, our internal control over
      financial reporting was effective based on these criteria. Our independent
      registered public accounting firm, KPMG LLP, has issued an audit report on
      our
      assessment of our internal control over financial reporting, which is included
      herein.


40
 *Table
          of Contents*


**Item
      9B. Other Information**





None.





**PART
      III**





**Item
      10. Directors, Executive Officers and Corporate
      Governance**





The
      information required by Item 10 is incorporated by reference from the Company’s
      definitive proxy statement for its annual stockholders’ meeting to be held on
      May 8, 2007.





**Item
      11. Executive Compensation**





The
      information required by Item 11 is incorporated by reference from the Company’s
      definitive proxy statement for its annual stockholders’ meeting to be held on
      May 8, 2007.





**Item
      12. Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters**





The
      information required by Item 12 is incorporated by reference from the Company’s
      definitive proxy statement for its annual stockholders’ meeting to be held on
      May 8, 2007.





**Item
      13. Certain Relationships and Related Transactions and Director
      Independence**





The
      information required by Item 13 is incorporated by reference from the Company’s
      definitive proxy statement for its annual stockholders’ meeting to be held on
      May 8, 2007.





**Item
      14. Principal Accounting Fees and Services**





The
      information required by Item 14 is incorporated by reference from the Company’s
      definitive proxy statement for its annual stockholders’ meeting to be held on
      May 8, 2007.


41
 *Table
          of Contents*


**PART
      IV**





**Item
      15. Exhibits and Financial Statement
      Schedules**




(A)
            Financial
                Statements(1)
            Consolidated
                Financial Statements
            **Page**Reports
                of Independent Registered Public Accounting Firm
            F-1Consolidated
                Balance Sheets:
              As
                of December 31, 2006 and 2005
            F-4Consolidated
                Statements of Operations:
              Years
                ended December 31, 2006, 2005 and 2004
            F-5Consolidated
                Statements of Partners’ Capital:
              Years
                ended December 31, 2006, 2005 and 2004
            F-6Consolidated
                Statements of Cash Flows:
              Years
                ended December 31, 2006, 2005 and 2004
            F-7Notes
                to the Consolidated Financial Statements
            F-9(2)
            Financial
                Statement Schedule - Schedule III - Real Estate and Accumulated
                Depreciation as of December 31, 2006
            F-32(3)
            See
                the Exhibit Index immediately following the signature page and
                certifications for a list of exhibits filed or incorporated by reference
                as part of this report.(B)
            ExhibitsThe
                Operating Partnership hereby files, as exhibits to this Form 10-K,
                those
                exhibits listed on the Exhibit Index referenced in Item 15(A)(3)
                above.




42
 *Table
          of Contents*


**Report
      of Independent Registered Public Accounting Firm**





The
      General Partner


Essex
      Portfolio, L.P.:




We
      have
      audited management’s assessment, included in Management’s Report on Internal
      Control over Financial Reporting, appearing under Item 9A, that Essex Portfolio,
      L.P. maintained effective internal control over financial reporting as of
      December 31, 2006, based on criteria established in Internal
      Control-Integrated Framework issued by the Committee of Sponsoring Organizations
      of the Treadway Commission (COSO). Essex Portfolio, L.P.’s management is
      responsible for maintaining effective internal control over financial reporting
      and for its assessment of the effectiveness of internal control over financial
      reporting. Our responsibility is to express an opinion on management’s
      assessment and an opinion on the effectiveness of the Partnership’s internal
      control over financial reporting based on our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, evaluating management’s assessment, testing and evaluating
      the design and operating effectiveness of internal control, and performing
      such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.




A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




In
      our
      opinion, management’s assessment that Essex Portfolio, L.P. maintained effective
      internal control over financial reporting as of December 31, 2006, is
      fairly stated, in all material respects, based on criteria established in
      Internal Control-Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO). Also, in our opinion, Essex
      Portfolio, L.P. maintained, in all material respects, effective internal control
      over financial reporting as of December 31, 2006, based on criteria
      established in Internal Control-Integrated Framework issued by the Committee
      of
      Sponsoring Organizations of the Treadway Commission (COSO).




F-1
 *Table
          of Contents*


We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Essex
      Portfolio, L.P. and subsidiaries as of December 31, 2006 and 2005, and the
      related consolidated statements of operations, partners’ capital, and cash flows
      for each of the years in the three-year period ended December 31, 2006 and
      the related financial statement schedule III, and our report dated March 1,
      2007, expressed an unqualified opinion on those consolidated financial
      statements.




/S/
                KPMG LLPKPMG
                LLP




San
      Francisco, California


March
      1,
      2007




F-2
 *Table
          of Contents*





**Report
      of Independent Registered Public Accounting Firm**





The
      General Partner




Essex
      Portfolio, L.P.:




We
      have
      audited the accompanying consolidated balance sheets of Essex Portfolio, L.P.
      and subsidiaries as of December 31, 2006 and 2005, and the related
      consolidated statements of operations, partners’ capital, and cash flows for
      each of the years in the three-year period ended December 31, 2006. In
      connection with our audits of the consolidated financial statements, we have
      also audited the accompanying financial statement schedule III. These
      consolidated financial statements and the accompanying financial statement
      schedule III are the responsibility of Essex Portfolio, L.P.’s management. Our
      responsibility is to express an opinion on these consolidated financial
      statements and the accompanying financial statement schedule III based on our
      audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Essex Portfolio, L.P. and
      subsidiaries as of December 31, 2006 and 2005, and the results of their
      operations and their cash flows for each of the years in the three-year period
      ended December 31, 2006, in conformity with U.S. generally accepted
      accounting principles. Also in our opinion, the related financial statement
      schedule III, when considered in relation to the basic consolidated financial
      statements taken as a whole, presents fairly, in all material respects, the
      information set forth therein.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of Essex Portfolio, L.P.’s
      internal control over financial reporting as of December 31, 2006, based on
      criteria established in Internal Control-Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
      our
      report dated March 1, 2007 expressed an unqualified opinion on management’s
      assessment of, and the effective operation of, internal control over financial
      reporting.




/S/
                KPMG LLPKPMG
                LLP




San
      Francisco, California


March
      1,
      2007


F-3
 *Table
          of Contents*




**ESSEX
      PORTFOLIO, L.P. AND SUBSIDIARIES**


**Consolidated
      Balance Sheets**


**December
      31, 2006 and 2005**


**(Dollars
      in thousands, except unit amounts)**




**2006**
            
            **2005****ASSETS**Real
                estate:Rental
                properties:Land
                and land improvements
            
            $
            560,880
            
            $
            541,232Buildings
                and improvements
            
            
            2,108,307
            
            
            1,890,3972,669,187
            
            
            2,431,629Less
                accumulated depreciation
            
            
            (465,015
            )
            
            (389,040
            )2,204,172
            
            
            2,042,589Real
                estate - held for sale, net
            
            
            41,221
            
            
            42,478Real
                estate under development
            
            
            103,487
            
            
            54,416Investments
            
            
            60,451
            
            
            27,2282,409,331
            
            
            2,166,711Cash
                and cash equivalents-unrestricted
            
            
            9,662
            
            
            14,337Cash
                and cash equivalents-restricted
            
            
            13,948
            
            
            13,937Notes
                receivable and other receivables from related parties
            
            
            1,209
            
            
            1,173Notes
                and other receivables
            
            
            18,195
            
            
            5,215Prepaid
                expenses and other assets
            
            
            20,632
            
            
            22,899Deferred
                charges, net
            
            
            12,863
            
            
            15,018Total
                assets
            
            $
            2,485,840
            
            $
            2,239,290**LIABILITIES
                AND PARTNERS' CAPITAL**Mortgage
                notes payable
            
            $
            1,060,704
            
            $
            1,072,068Mortgage
                notes payable - held for sale
            
            
            32,850
            
            
            32,850Exchangeable
                bonds
            
            
            225,000
            
            
            225,000Lines
                of credit
            
            
            93,000
            
            
            25,000Accounts
                payable and accrued liabilities
            
            
            38,614
            
            
            32,982Dividends
                payable
            
            
            24,910
            
            
            22,496Other
                liabilities
            
            
            14,328
            
            
            12,520Deferred
                gain
            
            
            2,193
            
            
            2,193Total
                liabilities
            
            
            1,491,599
            
            
            1,425,109Commitments
                and contigenciesMinority
                interests
            
            
            44,950
            
            
            47,522Redeemable
                convertible limited partnership units
            
            
            4,750
            
            
            4,750Cumulative
                convertible preferred equity (liquidation value of
                $149,500)
            
            
            145,912
            
            
            -Partners'
                Capital:General
                partner:Common
                equity
            
            
            590,070
            
            
            555,895Preferred
                equity (liquidation value of $25,000)
            
            
            24,412
            
            
            24,412614,482
            
            
            580,307Limited
                partners:Common
                equity
            
            
            59,730
            
            
            54,252Preferred
                equity (liquidation value of $130,000)
            
            
            126,690
            
            
            126,690186,420
            
            
            180,942Accumulated
                other comprehensive (loss) income
            
            
            (2,273
            )
            
            660Total
                partners' capital
            
            
            798,629
            
            
            761,909Commitments
                and contingenciesTotal
                liabilities and partners' capital
            
            $
            2,485,840
            
            $
            2,239,290





See
      accompanying notes to consolidated financial statements.


F-4
 *Table
          of Contents*


**ESSEX
      PORTFOLIO, L.P. AND SUBSIDIARIES**


**Consolidated
      Statements of Operations**


**Years
      ended December 31, 2006, 2005 and 2004**


**(Dollars
      in thousands, except per unit and unit amounts)**




**2006**
            
            **2005**
            
            **2004**Revenues:Rental
                and other property
            
            $
            343,044
            
            $
            310,970
            
            $
            274,170Management
                and other fees from affiliates
            
            
            5,030
            
            
            10,951
            
            
            23,146348,074
            
            
            321,921
            
            
            297,316Expenses:Property
                operating, excluding real estate taxes
            
            
            88,505
            
            
            81,241
            
            
            73,112Real
                estate taxes
            
            
            29,278
            
            
            26,469
            
            
            23,589Depreciation
                and amortization
            
            
            80,147
            
            
            76,848
            
            
            68,609Interest
            
            
            72,898
            
            
            70,784
            
            
            60,709Amortization
                of deferred financing costs
            
            
            2,743
            
            
            1,947
            
            
            1,560General
                and administrative
            
            
            22,235
            
            
            19,148
            
            
            18,042Other
                expenses
            
            
            1,770
            
            
            5,827
            
            
            -297,576
            
            
            282,264
            
            
            245,621Earnings
                from operations
            
            
            50,498
            
            
            39,657
            
            
            51,695Gain
                on sale of real estate
            
            
            -
            
            
            6,391
            
            
            7,909Interest
                and other income
            
            
            6,176
            
            
            8,524
            
            
            3,077Equity
                (loss) income in co-investments
            
            
            (1,503
            )
            
            18,553
            
            
            40,683Minority
                interests
            
            
            (4,979
            )
            
            (5,340
            )
            
            (4,550
            )Income
                before discontinued operations and tax provision
            
            
            50,192
            
            
            67,785
            
            
            98,814Income
                tax provision
            
            
            (525
            )
            
            (2,538
            )
            
            (257
            )Income
                before discontinued operations
            
            
            49,667
            
            
            65,247
            
            
            98,557Income
                from discontinued operations (net of minority interests)
            
            
            30,180
            
            
            33,053
            
            
            5,251Net
                income
            
            
            79,847
            
            
            98,300
            
            
            103,808Write
                off of Series E preferred units offering costs
            
            
            -
            
            
            -
            
            
            (1,575
            )Distribution
                on preferred units - Series F
            
            
            (1,953
            )
            
            (1,953
            )
            
            (1,952
            )Distribution
                on preferred units - Series G
            
            
            (3,192
            )
            
            -
            
            
            -Distribution
                on preferred units - limited partners
            
            
            (10,238
            )
            
            (10,238
            )
            
            (14,175
            )Net
                income available to common units
            
            $
            64,464
            
            $
            86,109
            
            $
            86,106Per
                unit data:Basic:Income
                before discontinued operations available to common units
            
            $
            1.34
            
            $
            2.10
            
            $
            3.20Income
                from discontinued operations
            
            
            1.18
            
            
            1.30
            
            
            0.21Net
                income available to common units
            
            $
            2.52
            
            $
            3.40
            
            $
            3.41Weighted
                average number of units outstanding during the year
            
            
            25,560,415
            
            
            25,343,695
            
            
            25,255,190Diluted:Income
                before discontinued operations available to common units
            
            $
            1.32
            
            $
            2.06
            
            $
            3.17Income
                from discontinued operations
            
            
            1.16
            
            
            1.29
            
            
            0.21Net
                income available to common units
            
            $
            2.48
            
            $
            3.35
            
            $
            3.38Weighted
                average number of units outstanding during the year
            
            
            26,029,775
            
            
            25,693,637
            
            
            25,490,266





See
      accompanying notes to consolidated financial statements.


F-5
 *Table
          of Contents*


**ESSEX
      PORTFOLIO, L.P. AND SUBSIDIARIES**


**Consolidated
      Statements of Partners’ Capital**


**Years
      ended December 31, 2006, 2005 and 2004**


**(Dollars
      and units in thousands)**





**General
                Partner**
            
            **Limited
                Partners****Common
                Equity**
            
            **Preferred
                Equity**
            
            **Common
                Equity**
            
            **Preferred
                Equity**
            
            **Accumulated
                Other Comprehensive****Units**
            
            **Amount**
            
            **Amount**
            
            **Units**
            
            **Amount**
            
            **Amount**
            
            **Income**
            
            **Total**Balances
                at December 31, 2003
            
            
            22,833
            
            $
            556,987
            
            $
            24,412
            
            
            2,321
            
            $
            50,294
            
            $
            180,115
            
            $
            -
            
            $
            811,808Issuance
                of common units under stock-based compensation plans
            
            
            155
            
            
            6,058
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            6,058Issuance
                of general partner common units
            
            
            53
            
            
            2,307
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,307Issuance
                of limited partners' common units
            
            
            
            
            
            
            
            
            -
            
            
            184
            
            
            7,213
            
            
            -
            
            
            -
            
            
            7,213Redemption
                of limited partner common units
            
            
            -
            
            
            -
            
            
            -
            
            
            (62
            )
            
            (3,757
            )
            
            -
            
            
            -
            
            
            (3,757
            )Redemption
                of Series E preferred unit
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (55,000
            )
            
            -
            
            
            (55,000
            )Write
                off of Series E preferred unit offering costs
            
            
            -
            
            
            (1,422
            )
            
            -
            
            
            -
            
            
            (153
            )
            
            1,575
            
            
            -
            
            
            -Vested
                series Z and Z-1 incentive units
            
            
            -
            
            
            -
            
            
            -
            
            
            35
            
            
            537
            
            
            -
            
            
            -
            
            
            537Reallocation
                of partners' capital
            
            
            -
            
            
            (4,264
            )
            
            -
            
            
            -
            
            
            4,264
            
            
            -
            
            
            -
            
            
            -Net
                income
            
            
            -
            
            
            79,163
            
            
            1,952
            
            
            -
            
            
            8,518
            
            
            14,175
            
            
            -
            
            
            103,808Partners'
                distributions
            
            
            -
            
            
            (71,964
            )
            
            (1,952
            )
            
            -
            
            
            (7,480
            )
            
            (14,175
            )
            
            -
            
            
            (95,571
            )Balances
                at December 31, 2004
            
            
            23,041
            
            $
            566,865
            
            $
            24,412
            
            
            2,478
            
            $
            59,436
            
            $
            126,690
            
            $
            -
            
            $
            777,403Comprehensive
                income:Net
                income
            
            
            -
            
            
            77,763
            
            
            1,953
            
            
            -
            
            
            8,346
            
            
            10,238
            
            
            -
            
            
            98,300Change
                in fair value of cash flow hedges
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            660
            
            
            660Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            98,960Issuance
                of common units under stock-based compensation plans
            
            
            103
            
            
            5,767
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,767Retirement
                of Essex Property Trust, Inc common stock
            
            
            (286
            )
            
            (25,000
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (25,000
            )Redemption
                of limited partner common units
            
            
            -
            
            
            -
            
            
            -
            
            
            (89
            )
            
            (2,861
            )
            
            -
            
            
            -
            
            
            (2,861
            )Vested
                series Z and Z-1 incentive units
            
            
            -
            
            
            -
            
            
            -
            
            
            48
            
            
            2,351
            
            
            -
            
            
            -
            
            
            2,351Reallocation
                of partners' capital (1)
            
            
            -
            
            
            5,135
            
            
            -
            
            
            -
            
            
            (5,135
            )
            
            -
            
            
            -
            
            
            -Partners'
                distributions
            
            
            -
            
            
            (74,635
            )
            
            (1,953
            )
            
            -
            
            
            (7,885
            )
            
            (10,238
            )
            
            -
            
            
            (94,711
            )Balances
                at December 31, 2005
            
            
            22,858
            
            $
            555,895
            
            $
            24,412
            
            
            2,437
            
            $
            54,252
            
            $
            126,690
            
            $
            660
            
            $
            761,909Comprehensive
                income:Net
                income
            
            
            -
            
            
            57,603
            
            
            5,145
            
            
            -
            
            
            6,861
            
            
            10,238
            
            
            -
            
            
            79,847Change
                in fair value of cash flow hedges
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,933
            )
            
            (2,933
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            76,914Issuance
                of common units underStock-based
                compensation plans
            
            
            92
            
            
            5,575
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,575Sale
                of common stock
            
            
            427
            
            
            48,273
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            48,273Issuance
                of general partner common units
            
            
            39
            
            
            443
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            443Issuance
                of limited partners' common units
            
            
            -
            
            
            -
            
            
            -
            
            
            73
            
            
            7,704
            
            
            -
            
            
            -
            
            
            7,704Redemption
                of limited partner common units
            
            
            -
            
            
            -
            
            
            -
            
            
            (57
            )
            
            (2,863
            )
            
            -
            
            
            -
            
            
            (2,863
            )Vested
                series Z and Z-1 incentive units
            
            
            -
            
            
            -
            
            
            -
            
            
            42
            
            
            1,759
            
            
            -
            
            
            -
            
            
            1,759Reallocation
                of partners' capital (1)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            307
            
            
            -
            
            
            -
            
            
            307Partners'
                distributions
            
            
            -
            
            
            (77,719
            )
            
            (5,145
            )
            
            -
            
            
            (8,290
            )
            
            (10,238
            )
            
            -
            
            
            (101,392
            )Balances
                at December 31, 2006
            
            
            23,416
            
            $
            590,070
            
            $
            24,412
            
            
            2,495
            
            $
            59,730
            
            $
            126,690
            
            $
            (2,273
            )
            $
            798,629





(1)
      During the twelve months ended December 31, 2005, the Operating Partnership
      recorded a true-up of the reallocation of minority interest as of December
      31,
      2004. This true-up was not material to partners’ capital at either December 31,
      2005 or December 31, 2004.





See
      accompanying notes to consolidated financial statements.


F-6
 *Table
          of Contents*


**ESSEX
      PORTFOLIO, L.P. AND SUBSIDIARIES**


**Consolidated
      Statements of Cash Flows**


**Years
      ended December 31, 2006, 2005 and 2004**


**(Dollars
      in thousands)**





**2006**
            
            **2005**
            
            **2004**Cash
                flows from operating activities:Net
                income
            
            $
            79,847
            
            $
            98,300
            
            $
            103,808Minority
                interests
            
            
            5,639
            
            
            5,687
            
            
            3,500Adjustments
                to reconcile net income to net cash provided by operating
                activities:Gain
                on the sales of real estate
            
            
            (22,096
            )
            
            (37,802
            )
            
            (7,909
            )Operating
                Partnership's share of gain on the sales of co-investments
                assets
            
            
            -
            
            
            (18,115
            )
            
            (39,241
            )Impairment
                loss
            
            
            800
            
            
            1,300
            
            
            718Equity
                loss (income) of limited partnerships
            
            
            1,503
            
            
            (7,420
            )
            
            (20,281
            )Depreciation
                and amortization
            
            
            83,036
            
            
            80,075
            
            
            72,923Amortization
                of deferred financing costs
            
            
            2,743
            
            
            1,970
            
            
            1,587Changes
                in operating assets and liabilities:Prepaid
                expenses and other assets
            
            
            493
            
            
            (4,762
            )
            
            (1,189
            )Accounts
                payable and accrued liabilities
            
            
            6,162
            
            
            4,709
            
            
            5,942Other
                liabilities
            
            
            1,808
            
            
            667
            
            
            1,842Net
                cash provided by operating activities
            
            
            159,935
            
            
            124,609
            
            
            121,700Cash
                flows from investing activities:Additions
                to real estate:Acquisitions
                of real estate
            
            
            (199,107
            )
            
            (91,496
            )
            
            (229,437
            )Improvements
                to recent acquisitions
            
            
            (5,238
            )
            
            (5,009
            )
            
            (10,062
            )Redevelopment
            
            
            (25,609
            )
            
            (14,229
            )
            
            (8,056
            )Revenue
                generating capital expenditures
            
            
            (4,788
            )
            
            (2,933
            )
            
            (2,483
            )Non-revenue
                generating capital expenditures
            
            
            (19,120
            )
            
            (14,568
            )
            
            (10,095
            )Disposition
                of real estate
            
            
            38,092
            
            
            68,585
            
            
            143,549Decrease
                (increase) in restricted cash
            
            
            4,371
            
            
            7,318
            
            
            (10,080
            )Additions
                to notes receivable from investees other related parties and other
                receivables
            
            
            (26,125
            )
            
            (3,220
            )
            
            (5,365
            )Repayments
                of notes from investees, other related parties and other
                receivables
            
            
            21,234
            
            
            4,880
            
            
            4,251Net
                (contribution) distribution from to investments in corporations and
                limited partnerships
            
            
            (28,226
            )
            
            44,690
            
            
            31,129Additions
                to real estate under development
            
            
            (68,360
            )
            
            (24,861
            )
            
            (28,372
            )Net
                cash used in investing activities
            
            
            (312,876
            )
            
            (30,843
            )
            
            (125,021
            )Cash
                flows from financing activities:Proceeds
                from mortgage and other notes payable and lines of credit
            
            
            324,228
            
            
            205,096
            
            
            447,870Repayment
                of mortgage and other notes payable and lines of credit
            
            
            (266,965
            )
            
            (389,363
            )
            
            (287,359
            )Additions
                to deferred charges
            
            
            (587
            )
            
            (6,339
            )
            
            (4,050
            )Proceeds
                from exchangeable bonds
            
            
            -
            
            
            225,000
            
            
            -Retirement
                of Essex Property Trust, Inc common stock
            
            
            -
            
            
            (25,000
            )
            
            -Net
                proceeds from stock options exercised
            
            
            4,287
            
            
            4,489
            
            
            5,483Net
                proceeds from issuance of common units to general partners
            
            
            48,273
            
            
            -
            
            
            -Net
                proceeds from issuance of preferred equity, Series G
            
            
            145,912
            
            
            -
            
            
            -Redemption
                of limited partner units and minority interest
            
            
            (4,779
            )
            
            (4,528
            )
            
            (7,080
            )Redemption
                of minority interest Series E preferred units
            
            
            -
            
            
            -
            
            
            (55,000
            )Distributions
                to limited partner units and minority interest
            
            
            (21,657
            )
            
            (23,165
            )
            
            (27,948
            )Distributions
                to general partner
            
            
            (80,446
            )
            
            (76,263
            )
            
            (72,719
            )Net
                cash provided by (used in) financing activities
            
            
            148,266
            
            
            (90,073
            )
            
            (803
            )Net
                (decrease) increase in cash and cash equivalents
            
            
            (4,675
            )
            
            3,693
            
            
            (4,124
            )Cash
                and cash equivalents at beginning of year
            
            
            14,337
            
            
            10,644
            
            
            14,768Cash
                and cash equivalents at end of year
            
            $
            9,662
            
            $
            14,337
            
            $
            10,644





See
                  accompanying notes to consolidated financial statements.
              (Continued)


F-7
 *Table
          of Contents*




**ESSEX
      PORTFOLIO, L.P. AND SUBSIDIARIES**


**Consolidated
      Statements of Cash Flows**


**Years
      ended December 31, 2006, 2005 and 2004**


**(Dollars
      in thousands)**




**2006**
            
            **2005**
            
            **2004**Supplemental
                disclosure of cash flow information:Cash
                paid for interest, net of $3,900, $1,100 and $1,997capitalized
                in 2006, 2005 and 2004, respectively
            
            $
            68,686
            
            $
            71,619
            
            $
            60,007Supplemental
                disclosure of noncash investing and financing activities:Mortgage
                notes payable assumed in connection with the purchase of real
                estate
            
            $
            -
            
            $
            -
            
            $
            167,635Issuance
                of Operating Partnership units inconnection
                with the purchase of real estate
            
            $
            7,704
            
            $
            -
            
            $
            4,805





(Concluded)





See
      accompanying notes to consolidated financial statements.


