**Form 10-Q**





















|Ohio                                     | 34-1747603            
|---------------------------------------- | ----------------------
|(State or other jurisdiction of          | (I.R.S. Employer      
|incorporation or organization)           | Identification Number)
|                                         |                       
|                                         |                       
|5025 Swetland Court, Richmond Hts., Ohio | 44143-1467            
|(Address of principal executive offices) | (Zip Code)            



|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 [   ]                                                                           







**INDEX**

|**PART I  -  FINANCIAL INFORMATION**  | Page                                                     
|------------------------------------- | ---------------------------------------------------------
|ITEM 1                                | CondensedFinancial Statements                            
|                                      |                                                          
|                                      | Consolidated Balance Sheetsas of                         
|                                      | September 30, 2001 and December 31, 2000                 
|                                      |                                                          
|                                      | Consolidated Statements of Income for the three and      
|                                      | nine month periods ended September 30, 2001 and 2000     
|                                      |                                                          
|                                      | Consolidated Statements of Cash Flowsfor the nine        
|                                      | month periods ended September 30, 2001 and 2000          
|                                      |                                                          
|                                      | Notes to Financial Statements                            
|                                      |                                                          
|ITEM 2                                | Management's Discussion and Analysis of Financial        
|                                      | Condition and Results of Operations                      
|                                      |                                                          
|ITEM 3                                | Quantitative and Qualitative Disclosure About Market Risk
|**PART II**  -  **OTHER INFORMATION** |                                                          
|ITEM 1                                | Legal Proceedings                                        
|ITEM 2                                | Changes in Securities                                    
|ITEM 3                                | Defaults Upon Senior Securities                          
|ITEM 4                                | Submission of Matters to a Vote of Security-Holders      
|ITEM 5                                | Other Information                                        
|ITEM 6                                | Exhibits and Reports on Form 8-K                         
|                                      |                                                          
|******SIGNATURES**                    | 35                                                       

**ASSOCIATED ESTATES REALTY CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

|                                                               | September 30, | December 31,
|-------------------------------------------------------------- | ------------- | ------------
|(In thousands, except share amounts)                           | 2001          | 2000        
|**ASSETS**                                                     |               |             
|Real estate assets                                             |               |             
|Land                                                           | $   90,899    | $    92,083 
|Buildings and improvements                                     | 784,159       | 794,908     
|Furniture and fixtures                                         | 32,355        | 32,248      
|                                                               | 907,413       | 919,239     
|Less:  accumulated depreciation                                | (196,481)     | (184,600)   
|                                                               | 710,932       | 734,639     
|Construction in progress                                       | 10,194        | 7,543       
|Real estate, net                                               | 721,126       | 742,182     
|Properties held for sale, net of accumulated depreciation      | 11,072        | 27,845      
|Cash and cash equivalents                                      | 1,442         | 566         
|Restricted cash                                                | 15,224        | 14,784      
|Accounts and notes receivable                                  |               |             
|Rents                                                          | 1,008         | 864         
|Affiliates and joint ventures                                  | 15,657        | 12,456      
|Other                                                          | 3,679         | 3,886       
|Intangible and other assets, net                               | 17,114        | 16,976      
|                                                               | $ 786,322     | $  819,559  
|                                                               |               |             
|**LIABILITIES AND SHAREHOLDERS' EQUITY**                       |               |             
|Secured debt                                                   | $ 549,133     | $  567,468  
|Unsecured debt                                                 | 105           | 709         
|Total indebtedness                                             | 549,238       | 568,177     
|Accounts payable and accrued expenses                          | 24,228        | 24,198      
|Dividends payable                                              | 4,858         | -           
|Resident security deposits                                     | 4,580         | 5,412       
|Funds held on behalf of managed properties                     |               |             
|Affiliates and joint ventures                                  | 10,030        | 8,123       
|Other                                                          | 1,538         | 1,380       
|Accrued interest                                               | 2,749         | 2,942       
|Accumulated losses and distributions of joint ventures         |               |             
|in excess of investment and advances                           | 330           | 1,351       
|Total liabilities                                              | 597,551       | 611,583     
|                                                               |               |             
|Operating partnership minority interest                        | 10,591        | 11,520      
|                                                               |               |             
|Commitments and contingencies                                  | -             | -           
|                                                               |               |             
|Shareholders' equity                                           |               |             
|Preferred shares, Class A cumulative, without par value;       |               |             
|3,000,000 authorized; 225,000 issued and outstanding           | 56,250        | 56,250      
|Common shares, without par value, $.10 stated value;           |               |             
|50,000,000 authorized; 22,995,764 issued                       |               |             
|and 19,429,629 and 19,349,584 outstanding at                   |               |             
|September 30, 2001 and December 31, 2000, respectively         | 2,300         | 2,300       
|Paid-in capital                                                | 278,951       | 279,618     
|Accumulated distributions in excess of net income              | (126,698)     | (108,002)   
|Accumulated other comprehensive income                         | (2)           | (2)         
|Less: Treasury shares, at cost, 3,566,134 and 3,646,180 shares |               |             
|at September 30, 2001 and December 31, 2000, respectively      | (32,621)      | (33,708)    
|Total shareholders' equity                                     | 178,180       | 196,456     
|                                                               | $ 786,322     | $  819,559  