F-8
 *Table
          of Contents*


**ESSEX
      PORTFOLIO, L.P. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2006, 2005 and 2004**


**(Dollars
      in thousands, except for per share and per unit amounts)**





**(1)
      Organization**





The
      accompanying consolidated financial statements present the accounts of Essex
      Portfolio, L.P. (the “Operating Partnership”), and its subsidiaries. Essex
      Property Trust, Inc. (the “Company”) was incorporated in the state of Maryland
      in March 1994. On June 13, 1994, the Company commenced operations with the
      completion of an initial public offering (the “Offering”) in which it issued
      6,275,000 shares of common stock at $19.50 per share. The net proceeds of the
      Offering of $112.1 million were used to acquire a 77.2% general partnership
      interest in the Operating Partnership.





The
      Company has a 90.4% general partner interest and the limited partners own a
      9.6%
      interest in the Operating Partnership as of December 31, 2006. The limited
      partners may convert their 2,495,048 Operating Partnership units into an
      equivalent number of shares of common stock. The Company has reserved shares
      of
      common stock for such conversions. These conversion rights may be exercised
      by
      the limited partners at any time through 2024.





On
      December 17, 2002, the Operating Partnership acquired, by merger, John M. Sachs,
      Inc. (“Sachs Portfolio”) resulting in the acquisition of its real estate
      portfolio, which consisted of 20 multifamily properties, five recreational
      vehicle parks, two manufactured housing communities and two small office
      buildings. Total consideration in the transaction was $306.7 million and was
      structured as a tax-free reorganization whereby the Company: (i) issued
      2,719,875 shares of its common stock valued at $136.8 million, (ii) assumed
      mortgages on four of the newly acquired properties for approximately $64.6
      million with a fixed interest rate of 5.51%, maturing in January 2013, (iii)
      assumed and repaid unsecured liabilities in the amount of approximately $33.0
      million, and (iv) paid the balance in cash of $72.2 million. The Operating
      Partnership accounted for this transaction using the purchase method of
      accounting which resulted in the allocation of the purchase price to the assets
      and liabilities acquired based on their fair values. The fair value of assets
      and liabilities were based on management’s estimates. No goodwill was recognized
      in connection with this purchase.





As
      of
      December 31, 2006, the Operating Partnership operates and has ownership
      interests in 130 apartment communities (totaling 27,553 units), two recreational
      vehicle parks (comprising 338 spaces), three office buildings (aggregating
      to
      approximately 166,340 square feet), and one manufactured housing community
      (containing 157 sites) (collectively, the “Properties”). The Properties are
      located in Southern California (Los Angeles, Ventura, Orange, Riverside and
      San
      Diego counties), Northern California (the San Francisco Bay Area), Seattle,
      Washington and other regions (Portland, Oregon metropolitan area, Houston,
      Texas).





**(2)
      Summary of Critical and Significant Accounting Policies**





***(a)
      Principles of Consolidation***





The
      accounts of the Operating Partnership, its controlled subsidiaries and the
      variable interest entities (“VIEs”) in which it is the primary beneficiary are
      consolidated in the accompanying financial statements. All significant
      inter-company accounts and transactions have been eliminated. We use the equity
      method to account for investments that do not qualify as variable interest
      entities and where we do not own a majority of the economic interest, but have
      the ability to exercise significant influence over the operating and financial
      policies of the investee. For an investee accounted for under the equity method,
      our share of net earnings or losses of the investee is reflected in income
      as
      earned and distributions are credited against the investment as received.





In
      accordance with Financial Accounting Standards Board (FASB) Interpretation
      No.
      46 Revised (“FIN 46R”), “ *Consolidation
      of Variable Interest Entities, an Interpretation of ARB No. 51* ”,
      the
      Operating Partnership consolidates 17 Down REIT limited partnerships (comprising
      ten properties), an office building that is subject to loans made by the
      Operating Partnership, and the building improvements owned by a third-party
      in
      which the Operating Partnership owns the land underlying these improvements
      and
      from which the Operating Partnership receives land lease payments,
      subordination, and property management fees. The Operating Partnership
      consolidates these entities because it is deemed the primary beneficiary under
      FIN 46R. The consolidated total assets and liabilities related to these VIEs,
      net of intercompany eliminations, were approximately $269.5 million and $145.5
      million, respectively, at December 31, 2006 and $230.9 million and
      $146.7 **** million,
      respectively, at December 31, 2005. These VIEs were encumbered by third-party,
      non-recourse loans totaling $140.3 million and $141.8 million as of December
      31,
      2006 and 2005, respectively.


F-9
 *Table
          of Contents*


The
      Down
      REIT entities that collectively own ten apartment communities (1,831 units)
      were
      investments made under arrangements whereby Essex Management Company (“EMC”)
      became the general partner, the Operating Partnership became a special limited
      partner, and the other limited partners were granted rights of redemption for
      their interests. Such limited partners can request to be redeemed and the
      Operating Partnership can elect to redeem their rights for cash or by issuing
      shares of its common stock on a one share per unit basis. Conversion values
      will
      be based on the market value of the Company's common stock at the time of
      redemption multiplied by the number of units stipulated under the above
      arrangements. The other limited partners receive distributions based on the
      Company's current dividend rate times the number of units held. At December
      31,
      2006, the maximum number of shares that could be issued to meet redemption
      of
      these Down REIT entities is 1,256,787. As of December 31, 2006 and 2005, the
      carrying value of the other limited partners' interests is presented at their
      historical cost and is classified within minority interests in the accompanying
      consolidated balance sheets.





Minority
      interests include the 9.6% and 9.7% limited partner interests in the Operating
      Partnership not held by the Company at December 31, 2006 and 2005, respectively.
      The Company periodically adjusts the carrying value of minority interest in
      the
      Operating Partnership to reflect its share of the book value of the Operating
      Partnership. Such adjustments are recorded to stockholders’ equity as a
      reallocation of minority interest in the Operating Partnership in the
      accompanying consolidated statements of partners’ capital. The minority interest
      balance also includes the Operating Partnership’s cumulative redeemable
      preferred units (see Note 12).





Interest
      holders in VIEs consolidated by the Operating Partnership are allocated a
      priority of net income equal to the cash payments made to those interest holders
      for services rendered or distributions from cash flow. The remaining results
      of
      operations are generally allocated to the Operating Partnership.





As
      of
      December 31, 2006 the Operating Partnership was involved with two VIEs, of
      which
      it is not deemed to be the primary beneficiary. Total assets and liabilities
      of
      these entities were approximately $78.5 million and $58.4 million, respectively,
      at December 31, 2006. As of December 31, 2005, the Operating Partnership was
      involved with three VIEs, of which it was not deemed to be the primary
      beneficiary, and total assets and liabilities of these entities were
      approximately $92.9 million and $72.5 million, respectively. The Operating
      Partnership does not have a significant exposure to loss resulting from its
      involvement with these unconsolidated VIEs.





***(b)
      Real Estate Rental Properties***





Significant
      expenditures, which improve or extend the life of an asset and have a useful
      life of greater than one year, are capitalized. Operating real estate assets
      are
      stated at cost and consist of land, buildings and improvements, furniture,
      fixtures and equipment, and other costs incurred during their development,
      redevelopment and acquisition. Expenditures for maintenance and repairs are
      charged to expense as incurred.





The
                depreciable life of various categories of fixed assets are as
                follows:Computer
                equipment
            
            
            3
                yearsInterior
                unit improvements
            
            
            5
                yearsLand
                improvements and certain exterior components of real property
            
            
            10
                yearsReal
                estate structures
            
            
            30
                years




In
      accordance with SFAS No. 67, “Accounting for Costs and Initial Rental Operations
      of Real Estate Projects,” the Operating Partnership capitalizes predevelopment
      costs incurred in the pursuit of new development opportunities, in the
      negotiation process, as well as the entitlement process with a high likelihood
      of the projects becoming development activities. Predevelopment costs for which
      a future development is no longer considered probable are charged to expense.
      All costs incurred with the predevelopment, development or redevelopment of
      real
      estate assets are capitalized if they are clearly associated with the
      predevelopment, development or redevelopment of rental property, or are
      associated with the construction or expansion of real property. Such capitalized
      costs include land, land improvements, allocated costs of the Operating
      Partnership’s project management staff, construction costs, as well as interest
      and related loan fees, property taxes and insurance. Capitalization begins
      for
      predevelopment, development, and redevelopment projects when activity commences.
      Capitalization ends when the apartment home is completed and the property is
      available for a new residence.


F-10
 *Table
          of Contents*


In
      accordance with FASB’s Statement of Financial Accounting Standard No. 141
      (“SFAS No. 141”) “ *Business
      Combinations,* ”
the
      Operating Partnership allocates the purchase price of real estate to land and
      building, and identifiable intangible assets, such as the value of above, below
      and at-market in-place leases. The values of the above and below market leases
      are amortized and recorded as either a decrease (in the case of above market
      leases) or an increase (in the case of below market leases) to rental revenue
      over the remaining term of the associated leases acquired. The value of acquired
      at-market leases are amortized to expense over the term the Operating
      Partnership expects to retain the acquired tenant, which is generally 20
      months.




In
      accordance with SFAS No. 141 and its applicability to acquired in-place leases,
      we perform the following evaluation for properties we acquire:




(1)
            estimate
                the value of the real estate “as if vacant” as of the acquisition
                date;


(2)
            allocate
                that value among land and building and determine the associated asset
                life
                for each;


(3)
            compute
                the value of the difference between the “as if vacant” value and the
                purchase price, which will represent the total intangible
                assets;


(4)
            allocate
                the value of the above and below market leases to the intangible
                assets
                and determine the associated life of the above market/ below market
                leases;


(5)
            allocate
                the remaining intangible value to the at-market in-place leases or
                customer relationships, if any, and the associated lives of these
                assets;




Whenever
      events or changes in circumstances indicate that the carrying amount of a
      property held for investment or held for sale may not be fully recoverable,
      the
      carrying amount will be evaluated for impairment. If the sum of the property’s
      expected future cash flows (undiscounted and without interest charges) is less
      than the carrying amount (including intangible assets) of the property, then
      the
      Operating Partnership will recognize an impairment loss equal to the excess
      of
      the carrying amount over the fair value of the property. Such fair value of
      a
      property is determined using conventional real estate valuation methods, such
      as
      discounted cash flow, the property’s unleveraged yield in comparison to the
      unleveraged yields and sales prices of similar properties that have been
      recently sold, and other third party information, if available.





During
      the second quarter of 2006, the Operating Partnership recorded an impairment
      loss of $0.8 million and in fourth quarter of 2005 the Operating Partnership
      recorded an impairment loss of $1.3 million resulting from write-downs of a
      property’s value in Houston, Texas, to reduce the property’s carrying value to
      its estimated fair value. The impairment charges are recorded in other expenses
      in the accompanying consolidated statements of operations. There was an
      impairment charge of $0.7 million recorded in the second quarter of 2004 related
      to the sale of an RV park in Hemet, California. That impairment charge was
      recorded in discontinued operations in the accompanying consolidated statements
      of operations. These properties were acquired as part of the Sachs Portfolio
      (see Note 1).





In
      the
      normal course of business, the Operating Partnership will receive offers for
      sale of its properties, either solicited or unsolicited. For those offers that
      are accepted, the prospective buyer will usually require a due diligence period
      before consummation of the transaction. It is not unusual for matters to arise
      that result in the withdrawal or rejection of the offer during this process.
      Essex classifies real estate as "held for sale" when all criteria under
      Statement of Financial Accounting Standard No. 144 (“SFAS No. 144”),
      " *Accounting
      for the Impairment or Disposal of Long-Lived Assets* "
      have
      been met. In accordance with SFAS No. 144, the Operating Partnership presents
      income and gains/losses on properties sold as discontinued operations net of
      minority interests. Real estate investments accounted for under the equity
      method of accounting remain classified in continuing operations upon
      disposition. (See Note 7 for a description of the Operating Partnership’s
      discontinued operations for 2006, 2005, and 2004) .





***(c)
      Investments and Joint Ventures***





The
      Operating Partnership owns investments in joint ventures and affiliates in
      which
      it has significant influence, but its ownership interest does not meet the
      criteria for consolidation in accordance with FIN 46R. Therefore, we account
      for
      our interest using the equity method of accounting. Under the equity method
      of
      accounting, the investment is carried at the cost of assets contributed or
      distributed, plus the Operating Partnership’s equity in undistributed GAAP
      earnings or losses since its initial investment. The Operating Partnership’s
      share of equity in income and gains on sales of real estate are included in
      other income in the accompanying consolidated statements of operations.


F-11
 *Table
          of Contents*


A
      majority of these investments and/or joint ventures compensate the Operating
      Partnership for its asset management services and some of these investments
      may
      provide promote distributions if certain financial return benchmarks are
      achieved. Asset management fees are recognized where earned, and promote fees
      are recognized when the earnings events have occurred and there is sufficient
      GAAP earnings in the underlying entities. Asset management fees and promote
      fees
      are reflected in interest and other and equity income in co-investments,
      respectively, in the accompanying consolidated statements of
      operations.





***(d)
      Revenues and Gains on Sale of Real Estate***





Revenues
      from tenants renting or leasing apartment units, recreational vehicle park
      spaces or manufactured housing community spaces are recorded when due from
      tenants and are recognized monthly as they are earned, which is not materially
      different than on a straight-line basis. Units or spaces are rented under
      short-term leases (generally, lease terms of 6 to 12 months) and may provide
      no
      rent for one or two months, depending on the market conditions and leasing
      practices of our competitors in each sub-market at the time the leases are
      executed. Revenues from tenants leasing commercial space are recorded on a
      straight-line basis over the life of the respective lease.





The
      Operating Partnership recognizes gains on sales of real estate when a contract
      is in place, a closing has taken place, the buyer’s initial and continuing
      investment is adequate to demonstrate a commitment to pay for the property
      and
      the Operating Partnership does not have a substantial continuing involvement
      in
      the property.





***(e)
      Cash Equivalents and Restricted Cash***





Highly
      liquid investments with original maturities of three months or less when
      purchased are classified as cash equivalents. Restricted cash balances relate
      primarily to reserve requirements for capital replacement at certain Properties
      in connection with the Operating Partnership’s mortgage debt.





***(f)
      Notes Receivable and Interest Income***





Notes
      receivable relate to real estate financing arrangements that exceed one year.
      They bear interest at a market rate based on the borrower’s credit quality and
      are recorded at face value. Interest is recognized over the life of the note.
      The Operating Partnership requires collateral for the notes.





Each
      note
      is analyzed to determine if it is impaired pursuant to SFAS No. 114,
“ *Accounting
      by Creditors for Impairment of a Loan”* .
      A note
      is impaired if it is probable that the Operating Partnership will not collect
      all principal and interest contractually due. The Operating Partnership does
      not
      accrue interest when a note is considered impaired. All cash receipts on
      impaired notes are applied to reduce the principal amount of such notes until
      the principal has been recovered and, thereafter, are recognized as interest
      income.





***(g)
      Interest Rate Protection, Swap, and Forward Contracts***





The
      Operating Partnership has from time to time used interest rate protection,
      swap
      and forward contracts to manage its interest rate exposure on current or
      identified future debt transactions. The Operating Partnership accounts for
      such
      derivative contracts using SFAS No. 133. Under SFAS No. 133, derivative
      instruments are required to be included in the balance sheet at fair value.
      The
      changes in the fair value of the derivatives are accounted for depending on
      the
      use of the derivative and whether it has been designated and qualifies as a
      part
      of a hedging relationship.





The
      Operating Partnership records all derivatives on the balance sheet at fair
      value.  The accounting for changes in the fair value of derivatives depends
      on the intended use of the derivative and the resulting designation. Derivatives
      used to hedge the exposure to changes in the fair value of an asset, liability,
      or firm commitment attributable to a particular risk, such as interest rate
      risk, are considered fair value hedges. Derivatives used to hedge the exposure
      to variability in expected future cash flows, or other types of forecasted
      transactions, are considered cash flow hedges.




For
      derivatives designated as fair value hedges, changes in the fair value of the
      derivative and the hedged item related to the hedged risk are recognized in
      earnings. For derivatives designated as cash flow hedges, the effective portion
      of changes in the fair value of the derivative is initially reported in other
      comprehensive income (outside of earnings) and subsequently reclassified to
      earnings when the hedged transaction affects earnings, and the ineffective
      portion of changes in the fair value of the derivative is recognized directly
      in
      earnings. The Operating Partnership assesses the effectiveness of each hedging
      relationship by comparing the changes in fair value or cash flows of the
      derivative hedging instrument with the changes in fair value or cash flows
      of
      the designated hedged item or transaction. For derivatives not designated as
      hedges, changes in fair value are recognized in earnings. All existing
      instruments are considered cash flow hedges, and the Operating Partnership
      does
      not have any fair value hedges as of December 31, 2006.


F-12
 *Table
          of Contents*


The
      Operating Partnership’s objective in using derivatives is to add stability to
      interest expense and to manage its exposure to interest rate movements or other
      identified risks.  To accomplish this objective, the Operating Partnership
      primarily uses interest rate swaps as part of its cash flow hedging strategy.
      Interest rate swaps designated as cash flow hedges involve the receipt of
      variable-rate amounts in exchange for fixed-rate payments over the life of
      the
      agreements without exchange of the underlying principal amount.





Amounts
      reported in accumulated other comprehensive (loss) income related to derivatives
      will be reclassified to interest expense as interest payments are made on the
      Operating Partnership’s hedged debt. The Operating Partnership is hedging its
      exposure to the variability in future cash flows for a portion of its forecasted
      transactions over a maximum period of 54 months as of December 31,
      2006.





***(h)
      Deferred Charges***





Deferred
      charges are principally comprised of loan fees and related costs which are
      amortized over the terms of the related borrowing in a manner which approximates
      the effective interest method.





***(i)
      Income Taxes***





The
      Operating Partnership utilizes taxable REIT subsidiaries (“TRS”) for various
      revenue generating or investment activities. The TRS’s are subject to tax and
      are consolidated by the Operating Partnership. No provision for income taxes
      has
      been made for the Operating Partnership, except for consolidated TRS entities,
      as taxable income or loss as is reportable on the tax returns of the individual
      partners on their proportionate interest in the Operating
      Partnership.





***(j)
      Preferred Equity***





The
      Operating Partnership classifies its Series G Cumulative Convertible Preferred
      Equity (“Series G Preferred Equity”) based on Emerging Issues Task Force Topic
      D-98, (“EITF D-98”) “ *Classification
      and Measurement of Redeemable Securities.”* The
      Series G Preferred Equity contains fundamental change provisions that allow
      the
      holder to redeem the preferred stock for cash if certain events occur. The
      redemption under these provisions is not solely within the Operating
      Partnership’s control, thus the Operating Partnership has classified the Series
      G Preferred Equity as temporary equity in the accompanying consolidated balance
      sheets.





The
      Operating Partnership classifies its Series F Cumulative Redeemable Preferred
      Equity (“Series F Preferred Equity”) based on EITF D-98. The Series F Preferred
      Equity contains fundamental change provisions that allow the holder to redeem
      the preferred stock for cash if certain events occur. The redemption under
      these
      provisions is within the Operating Partnership’s control, and thus the Operating
      Partnership has classified the Series F Preferred Equity as permanent equity
      in
      the accompanying consolidated balance sheets.





***(k)
      Stock-based Compensation***





Effective
      January 1, 2006, the Operating Partnership adopted the provisions of SFAS No.
      123 Revised (“SFAS No. 123(R)”), “ *Share-Based
      Payment”,* a
      revision of SFAS No. 123 using the modified prospective approach. Effective
      January 1, 2004, the Operating Partnership adopted the fair value method of
      accounting for its stock-based compensation plans using the retroactive
      restatement method as provided by SFAS No. 123 (see Note 2( *n* )).
      SFAS
      No. 123(R) requires companies to recognize in the income statement the
      grant-date fair value of stock options and other equity based compensation
      issued to employees. The average fair value of stock options granted for the
      years ended December 31, 2006, 2005 and 2004 was $17.40, $10.06 and $8.84 per
      share, respectively, and was estimated on the date of grant using the
      Black-Scholes option pricing model with the following weighted average
      assumptions used for grants:





**2006**
            
            **2005**
            
            **2004**Stock
                price
            $101.01-$132.62
            
            $69.11-$91.88
            
            $62.34-$84.46Risk-free
                interest rates
            4.45%-5.15%
            
            3.64%-4.50%
            
            3.34%-3.94%Expected
                lives
            4-7
                years
            
            5-6
                years
            
            5
                yearsVolatility
            18.44%-18.54%
            
            18.09%-18.54%
            
            19.07%-19.14%Dividend
                yield
            3.12%-4.29%
            
            4.22%-5.13%
            
            4.26%-5.07%




The
      Operating Partnership has adopted an incentive program involving the issuance
      of
      Series Z Incentive Units and Series Z-1 Incentive Units (collectively referred
      to as “Z Units”) of limited partnership interest in the Operating Partnership. Vesting
      in the Z Units is based on performance criteria established in the plan. The
      criteria can be revised at the beginning of the year by the Board's Compensation
      Committee if the Committee deems that the plan's criterion is unachievable
      for
      any given year.  The sale of Z units is contractually prohibited and cannot
      be converted into Operating Partnership units until certain conditions are
      met
      or 15 years after the inception of the plan. The estimated fair value of a
      Z
      unit is determined on the grant date and considers the company's current stock
      price, the dividends that are not paid on unvested units and a marketability
      discount for the 8 to 15 years of illiquidity. Compensation expense is
      calculated by taking annual vesting increases multiplied by the estimated fair
      value as of the grant date less its $1.00 purchase price.


F-13
 *Table
          of Contents*


***(l)
      Legal costs***





Legal
      costs associated with matters arising out of the normal course of our business
      are expensed as incurred. Legal costs incurred in connection with non-recurring
      litigation that is not covered by insurance are accrued when amounts are
      probable and estimable.





***(m)
      Accounting Estimates and Reclassifications***





The
      preparation of consolidated financial statements, in accordance with U.S.
      generally accepted accounting principles (“GAAP”), requires the Operating
      Partnership to make estimates and judgments that affect the reported amounts
      of
      assets, liabilities, revenues and expenses and related disclosures of contingent
      assets and liabilities. On an on-going basis, the Operating Partnership
      evaluates its estimates, including those related to acquiring, developing and
      assessing the carrying values of its real estate properties, its investments
      in
      and advances to joint ventures and affiliates, its notes receivable and its
      qualification as a REIT. The Operating Partnership bases its estimates on
      historical experience, current market conditions, and on various other
      assumptions that are believed to be reasonable under the circumstances. Actual
      results may vary from those estimates and those estimates could be different
      under different assumptions or conditions.





Certain
      reclassifications have been made to prior year balances in order to conform
      to
      the current year presentation. Such reclassifications have no impact on reported
      earnings, total assets or total liabilities.





***(n)
      New Accounting Pronouncements***





In
      December 2004, the FASB issued SFAS No. 123(R) *.* This
      statement is a revision of SFAS No. 123, *“Accounting
      for Stock-Based Compensation”,* and
      supersedes APB No. 25, *“Accounting
      for Stock Issued to Employees”.* The
      Statement requires companies to recognize in the income statement the grant-date
      fair value of stock options and other equity based compensation issued to
      employees. We adopted the provisions of SFAS No. 123(R) effective January 1,
      2006 using the modified prospective approach. The adoption of this Statement
      did
      not have a material impact on our financial position, results of operations
      or
      cash flows.





In
      June
      2005, the FASB ratified the EITF’s consensus on Issue No. 04-5 *“Determining
      Whether a General Partner, or the General Partners as a Group, Controls a
      Limited Partnership or Similar Entity When the Limited Partners Have Certain
      Rights.”* This
      consensus establishes the presumption that general partners in a limited
      partnership control that limited partnership regardless of the extent of the
      general partners’ ownership interest in the limited partnership. The consensus
      further establishes that the rights of the limited partners can overcome the
      presumption of control by the general partners, if the limited partners have
      either (a) the substantive ability to dissolve (liquidate) the limited
      partnership or otherwise remove the general partners without cause or (b)
      substantive participating rights. Whether the presumption of control is overcome
      is a matter of judgment based on the facts and circumstances, for which the
      consensus provides additional guidance. This consensus applies to limited
      partnerships or similar entities, such as limited liability companies that
      have
      governing provisions that are the functional equivalent of a limited
      partnership. This consensus was applicable to the Operating Partnership for
      new
      or modified partnerships in 2005, and is otherwise applicable to existing
      partnerships effective January 1, 2006. The adoption of this consensus did
      not
      have a material impact on our consolidated financial position, results of
      operations or cash flows.




In
      April
      2006, the FASB issued FASB Staff Position (“FSP”) FIN 46R-6, “ *Determining
      the Variability to Be Considered in Applying FASB Interpretation No. 46
      (R).* ”
This
      FSP addresses certain implementation issues related to FIN 46R. Specifically,
      FSP FIN 46R-6 addresses how a reporting enterprise should determine the
      variability to be considered in applying FIN 46R. The variability that is
      considered in applying FIN 46R affects the determination of (a) whether an
      entity is a variable interest entity (VIE), (b) which interests are “variable
      interests” in the entity, and (c) which party, if any, is the primary
      beneficiary of the VIE. That variability affects any calculation of expected
      losses and expected residual returns, if such a calculation is necessary. The
      Operating Partnership is required to apply the guidance in this FSP
      prospectively to all entities (including newly created entities) and to all
      entities previously required to be analyzed under FIN 46R when a
“reconsideration event” has occurred, effective July 1, 2006. The Operating
      Partnership will evaluate the impact of this Staff Position at the time any
      such
“reconsideration event” occurs, and for any new entities.




F-14
 *Table
          of Contents*


In
      July
      2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “ *Accounting
      for Uncertainty in Income Taxes-an Interpretation of FASB Statement
      109.* ”
FIN
      48
      increases the relevancy and comparability of financial reporting by clarifying
      the way companies account for uncertainty in measuring income taxes.  FIN
      48 prescribes a comprehensive model for how a company should recognize, measure,
      present, and disclose in its financial statements uncertain tax positions that
      the company has taken or expects to take on a tax return.  This
      Interpretation only allows the benefit of an uncertain tax position to be
      included in the calculation of tax liabilities and expenses if a company
      concludes that it is more likely than not that its adopted tax position will
      prevail if challenged by tax authorities. FIN 48 is effective for fiscal years
      beginning after December 15, 2006.  We do not believe that the adoption of
      this Interpretation will have a material impact on our financial position,
      results of operations or cash flows.





In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements.” SAB No. 108 was issued to address diversity in practice in
      quantifying financial statement misstatements. Current practice allows for
      the
      evaluation of materiality on the basis of either (1) the error quantified as
      the
      amount by which the current year income statement was misstated (“rollover
      method”) or (2) the cumulative error quantified as the cumulative amount by
      which the current year balance sheet was misstated (“iron curtain method”). The
      guidance provided in SAB No. 108 requires both methods to be used in evaluating
      materiality (“dual approach”). SAB No. 108 permits companies to initially apply
      its provisions either by (1) restating prior financial statements as if the
      dual
      approach had always been used or (2) recording the cumulative effect of
      initially applying the “dual approach” as adjustments to the carrying values of
      assets and liabilities as of January 1, 2006 with an offsetting adjustment
      recorded to the opening balance of retained earnings. The adoption of this
      SAB
      did not have a material impact on our consolidated financial position, results
      of operations or cash flows.





**(3)
      Real Estate**





***(a)
      Sales of Real Estate and Assets Held for Sale***





The
      Operating Partnership recognizes sales of real estate when a contract has been
      executed, a closing has occurred, the buyer’s initial and continuing investment
      is adequate to demonstrate a commitment to pay for the property and the
      Operating Partnership does not have a substantial continuing involvement in
      the
      property. Each property is considered a separately identifiable component of
      the
      Operating Partnership and is reported in discontinued operations when the
      operations and cash flows of the property have been (or will be) eliminated
      from
      the ongoing operations of the Operating Partnership as a result of a disposal
      transaction.





For
      the
      year ended December 31, 2004, the gain on the sale of The Essex on Lake Merritt
      apartment community was $12.9 million, of which $5.0 million was deferred in
      2004 and recognized in 2005 on the cost recovery method when the cash was
      received. The $5.0 million was deferred because it was due and payable to the
      Operating Partnership only upon the sale of units following a condominium
      conversion. The sale transaction was included in continuing operations as we
      continued to manage the rented apartment units in the project during the
      conversion process.





For
      the
      year ended December 31, 2005, the gain on the sale of The Eastridge apartment
      community was $28.5 million. An additional $2.2 million was deferred as of
      December 31, 2006 and 2005. The $2.2 million was deferred because it was due
      and
      payable to the Operating Partnership only upon the sale of units following
      a
      condominium conversion. This transaction was included in discontinued operations
      as we had no other ongoing involvement with the Property.





As
      of
      December 31, 2006, the City Heights apartment community was classified as held
      for sale, and the property was sold to a third-party for a gain during February
      2007.





***(b)
      Investments***





The
      Operating Partnership has investments in a number of affiliates, which are
      accounted for under the equity method. The affiliates own and operate apartment
      communities.





Essex
      Apartment Value Fund, L.P. (“Fund I”), is an investment fund organized by the
      Operating Partnership in 2001 to add value through rental growth and asset
      appreciation, utilizing the Operating Partnership’s acquisition, development,
      redevelopment and asset management capabilities. Fund I was considered fully
      invested in 2003. An affiliate of the Operating Partnership, Essex VFGP, L.P.
      (“VFGP”), is a 1% general partner and is a 20.4% limited partner. The Operating
      Partnership owns a 99% limited partnership interest in VFGP. Since its
      formation, Fund I acquired or developed ownership interests in 19 apartment
      communities, representing 5,406 apartment units.


F-15
 *Table
          of Contents*


In
      2004,
      Fund I sold a recently developed property, Palermo apartments, to a third-party
      for $58.2 million. Fund I also entered into a purchase and sale agreement (the
      “Agreement”) with a third-party for the sale of sixteen of its apartment
      communities, totaling 4,646 units, and with respect to Coronado at Newport
      North
      and South, both Fund I’s and the Operating Partnership’s separate ownership
      interests, for a contract price of approximately $756.0 million. Pursuant to
      the
      Agreement, Fund I sold fourteen communities in 2004, including the Operating
      Partnership’s approximate 49.9% ownership interest in Coronado at Newport -
      North. The remaining two apartment communities under the Agreement closed in
      2005. Coronado at Newport - South, a 715-unit apartment community in Newport
      Beach, California was sold in the first quarter of 2005 for $106.0 million
      and
      River Terrace, a newly developed 250-unit apartment community in Santa Clara
      was
      sold in the third quarter of 2005 for $63.0 million. The remaining asset in
      Fund
      I, the Irvine, California land parcel, was sold in the fourth quarter of 2005
      for approximately $10.5 million. As of December 31, 2006, Fund I was in the
      process of liquidation.





The
      Fund
      I dispositions in 2004, combined with the sale of its 49.9% direct ownership
      interest in Coronado at Newport North, resulted in the Operating Partnership
      recognizing equity income from investments of $38.8 million. The Operating
      Partnership’s share of the gain on the sale of real estate of $39.3 million was
      reduced by a $0.5 million non-cash loss on the early extinguishment of debt
      related to the write-off of unamortized loan fees. The Operating Partnership’s
      general partnership interest provides for “promote distributions” upon
      attainment of certain financial return benchmarks. During 2004, the Operating Partnership recognized
      $18.3 million in promote income from Fund I which is recorded in management
      and
      other fees from affiliates in the accompanying consolidated statements of
      operations. The Fund I dispositions in 2005 resulted in the Operating
      Partnership recognizing equity income from the gain on the sale of investments
      of $18.1 million, and $7.0 million in promote income. During 2006, the Operating
      Partnership recorded an additional $1.2 million in promote income related to
      the
      dispositions of assets in 2005.





Essex
      Apartment Value Fund II, L.P. (“Fund II”), has
      eight
      institutional investors, including the Operating Partnership, with combined
      partner equity commitments of $265.9 million. The Operating Partnership has
      committed $75.0 million to Fund II, which represents a 28.2% interest as general
      partner and limited partner. Fund II expects to utilize leverage equal to
      approximately 65% of the estimated value of the underlying real estate. Fund
      II
      invests in apartment communities in the Operating Partnership’s targeted West
      Coast markets with an emphasis on investment opportunities in the Seattle
      metropolitan area and the San Francisco Bay Area. Subject to certain exceptions,
      Fund II has been the Operating Partnership’s primary investment vehicle during
      2005 and 2006. As of October 2006, Fund II was fully invested and closed for
      any
      future acquisitions or development. As of December 31, 2006, Fund II owned
      11
      apartment communities and 3 development projects. No properties have been sold
      by Fund II. Consistent with Fund I, the Operating Partnership records revenue
      for its asset management, property management, development and redevelopment
      services when earned, and promote income if Fund II exceeds certain financial
      return benchmarks.




In
      August
      2005, the Operating Partnership purchased 500,000 Series A Preferred shares
      in
      Multifamily Technology Solutions, Inc. (“MTS”). The Operating Partnership owns
      less than 5% of the voting stock of MTS and therefore accounts for this
      investment on the cost method.





During
      2006, the Operating Partnership made contributions to two developments with
      joint venture partners totaling $7.5 million. One of the developments is located
      in San Francisco Bay Area and one of the developments is located in Southern
      California. As of December 31, 2006, both of these developments are still in
      the
      predevelopment stage.


F-16
 *Table
          of Contents*





**2006**
            
            **2005**Investments
                in joint ventures accounted for under the equity method of
                accounting:Limited
                partnership interest of 204% and general partner interest of 1% in
                Essex
                Apartment Value Fund, LP (Fund I)
            
            $
            -
            
            $
            582Limited
                partnership interest of 272% and general partner interest of 1% in
                Essex
                Apartment Value Fund II, LP (Fund II)
            
            
            45,598
            
            
            19,340Preferred
                limited partnership interest in Mountain Vista Apartments
                (A)
            
            
            6,806
            
            
            6,806Development
                joint ventures
            
            
            7,547
            
            
            -59,951
            
            
            26,728Investments
                accounted for under the cost method of accounting:Series
                A Preferred Stock interest in Multifamily Technology Solutions,
                Inc
            
            
            500
            
            
            500Total
                investments
            
            $
            60,451
            
            $
            27,228





(A)
            The
                preferred limited partnership interest is held in an entity that
                includes
                an affiliate of The Marcus & Millichap Company (“TMMC”). TMMC’s
                Chairman is also the Chairman of the
                Company.




The
      combined summarized financial information of investments in joint ventures,
      which are accounted for under the equity method, is as follows:





**December
                31,****2006**
            
            **2005**Balance
                sheets:Real
                estate and real estate under development
            
            $
            576,134
            
            $
            431,655Other
                assets
            
            
            20,681
            
            
            18,656Total
                assets
            
            $
            596,815
            
            $
            450,311Mortgage
                notes payable
            
            $
            301,665
            
            $
            268,325Other
                liabilities
            
            
            74,793
            
            
            83,979Partners'
                capital
            
            
            220,357
            
            
            98,007Total
                liabilities and partners' capital
            
            $
            596,815
            
            $
            450,311Operating
                Partnership's share of capital
            
            $
            59,951
            
            $
            26,728





**Years
                ended**
              **December
                31,****2006**
            
            **2005**
            
            **2004**Statements
                of operations:Property
                revenues
            
            $
            43,031
            
            $
            28,156
            
            $
            54,522Property
                operating expenses
            
            
            (20,464
            )
            
            (11,761
            )
            
            (25,327
            )Net
                operating income
            
            
            22,567
            
            
            16,395
            
            
            29,195Gain
                on the sale of real estate
            
            
            -
            
            
            41,985
            
            
            141,739Interest
                expense
            
            
            (17,000
            )
            
            (11,042
            )
            
            (13,858
            )Depreciation
                and amortization
            
            
            (12,395
            )
            
            (7,037
            )
            
            (13,820
            )Total
                net (loss) income
            
            $
            (6,828
            )
            $
            40,301
            
            $
            143,256Operating
                Partnership's share of net (loss) income
            
            $
            (1,503
            )
            $
            18,553
            
            $
            40,683




***(c)
      Real Estate Under Development***





The
      Operating Partnership defines real estate under development activities as new
      properties that are being constructed, or are newly constructed and, in the
      case
      of development communities, are in a phase of lease-up and have not yet reached
      stabilized operations; or, in the case TRS development projects, have not yet
      been sold. As of December 31, 2006, the Operating Partnership had two
      development project comprised of 513 units for an estimated cost of $167.3
      million, of which $126.9 million remains to be expended. The Operating
      Partnership has also incurred $0.7 million in costs related to a joint venture
      development with a third-party.




F-17
 *Table
          of Contents*


The
      Operating Partnership defines the predevelopment pipeline as new properties
      in
      negotiation or in the entitlement process with a high likelihood of becoming
      development activities. As of December 31, 2006, the Operating Partnership
      had
      development communities aggregating 1,845 units that were classified as
      predevelopment projects. The estimated total cost of the predevelopment pipeline
      at December 31, 2006 is $557.0 million, of which $514.8 million remains to
      be
      expended.




The
      Operating Partnership had four other development projects owned by TRS entities
      that are under development aggregating 120 units. The estimated total cost
      of
      the other development projects at December 31, 2006 is $42.0 million, of which
      $21.8 million remains to be expended.




***(d)
      Depreciation***




Beginning
      in 2003, the Operating Partnership implemented an upgrade to its subsidiary
      ledger for accounting for fixed assets. The Operating Partnership completed
      this
      system upgrade in the first quarter of 2004. In conjunction with this system
      upgrade, the Operating Partnership determined that cumulative depreciation
      expense generated by consolidated or equity method rental properties was
      understated by approximately $2.1 million through December 31, 2003 and this
      amount was recorded during the quarter ended March 31, 2004.





**(4)
      Notes Receivable and Other Receivables from Related
      Parties**





Notes
      receivable and other receivables from related parties consist of the following
      as of December 31, 2006 and 2005:





**2006**
            
            **2005**Related
                party receivables, unsecured:Loans
                to officers made prior to July 31, 2002, secured, bearing interest
                of 8%,
                due beginning April 2007
            
            $
            375
            
            $
            375Other
                related party receivables, substantially due on demand
            
            
            834
            
            
            798Total
                notes and other receivable from related parties
            
            $
            1,209
            
            $
            1,173





Other
      related party receivables consist primarily of accrued interest income on
      related party notes receivable from loans to officers, advances, and accrued
      management fees from joint venture investees. The Operating Partnership’s
      officers and directors do not have an economic interest in these joint venture
      investees.





**(5)
      Notes and Other Receivables**





Notes
      receivables, secured by real estate, and other receivables consist of the
      following as December 31, 2006 and 2005:





**2006**
            
            **2005**Note
                receivable, secured, bearing interest at 12%, due June
                2008
            
            
            2,193
            
            
            2,193Note
                receivable, secured, bearing interest at LIBOR + 369%, due June
                2009
            
            
            7,309
            
            
            -Note
                receivable, secured, bearing interest at LIBOR + 465%, due June
                2008
            
            
            7,807
            
            
            -Other
                receivables
            
            
            886
            
            
            3,022$
            18,195
            
            $
            5,215





Included
      in other receivables as of December 31, 2005, was an amount due from the Vista
      Pointe joint venture for $2,176. A cash distribution for the entire amount
      was
      received from escrow in July 2006.





**(6)
      Related Party Transactions**





The
      Company’s Chairman, George Marcus, is also the Chairman of TMMC, which is a real
      estate brokerage firm. During the years ended December 31, 2006, 2005, and
      2004,
      the Operating Partnership paid brokerage commissions totaling $835, $0, and
      $350
      to TMMC on the purchase and sales of real estate. The commissions are either
      capitalized as a cost of acquisition or are reflected as a reduction of the
      gain
      on sales of real estate in the accompanying consolidated statements of
      operations.





Management
      and other fees from affiliates includes management, promote, development and
      redevelopment fees totaling $5,030, $10,951, and $23,146 for the years ended
      December 31, 2006, 2005, and 2004, respectively.


F-18
 *Table
          of Contents*


During
      the fourth quarter of 2006, the Operating Partnership bought the outstanding
      common stock of EMC from four officers of the Operating Partnership for $260,
      which approximates the fair value of common stock. The Operating Partnership
      has
      a 100% ownership in EMC as of December 31, 2006.





**(7)
      Discontinued Operations**





In
      the
      normal course of business, the Operating Partnership will receive offers for
      sale of its properties, either solicited or unsolicited. For those offers that
      are accepted, the prospective buyer will usually require a due diligence period
      before consummation of the transaction. It is not unusual for matters to arise
      that result in the withdrawal or rejection of the offer during this process.
      The
      Operating Partnership classifies real estate as "held for sale" when all
      criteria under SFAS No. 144, " *Accounting
      for the Impairment or Disposal of Long-Lived Assets* "
      (“SFAS
      144”) have been met.