**ASSOCIATED ESTATES REALTY CORPORATION**

**CONSOLIDATED STATEMENTS OF INCOME**

**(UNAUDITED)**

|                                               | For the three months ended | For the nine months ended
|---------------------------------------------- | -------------------------- | -------------------------
|                                               | September 30,              | September 30,            
|(In thousands, except per share amounts)       | 2001                       | 2000                     
|Revenues                                       |                            |                          
|Rental                                         | $ 35,691                   | $  36,601                
|Property management fees                       | 1,275                      | 1,318                    
|Asset management fees                          | 749                        | 729                      
|Asset acquisition fees                         | -                          | 352                      
|Painting services                              | 699                        | 493                      
|Other                                          | 930                        | 848                      
|Total revenues                                 | 39,344                     | 40,341                   
|Expenses                                       |                            |                          
|Property operating and maintenance             | 16,427                     | 16,549                   
|Depreciation and amortization                  | 8,490                      | 8,638                    
|Painting services                              | 601                        | 422                      
|General and administrative                     | 3,427                      | 3,416                    
|Interest expense                               | 10,665                     | 11,190                   
|Total expenses                                 | 39,610                     | 40,215                   
|(Loss) income before gain on sale of operating |                            |                          
|properties, equity in net income (loss) of     |                            |                          
|joint ventures and minority interest           | (266)                      | 126                      
|Gain on sale of operating properties           | 2,694                      | 8,536                    
|Equity in net income (loss) of joint ventures  | 99                         | (18)                     
|Minority interest in operating partnership     | (121)                      | (128)                    
|**Net income**                                 | $  2,406                   | $    8,516               
|                                               |                            |                          
|**Net income applicable to common shares**     | $  1,035                   | $    7,145               
|**Earnings per common share - basic:**         |                            |                          
|Net income applicable to common shares         | $      .05                 | $        .36             
|**Earnings per common share - diluted:**       |                            |                          
|Net income applicable to common shares         | $      .05                 | $        .36             
|                                               |                            |                          
|**Dividends declared per common share**        | $      .25                 | $        .25             
|****                                           |                            |                          
|**Weighted average number of**                 |                            |                          
|**common shares outstanding	- basic**          | 19,430                     | 19,724                   
|**- diluted**                                  | 19,714                     | 19,734                   