In
      June
      2004, Golden Village RV Park, a property located in Hemet, California and
      acquired as part of the Sachs Portfolio, met the "held for sale" criteria under
      SFAS 144. Upon reclassification as held for sale at June 30, 2004, the Operating
      Partnership presented Golden Village at its estimated fair value less disposal
      costs which resulted in an impairment charge of approximately $0.7 million.
      Such
      fair value was determined using the contractual sales price pursuant to the
      contract with the buyer of the property. In July 2004, the Operating Partnership
      sold Golden Village for $6.7 million. No gain or loss was recognized on the
      sale, and the Operating Partnership has recorded the impairment charge and
      the
      operations for Golden Village as part of discontinued operations in the
      accompanying consolidated statements of operations.




In
      January 2005, the Operating Partnership sold four non-core assets that were
      acquired in conjunction with the Sachs Portfolio merger in 2002 for $14.9
      million. The four non-core assets were: The Riviera Recreational Vehicle Park
      and a Manufactured Home Park, located in Las Vegas, Nevada, for which the
      Operating Partnership had previously entered into master lease and option
      agreements with an unrelated entity; and two small office buildings, located
      in
      San Diego California, aggregating 7,200 square feet. The Operating Partnership
      recorded a gain of $0.7 million on the sale of these assets. The Operating
      Partnership has recorded the gain on sale and operations for these assets as
      part of discontinued operations in the accompanying consolidated statements
      of
      operations.




In
      June
      2005, the Operating Partnership sold Eastridge apartments, a 188-unit apartment
      community located in San Ramon, California for approximately $47.5 million.
      In
      conjunction with the sale, the Operating Partnership deferred $2.2 million
      of
      the gain on the sale of Eastridge because the Operating Partnership, through
      a
      TRS, originated a participating loan to the buyer in the amount of approximately
      $2.2 million, which allows the Operating Partnership to financially participate
      in the buyer’s condominium conversion plan. The gain on the sale of the
      Eastridge property net of the deferral of the $2.2 participating loan was $28.5
      million. The Operating Partnership has recorded the gain on sale and operations
      for Eastridge apartments as part of discontinued operations in the accompanying
      consolidated statements of operations.




In
      January 2006, the Operating Partnership sold Vista Capri East and Casa Tierra
      apartment communities for approximately $7.0 million and in March 2006, the
      Operating Partnership sold Diamond Valley, a Recreational Vehicle Park, for
      approximately $1.3 million. The total combined gain was $3.1 million. Operating
      Partnership has recorded the gain on sale and operations for the three
      properties as part of discontinued operations in the accompanying consolidated
      statements of operations.




In
      June
      2006, the unconsolidated joint venture property, Vista Pointe, a 286-unit
      apartment community located in Anaheim, California, was sold for approximately
      $46 million. The Operating Partnership’s share of the proceeds from the
      transaction totaled $19.3 million, resulting in an $8.8 million gain on the
      sale, and an additional $8.2 million for fees and a promote distribution. The
      Operating Partnership has recorded the ground lease income and all related
      gains
      and fees from the Vista Pointe joint venture as part of discontinued operations
      in the accompanying consolidated statements of operations.




In
      December 2006, the Operating Partnership sold Emerald Palms, a 152-unit
      apartment community located in San Diego for approximately $20.5 million, for
      a
      gain of approximately $6.7 million. The Operating Partnership has recorded
      the
      gain on sale and operations for Emerald Palms apartments as part of discontinued
      operations in the accompanying consolidated statements of
      operations.





During
      2006, the Operating Partnership has sold 45 of 66 available condominiums at
      the
      Peregrine Point property. The Operating Partnership recorded a gain of
      approximately $2.0 million net of taxes and expenses during 2006. The Operating
      Partnership has recorded the gain on sale of condominiums and operations for
      Peregrine Point apartments as part of discontinued operations in the
      accompanying consolidated statements of operations.


F-19
 *Table
          of Contents*


As
      of
      December 31, 2006, C ity
      Heights apartments, a 687-unit community located in Los Angeles was classified
      as held for sale, and was sold to a third-party during February 2007. The
      Operating Partnership has recorded the operations for City Heights apartments
      as
      part of discontinued operations in the accompanying consolidated statements
      of
      operations.





The
      components of discontinued operations are outlined below and include the results
      of operations for the respective periods that the Operating Partnership owned
      such assets, as described above.





**2006**
            
            **2005**
            
            **2004**Rental
                revenues
            
            $
            11,261
            
            $
            13,531
            
            $
            14,484Interest
                and other income
            
            
            41
            
            
            1,231
            
            
            1,911Equity
                income co-investments
            
            
            238
            
            
            477
            
            
            547Revenues
            
            
            11,540
            
            
            15,239
            
            
            16,942Property
                operating expenses
            
            
            (4,223
            )
            
            (4,927
            )
            
            (5,369
            )Interest
                expense
            
            
            (2,314
            )
            
            (2,830
            )
            
            (2,314
            )Depreciation
                and amortization
            
            
            (2,889
            )
            
            (3,301
            )
            
            (4,342
            )Minority
                interests
            
            
            (660
            )
            
            (347
            )
            
            1,052Expenses
            
            
            (10,086
            )
            
            (11,405
            )
            
            (10,973
            )Income
                from real estate sold
            
            
            1,454
            
            
            3,834
            
            
            5,969Gain
                on sale of real estate
            
            
            20,505
            
            
            29,219
            
            
            -Promote
                interest and fees
            
            
            8,221
            
            
            -
            
            
            -28,726
            
            
            29,219
            
            
            -Impairment
                loss
            
            
            -
            
            
            -
            
            
            (718
            )Income
                from discontinued operations
            
            $
            30,180
            
            $
            33,053
            
            $
            5,251


F-20
 *Table
          of Contents*


**(8)
      Mortgage Notes Payable and Exchangeable Bonds**





Mortgage
      notes payable and exchangeable bonds consist of the following as of December
      31,
      2006 and 2005:





**2006**
            
            **2005**Mortgage
                notes payable to a pension fund, secured by deeds of trust, bearing
                interest at rates ranging from 662% to 818%, interest only payments
                due
                monthly for periods ranging from October 2001 through November
                2004,principal and interest payments due monthly thereafter, and
                maturity
                dates ranging from October 2008 through October 2010 Under certain
                conditions a portion of these loans can be converted to an unsecured
                note
                payableThree loans are cross-collateralized by a total of 13
                properties
            
            $
            228,663
            
            $
            232,197Mortgage
                notes payable, secured by deeds of trust, bearing interest at ranges
                ranging from 414% to 790%, principal and interest payments due monthly,
                and maturity dates ranging from June 2007 through August
                2015
            
            
            645,702
            
            
            653,146Mortgage
                notes payable - held for sale, secured by deed of trust, bearing
                interest
                at 690%, principal and interest payments due monthly, and maturity
                date of
                January 2008 Repaid in February 2007
            
            
            32,850
            
            
            32,850Multifamily
                housing mortgage revenue bonds secured by deeds of trust on rental
                properties and guaranteed by collateral pledge agreements, payable
                monthly
                at a variable rate as defined in the Loan Agreement (approximately
                460% at
                December 2006 and 320% at December 2005),plus credit enhancement
                and
                underwriting fees ranging from approximately 12% to 19% The bonds
                are
                convertible to a fixed rate at the Operating Partnership's option
                Among
                the terms imposed on the properties, which are security for the bonds,
                is
                a requirement that 20% of the units are subject to tenant income
                criteria
                Principal balances are due in full at various maturity dates from
                July
            
            
            186,339
            
            
            186,725Exchangeable
                bonds, unsecured obligations of the Operating Partnership and guaranteed
                by the Operating Partnership, bearing interest at 3625% per year,
                payable
                November 1 and May 1of each year, beginning May 1, 2006 which mature
                on
                November 1, 2025 The bonds are exchangeable at the option of the
                holder
                into cash and, in certain circumstances at Essex's option, shares
                of the
                Company's common stock at an initial exchange price of $10325 per
                share
                subject to certain adjustments These bonds will also be exchangeable
                prior
                to November 1, 2020 under certain circumstances The bonds are redeemable
                at the Operating Partnership's option for cash at any time on or
                after
                November 4, 2010 and are subject to repurchase for cash at the option
                of
                the holder on November 1stin
                years 2010, 2015, and 2020 or upon the occurrence of certain
                events........................
            
            
            225,000
            
            
            225,000$
            1,318,554
            
            $
            1,329,918





The
      aggregate scheduled principal payments of mortgage notes payable and
      exchangeable bonds are as follows:





2007
            
            $
            69,1082008
            
            
            179,4942009
            
            
            24,5872010
            
            
            156,8752011
            
            
            155,528Thereafter
            
            
            732,962$
            1,318,554




Repayment
      of debt before the scheduled maturity date could result in prepayment
      penalties.





**(9)
      Lines of Credit**





The
      Operating Partnership has two outstanding lines of credit in the aggregate
      committed amount of $300 million. In March 2006, the Operating Partnership
      renegotiated its revolving line of credit to increase the maximum principal
      amount to $200 million from $185 million. Additionally, the maturity date was
      extended from April 2007 to March 2009, with an option for a one-year extension,
      and the underlying rate, based on a tiered rate structure tied to the Operating
      Partnership’s corporate ratings, was reduced to LIBOR plus 0.8% from LIBOR plus
      1.0%. The balance on this line of credit was $0 as of December 31, 2006 and
      2005. We also have a $100 million credit facility from Freddie Mac, which is
      secured by eight of the Operating Partnership's apartment communities. As of
      December 31, 2006 and 2005, we had $93.0 and $25.0 million outstanding under
      this line of credit, respectively, which yielded an average interest rate of
      6.2% and 3.6% as of December 31, 2006 and 2005, respectively, and matures in
      January 2009. The underlying interest rate on this line is between 55 and 59
      and
      basis points over the Freddie Mac Reference Rate. The credit agreements contain
      debt covenants related to limitations on indebtedness and liabilities,
      maintenance of minimum levels of consolidated earnings before depreciation,
      interest and amortization and maintenance of minimum tangible net worth. The
      Operating Partnership was in compliance with the line of credit covenants as
      of
      December 31, 2006 and 2005.


F-21
 *Table
          of Contents*


**(10)
      Derivative Instruments and Hedging Activities**





As
      of
      December 31, 2006 the Operating Partnership had entered into nine
      forward-starting interest rate swaps totaling a notional amount of $450 million
      with interest rates ranging from 4.9% to 5.9% and settlements dates ranging
      from
      April 2007 to July 2011. The Operating Partnership entered into two
      forward-starting swap contracts during 2005 for a notional amount of $100
      million, and seven forward-starting swap contracts during 2006 for a notional
      amount of $350 million. These derivatives qualify for hedge accounting and
      will
      economically hedge the cash flows associated with the refinancing of debt that
      matures between April 2007 and July 2011. The fair value of the derivatives
      decreased $2.9 million during the year ended December 31, 2006, and the fair
      value of the derivatives increased $660 for the year ended December 31, 2005.
      The changes in the fair values of the derivatives are reflected in accumulated
      other comprehensive (loss) income in the Operating Partnership’s consolidated
      financial statements. No hedge ineffectiveness on cash flow hedges was
      recognized during the year ended December 31, 2006 and 2005.





**(11)
      Lease Agreements**





During
      the fourth quarter of 2003, the Operating Partnership entered into lease and
      purchase option agreements with unrelated third parties related to its five
      recreational vehicle (“RV”) parks that were comprised of 1,717 spaces, and two
      manufactured housing communities that contain 607 sites. At the time of
      agreement, the unrelated third parties had an option to purchase the assets
      in
      approximately four years for approximately $41.7 million - a 5% premium to
      the
      gross book value of the assets. The Operating Partnership received $0.5 million
      as consideration for entering into the option agreement and a non-refundable
      upfront payment of $4.0 million, which was recorded as deferred revenue and
      has
      been amortized into income over the five year lease term. Under the lease
      agreements, the Operating Partnership receives fixed monthly lease payments
      and
      passes through all executory costs such as property taxes. In July 2004, the
      Operating Partnership sold Golden Village RV Park and in January 2005, the
      Operating Partnership sold Riviera RV Resort and Riviera Mobile Home Park.
      As of
      December 31, 2006, the Operating Partnership still owns two RV parks totaling
      338 spaces, and one manufactured housing community that contains 157
      sites.





The
      Operating Partnership is a lessor under a land lease associated with a property
      located in Southern California. The land lease entitles the Operating
      Partnership to receive fixed annual land lease payments totaling a minimum
      of
      $477 over a thirty-four year term ended 2034. The Operating Partnership is
      also
      a lessor of an office building located in Southern California. The tenants’
lease terms expire at various times through 2009 with average annual lease
      payments of approximately $1.3 million. The future minimum non-cancelable base
      rent to be received under these operating leases for each of the years ending
      after December 31, 2006 are summarized as follows:




**Future
                Minimum Rent**2007
            
            $
            2,5372008
            
            
            2,2752009
            
            
            1,3302010
            
            
            9012011
            
            
            5642012
                and thereafter
            
            
            628$
            8,235





The
      carrying value of the rental properties subject to these long-term leases as
      of
      December 31, 2006 and 2005 is $32,625 and $34,957,
      respectively.


F-22
 *Table
          of Contents*


The
      Operating Partnership is also a lessee of an office building located in Palo
      Alto next to the Operating Partnership’s headquarters. The lease term expires on
      September 30, 2009, with average annual lease payments of approximately $0.2
      million.





**(12)
      Equity Transactions**





As
      of
      December 31, 2006, the Operating Partnership has the following cumulative
      preferred securities outstanding:





**Description**
            
            **Issue
                Date**
            
            
            
            **Liquidation
                Preference****Cumulative
                redeemable preferred limited partner units:**7.875%
                Series B
            
            
            February
                1998
            
            
            1,200,000
                units
            
            $
            60,0007.875%
                Series B
            
            
            April
                1998
            
            
            400,000
                units
            
            
            20,0007.875%
                Series D
            
            
            July
                1999
            
            
            2,000,000
                units
            
            
            50,000$
            130,000**Cumulative
                redeemable preferred general partner interest:**7.8125%
                Series F
            
            
            September
                2003
            
            
            
            
            $
            25,000**Cumulative
                convertible preferred general partner interest:**4.875%
                Series G
            
            
            July
                2006
            
            
            
            
            $
            149,500





Dividends
      on the securities are payable quarterly. The holders of the securities have
      limited voting rights if the required dividends are in arrears. The Series
      B and
      D preferred units represent preferred interests issued by the Operating
      Partnership and are included in minority interests in the accompanying
      consolidated balance sheets. The preferred units can be exchanged for Series
      B
      and D preferred stock of the Company under limited conditions.




In
      September 2003, the Company issued 1,000,000 shares of its Series F Cumulative
      Redeemable Preferred Stock (“Series F Preferred Stock”) at a fixed price of
      $24.664 per share, a discount from the $25.00 per share liquidation value of
      the
      shares.  The shares pay quarterly distributions at an annualized rate of
      7.8125% per year of the liquidation value and are redeemable by the Company
      on
      or after September 23, 2008. The shares were issued pursuant to the Company’s
      existing shelf registration statement.  The Company used the net proceeds
      from this sale of Series F Preferred Stock to redeem all of the 9.125% Series
      C
      Cumulative Redeemable Preferred Units (the “Series C Preferred Units”) of Essex
      Portfolio, L.P., of which the Company is the general partner.




In
      January 2004, the Operating Partnership restructured its previously issued
      $50,000, 9.30% Series D Cumulative Redeemable Preferred Units ("Series D
      Units"), and its previously issued $80,000, 7.875% Series B Cumulative
      Redeemable Preferred Units ("Series B Units"). The existing distribution rate
      of
      9.30% of the Series D Units continued until July 27, 2004 - the end of the
      non-call period. Effective July 28, 2004, the distribution rate on the Series
      D
      Units was reduced to 7.875%. The date that the Series D Units can first be
      redeemed at the Company's option was extended by six years to July 28, 2010.
      The
      date that the Series B Units can first be redeemed at the Company's option
      was
      extended from February 6, 2003 to December 31, 2009.





During
      the third quarter of 2006, the Company sold 5,980,000 shares of 4.875% Series
      G
      Cumulative Convertible Preferred Stock for gross proceeds of $149.5 million.
      Holders may convert Series G Preferred Stock into shares of the Company’s common
      stock subject to certain conditions. The conversion rate will initially be
      .1830
      shares of common stock per the $25 share liquidation preference, which is
      equivalent to an initial conversion price of approximately $136.62 per share
      of
      common stock (the conversion rate will be subject to adjustment upon the
      occurrence of specified events). On or after July 31, 2011, the Company may,
      under certain circumstances, cause some or all of the Series G Preferred Stock
      to be converted into that number of shares of common stock at the then
      prevailing conversion rate.




**Additional
      Significant Equity Transactions**




In
      August
      2004, the Operating Partnership acquired Vista Belvedere, a 76-unit apartment
      community located in the Marin County in the town of Tiburon, California. The
      Operating Partnership acquired the apartment community in an UpREIT structured
      transaction for an agreed upon value of approximately $17.1 million. The
      Operating Partnership issued 73,088 limited operating partnership units to
      the
      prior owner and during the close of escrow the Operating Partnership paid-off
      the existing debt on the property.


F-23
 *Table
          of Contents*


In
      October 2006, the Operating Partnership acquired Belmont Terrace, a 71-unit
      community located in Belmont, California. The Operating Partnership acquired
      the
      apartment community in an UpREIT structured transaction for an agreed upon
      value
      of approximately $14.7 million. The Operating Partnership issued 72,685 limited
      operating partnership units to the prior owners and during the close of escrow
      the Operating Partnership paid-off the existing debt on the
      property.




During
      2006, the Company issued and sold approximately 427,700 shares of common stock
      for $48.3 million, net of fees and commissions under its Controlled Equity
      Offering program. Under this program, the Company may from time to time sell
      shares of common stock into the existing trading market at current market
      prices, and the Operating Partnership used the net proceeds from such sales
      to
      primarily fund the development and redevelopment pipelines.





**(13)
      Net Income Per Common Unit**





Basic
      and
      diluted income from continuing operations per unit are calculated as follows
      for
      the years ended December 31:





**2006**
            
            **2005**
            
            **2004****Income**
            
            **Weighted-average
                Common Units**
            
            **Per
                Common Unit Amount**
            
            **Income**
            
            **Weighted-average
                Common Units**
            
            **Per
                Common Unit Amount**
            
            **Income**
            
            **Weighted-average
                Common Units**
            
            **Per
                Common Unit Amount**Basic:Income
                from continuing operations available to common units
            
            $
            34,284
            
            
            25,560,415
            
            $
            1.34
            
            $
            53,056
            
            
            25,343,695
            
            $
            2.10
            
            $
            80,855
            
            
            25,255,190
            
            $
            3.20Income
                from discontinued operations
            
            
            30,180
            
            
            25,560,415
            
            
            1.18
            
            
            33,053
            
            
            25,343,695
            
            
            1.30
            
            
            5,251
            
            
            25,255,190
            
            
            0.2164,464
            
            
            
            
            
            2.52
            
            
            86,109
            
            
            
            
            
            3.40
            
            
            86,106
            
            
            
            
            
            3.41Effect
                of Dilutive Securities (1)
            
            
            -
            
            
            469,360
            
            
            
            
            
            -
            
            
            349,942
            
            
            
            
            
            -
            
            
            235,076Diluted:Income
                from continuing operations available to common units
            
            
            34,284
            
            
            26,029,775
            
            
            1.32
            
            
            53,056
            
            
            25,693,637
            
            
            2.06
            
            
            80,855
            
            
            25,490,266
            
            
            3.17Income
                from discontinued operations
            
            
            30,180
            
            
            26,029,775
            
            
            1.16
            
            
            33,053
            
            
            25,693,637
            
            
            1.29
            
            
            5,251
            
            
            25,490,266
            
            
            0.21$
            64,464
            
            
            
            
            $
            2.48
            
            $
            86,109
            
            
            
            
            $
            3.35
            
            $
            86,106
            
            
            
            
            $
            3.38





The
      Operating Partnership has the ability and intent to redeem Down REIT Limited
      Partnership units for cash and does not consider them to be common unit
      equivalents.





(1)
            On
                or after November 1, 2020, the holders of the $225 million exchangeable
                notes may exchange, at the then applicable exchange rate, the notes
                for
                cash and, at the Essex’s option, a portion of the notes may be exchanged
                for Essex common stock; the current exchange rate is $103.25 per
                share of
                Essex common stock. The exchangeable notes will also be exchangeable
                prior
                to November 1, 2020, but only upon the occurrence of certain specified
                events. During 2006, the weighted average common stock price exceeded
                the
                $103.25 strike price and therefore common stock issuable upon exchange
                of
                the exchangeable notes was included in the diluted share count. The
                treasury method was used to determine the shares to be added to the
                denominator for the calculation of earnings per diluted share.





Stock
      options of 1,014, 22,229, and 29,500 for 2006, 2005, 2004, respectively, are
      not
      included in the diluted earnings per share calculation because the exercise
      price of the options was greater than the average market price of the common
      shares for the three and nine months ended and, therefore, were
      anti-dilutive.





5,980,000
      shares of cumulative convertible preferred stock Series G has been excluded
      from
      diluted earnings per share for 2006 as the effect was
      anti-dilutive.





**(14)
      Stock Based Compensation Plans**





The
      Essex
      Property Trust, Inc. 2004 Stock Incentive Plan provides incentives to attract
      and retain officers, directors and key employees. The Stock Incentive Plan
      provides for the grants of options to purchase a specified number of shares
      of
      common stock or grants of restricted shares of common stock. Under the Stock
      Incentive Plan, the total number of shares available for grant is approximately
      1,200,000. The 2004 Stock Incentive Plan is administered by the Compensation
      Committee of the Board of Directors. The Compensation Committee is comprised
      of
      independent directors. The Compensation Committee is authorized to establish
      the
      exercise price; however, the exercise price cannot be less than 100% of the
      fair
      market value of the common stock on the grant date. The Company’s options have a
      life of ten years. Option grants for officers and employees fully vest between
      one year and five years after the grant date.