**ASSOCIATED ESTATES REALTY CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30,**

**(UNAUDITED)**

|(In thousands)                                                   | 2001          | 2000    
|---------------------------------------------------------------- | ------------- | --------
|Cash flow from operating activities:                             |               |         
|Net income                                                       | $   4,827     | $  6,214
|Adjustments to reconcile net income to net cash provided by      |               |         
|operating activities:                                            |               |         
|Depreciation and amortization                                    | 25,459        | 25,623  
|Gain on sale of operating properties                             | (6,038)       | (8,536) 
|Minority interest in operating partnership                       | 362           | 277     
|Equity in net loss of joint ventures                             | 336           | 108     
|Earnings distributed from joint ventures                         | 217           | -       
|Net change in assets and liabilities:                            |               |         
|-	Restricted cash                                                | (809)         | (99)    
|-	Accounts and notes receivable                                  | (329)         | 1,454   
|-	Accounts and notes receivable of affiliates and joint ventures | 156           | (2,815) 
|-	Accounts payable and accrued expenses                          | (49)          | (1,831) 
|-	Other operating assets and liabilities                         | (1,962)       | (1,115) 
|-	Funds held on behalf of managed properties                     | 158           | (988)   
|-	Funds held on behalf of managed properties of affiliates and   |               |         
|joint ventures                                                   | 1,906         | (896)   
|Total adjustments                                                | 19,407        | 11,182  
|Net cash flow provided by operations                             | 24,234        | 17,396  
|                                                                 |               |         
|Cash flow from investing activities:                             |               |         
|Real estate and fixed asset additions acquired or developed      | (10,939)      | (17,427)
|Net proceeds received from sale of operating properties          | 4,799         | 12,433  
|(Contributions to) distributions from joint ventures             | (4,931)       | 1,591   
|Net cash flow used for investing activities                      | (11,071)      | (3,403) 
|                                                                 |               |         
|Cash flow from financing activities:                             |               |         
|Principal payments on secured debt                               | (4,218)       | (3,783) 
|Proceeds from secured debt                                       | 4,200         | 9,800   
|Principal payment on senior note                                 | -             | (8,543) 
|Principal payment on medium-term note                            | (604)         | -       
|Line of Credit borrowings                                        | 32,600        | 34,764  
|Line of Credit repayments                                        | (25,600)      | (34,764)
|Common share dividends paid                                      | (14,551)      | (20,184)
|Preferred share dividends paid                                   | (4,114)       | (4,113) 
|Purchase of treasury shares                                      | -             | (17,760)
|Net cash flow used for financing activities                      | (12,287)      | (44,583)
|Increase (decrease) in cash and cash equivalents                 | 876           | (30,590)
|Cash and cash equivalents, beginning of period                   | 566           | 36,385  
|Cash and cash equivalents, end of period                         | $   1,442     | $  5,794
|                                                                 |               |         
|Supplemental disclosure of cash flow information:                |               |         
|Issuance of common shares in connection with the second          |               |         
|anniversary payment of the MIGRA merger                          | $           - | $  2,983
|Assumption of debt by purchasers of properties                   | 25,316        | 7,086   
|Dividends declared but not paid                                  | 4,858         | 4,834   
|Cash paid for interest (excluding capitalized interest)          | 31,882        | 33,779  
|Contribution of land to joint venture                            | -             | 4,603   
|Adjustment for redemption of minority interest                   | 536           | 292     





**ASSOCIATED ESTATES REALTY CORPORATION**

**NOTES TO FINANCIAL STATEMENTS**



**1.**	**BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES**

**Business**

Associated Estates Realty Corporation (the "Company") is a self-administered and self-managed real estate investment trust ("REIT") which specializes in multifamily property management,
advisory, development, acquisition, disposition, operation and ownership activities.  The Company or its
affiliates receive certain property and asset management fees, acquisition, disposition and incentive
fees, supervisory fees, loan origination and consultation fees, and mortgage servicing fees.  MIG II
Realty Advisors, Inc. ("MIG"), an affiliate of the Company, is a registered investment advisor and serves
as a real estate advisor to pension funds.  MIG recognizes revenue primarily from client generated
acquisition, disposition and incentive fees, loan origination, mortgage servicing, asset and property
management and construction lending activities.  MIG earns the majority of its mortgage servicing fee
revenue from two of its pension fund clients.  Additionally, the Company owns substantially all of the
economic interest in four corporations which provide management and other services for the Company
and third parties.  These corporations are referred to as "Service Companies".

The Company's portfolio currently consists of a total of 129 properties of which 75 (62 Market
Rate properties and 13 Affordable Housing properties) are owned, directly or indirectly, by the Company
or by a subsidiary of the Company; nine properties in which the Company is a joint venture partner (one
Market Rate property 66.67% owned; three Market Rate properties 33.33% owned; two Market Rate
properties 50.0% owned; one Affordable Housing property 50.0% owned; and two Market Rate
properties 49.0% owned) and 45 non-owned properties (one of which is a commercial property)
managed by the Company or one of its subsidiaries or Service Companies.  Additionally, MIG provides
asset management services for another seven properties, six of which are commercial properties.

**Basis of Presentation**

The accompanying unaudited financial statements have been prepared by the Company's
management in accordance with generally accepted accounting principles for interim financial
information and applicable rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required by generally accepted
accounting principles ("GAAP") for complete financial statements.  In the opinion of management, all
adjustments (consisting only of normally recurring adjustments) considered necessary for a fair
presentation have been included.  The reported results of operations are not necessarily indicative of the
results that may be expected for the full year.  These financial statements should be read in conjunction
with the Company's audited financial statements and notes thereto included in the Associated Estates
Realty Corporation Annual Report on Form 10-K for the year ended December 31, 2000.

**Recent Accounting Pronouncements**

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities as amended by SFAS No. 137 and No. 138.  The provisions of this statement require
that derivative instruments be carried at fair value on the balance sheet.  The statement continues to
allow derivative instruments to be used to hedge various risks and sets forth specific criteria to be used
to determine when hedge accounting can be used.  For derivative instruments not accounted for as
hedges, changes in fair value are required to be recognized in earnings.  The provisions of this
statement become effective January 1, 2001.  The Company has adopted these provisions and the
impact on the Company's financial position, results of operations and cash flows is not material to the
Company.

In June 2001, the Financial Accounting Standards Board approved Statements of Financial
Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142") which are effective July 1, 2001 and January 1, 2002, respectively, for
the Company.  SFAS 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001.  The Company has adopted SFAS 141; however, since June
30, 2001, there were no combinations by the Company to which this would apply.  Under SFAS 142,
amortization of goodwill, including goodwill recorded in past business combinations, will discontinue
upon adoption of this standard.  In addition, goodwill recorded as a result of business combinations
completed during the three-month period ending December 31, 2001 will not be amortized.  All goodwill
and intangible assets will be tested for impairment in accordance with the provisions of the Statement.
The Company is currently reviewing the provisions of SFAS 142 and assessing the impact of adoption.

In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations"
which addresses financial accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs.  This Statement requires that the
fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of the fair value can be made.  The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset.  This Statement will be effective at the
beginning of 2003.  The Company is currently assessing, but has not yet determined the impact of SFAS
No. 143 on its financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets".  This Statement supersedes SFAS No. 121 and requires that long-lived assets that
are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell.
SFAS No. 144 retains the fundamental provisions of SFAS 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used, and (b) measurement of long-lived assets to be
disposed of by sale, but broadens the definition of what constitutes a discontinued operation and how
the results of a discontinued operation are to be measured and presented.  This Statement will be
effective at the beginning of 2002.  The Company is currently assessing, but has not yet determined the
impact of SFAS No. 144 on its financial position or results of operations.

**Reclassifications**

Certain reclassifications have been made to the 2000 financial statements to conform to the
2001 presentation.

**2.	DEVELOPMENT OF MULTIFAMILY PROPERTIES**

Construction in progress, including the cost of land, for the development of multifamily properties
was $10.2 million and $7.5 million at September 30, 2001 and December 31, 2000, respectively.  The
Company capitalizes interest costs on funds used in construction, real estate taxes and insurance from
the commencement of development activity through the time the property is available for leasing.
Capitalized interest, real estate taxes and insurance aggregated approximately $788,000 and $823,000
during the nine month periods ended September 30, 2001 and 2000, respectively.  During the nine
months ended September 30, 2001, the Company completed the construction of a property and the last
16 units were made available for occupancy.  In connection with the completion of this construction, the
final $1.7 million was transferred from construction in progress to buildings and improvements.

**3.	REAL ESTATE SALES**

In June 2001, the Company completed a sale of four Market Rate properties located in Central
and Southwestern Ohio.  The buyer purchased the four properties for $5.1 million in gross cash
proceeds plus assumed mortgage indebtedness of $18.1 million.  The sale resulted in the Company
recording a gain of $3.3 million.  In July, 2001, the Company completed the sale of one Market Rate
property located in Northeast Ohio.  The buyer purchased the property for $158,000 in gross cash
proceeds plus assumed mortgage indebtedness of $7.2 million.  The sale resulted in the Company
recording a gain of $2.7 million.

In the quarter ended September 30, 2000, the Company completed the sales of four Market
Rate properties.  The properties were purchased for gross cash proceeds of $12.3 million, one property
included an existing loan of $7.1 million which was assumed by the buyer.  The sales resulted in the
Company recording total gains of $8.5 million.

**4.	PROPERTIES HELD FOR SALE**

Three Market Rate properties located in Ohio were sold on December 31, 1999.  To facilitate the
sale, the Company financed the sale with fixed rate debt which had an original maturity date of July 1,
2001.  The maturity date of this debt has been extended to December 31, 2001.  The sale provided for
the Company's continued management of the properties.  These sales will not be recognized for GAAP
purposes until the seller financing is repaid.  These three properties are presented as "Properties held
for sale" in the Consolidated Balance Sheets at September 30, 2001 and December 31, 2000.
Additionally, at September 30, 2001, the Company had contracts to sell one Market Rate property and
one Affordable Housing property,  which are presented in the Consolidated Balance Sheets as
"Properties held for sale" at September 30, 2001.  These five properties had an aggregate net income of
$739,000 for the nine months ended September 30, 2001.  Also, at December 31, 2000, the four
properties sold in June 2001 (see Note 3) were presented in the Consolidated Balance Sheets as
"Properties held for sale".