Stock-based
      compensation expense for options and under the fair value method totaled
      approximately $1.1 million, $0.8 million and $0.6 million, for the years ended
      December 31, 2006, 2005 and 2004, respectively. Stock-based compensation
      capitalized for options totaled approximately $0.2 for the year ended December
      31, 2006 and $0.0 for the years ended December 31, 2005 and 2004, respectively.
      The intrinsic value of the options exercised totaled $6.0 million, $4.1 million,
      and $4.2 million, for the years ended December 31, 2006, 2005, and 2004,
      respectively. The intrinsic value of the options outstanding and fully vested
      totaled $14.3 million, $10.8 million, and $11.5 million, for the years ended
      December 31, 2006, 2005, and 2004, respectively. Total unrecognized compensation
      cost related to unvested share-based compensation granted under the stock option
      plans totaled $2.0 million as of December 31, 2006. The unrecognized
      compensation cost is expected to be recognized over a weighted-average period
      of
      3 to 5 years for the stock option plans.


F-24
 *Table
          of Contents*


A
      summary
      of the status of the Company’s stock option plans as of December 31, 2006, 2005,
      and 2004 and changes during the years ended on those dates is presented below:





**2006**
            
            **2005**
            
            **2004****Shares**
            
            **Weighted-average
                exercise price**
            
            **Shares**
            
            **Weighted-average
                exercise price**
            
            **Shares**
            
            **Weighted-average
                exercise price**Outstanding
                at beginning of year
            
            
            530,375
            
            $
            57.73
            
            
            463,376
            
            $
            47.07
            
            
            590,231
            
            $
            42.93Granted
            
            
            170,350
            
            
            106.63
            
            
            188,800
            
            
            78.01
            
            
            49,500
            
            
            74.10Exercised
            
            
            (90,633
            )
            
            47.57
            
            
            (103,201
            )
            
            43.47
            
            
            (142,835
            )
            
            38.71Forfeited
                and canceled
            
            
            (39,550
            )
            
            80.85
            
            
            (18,600
            )
            
            76.70
            
            
            (33,520
            )
            
            49.72Outstanding
                at end of year
            
            
            570,542
            
            
            72.60
            
            
            530,375
            
            
            57.73
            
            
            463,376
            
            
            47.07Options
                exercisable at year end
            
            
            272,074
            
            
            52.42
            
            
            248,015
            
            
            43.77
            
            
            267,366
            
            
            40.58





The
      following table summarizes information about stock options outstanding as of
      December 31, 2006:





**Options
                outstanding**
            
            **Options
                exercisable****Range
                of exercise prices**
            
            **Number
                outstanding as of December 31, 2006**
            
            **Weighted-average
                remaining contractual life**
            
            **Weighted-average
                exercise price**
            
            **Number
                exercisable as of December 31, 2006**
            
            **Weighted-average
                exercise price**$13.26-26.52
            
            
            600
            
            
            0.1
                years
            
            $
            19.08
            
            
            600
            
            $
            19.0826.52-39.79
            
            
            78,508
            
            
            1.9
                years
            
            
            32.67
            
            
            78,508
            
            
            32.6739.78-53.05
            
            
            113,300
            
            
            4.8
                years
            
            
            49.06
            
            
            90,260
            
            
            49.0153.05-66.31
            
            
            48,772
            
            
            6.7
                years
            
            
            58.96
            
            
            41,832
            
            
            59.6966.31-79.57
            
            
            106,328
            
            
            8.1
                years
            
            
            75.68
            
            
            45,745
            
            
            76.7579.57-92.83
            
            
            62,184
            
            
            8.5
                years
            
            
            83.24
            
            
            15,129
            
            
            82.9792.83-106.10
            
            
            42,600
            
            
            9.2
                years
            
            
            102.48
            
            
            -
            
            
            -106.10-119.36
            
            
            111,750
            
            
            9.4
                years
            
            
            107.31
            
            
            -
            
            
            -119.36-132.62
            
            
            6,500
            
            
            9.9
                years
            
            
            128.02
            
            
            -
            
            
            -570,542
            
            
            6.9
                years
            
            
            72.60
            
            
            272,074
            
            
            52.42





Stock-based
      compensation expense for Z and Z-1 Units, (collectively, “Z Units”) under the
      fair value method totaled approximately $1.3 million, $1.6 million and $0.2
      million, for the years ended December 31, 2006, 2005 and 2004,
      respectively.  Stock-based compensation capitalized for Z Units totaled
      approximately $0.3 million, $0.2 million and $0.3 million, for the years ended
      December 31, 2006, 2005 and 2004, respectively.  The intrinsic value of the
      Z Units subject to conversion totaled $13.4 million as of December 31,
      2006.  Total unrecognized compensation cost related Z Units subject to
      conversion in the future granted under the Z Units plans totaled $9.3 million
      as
      of December 31, 2006.  The unamortized cost is expected to be recognized
      over the next 4 to 12 years subject to the achievement of the stated performance
      criteria.





The
      issuance of Z Units is administered by the Compensation Committee which has
      the
      authority to select participants and determine the awards to be made up to
      a
      maximum of 600,000 Z Units.  The conversion ratchet (accounted for as
      vesting) of the Z Units into common units, will increase by up to 10% (up to
      20%
      in certain circumstances following their initial issuance) effective January
      1of
      each year for each participating executive who remains employed by the Operating
      Partnership if the Operating Partnership has met a specified “funds from
      operations” per share target, or such other target as the Compensation Committee
      deems appropriate, for the prior year, up to a maximum conversion ratchet of
      100%. The Operating Partnership has the option to redeem Z Units held by any
      executive whose employment has been terminated with either common units of
      the
      Operating Partnership or shares of the Company’s common stock based on the
      then-effective conversion ratchet.


F-25
 *Table
          of Contents*


During
      2001, the Operating Partnership issued 200,000 Series Z Incentive Units of
      limited partner interest to eleven senior executives of the Company in exchange
      for a capital commitment of $1.00 per Series Z Incentive Unit, for an aggregate
      offering price of $200. The 2001 Z Unit grant had conversion ratchet of 35,
      45,
      and 55 percent as of January 1, 2004, 2005, and 2006 respectively.





During
      2004, the Operating Partnership issued 95,953 Series Z-1 Incentive Units of
      limited partner interest to fourteen senior executives of the Company in
      exchange for cash or a capital commitment of $1.00 per Series Z-1 Incentive
      Unit, for an aggregate offering price of $96. The 2004 Z Unit grant had a
      conversion ratchet of 20 percent upon issuance, and 30 and 40 percent as of
      January 1, 2005 and 2006, respectively. In 2005 an additional 27,000 Z-1 Units
      were granted to two senior executives pursuant to the 2004 grant terms with
      a 20
      percent conversion ratio at issuance, and 30 percent conversion ratchet as
      of
      January 1, 2006 **.**





During
      2005, the Operating Partnership issued 89,999 Series Z-1 Incentive Units of
      limited partner interest to fourteen senior executives of the Company in
      exchange for cash or a capital commitment of $1.00 per Series Z-1 Incentive
      Unit, for an aggregate offering price of $90.  The 2005 Z-1 Unit grant had
      a conversion ratchet of 20 percent as of January 1, 2006.





**(15)
      Segment Information**





In
      accordance with FASB No. 131, “ *Disclosures
      about Segments of an Enterprise and Related Information”* the
      Company defines its reportable operating segments as the three geographical
      regions in which its properties are located: Southern California, Northern
      California and Seattle Metro. Excluded from segment revenues are properties
      outside of these regions including properties in Portland, Oregon and Houston,
      Texas, management and other fees from affiliates, and interest and other income.
      Non-segment revenues and net operating income included in the following schedule
      also consist of revenue generated from commercial properties, recreational
      vehicle parks, and manufactured housing communities. Other non-segment assets
      include investments, real estate under development, cash, notes receivable,
      other assets and deferred charges. The 2005 and 2004 operations and assets
      for
      the properties held in the Portland, Oregon have been reclassified from the
      Seattle/Pacific Northwest region to the other non-segment areas for comparison
      to the current segment presentation.


F-26
 *Table
          of Contents*


The
      revenues, net operating income, and assets for each of the reportable operating
      segments are summarized as follows for the years ended and as of December 31,
      2006, 2005, and 2004:





**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Revenues:Southern
                California
            
            $
            198,916
            
            $
            181,048
            
            $
            158,876Northern
                California
            
            
            75,624
            
            
            67,099
            
            
            58,328Seattle
                Metro
            
            
            55,721
            
            
            50,936
            
            
            43,326Other
                Regions
            
            
            12,783
            
            
            11,887
            
            
            13,640Total
                property revenues
            
            $
            343,044
            
            $
            310,970
            
            $
            274,170Net
                operating income:Southern
                California
            
            $
            135,897
            
            $
            122,458
            
            $
            106,399Northern
                California
            
            
            49,907
            
            
            44,528
            
            
            38,771Seattle
                Metro
            
            
            35,138
            
            
            31,792
            
            
            26,681Other
                Regions
            
            
            4,319
            
            
            4,482
            
            
            5,618Total
                net operating income
            
            
            225,261
            
            
            203,260
            
            
            177,469Depreciation
                and amortization:Southern
                California
            
            
            (43,017
            )
            
            (39,219
            )
            
            (36,666
            )Northern
                California
            
            
            (17,568
            )
            
            (15,984
            )
            
            (15,507
            )Seattle
                Metro
            
            
            (13,170
            )
            
            (12,343
            )
            
            (8,400
            )Other
                Regions
            
            
            (6,392
            )
            
            (9,302
            )
            
            (8,036
            )(80,147
            )
            
            (76,848
            )
            
            (68,609
            )Interest:Southern
                California
            
            
            (26,432
            )
            
            (27,690
            )
            
            (23,749
            )Northern
                California
            
            
            (18,295
            )
            
            (17,201
            )
            
            (15,065
            )Seattle
                Metro
            
            
            (6,904
            )
            
            (6,508
            )
            
            (5,718
            )Other
                Regions
            
            
            (21,267
            )
            
            (19,385
            )
            
            (16,177
            )(72,898
            )
            
            (70,784
            )
            
            (60,709
            )Amortization
                of deferred financing costs
            
            
            (2,743
            )
            
            (1,947
            )
            
            (1,560
            )General
                and administrative
            
            
            (22,235
            )
            
            (19,148
            )
            
            (18,042
            )Other
                expenses
            
            
            (1,770
            )
            
            (5,827
            )
            
            -Management
                and other fees from affiliates
            
            
            5,030
            
            
            10,951
            
            
            23,146Gain
                on sale or real estate
            
            
            -
            
            
            6,391
            
            
            7,909Interest
                and other income
            
            
            6,176
            
            
            8,524
            
            
            3,077Equity
                income in co-investments
            
            
            (1,503
            )
            
            18,553
            
            
            40,683Minority
                interests
            
            
            (4,979
            )
            
            (5,340
            )
            
            (4,550
            )Income
                tax provision
            
            
            (525
            )
            
            (2,538
            )
            
            (257
            )Income
                from continuing operations
            
            $
            49,667
            
            $
            65,247
            
            $
            98,557Assets:Southern
                California
            
            $
            1,244,037
            
            $
            1,169,192Northern
                California
            
            
            565,405
            
            
            456,093Pacific
                Northwest
            
            
            317,848
            
            
            315,327Other
                areas
            
            
            76,882
            
            
            101,977Net
                real estate assets
            
            
            2,204,172
            
            
            2,042,589Nonsegment
                assets
            
            
            281,668
            
            
            196,701Total
                assets
            
            $
            2,485,840
            
            $
            2,239,290




F-27
 *Table
          of Contents*


**(16)
      401(k) Plan**





The
      Operating Partnership has a 401(k) benefit plan (the Plan) for all full-time
      employees who have completed six months of service. Employees may contribute
      up
      to 23% of their compensation, limited by the maximum allowed under Section
      401(k) of the Internal Revenue Code. The Operating Partnership matches the
      employee contributions for non-highly compensated personnel, up to 50% of their
      contribution up to a specified maximum. Operating Partnership contributions
      to
      the Plan were approximately $226, $98, and $93 for the years ended December
      31,
      2006, 2005, and 2004.





**(17)
      Fair Value of Financial Instruments**





Management
      believes that the carrying amounts of its variable rate mortgage notes payable,
      lines of credit, notes receivable from investees and other related parties
      and
      notes and other receivables approximate fair value as of December 31, 2006
      and
      2005, because interest rates, yields and other terms for these instruments
      are
      consistent with yields and other terms currently available to the Operating
      Partnership for similar instruments. Management has estimated that the fair
      value of the Operating Partnership’s $1.13 billion of fixed rate mortgage notes
      payable and exchangeable bonds at December 31, 2006 are approximately $1.22
      billion based on the terms of existing mortgage notes payable compared to those
      available in the marketplace. At December 31, 2005, the Operating Partnership’s
      fixed rate mortgage notes payable of $1.14 billion had an approximate market
      value of $1.18 billion. Management believes that the carrying amounts of cash
      and cash equivalents, restricted cash, accounts payable and accrued liabilities,
      other liabilities and dividends payable approximate fair value as of December
      31, 2006 and 2005 due to the short-term maturity of these instruments.





**(18)
      Commitments and Contingencies**





At
      December 31, 2006 we had five non-cancelable ground leases for certain apartment
      communities and buildings that expire between 2027 and 2080. Land lease payments
      are typically the greater of a stated minimum or a percentage of gross rents
      generated by these apartment communities. Total lease commitments, under land
      leases and operating leases, are approximately $1.6 million per year.





The
      Operating Partnership has a performance guarantee with a commercial bank
      related to the Northwest Gateway development.





To
      the
      extent that an environmental matter arises or is identified in the future that
      has other than a remote risk, as defined in SFAS 5, of having a material impact
      on the financial statements, the Operating Partnership will disclose the
      estimated range of possible outcomes, and, if an outcome is probable, accrue
      appropriate liability for remediation and other potential liability. The
      Operating Partnership will consider whether such occurrence results in an
      impairment of value on the affected property and, if so, accrue an appropriate
      reserve for impairment.





Except
      with respect to three Properties, the Operating Partnership has no
      indemnification agreements from third parties for potential environmental
      clean-up costs at its Properties. The Operating Partnership has no way of
      determining at this time the magnitude of any potential liability to which
      it
      may be subject arising out of unknown environmental conditions or violations
      with respect to the properties formerly owned by the Operating Partnership.
      No
      assurance can be given that existing environmental studies with respect to
      any
      of the Properties reveal all environmental liabilities, that any prior owner
      or
      operator of a Property did not create any material environmental condition
      not
      known to the Operating Partnership, or that a material environmental condition
      does not otherwise exist as to any one or more of the Properties. The Operating
      Partnership has limited insurance coverage for the types of environmental
      liabilities described above.





The
      Operating Partnership may enter into transactions that could require us to
      pay
      the tax liabilities of the partners in the Operating Partnership or in the
      Down
      REIT entities, which are within our control. Although the Operating Partnership
      plans to hold the contributed assets or defer recognition of gain on their
      sale
      pursuant to like-kind exchange rules under Section 1031 of the Internal Revenue
      Code we can provide no assurance that we will be able to do so and if such
      tax
      liabilities were incurred they may to have a material impact on our financial
      position.





In
      April
      2004, an employee lawsuit was filed against the Company in the California
      Superior Court in the County of Alameda. In this lawsuit, two former Operating
      Partnership maintenance employees sought unpaid wages, associated penalties
      and
      attorneys’ fees on behalf of a putative class of the Operating Partnership’s
      current and former maintenance employees who were required to wear a pager
      while
      they were on call during evening and weekend hours. In June 2005, the Operating
      Partnership settled the lawsuit for $1.5 million.


F-28
 *Table
          of Contents*


Recently
      there has been an increasing number of lawsuits against owners and managers
      of
      apartment communities alleging personal injury and property damage caused by
      the
      presence of mold in residential real estate. Some of these lawsuits have
      resulted in substantial monetary judgments or settlements. The Operating
      Partnership has been sued for mold related matters and has settled some, but
      not
      all, of such matters. Insurance carriers have reacted to mold related liability
      awards by excluding mold related claims from standard policies and pricing
      mold
      endorsements at prohibitively high rates. The Operating Partnership has,
      however, purchased pollution liability insurance, which includes some coverage
      for mold. The Operating Partnership has adopted programs designed to manage
      the
      existence of mold in its properties as well as guidelines for promptly
      addressing and resolving reports of mold to minimize any impact mold might
      have
      on residents or property. Liabilities resulting from such mold related matters
      and the costs of carrying insurance to address potential mold related claims
      may
      also be substantial.




The
      Operating Partnership carries comprehensive liability, fire, extended coverage
      and rental loss insurance for each of the Properties. There are, however,
      certain types of extraordinary losses, such as, for example, losses for
      terrorism or earthquake, for which the Operating Partnership does not have
      insurance coverage. Substantially all of the Properties are located in areas
      that are subject to earthquake activity.




The
      Operating Partnership is subject to various other lawsuits in the normal course
      of its business operations. Such lawsuits could have a material adverse effect
      on the Operating Partnership’s financial condition, results of operations or
      cash flows.




F-29
 *Table
          of Contents*


**(20)
      Quarterly Results of Operations (Unaudited)**





The
      following is a summary of quarterly results of operations for 2006 and 2005:




**Quarter
                ended**
              **December
                31****(1)**
            
            **Quarter
                ended S**
              **eptember
                30****(1)**
            
            **Quarter
                ended**
              **June
                30****(1)**
            
            **Quarter
                ended**
              **March
                31****(1)****2006:**Total
                property revenues
            
            $
            90,244
            
            $
            86,850
            
            $
            83,717
            
            $
            82,233Income
                before discontinued operations
            
            $
            14,205
            
            $
            14,953
            
            $
            9,969
            
            $
            10,454Net
                income
            
            $
            21,926
            
            $
            16,412
            
            $
            27,450
            
            $
            14,059Net
                income available to common units
            
            $
            16,988
            
            $
            12,062
            
            $
            24,402
            
            $
            11,012Per
                unit data:Net
                income:Basic
            
            $
            0.65
            
            $
            0.47
            
            $
            0.97
            
            $
            0.44Diluted
            
            $
            0.64
            
            $
            0.46
            
            $
            0.95
            
            $
            0.43Distributions
                per common unit
            
            $
            0.84
            
            $
            0.84
            
            $
            0.84
            
            $
            0.84**2005:**Total
                property revenues
            
            $
            80,281
            
            $
            78,791
            
            $
            76,617
            
            $
            75,281Income
                before discontinued operations
            
            $
            7,918
            
            $
            11,814
            
            $
            16,023
            
            $
            29,492Net
                income
            
            $
            8,413
            
            $
            12,243
            
            $
            45,410
            
            $
            32,234Net
                income available to common units
            
            $
            5,365
            
            $
            9,195
            
            $
            42,363
            
            $
            29,187Per
                unit data:Net
                income:Basic
            
            $
            0.21
            
            $
            0.36
            
            $
            1.66
            
            $
            1.15Diluted
            
            $
            0.20
            
            $
            0.35
            
            $
            1.64
            
            $
            1.13Distributions
                per common unit
            
            $
            0.81
            
            $
            0.81
            
            $
            0.81
            
            $
            0.81





(1)
            Net
                earnings from discontinued operations have been reclassified for
                all
                periods presented.


F-30
 *Table
          of Contents*


**(21)
      Subsequent Events**





In
      January 2007, the Operating Partnership purchased 14.2 acres improved with
      four
      commercial buildings consisting of 262,000 net rentable square feet located
      in
      San Jose, California. The buildings are subject to a two-year lease with two,
      six-month lease option extensions with the previous owner. The City of San
      Jose
      has approved a General Plan Amendment to accommodate a multifamily housing
      development with density ranging from 55 to 90 units per acre. The Operating
      Partnership will continue to pursue the design and entitlement process during
      the leaseback period.





During
      February 2007, C ity
      Heights, a 687-unit community located in Los Angeles which was classified as
      held for sale as of December 31, 2006, was sold to a third party for $120
      million, which resulted in a gain. All related mortgage debt was paid-off upon
      the close of escrow. The Operating Partnership acquired City Heights in January
      2001 and owned the land and leased the improvements on the land to an unrelated
      party. The land lease provided for a base annualized lease payment over the
      34-year term, and the Operating Partnership earned management and other fees
      and
      received a residual interest in the appreciation of the land.