******5.	SHAREHOLDERS' EQUITY**

The following table summarizes the changes in shareholders' equity since December 31, 2000:

|                                            |          |            |                        |          | Accumulated   |               |          
|------------------------------------------- | -------- | ---------- | ---------------------- | -------- | ------------- | ------------- | ---------
|                                            |          | Class A    |                        |          | Distributions | Accumulated   |          
|                                            |          | Cumulative | Common                 |          | In Excess Of  | Other         | Treasury 
|                                            |          | Preferred  | Shares                 | Paid-In  | Accumulated   | Comprehensive | Shares   
|(In thousands, except share amounts)        | Total    | Shares     | (at $.10 stated value) | Capital  | Net Income    | Income        | (at cost)
|                                            |          |            |                        |          |               |               |          
|Balance, Dec. 31, 2000                      | $196,456 | $56,250    | $2,300                 | $279,618 | $(108,002)    | $(2)          | $(33,708)
|Net income                                  | 4,827    |            |                        |          | 4,827         |               |          
|Issuance of 80,133 restricted common shares |          |            |                        |          |               |               |          
|from treasury shares                        | 696      |            |                        | (378)    |               |               | 1,074    
|Deferred compensation                       | (277)    |            |                        | (277)    |               |               |          
|Exercise of options on 2,000 shares         |          |            |                        |          |               |               |          
|from treasury shares                        | 18       |            |                        | (11)     |               |               | 29       
|Issue 500 shares from treasury shares       | 5        |            |                        | (1)      |               |               | 6        
|Purchase of 2,587 treasury shares           | (22)     |            |                        |          |               |               | (22)     
|Common share dividends declared             | (19,409) |            |                        |          | (19,409)      |               |          
|Preferred share dividends declared          | (4,114)  |            |                        |          | (4,114)       |               |          
|Balance, September 30, 2001                 | $178,180 | $56,250    | $2,300                 | $278,951 | $(126,698)    | $(2)          | $(32,621)

**6.	DEBT**

**Conventional**

In 2000, the Company caused to be obtained a $14.0 million first mortgage loan encumbering a
property owned by a subsidiary.  The loan provided for disbursement in two installments.  The first
installment of $9.8 million was disbursed in September 2000.  The balance of $4.2 million was disbursed
in March 2001.  The loan requires monthly interest-only payments at the rate of 7.76% through October
15, 2002 at which time payments of principal and interest are required through the maturity date of
October 15, 2005.

**Medium Term Notes**

On September 18, 2001, in accordance with the terms of the note, the Company repaid the
$604,000 outstanding balance on one medium term note.  A second medium term note with a principal
balance of $105,000 accrues interest at 6.88% and matures December 9, 2004.

**Line of Credit**

On September 30, 2001, $7.0 million was outstanding under a $20.0 million secured line of
credit.  Borrowings under this line of credit are currently restricted to an amount of $12.6 million.  The
remaining $7.4 million may become available upon completion of certain requirements.  Borrowings
under this line of credit bear interest at a rate of LIBOR plus 1.5% which was 4.56% at September 30,
2001.  The Company also has a $12.0 million line of credit which originally matured October 31, 2001
but was extended until December 31, 2002 (see Note 14).  Letters of credit totaling $5.5 million (see
Note 13) limit the amount available under this line of credit to $6.5 million.  There were no borrowings
outstanding under this line at September 30, 2001.  There were no borrowings outstanding under either
of the lines of credit at December 31, 2000.

**7.**	**TRANSACTIONS WITH AFFILIATES AND JOINT VENTURES**

**Management and Other Services**

The Company or one of its subsidiaries or Service Companies provides management and other
services to (and is reimbursed for certain expenses incurred on behalf of) certain non-owned properties
in which the Company's Chief Executive Officer and/or other related parties have varying ownership
interests.  The entities which own these properties, as well as other related parties, are referred to as
"affiliates".  The Company or one of its subsidiaries or Service Companies also provides similar services
to joint venture properties.