F-31
 *Table
          of Contents*


**ESSEX
      PORTFOLIO, L.P. AND SUBSIDIARIES**


**Financial
      Statement Schedule III**


**Real
      Estate and Accumulated Depreciation**


**December
      31, 2006**


**(Dollars
      in thousands)**


**Initial
                    cost**
                
                **Costs
                    capitalized**
                
                **Gross
                    amount carried at close of period****Property**
                
                **Units**
                
                **Location**
                
                **Encumbrance**
                
                **Land**
                
                **Buildings
                    and improvements**
                
                **subsequent
                    to acquisition**
                
                **Land
                    and improvements**
                
                **Buildings
                    and improvements**
                
                **Total****(1)**
                
                **Accumulated
                    depreciation**
                
                **Date
                    of construction**
                
                **Date
                    acquired**
                
                **Lives
                    (years)***Encumbered
                    apartment communities*Foothill
                    Commons
                
                
                360
                
                
                Bellevue,
                    WA
                
                
                
                
                $
                $2,435
                
                $
                9,821
                
                $
                4,420
                
                $
                2,440
                
                $
                14,236
                
                
                16,676
                
                $
                8,638
                
                
                1978
                
                
                03/90
                
                
                3-30Montclaire
                    (Oak Pointe)
                
                
                390
                
                
                Sunnyvale,
                    CA
                
                
                
                
                
                4,842
                
                
                19,776
                
                
                9,694
                
                
                4,847
                
                
                29,465
                
                
                34,312
                
                
                16,851
                
                
                1973
                
                
                12/88
                
                
                3-30Palisades,
                    The
                
                
                192
                
                
                Bellevue,
                    WA
                
                
                
                
                
                1,560
                
                
                6,242
                
                
                8,183
                
                
                1,565
                
                
                14,420
                
                
                15,985
                
                
                5,615
                
                
                1969/1977(2
                )
                
                05/90
                
                
                3-30Pathways
                
                
                296
                
                
                Long
                    Beach, CA
                
                
                
                
                
                4,083
                
                
                16,757
                
                
                9,859
                
                
                6,239
                
                
                24,461
                
                
                30,699
                
                
                11,971
                
                
                1975
                
                
                02/91
                
                
                3-30Stevenson
                    Place (The Apple)
                
                
                200
                
                
                Fremont,
                    CA
                
                
                
                
                
                996
                
                
                5,582
                
                
                6,924
                
                
                1,001
                
                
                12,501
                
                
                13,502
                
                
                8,327
                
                
                1971
                
                
                04/83
                
                
                3-30Summerhill
                    Commons
                
                
                184
                
                
                Newark,
                    CA
                
                
                
                
                
                1,608
                
                
                7,582
                
                
                4,722
                
                
                1,525
                
                
                12,387
                
                
                13,912
                
                
                6,503
                
                
                1987
                
                
                07/87
                
                
                3-30Summerhill
                    Park
                
                
                100
                
                
                Sunnyvale,
                    CA
                
                
                
                
                
                2,654
                
                
                4,918
                
                
                973
                
                
                2,656
                
                
                5,889
                
                
                8,545
                
                
                3,735
                
                
                1988
                
                
                09/88
                
                
                3-30Woodland
                    Commons
                
                
                236
                
                
                Bellevue,
                    WA
                
                
                
                
                
                2,040
                
                
                8,727
                
                
                2,872
                
                
                2,044
                
                
                11,595
                
                
                13,639
                
                
                6,739
                
                
                1978
                
                
                03/90
                
                
                3-3091,935
                
                
                20,218
                
                
                79,405
                
                
                47,648
                
                
                22,317
                
                
                124,954
                
                
                147,271
                
                
                68,379Fountain
                    Court
                
                
                320
                
                
                Seattle,
                    WA
                
                
                
                
                
                6,702
                
                
                27,306
                
                
                1,103
                
                
                6,985
                
                
                28,126
                
                
                35,111
                
                
                6,587
                
                
                2000
                
                
                03/00
                
                
                3-30Hillcrest
                    Park (Mirabella)
                
                
                608
                
                
                Newbury
                    Park, CA
                
                
                
                
                
                15,318
                
                
                40,601
                
                
                11,890
                
                
                15,755
                
                
                52,054
                
                
                67,809
                
                
                14,736
                
                
                1973
                
                
                03/98
                
                
                3-30Hillsborough
                    Park
                
                
                235
                
                
                La
                    Habra, CA
                
                
                
                
                
                6,291
                
                
                15,455
                
                
                683
                
                
                6,272
                
                
                16,157
                
                
                22,429
                
                
                4,087
                
                
                1999
                
                
                09/99
                
                
                3-3077,797
                
                
                28,311
                
                
                83,362
                
                
                13,676
                
                
                29,012
                
                
                96,337
                
                
                125,349
                
                
                25,410Bel
                    Air (The Shores)
                
                
                462
                
                
                San
                    Ramon, CA
                
                
                
                
                
                12,105
                
                
                18,252
                
                
                18,151
                
                
                12,682
                
                
                35,826
                
                
                48,508
                
                
                11,080
                
                
                1988
                
                
                01/97
                
                
                3-30Waterford,
                    The
                
                
                238
                
                
                San
                    Jose, CA
                
                
                
                
                
                11,808
                
                
                24,500
                
                
                10,589
                
                
                15,165
                
                
                31,732
                
                
                46,897
                
                
                6,451
                
                
                2000
                
                
                06/00
                
                
                3-3058,931
                
                
                23,913
                
                
                42,752
                
                
                28,740
                
                
                27,847
                
                
                67,558
                
                
                95,405
                
                
                17,531Bonita
                    Cedars
                
                
                120
                
                
                Bonita,
                    CA
                
                
                
                
                
                2,496
                
                
                9,913
                
                
                863
                
                
                2,503
                
                
                10,769
                
                
                13,272
                
                
                1,544
                
                
                1983
                
                
                12/02
                
                
                3-30Bristol
                    Commons
                
                
                188
                
                
                Sunnyvale,
                    CA
                
                
                
                
                
                5,278
                
                
                11,853
                
                
                2,080
                
                
                5,293
                
                
                13,918
                
                
                19,211
                
                
                5,286
                
                
                1989
                
                
                01/97
                
                
                3-30Castle
                    Creek
                
                
                216
                
                
                Newcastle,
                    WA
                
                
                
                
                
                4,149
                
                
                16,028
                
                
                1,573
                
                
                4,833
                
                
                16,917
                
                
                21,750
                
                
                5,850
                
                
                1997
                
                
                12/97
                
                
                3-30Forest
                    View
                
                
                192
                
                
                Renton,
                    WA
                
                
                
                
                
                3,731
                
                
                14,530
                
                
                399
                
                
                3,731
                
                
                14,929
                
                
                18,660
                
                
                1,670
                
                
                1998
                
                
                10/03
                
                
                3-30Mira
                    Monte (Mira Woods)
                
                
                355
                
                
                Mira
                    Mesa, CA
                
                
                
                
                
                7,165
                
                
                28,459
                
                
                6,099
                
                
                7,186
                
                
                34,536
                
                
                41,723
                
                
                4,527
                
                
                1982
                
                
                12/02
                
                
                3-30Mission
                    Hills
                
                
                282
                
                
                Oceanside,
                    CA
                
                
                
                
                
                10,099
                
                
                38,778
                
                
                1,107
                
                
                10,167
                
                
                39,817
                
                
                49,984
                
                
                2,178
                
                
                1984
                
                
                7/05
                
                
                3-30Walnut
                    Heights
                
                
                163
                
                
                Walnut,
                    CA
                
                
                
                
                
                4,858
                
                
                19,168
                
                
                983
                
                
                4,887
                
                
                20,122
                
                
                25,009
                
                
                2,188
                
                
                1964
                
                
                10/03
                
                
                3-30Windsor
                    Ridge
                
                
                216
                
                
                Sunnyvale,
                    CA
                
                
                
                
                
                4,017
                
                
                10,315
                
                
                3,103
                
                
                4,021
                
                
                13,415
                
                
                17,435
                
                
                7,500
                
                
                1989
                
                
                03/89
                
                
                3-3093,000
                
                
                41,793
                
                
                149,044
                
                
                16,207
                
                
                42,621
                
                
                164,423
                
                
                207,044
                
                
                30,742Alpine
                    Village
                
                
                306
                
                
                Alpine,
                    CA
                
                
                17,304
                
                
                4,967
                
                
                19,728
                
                
                1,630
                
                
                4,982
                
                
                21,344
                
                
                26,325
                
                
                2,977
                
                
                1971
                
                
                12/02
                
                
                3-30Anchor
                    Village
                
                
                301
                
                
                Mukilteo,
                    WA
                
                
                10,750
                
                
                2,498
                
                
                10,595
                
                
                4,337
                
                
                2,672
                
                
                14,757
                
                
                17,430
                
                
                6,373
                
                
                1981
                
                
                01/97
                
                
                3-30Brighton
                    Ridge
                
                
                264
                
                
                Renton,
                    WA
                
                
                16,246
                
                
                2,623
                
                
                10,800
                
                
                2,119
                
                
                2,656
                
                
                12,886
                
                
                15,542
                
                
                5,405
                
                
                1986
                
                
                12/96
                
                
                3-30Brookside
                    Oaks
                
                
                170
                
                
                Sunnyvale,
                    CA
                
                
                14,342
                
                
                7,301
                
                
                16,310
                
                
                1,805
                
                
                7,665
                
                
                17,751
                
                
                25,416
                
                
                4,353
                
                
                1973
                
                
                06/00
                
                
                3-30Camarillo
                    Oaks
                
                
                564
                
                
                Camarillo,
                    CA
                
                
                54,011
                
                
                10,953
                
                
                25,254
                
                
                4,315
                
                
                11,075
                
                
                29,447
                
                
                40,522
                
                
                12,576
                
                
                1985
                
                
                07/96
                
                
                3-30Capri
                    at Sunny Hills
                
                
                100
                
                
                Fullerton,
                    CA
                
                
                11,701
                
                
                3,337
                
                
                13,320
                
                
                3,255
                
                
                3,769
                
                
                16,143
                
                
                19,912
                
                
                2,814
                
                
                1961
                
                
                09/01
                
                
                3-30Canyon
                    Point
                
                
                250
                
                
                Bothell,
                    WA
                
                
                15,965
                
                
                4,692
                
                
                18,288
                
                
                576
                
                
                4,693
                
                
                18,864
                
                
                23,556
                
                
                2,080
                
                
                1990
                
                
                10/03
                
                
                3-30Coral
                    Gardens
                
                
                200
                
                
                El
                    Cajon, CA
                
                
                11,128
                
                
                3,638
                
                
                14,452
                
                
                815
                
                
                3,649
                
                
                15,256
                
                
                18,905
                
                
                2,148
                
                
                1976
                
                
                12/02
                
                
                3-30Devonshire
                
                
                276
                
                
                Hemet,
                    CA
                
                
                11,266
                
                
                3,470
                
                
                13,786
                
                
                1,286
                
                
                3,482
                
                
                15,060
                
                
                18,542
                
                
                2,241
                
                
                1988
                
                
                12/02
                
                
                3-30Emerald
                    Ridge - North
                
                
                180
                
                
                Bellevue,
                    WA
                
                
                10,884
                
                
                3,449
                
                
                7,801
                
                
                1,943
                
                
                3,449
                
                
                9,744
                
                
                13,193
                
                
                4,553
                
                
                1987
                
                
                11/94
                
                
                3-30Esplanade
                
                
                278
                
                
                San
                    Jose, CA
                
                
                39,569
                
                
                18,170
                
                
                40,086
                
                
                2,071
                
                
                18,425
                
                
                41,902
                
                
                60,327
                
                
                3,044
                
                
                2002
                
                
                11/04
                
                
                3-30Evergreen
                    Heights
                
                
                200
                
                
                Kirkland,
                    WA
                
                
                11,077
                
                
                3,566
                
                
                13,395
                
                
                1,753
                
                
                3,649
                
                
                15,064
                
                
                18,714
                
                
                5,228
                
                
                1990
                
                
                06/97
                
                
                3-30Fairwood
                    Pond
                
                
                194
                
                
                Renton,
                    WA
                
                
                14719.3
                
                
                5,296
                
                
                15,564
                
                
                333
                
                
                5,300
                
                
                15,894
                
                
                21,193
                
                
                1,173
                
                
                1997
                
                
                10/04
                
                
                3-30Fountain
                    Park
                
                
                705
                
                
                Playa
                    Vista, CA
                
                
                83,179
                
                
                25,073
                
                
                94,980
                
                
                1,199
                
                
                25,203
                
                
                96,049
                
                
                121,252
                
                
                9,715
                
                
                2002
                
                
                02/04
                
                
                3-30




F-32
 *Table
          of Contents*





**ESSEX
      PORTFOLIO, L.P. AND SUBSIDIARIES**


**Real
      Estate and Accumulated Depreciation**


**December
      31, 2006**


**(Dollars
      in thousands)**




**Initial
                cost**
            
            **Costs
                capitalized**
            
            **Gross
                amount carried at close of period****Property**
            
            **Units**
            
            **Location**
            
            **Encumbrance**
            
            **Land**
            
            **Buildings
                and improvements**
            
            **subsequent
                to acquisition**
            
            **Land
                and improvements**
            
            **Buildings
                and improvements**
            
            **Total****(1)**
            
            **Accumulated
                depreciation**
            
            **Date
                of construction**
            
            **Date
                acquired**
            
            **Lives
                (years)***Encumbered
                apartment communities (continued)*Brentwood
                (Hearthstone II)
            
            
            140
            
            
            Santa
                Ana, CA
            
            
            9,498
            
            
            2,833
            
            
            11,303
            
            
            1,758
            
            
            3,021
            
            
            12,873
            
            
            15,894
            
            
            2,245
            
            
            1970
            
            
            11/01
            
            
            3-30Hidden
                Valley (Parker Ranch)
            
            
            324
            
            
            Simi
                Valley, CA
            
            
            33,590
            
            
            14,174
            
            
            34,065
            
            
            248
            
            
            11,711
            
            
            36,776
            
            
            48,487
            
            
            3,096
            
            
            2004
            
            
            12/04
            
            
            3-30Highridge
            
            
            255
            
            
            Rancho
                Palos Verde, CA
            
            
            18,678
            
            
            5,419
            
            
            18,347
            
            
            5,325
            
            
            5,695
            
            
            23,396
            
            
            29,091
            
            
            8,311
            
            
            1972
            
            
            05/97
            
            
            3-30Huntington
                Breakers
            
            
            342
            
            
            Huntington
                Beach, CA
            
            
            21,355
            
            
            9,306
            
            
            22,720
            
            
            3,588
            
            
            9,315
            
            
            26,299
            
            
            35,614
            
            
            8,370
            
            
            1984
            
            
            10/97
            
            
            3-30Inglenook
                Court
            
            
            224
            
            
            Bothell,
                WA
            
            
            8,300
            
            
            3,467
            
            
            7,881
            
            
            3,151
            
            
            3,474
            
            
            11,025
            
            
            14,499
            
            
            5,091
            
            
            1985
            
            
            10/94
            
            
            3-30Kings
                Road
            
            
            196
            
            
            Los
                Angeles, CA
            
            
            14,857
            
            
            4,023
            
            
            9,527
            
            
            5,297
            
            
            4,031
            
            
            14,816
            
            
            18,847
            
            
            4,269
            
            
            1979
            
            
            06/97
            
            
            3-30Le
                Pac Luxury Apartments (Plumtree)
            
            
            140
            
            
            Santa
                Clara, CA
            
            
            13,938
            
            
            3,090
            
            
            7,421
            
            
            4,528
            
            
            3,092
            
            
            11,947
            
            
            15,039
            
            
            4,456
            
            
            1975
            
            
            02/94
            
            
            3-30Marbrisa
            
            
            202
            
            
            Long
                Beach, CA
            
            
            21,261
            
            
            4,700
            
            
            18,605
            
            
            1,168
            
            
            4,760
            
            
            19,713
            
            
            24,473
            
            
            3,017
            
            
            1987
            
            
            09/02
            
            
            3-30Mariners
                Place
            
            
            105
            
            
            Oxnard,
                CA
            
            
            3,945
            
            
            1,555
            
            
            6,103
            
            
            964
            
            
            1,562
            
            
            7,061
            
            
            8,622
            
            
            1,849
            
            
            1987
            
            
            05/00
            
            
            3-30Montejo
            
            
            124
            
            
            Garden
                Grove, CA
            
            
            5,900
            
            
            1,925
            
            
            7,685
            
            
            1,103
            
            
            2,110
            
            
            8,603
            
            
            10,713
            
            
            1,570
            
            
            1974
            
            
            11/01
            
            
            3-30Monterey
                Villas (The Village)
            
            
            122
            
            
            Oxnard,
                CA
            
            
            14,024
            
            
            2,349
            
            
            5,579
            
            
            4,213
            
            
            2,424
            
            
            9,717
            
            
            12,141
            
            
            2,817
            
            
            1974
            
            
            07/97
            
            
            3-30Monterra
                del Rey (Glenbrook)
            
            
            84
            
            
            Pasadena,
                CA
            
            
            10,301
            
            
            2,312
            
            
            4,923
            
            
            4,243
            
            
            2,825
            
            
            8,653
            
            
            11,478
            
            
            2,140
            
            
            1972
            
            
            04/99
            
            
            3-30Monterra
                del Sol (Euclid)
            
            
            85
            
            
            Pasadena,
                CA
            
            
            2,616
            
            
            2,202
            
            
            4,794
            
            
            4,329
            
            
            2,824
            
            
            8,501
            
            
            11,325
            
            
            1,918
            
            
            1972
            
            
            04/99
            
            
            3-30Mt.
                Sutro
            
            
            99
            
            
            San
                Francisco, CA
            
            
            5,805
            
            
            2,334
            
            
            8,507
            
            
            1,545
            
            
            2,810
            
            
            9,576
            
            
            12,386
            
            
            2,407
            
            
            1973
            
            
            06/01
            
            
            3-30Park
                Place/Windsor Court/Cochran
            
            
            176
            
            
            Los
                Angeles, CA
            
            
            22,326
            
            
            4,965
            
            
            11,806
            
            
            3,332
            
            
            5,015
            
            
            15,087
            
            
            20,103
            
            
            5,062
            
            
            1988
            
            
            08/97
            
            
            3-30Pointe
                at Cupertino, The (Westwood)
            
            
            116
            
            
            Cupertino,
                CA
            
            
            13,217
            
            
            4,505
            
            
            17,605
            
            
            412
            
            
            4,505
            
            
            18,017
            
            
            22,522
            
            
            1,609
            
            
            1963
            
            
            08/98(5
            )
            
            3-30Sammamish
                View
            
            
            153
            
            
            Bellevue,
                WA
            
            
            10,942
            
            
            3,324
            
            
            7,501
            
            
            3,445
            
            
            3,331
            
            
            10,938
            
            
            14,270
            
            
            4,027
            
            
            1986
            
            
            11/94
            
            
            3-30San
                Marcos
            
            
            432
            
            
            Richmond,
                CA
            
            
            49,970
            
            
            15,563
            
            
            36,204
            
            
            23,825
            
            
            22,859
            
            
            52,733
            
            
            75,592
            
            
            5,498
            
            
            2003
            
            
            11/03
            
            
            3-30Stonehedge
                Village
            
            
            196
            
            
            Bothell,
                WA
            
            
            13,978
            
            
            3,167
            
            
            12,603
            
            
            2,186
            
            
            3,201
            
            
            14,756
            
            
            17,956
            
            
            4,658
            
            
            1986
            
            
            10/97
            
            
            3-30Summit
                Park
            
            
            300
            
            
            San
                Diego, CA
            
            
            21,457
            
            
            5,959
            
            
            23,670
            
            
            1,654
            
            
            5,977
            
            
            25,306
            
            
            31,283
            
            
            3,726
            
            
            1972
            
            
            12/02
            
            
            3-30The
                Barkley
            
            
            161
            
            
            Anahiem,
                CA
            
            
            4,985
            
            
            2,272
            
            
            8,520
            
            
            1,581
            
            
            2,353
            
            
            10,020
            
            
            12,373
            
            
            2,836
            
            
            1984
            
            
            04/00
            
            
            3-30The
                Bluffs
            
            
            224
            
            
            San
                Diego, CA
            
            
            12,360
            
            
            3,405
            
            
            7,743
            
            
            973
            
            
            3,442
            
            
            8,680
            
            
            12,121
            
            
            3,224
            
            
            1974
            
            
            06/97
            
            
            3-30The
                Carlyle
            
            
            132
            
            
            San
                Jose, CA
            
            
            15,645
            
            
            3,954
            
            
            15,277
            
            
            8,980
            
            
            5,801
            
            
            22,410
            
            
            28,211
            
            
            4,432
            
            
            2000
            
            
            04/00
            
            
            3-30Tierra
                Vista
            
            
            404
            
            
            Oxnard,
                CA
            
            
            36,114
            
            
            13,652
            
            
            53,336
            
            
            491
            
            
            13,661
            
            
            53,818
            
            
            67,479
            
            
            4,783
            
            
            2001
            
            
            01/01(5
            )
            
            3-30Treehouse
            
            
            164
            
            
            Santa
                Ana, CA
            
            
            7,943
            
            
            2,626
            
            
            10,485
            
            
            1,282
            
            
            2,843
            
            
            11,550
            
            
            14,393
            
            
            2,190
            
            
            1970
            
            
            11/01
            
            
            3-30Treetops
            
            
            172
            
            
            Fremont,
                CA
            
            
            9,800
            
            
            3,520
            
            
            8,182
            
            
            2,631
            
            
            3,580
            
            
            10,753
            
            
            14,333
            
            
            4,322
            
            
            1978
            
            
            01/96
            
            
            3-30Valley
                Park
            
            
            160
            
            
            Fountain
                Valley
            
            
            10,063
            
            
            3,361
            
            
            13,420
            
            
            2,371
            
            
            3,714
            
            
            15,439
            
            
            19,152
            
            
            2,789
            
            
            1969
            
            
            11/01
            
            
            3-30Villa
                Angelina
            
            
            256
            
            
            Placentia
            
            
            13,607
            
            
            4,498
            
            
            17,962
            
            
            2,364
            
            
            4,896
            
            
            19,928
            
            
            24,824
            
            
            3,459
            
            
            1970
            
            
            11/01
            
            
            3-30Vista
                Belvedere
            
            
            76
            
            
            Tiburon,
                CA
            
            
            11,471
            
            
            5,573
            
            
            11,901
            
            
            1,347
            
            
            5,573
            
            
            13,248
            
            
            18,821
            
            
            987
            
            
            1963
            
            
            08/04
            
            
            3-30Wandering
                Creek
            
            
            156
            
            
            Kent,
                WA
            
            
            5,300
            
            
            1,285
            
            
            4,980
            
            
            2,409
            
            
            1,296
            
            
            7,378
            
            
            8,674
            
            
            3,103
            
            
            1986
            
            
            11/95
            
            
            3-30Wharfside
                Pointe
            
            
            142
            
            
            Seattle,
                WA
            
            
            7,946
            
            
            2,245
            
            
            7,020
            
            
            1,789
            
            
            2,256
            
            
            8,798
            
            
            11,054
            
            
            4,217
            
            
            1990
            
            
            06/94
            
            
            3-30Wimbledon
                Woods
            
            
            560
            
            
            Hayward,
                CA
            
            
            52,399
            
            
            9,883
            
            
            37,670
            
            
            7,204
            
            
            10,350
            
            
            44,407
            
            
            54,757
            
            
            13,236
            
            
            1975
            
            
            03/98
            
            
            3-301,147,396
            
            
            366,714
            
            
            1,142,267
            
            
            243,445
            
            
            386,771
            
            
            1,365,655
            
            
            1,752,426
            
            
            332,450




F-33
 *Table
          of Contents*




**ESSEX
      PORTFOLIO, L.P. AND SUBSIDIARIES**


**Real
      Estate and Accumulated Depreciation**


**December
      31, 2006**


**(Dollars
      in thousands)**




**Initial
                cost**
            
            
            
            **Gross
                amount carried at close of period****Property**
            
            **Units**
            
            **Location**
            
            **Encumbrance**
            
            **Land**
            
            **Buildings
                and improvements**
            
            **capitalized
                subsequent to acquisition**
            
            **Land
                and improvements**
            
            **Buildings
                and improvements**
            
            **Total****(1)**
            
            **Accumulated
                depreciation**
            
            **Date
                of construction**
            
            **Date
                acquired**
            
            **Lives
                (years)***Unencumbered
                apartment communities*Alpine
                Country
            
            
            108
            
            
            Alpine,
                CA
            
            
            
            
            
            1,741
            
            
            6,914
            
            
            382
            
            
            1,746
            
            
            7,291
            
            
            9,037
            
            
            1,042
            
            
            1986
            
            
            12/02
            
            
            3-30Avondale
                at Warner Center
            
            
            446
            
            
            Woodland
                Hills, CA
            
            
            
            
            
            10,536
            
            
            24,522
            
            
            13,205
            
            
            10,601
            
            
            37,661
            
            
            48,263
            
            
            8,843
            
            
            1970
            
            
            01/97
            
            
            3-30Belmont
                Terrace
            
            
            71
            
            
            Belmont,
                CA
            
            
            
            
            
            4,446
            
            
            10,290
            
            
            19
            
            
            4,495
            
            
            10,260
            
            
            14,755
            
            
            57
            
            
            1974
            
            
            10/06
            
            
            3-30Bridle
                Trails
            
            
            108
            
            
            Kirkland,
                WA
            
            
            
            
            
            1,500
            
            
            5,930
            
            
            4,880
            
            
            1,531
            
            
            10,779
            
            
            12,310
            
            
            2,589
            
            
            1986
            
            
            10/97
            
            
            3-30Bunker
                Hill Towers
            
            
            456
            
            
            Los
                Angeles, CA
            
            
            
            
            
            11,498
            
            
            27,871
            
            
            2,752
            
            
            11,639
            
            
            30,483
            
            
            42,121
            
            
            9,979
            
            
            1968
            
            
            03/98
            
            
            3-30Cambridge
            
            
            40
            
            
            Chula
                Vista, CA
            
            
            
            
            
            497
            
            
            1,973
            
            
            174
            
            
            498
            
            
            2,146
            
            
            2,644
            
            
            301
            
            
            1965
            
            
            12/02
            
            
            3-30Camino
                Ruiz Square
            
            
            160
            
            
            Camarillo,
                CA
            
            
            
            
            
            6,921
            
            
            26,320
            
            
            (0
            )
            
            6,921
            
            
            26,320
            
            
            33,241
            
            
            0
            
            
            1990
            
            
            12/06
            
            
            3-30Carlton
                Heights
            
            
            70
            
            
            Santee,
                CA
            
            
            
            
            
            1,099
            
            
            4,368
            
            
            264
            
            
            1,103
            
            
            4,629
            
            
            5,731
            
            
            671
            
            
            1979
            
            
            12/02
            
            
            3-30CBC
                Apartments
            
            
            148
            
            
            Goleta,
                CA
            
            
            
            
            
            6,283
            
            
            24,000
            
            
            (59
            )
            
            6,287
            
            
            23,937
            
            
            30,224
            
            
            741
            
            
            1962
            
            
            01/06
            
            
            3-30Cedar
                Terrace
            
            
            180
            
            
            Bellevue,
                WA
            
            
            
            
            
            5,543
            
            
            16,442
            
            
            1,684
            
            
            5,652
            
            
            18,018
            
            
            23,669
            
            
            1,152
            
            
            1984
            
            
            01/05
            
            
            3-30Chimney
                Sweep Apartments
            
            
            91
            
            
            Goleta,
                CA
            
            
            
            
            
            5,558
            
            
            21,320
            
            
            1,152
            
            
            5,618
            
            
            22,412
            
            
            28,030
            
            
            693
            
            
            1967
            
            
            01/06
            
            
            3-30Country
                Villas
            
            
            180
            
            
            Oceanside,
                CA
            
            
            
            
            
            4,174
            
            
            16,583
            
            
            2,070
            
            
            4,187
            
            
            18,640
            
            
            22,827
            
            
            2,614
            
            
            1976
            
            
            12/02
            
            
            3-30Fairway
                (6)
            
            
            74
            
            
            Newport
                Beach, CA
            
            
            
            
            
            -
            
            
            7,850
            
            
            2,506
            
            
            9
            
            
            10,347
            
            
            10,356
            
            
            3,326
            
            
            1972
            
            
            06/99
            
            
            3-30Foothill/Twincreeks
            
            
            176
            
            
            San
                Ramon, CA
            
            
            
            
            
            5,875
            
            
            13,992
            
            
            2,762
            
            
            5,964
            
            
            16,665
            
            
            22,629
            
            
            6,221
            
            
            1985
            
            
            02/97
            
            
            3-30Grand
                Regency
            
            
            60
            
            
            Escondido,
                CA
            
            
            
            
            
            881
            
            
            3,498
            
            
            179
            
            
            883
            
            
            3,675
            
            
            4,558
            
            
            528
            
            
            1967
            
            
            12/02
            
            
            3-30Hampton
                Park (Columbus)
            
            
            83
            
            
            Glendale,
                CA
            
            
            
            
            
            2,407
            
            
            5,672
            
            
            1,507
            
            
            2,426
            
            
            7,161
            
            
            9,586
            
            
            1,788
            
            
            1974
            
            
            06/99
            
            
            3-30Hampton
                Place (Lorraine)
            
            
            132
            
            
            Glendale,
                CA
            
            
            
            
            
            4,288
            
            
            11,081
            
            
            1,934
            
            
            4,307
            
            
            12,995
            
            
            17,303
            
            
            3,258
            
            
            1970
            
            
            06/99
            
            
            3-30Hillsdale
                Garden
            
            
            697
            
            
            Hillsdale
                Garden, CA
            
            
            
            
            
            -
            
            
            95,533
            
            
            257
            
            
            0
            
            
            95,790
            
            
            95,790
            
            
            823
            
            
            1948
            
            
            09/06
            
            
            3-30Jackson
                School Village
            
            
            200
            
            
            Hillsboro,
                OR
            
            
            
            
            
            2,588
            
            
            10,452
            
            
            1,302
            
            
            2,698
            
            
            11,644
            
            
            14,342
            
            
            2,578
            
            
            1996
            
            
            09/00
            
            
            3-30Landmark
            
            
            285
            
            
            Hillsboro,
                OR
            
            
            
            
            
            3,655
            
            
            14,200
            
            
            2,339
            
            
            3,700
            
            
            16,494
            
            
            20,194
            
            
            6,328
            
            
            1990
            
            
            08/96
            
            
            3-30Linden
                Square
            
            
            183
            
            
            Seattle,
                WA
            
            
            
            
            
            4,374
            
            
            11,588
            
            
            706
            
            
            4,202
            
            
            12,466
            
            
            16,668
            
            
            2,929
            
            
            1994
            
            
            06/00
            
            
            3-30Lofts
                at Pinehurst (Villa Scandia)
            
            
            118
            
            
            Ventura,
                CA
            
            
            
            
            
            1,570
            
            
            3,912
            
            
            3,868
            
            
            1,618
            
            
            7,732
            
            
            9,350
            
            
            2,259
            
            
            1971
            
            
            06/97
            
            
            3-30Maple
                Leaf
            
            
            48
            
            
            Seattle,
                WA
            
            
            
            
            
            805
            
            
            3,283
            
            
            310
            
            
            828
            
            
            3,570
            
            
            4,398
            
            
            1,218
            
            
            1986
            
            
            10/97
            
            
            3-30Marina
                City Club (7)
            
            
            101
            
            
            Marina
                Del Rey, CA
            
            
            
            
            
            -
            
            
            28,167
            
            
            2,167
            
            
            -
            
            
            30,334
            
            
            30,334
            
            
            2,931
            
            
            1971
            
            
            01/04
            
            
            3-30Marina
                Cove (8)
            
            
            292
            
            
            Santa
                Clara, CA
            
            
            
            
            
            5,320
            
            
            16,431
            
            
            3,220
            
            
            5,324
            
            
            19,647
            
            
            24,971
            
            
            9,590
            
            
            1974
            
            
            06/94
            
            
            3-30Meadows
                @ Cascade
            
            
            198
            
            
            Vancouver,
                WA
            
            
            
            
            
            2,261
            
            
            9,070
            
            
            1,909
            
            
            2,337
            
            
            10,904
            
            
            13,240
            
            
            4,044
            
            
            1989
            
            
            11/97
            
            
            3-30Meadowood
            
            
            320
            
            
            Simi
                Valley, CA
            
            
            
            
            
            7,852
            
            
            18,592
            
            
            2,697
            
            
            7,898
            
            
            21,243
            
            
            29,141
            
            
            8,169
            
            
            1986
            
            
            11/96
            
            
            3-30Mesa
                Village
            
            
            133
            
            
            Clairemont,
                CA
            
            
            
            
            
            1,888
            
            
            7,498
            
            
            435
            
            
            1,894
            
            
            7,927
            
            
            9,821
            
            
            1,091
            
            
            1963
            
            
            12/02
            
            
            3-30Mirabella
            
            
            188
            
            
            Marina
                Del Rey, CA
            
            
            
            
            
            6,180
            
            
            26,673
            
            
            1,198
            
            
            6,270
            
            
            27,781
            
            
            34,051
            
            
            6,398
            
            
            2000
            
            
            05/00
            
            
            3-30Monterra
                del Mar (Windsor Terrace)
            
            
            123
            
            
            Pasadena,
                CA
            
            
            
            
            
            2,188
            
            
            5,263
            
            
            3,911
            
            
            2,735
            
            
            8,627
            
            
            11,362
            
            
            2,693
            
            
            1972
            
            
            09/97
            
            
            3-30Mountain
                View
            
            
            106
            
            
            Camarillo,
                CA
            
            
            
            
            
            3,167
            
            
            11,106
            
            
            471
            
            
            3,117
            
            
            11,627
            
            
            14,744
            
            
            1,166
            
            
            1980
            
            
            01/04
            
            
            3-30Park
                Hill
            
            
            245
            
            
            Issaquah,
                CA
            
            
            
            
            
            7,284
            
            
            21,937
            
            
            394
            
            
            7,284
            
            
            22,331
            
            
            29,615
            
            
            1,718
            
            
            1999
            
            
            02/99(3
            )
            
            3-30Pinehurst
            
            
            28
            
            
            Ventura,
                CA
            
            
            
            
            
            355
            
            
            1,356
            
            
            228
            
            
            6
            
            
            1,933
            
            
            1,939
            
            
            161
            
            
            1973
            
            
            12/04
            
            
            3-30Salmon
                Run
            
            
            132
            
            
            Bothell,
                WA
            
            
            
            
            
            3,717
            
            
            11,483
            
            
            469
            
            
            3,801
            
            
            11,869
            
            
            15,669
            
            
            2,442
            
            
            2000
            
            
            10/00
            
            
            3-30Shadow
                Point
            
            
            172
            
            
            Spring
                Valley, CA
            
            
            
            
            
            2,812
            
            
            11,170
            
            
            1,208
            
            
            2,820
            
            
            12,370
            
            
            15,190
            
            
            1,842
            
            
            1983
            
            
            12/02
            
            
            3-30Spring
                Lake
            
            
            69
            
            
            Seattle,
                WA
            
            
            
            
            
            838
            
            
            3,399
            
            
            303
            
            
            859
            
            
            3,681
            
            
            4,540
            
            
            1,291
            
            
            1986
            
            
            10/97
            
            
            3-30St.
                Cloud
            
            
            302
            
            
            Houston,
                TX
            
            
            
            
            
            2,140
            
            
            8,496
            
            
            (631
            )
            
            2,146
            
            
            7,858
            
            
            10,005
            
            
            1,507
            
            
            1968
            
            
            12/02
            
            
            3-30


F-34
 *Table
          of Contents*




**ESSEX
      PORTFOLIO, L.P. AND SUBSIDIARIES**


**Real
      Estate and Accumulated Depreciation**


**December
      31, 2006**


**(Dollars
      in thousands)**




**Initial
                cost**
            
            **Costs
                capitalized**
            
            **Gross
                amount carried at close of period****Property**
            
            **Units**
            
            **Location**
            
            **Encumbrance**
            
            **Land**
            
            **Buildings
                and improvements**
            
            **subsequent
                to acquisition**
            
            **Land
                and improvements**
            
            **Buildings
                and improvements**
            
            **Total****(1)**
            
            **Accumulated
                depreciation**
            
            **Date
                of construction**
            
            **Date
                acquired**
            
            **Lives
                (years)***Unencumbered
                apartment communities (continued)*The
                Laurels
            
            
            164
            
            
            Mill
                Creek, WA
            
            
            
            
            
            1,559
            
            
            6,430
            
            
            1,273
            
            
            1,595
            
            
            7,667
            
            
            9,262
            
            
            3,048
            
            
            1981
            
            
            12/96
            
            
            3-30The
                Marbella
            
            
            60
            
            
            Los
                Angeles, CA
            
            
            
            
            
            2,826
            
            
            11,269
            
            
            91
            
            
            2,871
            
            
            11,315
            
            
            14,186
            
            
            477
            
            
            1991
            
            
            09/05
            
            
            3-30Tierra
                del Sol/Norte
            
            
            156
            
            
            El
                Cajon, CA
            
            
            
            
            
            2,455
            
            
            9,753
            
            
            551
            
            
            2,463
            
            
            10,296
            
            
            12,759
            
            
            1,463
            
            
            1969
            
            
            12/02
            
            
            3-30Trabucco
                Villas
            
            
            132
            
            
            Lake
                Forest, CA
            
            
            
            
            
            3,638
            
            
            8,640
            
            
            1,424
            
            
            3,890
            
            
            9,812
            
            
            13,702
            
            
            3,572
            
            
            1985
            
            
            10/97
            
            
            3-30Village
                @ Cascade
            
            
            192
            
            
            Vancouver,
                WA
            
            
            
            
            
            2,103
            
            
            8,753
            
            
            802
            
            
            2,154
            
            
            9,504
            
            
            11,658
            
            
            3,187
            
            
            1989
            
            
            12/97
            
            
            3-30Vista
                Capri - North
            
            
            106
            
            
            San
                Diego, CA
            
            
            
            
            
            1,663
            
            
            6,609
            
            
            445
            
            
            1,668
            
            
            7,049
            
            
            8,717
            
            
            941
            
            
            1975
            
            
            12/02
            
            
            3-30Wilshire
                Promenade
            
            
            149
            
            
            Fullerton,
                CA
            
            
            
            
            
            3,118
            
            
            7,385
            
            
            4,933
            
            
            3,797
            
            
            11,639
            
            
            15,436
            
            
            4,052
            
            
            1992
            
            
            01/97
            
            
            3-30Woodlawn
                Colonial
            
            
            159
            
            
            Chula
                Vista, CA
            
            
            
            
            
            2,344
            
            
            9,311
            
            
            883
            
            
            2,351
            
            
            10,187
            
            
            12,538
            
            
            1,508
            
            
            1974
            
            
            12/02
            
            
            3-30Woodside
                Village
            
            
            145
            
            
            Ventura,
                CA
            
            
            
            
            
            5,331
            
            
            21,036
            
            
            922
            
            
            5,342
            
            
            21,946
            
            
            27,289
            
            
            1,456
            
            
            1987
            
            
            12/04
            
            
            3-3023,749
            
            
            
            
            
            1,147,396
            
            
            523,992
            
            
            1,779,688
            
            
            316,940
            
            
            546,305
            
            
            2,074,315
            
            
            2,620,620
            
            
            457,131*Other
                real estate assets*Office
                Buildings17461
                Derian
            
            
            
            
            
            Irvine,
                CA
            
            
            -
            
            
            3,079
            
            
            12,315
            
            
            5,178
            
            
            3,105
            
            
            17,466
            
            
            20,572
            
            
            3,591
            
            
            1983
            
            
            07/00
            
            
            3-30925
                East Meadow (9)
            
            
            
            
            
            Palo
                Alto, CA
            
            
            -
            
            
            1,401
            
            
            3,172
            
            
            1,105
            
            
            1,857
            
            
            3,822
            
            
            5,678
            
            
            1,941
            
            
            1988
            
            
            11/97
            
            
            3-3022120
                Clarendon (10)
            
            
            
            
            
            Woodland
                Hills, CA
            
            
            -
            
            
            903
            
            
            3,600
            
            
            1,152
            
            
            1,014
            
            
            4,640
            
            
            5,655
            
            
            1,243
            
            
            1982
            
            
            03/01
            
            
            3-30Recreational
                vehicle parksCircle
                RV
            
            
            
            
            
            El
                Cajon, CA
            
            
            -
            
            
            2,375
            
            
            2,347
            
            
            140
            
            
            2,505
            
            
            2,357
            
            
            4,862
            
            
            320
            
            
            1977
            
            
            12/02
            
            
            3-30Vacationer
            
            
            
            
            
            El
                Cajon, CA
            
            
            -
            
            
            1,975
            
            
            1,951
            
            
            138
            
            
            2,100
            
            
            1,964
            
            
            4,064
            
            
            270
            
            
            1973
            
            
            12/02
            
            
            3-30Manufactured
                housing communitiesGreen
                Valley
            
            
            
            
            
            Vista,
                CA
            
            
            6,308
            
            
            3,750
            
            
            3,710
            
            
            275
            
            
            3,993
            
            
            3,742
            
            
            7,735
            
            
            519
            
            
            1973
            
            
            12/02
            
            
            3-30Total
                apartment communities and other real estate assets
            $
            1,153,704
            
            $
            537,475
            
            $
            1,806,783
            
            $
            324,928
            
            $
            560,880
            
            $
            2,108,307
            
            $
            2,669,187
            
            $
            465,015






**Initial
                cost**
            
            **Costs
                capitalized**
            
            **Gross
                amount carried at close of period****Property**
            
            **Units**
            
            **Location**
            
            **Encumbrance**
            
            **Land**
            
            **Buildings
                and improvements**
            
            **subsequent
                to acquisition**
            
            **Land
                and improvements**
            
            **Buildings
                and improvements**
            
            **Total****(1)**
            
            **Accumulated
                depreciation**
            
            **Date
                of construction**
            
            **Date
                acquired**
            
            **Lives
                (years)***Apartment
                Communities - held for sale*City
                Heights (11)
            
            
            687
            
            
            Los
                Angeles, CA
            
            $
            32,850
            
            $
            9,655
            
            $
            37,078
            
            $
            6,083
            
            $
            9,901
            
            $
            42,915
            
            $
            52,816
            
            $
            11,595
            
            
            1968
            
            
            12/00
            
            
            3-30




F-35
 *Table
          of Contents*




**ESSEX
      PORTFOLIO, L.P. AND SUBSIDIARIES**


**Real
      Estate and Accumulated Depreciation**


**December
      31, 2006**


**(Dollars
      in thousands)**




**Initial
                cost**
            
            **Costs
                capitalized**
            
            **Gross
                amount carried at close of period****Property**
            
            **Units**
            
            **Location**
            
            **Encumbrance**
            
            **Land**
            
            **Buildings
                and improvements**
            
            **subsequent
                to acquisition**
            
            **Land
                and improvements**
            
            **Buildings
                and improvements**
            
            Total**(1)**
            
            **Accumulated
                depreciation**
            
            **Date
                of construction**
            
            **Date
                acquired**
            
            **Lives
                (years)**Development
                communities (12)Northwest
                Gateway
            
            
            275
            
            
            Los
                Angeles, CA
            
            
            -
            
            
            8,100
            
            
            -
            
            
            20,114
            
            
            28,214
            
            
            -
            
            
            28,214
            
            
            -
            
            
            -
            
            
            12/04
            
            
            -100
                Grand
            
            
            238
            
            
            Oakland,
                CA
            
            
            -
            
            
            4,838
            
            
            -
            
            
            7,298
            
            
            12,136
            
            
            -
            
            
            12,136
            
            
            -
            
            
            -
            
            
            08/05
            
            
            -Predevelopment
                projects
            
            
            1,845
            
            
            various
            
            
            -
            
            
            32,692
            
            
            -
            
            
            9,539
            
            
            42,231
            
            
            -
            
            
            42,231
            
            
            -
            
            
            -
            
            
            
            
            
            -Other
                projects (TRS)
            
            
            120
            
            
            various
            
            
            -
            
            
            24,677
            
            
            -
            
            
            (4,426
            )
            
            20,251
            
            
            -
            
            
            20,251
            
            
            -
            
            
            -
            
            
            
            
            
            -Development
                joint venture
            
            
            -
            
            
            Seattle,
                WA
            
            
            -
            
            
            -
            
            
            -
            
            
            655
            
            
            655
            
            
            -
            
            
            655
            
            
            -
            
            
            -
            
            
            
            
            
            -Consolidated
                Development Pipeline
            
            
            2,478
            
            
            
            
            $
            -
            
            $
            70,307
            
            $
            -
            
            $
            33,180
            
            $
            103,487
            
            $
            -
            
            $
            103,487
            
            $
            -
            
            
            
            
            
            
            
            
            (Concluded
            )








(1)
            The
                aggregate cost for federal income tax purposes is
                $2,040,200.


(2)
            Phase
                I was built in 1969 and Phase II was built in
                1977.


(3)
            The
                Operating Partnership's initial 45% interest was obtained in 1999.
                The
                remaining 55% interest was acquired in
                2004.


(4)
            The
                Operating Partnership sold a single family home built on the property
                for
                $336 in 2003, and sold 45 condos in
                2006.


(5)
            The
                Operating Partnership's initial was 20%, and the remaining 80% interest
                was acquired in 2004.


(6)
            The
                land is leased pursuant to a ground lease expiring
                2027.


(7)
            The
                land is leased pursuant to a ground lease expiring
                2067.


(8)
            A
                portion of land is leased pursuant to a ground lease expiring in
                2028.


(9)
            Total
                rentable square footage of 17,404.


(10)
            Total
                rentable square footage of 38,940.


(11)
            The
                Operating Partnership had a leasehold interest in the land, and the
                property was sold to third-party during February
                2007.


(12)
            All
                construction costs are reflected as real estate under development
                in the
                Operating Partnership's consolidated balance sheets until the project
                reaches stabilization.




A
      summary
      of activity for real estate and accumulated depreciation is as
      follows:





**2006**
            
            **2005**
            
            **2004**
            
            
            
            **2006**
            
            **2005**
            
            **2004**Real
                estate:
            
            
            
            
            
            
            
            
            
            
            
            Accumulated
                depreciation:Balance
                at beginning of year
            
            $
            2,431,629
            
            $
            2,371,194
            
            $
            1,984,122
            
            
            Balance
                at beginning of year
            
            $
            389,040
            
            $
            329,652
            
            $
            265,763Improvements
            
            
            40,885
            
            
            24,000
            
            
            28,380
            
            
            Depreciation
                expense - Acquisitions
            
            
            2,314
            
            
            1,406
            
            
            5,956Acquisition
                of real estate
            
            
            202,459
            
            
            90,065
            
            
            406,745
            
            
            Depreciation
                expense - Development
            
            
            -
            
            
            -
            
            
            630Development
                of real estate
            
            
            -
            
            
            20,460
            
            
            48,239
            
            
            Depreciation
                expense - Discontinued operations
            
            
            2,889
            
            
            3,278
            
            
            4,314Disposition
                of real estate
            
            
            (5,786
            )
            
            (22,473
            )
            
            (81,351
            )
            
            Depreciation
                expense
            
            
            77,833
            
            
            75,442
            
            
            62,023Real
                estate investment held for sale
            
            
            -
            
            
            (51,617
            )
            
            (14,941
            )
            
            Dispositions
            
            
            (2,362
            )
            
            (4,768
            )
            
            (2,948
            )Balance
                at the end of year
            
            $
            2,669,187
            
            $
            2,431,629
            
            $
            2,371,194
            
            
            FAS
                141 adjustment
            
            
            (2,205
            )
            
            (5,156
            )
            
            (5,590
            )Real
                estate under development
            
            
            (335
            )
            
            (1,378
            )
            
            -Real
                estate investment held for sale
            
            
            (2,159
            )
            
            (9,436
            )
            
            (496
            )Balance
                at the end of year
            
            $
            465,015
            
            $
            389,040
            
            $
            329,652




See
      accompanying Independent Registered Public Accounting Firm’s
      Report.




F-36
 *Table
          of Contents*


**SIGNATURES**





Pursuant
      to the requirements of Section 13 of 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




ESSEX
                PORTFOLIO, L.P.*(Registrant)*Date:
                March 1, 2007By:
                /S/ MICHAEL T. DANCEMichael
                T. Dance*Executive
                Vice President, Chief Financial Officer*
              *(Authorized
                Officer, Principal Financial Officer)*By:
                /S/ BRYAN HUNTBryan
                Hunt*Vice
                President, Chief Accounting
                Officer*





KNOWN
      ALL
      PERSONS BY THESE PRESENTS, that each person whose signature appears below
      constitutes and appoints Keith R. Guericke and Michael T. Dance, and each of
      them, his attorney-in-fact, each with the power of substitution, for him in
      any
      and all capacities, to sign any amendments to this Report on Form 10-K and
      to
      file the same, with exhibits thereto and other documents in connection
      therewith, with the Securities and Exchange Commission, hereby ratifying and
      confirming all that each of said attorney-in-fact, or his substitute or
      substitutes, may do or cause to be done by virtue hereof.





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacity and on the date indicated.





Signature
            Title
            Date/S/
                KEITH R. GUERICKE
              Keith
                R. Guericke
            Chief
                Executive Officer and President, Director, and Vice Chairman of the
                Board
              (Principal
                Executive Officer)
            March
                1, 2007/S/
                MICHAEL T. DANCE
              Michael
                T. Dance
            Executive
                Vice President and Chief Financial Officer (Principal Financial
                Officer)
            March
                1, 2007/S/
                MICHAEL J. SCHALL
              Michael
                J. Schall
            Senior
                Executive Vice President, Director, and Chief Operating
                Officer
            March
                1, 2007/S/
                GEORGE M. MARCUS
              George
                M. Marcus
            Director
                and Chairman of the Board
            March
                1, 2007/S/
                WILLIAM A. MILLICHAP
              William
                A. Millichap
            Director
            March
                1, 2007/S/
                DAVID W. BRADY
              David
                W. Brady
            Director
            March
                1, 2007




S-1
 *Table
          of Contents*





Signature
            Title
            Date/S/
                ROBERT E. LARSON
              Robert
                E. Larson
            Director
            March
                1, 2007/S/
                GARY P. MARTIN
              Gary
                P. Martin
            Director
            March
                1, 2007/S/
                ISSIE N. RABINOVITCH
              Issie
                N. Rabinovitch
            Director
            March
                1, 2007/S/
                THOMAS E. RANDLETT
              Thomas
                E. Randlett
            Director
            March
                1, 2007/S/
                WILLARD H. SMITH, JR.
              Willard
                H. Smith, Jr.
            Director
            March
                1, 2007




S-2
 *Table
          of Contents*


**EXHIBIT
      INDEX**




**Exhibit
                No.**
            **Document**
            **Note**2.2
            Agreement
                of Purchase and Sale dated as of August 13, 2004, by and between
                United
                Dominion Realty, L.P., a Delaware limited partnership, as Buyer,
                and Essex
                The Crest, L.P., a California limited partnership, Essex El Encanto
                Apartments, L.P., a California limited partnership, Essex Hunt Club
                Apartments, L.P., a California limited partnership, and the other
                signatories named as Sellers therein. Attached as Exhibit 2.1 to
                the
                Company’s Current Report on Form 8-K, filed October 5, 2004, and
                incorporated herein by reference.
            --3.1
            Articles
                of Amendment and Restatement of Essex dated June 22, 1995, attached
                as
                Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
                ended June 30, 1995, and incorporated herein by reference.
            --3.2
            Articles
                Supplementary of Essex Property Trust, Inc. for the 8.75% Convertible
                Preferred Stock, Series 1996A, attached as Exhibit 3.1 to the Company’s
                Current Report on Form 8-K, filed August 13, 1996, and incorporated
                herein
                by reference.
            --3.3
            First
                Amendment to Articles of Amendment and Restatement of Essex Property
                Trust, Inc., attached as Exhibit 3.1 to the Company’s 10-Q for the quarter
                ended September 30, 1996, and incorporated herein by reference.
            --3.4
            Certificate
                of Correction to Exhibit 3.2 dated December 20, 1996; attached as
                Exhibit
                3.4 to the Company’s Annual Report on Form 10-K for the year ended
                December 31, 1996, and incorporated herein by reference.
            --3.5
            Amended
                and Restated Bylaws of Essex Property Trust, Inc., attached as Exhibit
                3.2
                to the Company’s Current Report on Form 8-K, filed August 13, 1996, and
                incorporated herein by reference.
            --3.6
            Certificate
                of Amendment of the Bylaws of Essex Property Trust, Inc., dated December
                17, 1996, attached as Exhibit 3.6 to the Company’s Annual Report on Form
                10-K for the year ended December31, 1996, and incorporated herein
                by
                reference.
            --3.7
            Articles
                Supplementary reclassifying 2,000,000 shares of Common Stock as 2,000,000
                shares of 7.875% Series B Cumulative Redeemable Preferred Stock,
                filed
                with the State of Maryland on February 10, 1998, attached as Exhibit
                3.1
                to the Company’s Current Report on Form 8-K, filed March 3, 1998, and
                incorporated herein by reference.
            --3.8
            Articles
                Supplementary reclassifying 500,000 shares of Common Stock as 500,000
                shares of 9 1/8% Series C Cumulative Redeemable Preferred Stock,
                filed
                with the State of Maryland on November 25, 1998, attached as Exhibit
                3.8
                to the Company’s Current Report on Form 10-K for the year ended December
                31, 1998, and incorporated herein by reference.
            --3.9
            Certificate
                of Correction to Exhibit 3.2 dated February 12, 1999, attached as
                Exhibit
                3.9 to the Company’s Current Report on Form 10-K for the year ended
                December 31, 1998, and incorporated herein by reference.
            --3.10
            Articles
                Supplementary reclassifying 6,617,822 shares of Common Stock as 6,617,822
                shares of Series A Junior Participating Preferred Stock, filed with
                the
                State of Maryland on November 13, 1998, attached as Exhibit 4.0 to
                the
                Company’s Annual Report on Form 10-K for the year ended December 31, 1998,
                and incorporated herein by reference.
            --3.11
            Articles
                Supplementary reclassifying 2,000,000 shares of Common Stock as 2,000,000
                shares of 9.30% Series D Cumulative Redeemable Preferred Stock, filed
                with
                the State of Maryland on July 30, 1999, attached as Exhibit 3.1 to
                the
                Company’s 10-Q for the quarter ended June 30, 1999 and incorporated herein
                by reference.
            --3.12
            Articles
                Supplementary reclassifying 2,200,000 shares of Common Stock as 2,200,000
                shares of 9.25% Series E Cumulative Redeemable Preferred Stock, filed
                with
                the State of Maryland on September 9, 1999, attached as Exhibit 3.1
                to the
                Company’s 10-Q for the quarter ended September 30, 1999 and incorporated
                herein by reference.
            --3.13
            Certificate
                of Correction to Articles Supplementary reclassifying 2,000,000 shares
                of
                Common Stock as 2,000,000 shares of 9.30% Series D Cumulative Redeemable
                Preferred Stock, attached as Exhibit 3.1 to the Company’s Form 10-Q for
                the quarter ended March 31, 2000, and incorporated herein by reference.
            --




*Table
          of Contents*





3.14
            Certificate
                of Amendment of the Bylaws of Essex Property Trust, Inc. dated February
                14, 2000, attached as Exhibit 3.2 to the Company’s Form 10-Q for the
                quarter ended March 31, 2000, and incorporated herein by reference.
            --3.15
            Articles
                Supplementary relating to the 7.8125% Series F Cumulative Redeemable
                Preferred Stock, attached as Exhibit 3.1 to the Company's Current
                Report
                on Form 8-K, dated September 19, 2003, and incorporated herein by
                reference.
            --3.16
            Articles
                Supplementary reclassifying 2,000,000 shares of 7.875% Series B Cumulative
                Redeemable Preferred Stock as 2,000,000 shares of Series B Cumulative
                Redeemable Preferred Stock, filed with the State of Maryland on January
                14, 2004, attached as Exhibit 3.16 to the Company’s Form 10-K for the year
                ended December 31, 2003, and incorporated herein by
                reference.
            --3.17
            Articles
                Supplementary reclassifying 2,000,000 shares of 9.30% Series D Cumulative
                Redeemable Preferred Stock as 2,000,000 shares of Series D Cumulative
                Redeemable Preferred Stock, filed with the State of Maryland on January
                14, 2004, attached as Exhibit 3.16 to the Company’s Form 10-K for the year
                ended December 31, 2003, and incorporated herein by
                reference.
            --3.18
            Articles
                Supplementary of Essex Property Trust, Inc. reclassifying 5,980,000
                shares
                of Common Stock as 5,980,000 shares of 4.875% Series G Cumulative
                Convertible Preferred Stock, attached as Exhibit 3.1 to the Company’s
                Current Report on Form 8-K, Filed July 27, 2006, and incorporated
                herein
                by reference.
            --4.1
            Rights
                Agreement, dated as of November 11, 1998, between Essex Property
                Trust,
                Inc., and BankBoston, N.A., as Rights Agent, including all exhibits
                thereto, attached as Exhibit 1 to the Company’s Registration Statement
                filed on Form 8-A dated November 12, 1998, and incorporated herein
                by
                reference.
            --4.2
            Amendment
                to Rights Agreement, dated as of December 13, 2000, attached as Exhibit
                4.1 to the Company’s Form 10-Q for the quarter ended March 31, 2001 and
                incorporated herein by reference.
            --4.3
            Amendment
                to Rights Agreement, dated as of February 28, 2002 attached as Exhibit
                4.3
                to the Company’s Form 10-K for the year ended December 31, 2001 and
                incorporated herein by reference.
            --4.4
            Form
                of 4.875% Series G Cumulative Convertible Preferred Stock Certificate
                attached as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed
                July 27, 2006, and incorporated herein by reference.
            --10.1
            Essex
                Property Trust, Inc. 1994 Stock Incentive Plan, (amended and restated),
                attached as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended
                June 30, 2000 and incorporated herein by reference.*
            --10.2
            First
                Amended and Restated Agreement of Limited Partnership of Essex Portfolio,
                L.P. attached as Exhibit 10.1 to the Company’s Quarterly Report on Form
                10-Q for the quarter ended September 30, 1997, and incorporated herein
                by
                reference.
            --10.3
            First
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P. dated February 6, 1998, attached
                as
                Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed March 3,
                1998, and incorporated herein by reference.
            --10.4
            Second
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P. dated April 20, 1998, attached
                as
                Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed April 23,
                1998, and incorporated herein by reference.
            --10.5
            Third
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P. dated November 24, 1998, attached
                as
                Exhibit 10.5 to the Company’s Form 10-K for the year ended December 31,
                2003, and incorporated herein by reference.
            --10.6
            Fourth
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P., dated July 28, 1999, attached
                as
                Exhibit 10.1 to the Company’s 10-Q for the quarter ended June 30, 1999 and
                incorporated herein by reference.
            --




*Table
          of Contents*





10.7
            Fifth
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P., dated September 3, 1999, attached
                as
                Exhibit 10.1 to the Company’s 10-Q for the quarter ended September 30,
                1999 and incorporated herein by reference.
            --10.8
            Form
                of Essex Property Trust, Inc. 1994 Non-Employee and Director Stock
                Incentive Plan, attached as Exhibit 10.3 to the Company’s Registration
                Statement on Form S-11 (Registration No. 33-76578), which became
                effective
                on June 6, 1994, and incorporated herein by reference.*
            --10.9
            Form
                of Indemnification Agreement between Essex and its directors and
                officers,
                attached as Exhibit 10.7 to the Company’s Registration Statement on Form
                S-11 (Registration No. 33-76578), which became effective on June
                6, 1994,
                and incorporated herein by reference.
            --10.10
            First
                Amendment to Investor Rights Agreement dated July 1, 1996 by and
                between
                George M. Marcus and The Marcus & Millichap Company, attached as
                Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed August 13,
                1996, and incorporated herein by reference.
            --10.11
            Co-Brokerage
                Agreement by and among Essex, the Operating Partnership, MM REIBC
                and
                Essex Management Corporation attached as Exhibit 10.15 to the Company’s
                Registration Statement on Form S-11 (Registration No. 33-76578),
                which
                became effective on June 6, 1994, and incorporated herein by reference.
            --10.12
            General
                Partnership Agreement of Essex Washington Interest Partners attached
                as
                Exhibit 10.16 to the Company’s Registration Statement on Form S-11
                (Registration No.33-76578), which became effective on June 6, 1994,
                and
                incorporated herein by reference.
            --10.13
            Phantom
                Stock Unit Agreement for Mr. Guericke, attached as Exhibit 10.1 to
                the
                Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
                1997, and incorporated herein by reference. (Same form was used for
                subsequent phantom stock agreements.)*
            --10.14
            Phantom
                Stock Unit Agreement for Mr. Schall, attached as Exhibit 10.2 to
                the
                Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
                1997, and incorporated herein by reference. (Same form was used for
                subsequent phantom stock agreements.)*
            --10.15
            Replacement
                Promissory Note (April 15, 1996) and Pledge Agreement for Mr. Guericke,
                attached as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q
                for the quarter ended March 31, 1997, and incorporated herein by
                reference.*
            --10.16
            Promissory
                Note (December 31, 1996) and Pledge Agreement for Mr. Guericke, attached
                as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the
                quarter ended March 31, 1997, and incorporated herein by reference.
                (Same
                form of Promissory Note and Pledge Agreement used for subsequent
                loans.)*
            --10.17
            Replacement
                Promissory Note (April 30, 1996) and Pledge Agreement for Mr. Schall,
                attached as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q
                for the quarter ended March 31, 1997, and incorporated herein by
                reference.*
            --10.18
            Promissory
                Note (December 31, 1996) and Pledge Agreement for Mr. Schall, attached
                as
                Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the
                quarter ended March 31, 1997, and incorporated herein by reference.
                (Same
                form of Promissory Note and Pledge Agreement used for subsequent
                loans.)*
            --10.19
            First
                Amended and Restated Agreement of Limited Partnership of Western
                Highridge
                I Investors, effective as of May 13, 1997, attached as Exhibit 10.1
                to the
                Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
                1997, and incorporated herein by reference.
            --10.20
            Registration
                Rights Agreement, effective as of May 13, 1997, by and between the
                Company
                and the limited partners of Western-Highridge I Investors, Irvington
                Square Associates, Western-Palo Alto II Investors, Western Riviera
                Investors, and Western-San Jose III Investors, attached as Exhibit
                10.6 to
                the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
                1997, and incorporated herein by reference.
            --10.21
            $100,000,000
                Promissory Note between Essex Portfolio, L.P., and Essex Morgan Funding
                Corporation, attached as Exhibit 10.1 to the Company’s Quarterly Report on
                Form 10-Q for the quarter ended September 30, 1998, and incorporated
                herein by reference.
            --




*Table
          of Contents*





10.22
            Sixth
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P. dated as of June 28, 2001, attached
                as Exhibit 10.1 to the Company’s 10-Q for the quarter ended June 30, 2001
                and incorporated herein by reference.*
            --10.23
            Executive
                Severance Plan attached as Exhibit 10.31 to the Company’s Form 10-K for
                the year ended December 31, 2001 and incorporated herein by
                reference.
            --10.24
            Agreement
                between Essex Property Trust, Inc. and George M. Marcus dated March
                27,
                2003 attached as Exhibit 10.32 to the Company’s Form 10-K for the year
                ended December 31, 2002 and incorporated herein by
                reference.
            --10.25
            Seventh
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P. dated as of June 26, 2003, attached
                as Exhibit 10.1 to the Company’s 10-Q for the quarter ended June 30, 2003
                and incorporated herein by reference.*
            --10.26
            Eighth
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P. dated as of September 23, 2003,
                attached as Exhibit 10.2 to the Company’s 10-Q for the quarter ended
                September 30, 2003 and incorporated herein by reference.
            --10.27
            Ninth
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P. dated as of January 8, 2004,
                attached
                as Exhibit 10.36 to the Company’s 10-K for the year ended December 31,
                2003, and incorporated herein by reference.
            --10.28
            Tenth
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P. dated as of January 8, 2004,
                attached
                as Exhibit 10.37 to the Company’s 10-K for the year ended December 31,
                2003, and incorporated herein by reference.
            --10.29
            Eleventh
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P. dated as of March 29, 2004,
                attached
                as Exhibit 10.1 to the Company’s 10-Q for the quarter ended March 31,
                2004, and incorporated herein by reference. *
            --10.30
            Essex
                Property Trust, Inc. 2004 Stock Incentive Plan, attached as Exhibit
                10.1
                to the Company's Quarterly Report on Form 10-Q for the quarter ended
                June
                30, 2004, and incorporated herein by reference. *
            --10.31
            Offer
                Letter between Essex Property Trust, Inc. and Mr. Dance, filed as
                Exhibit
                10.1 on the Company’s Form 8-K, filed on February 14, 2005, and
                incorporated herein by reference. *
            --10.32
            Indenture,
                dated October 28, 2005, by and among Essex Property Trust, Inc.,
                as
                Guarantor, Essex Portfolio, L.P., as the Issuer, and Wells Fargo
                Bank,
                N.A., attached as Exhibit 10.1 to the Company’s current report on Form
                8-K, filed November 2, 2005, and incorporated herein by reference.
            --10.33
            Registration
                Rights Agreement, dated October 28, 2005, by and among Essex Portfolio,
                L.P., Essex Property Trust, Inc., UBS Securities LLC and Bear Stearns
                & Co., attached as Exhibit 10.1 to the Company’s Registration
                Statement on Form S-3, filed January 26, 2006, and incorporated herein
                by
                reference.
            --10.34
            Fourth
                Amended and Restated Revolving Credit Agreement, dated as of March
                24,
                2006, among Essex Portfolio L.P., Bank of America and other lenders
                as
                specified therein, attached as Exhibit 10.1 to the Company’s Current
                Report on Form 8-K, filed March 31, 2006, and incorporated herein
                by
                reference.
            --10.35
            Twelfth
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P., dated as of July 26, 2006,
                attached
                as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed August
                1, 2006, and incorporated herein by reference.
            --10.36
            Thirteenth
                Amendment to the First Amended and Restated Agreement of Limited
                Partnership of Essex Portfolio, L.P., dated as of October 26, 2006,
                attached as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q
                for the quarter ended September 30, 2006, and incorporated herein
                by
                reference.
            --12.1
            Schedule
                of Computation of Ratio of Earnings to Fixed Charges and Preferred
                Stock
                Dividends.
            --




*Table
          of Contents*





21.1
            List
                of Subsidiaries of Essex Property Trust, Inc.
            --23.1
            Consent
                of KPMG LLP, Independent Registered Public Accounting Firm.
            --24.1
            Power
                of Attorney (see signature page)
            --31.1
            Certification
                of Keith R. Guericke, Principal Executive Officer, pursuant to Section
                302
                of the Sarbanes-Oxley Act of 2002.
            --31.2
            Certification
                of Michael T. Dance, Principal Financial Officer, pursuant to Section
                302
                of the Sarbanes-Oxley Act of 2002.
            --32.1
            Certification
                of Keith R. Guericke, Principal Executive Officer, pursuant to Section
                906
                of the Sarbanes-Oxley Act of 2002.
            --32.2
            Certification
                of Michael T. Dance, Principal Financial Officer, pursuant to Section
                906
                of the Sarbanes-Oxley Act of 2002.
            --





*
      Management contract or compensatory plan or arrangement.