Summarized affiliate and joint venture transaction activity is as follows:

|                                            | Three months ended | Nine months ended
|------------------------------------------- | ------------------ | -----------------
|                                            | September 30,      | September 30,    
|(In thousands)                              | 2001               | 2000             
|                                            |                    |                  
|Property management fee and other           |                    |                  
|miscellaneous service revenues	- affiliates | $ 366              | $  522           
|- joint ventures                            | 243                | 248              
|Painting service revenues	- affiliates      | 125                | 63               
|- joint ventures                            | 298                | 83               
|Expenses incurred on behalf                 |                    |                  
|of and reimbursed by (1)	- affiliates       | 959                | 1,121            
|- joint ventures                            | 761                | 763              
|Interest income 	- affiliates               | 41                 | 69               
|Interest expense	- affiliates               | (23)               | (42)             
|- joint ventures                            | (4)                | (7)              

(1)  *Primarily payroll and employee benefits, reimbursed at cost.*

Property management fees and other miscellaneous receivables due from affiliates and joint
venture properties aggregated $5.9 million and $4.9 million at September 30, 2001 and December 31,
2000, respectively.  Other miscellaneous payables due to affiliates and joint venture properties
aggregated $2.9 million at both September 30, 2001 and December 31, 2000.

***Advances to Affiliates and Joint Ventures***

In the normal course of business, the Company advances funds on behalf of, or holds funds for
the benefit of, affiliates and joint ventures.  Funds advanced to affiliates and joint ventures aggregated
$65,000 and $6.4 million at September 30, 2001, respectively, and $573,000 and $3.6 million at
December 31, 2000, respectively.  The Company held funds for the benefit of affiliates and joint ventures
in the aggregate amount of $3.4 million and $3.8 million at September 30, 2001, respectively, and $4.3
million and $950,000 at December 31, 2000, respectively.

***Notes Receivable***

At September 30, 2001 and December 31, 2000, two notes of equal amounts were receivable
from the Company's Chief Executive Officer aggregating $3.3 million (included in "Accounts and notes
receivables-affiliates and joint ventures").  One of the notes is partially secured by 150,000 of the
Company's common shares; the other note is unsecured.  For the nine months ended September 30,
2001 and 2000, the interest rates charged on these notes were approximately 6.4% and 7.7%,
respectively, with principal due May 1, 2002.  The Company recognized interest income of $165,000 and
$196,000 for the nine months ended September 30, 2001 and 2000, respectively, relating to these
notes.

******Joint Ventures**

On July 20, 2001, the Company entered into multiple agreements concerning the disposition of
five Market Rate joint venture properties located in Northeast Ohio.  Under the agreements, the
Company would eventually become the 100% fee owner of three of the properties and relinquish its
ownership interest in two of the properties (one property of which the Company is a 66.67% owner).
These transactions are anticipated to be completed during the first half of 2002.

**8.	OPERATING PARTNERSHIP MINORITY INTEREST**

In conjunction with the settlement of the lawsuit in the Harris County, Texas District Court
against MIG Realty Advisors, Inc. ("MIGRA"), MIG's predecessor company, (see Note 12 for further
details concerning the settlement) the former MIGRA shareholders redeemed 39,314 Operating
Partnership units ("OP units") for cash in the amount of approximately $393,000, which represented the
Company's common share price of $10.00 per unit on the day of redemption.  The proceeds of the
redemption were used to satisfy certain indemnification obligations owed by the former MIGRA
stockholders to the Company in connection with this lawsuit.   These units had a recorded value of
approximately $929,000  when issued.  The difference between the effective purchase price of the
minority interest and its recorded value was approximately $536,000, which reduced the recorded value
of the underlying real estate.

**9.	SHARES**

On February 28, 2001, the Company granted 80,133 of restricted shares to executives of the
Company under the annual incentive plan.  These awards were made from the Company's 2001 Equity
Incentive Plan pursuant to which grants are made solely from treasury shares.  The Company's policy on
the reissuance of treasury shares is to account for the issuance on the First-In First-Out method.  At
September 30, 2001, the Company held 3,566,134 treasury shares at a cost of $32.6 million.

**10.	EARNINGS PER SHARE**

Earnings per share ("EPS") has been computed pursuant to the provisions of SFAS No. 128.
The following table provides a reconciliation of both the net income and the number of common shares
used in the computation of basic EPS, which utilizes the weighted average number of common shares
outstanding without regard to dilutive potential common shares, and diluted EPS, which includes all such
shares, as applicable.

|                                         | For the three months | For the nine months
|---------------------------------------- | -------------------- | -------------------
|(In thousands, except per share amounts) | ended September  30, | ended September 30,
|                                         | 2001                 | 2000               
|**Earnings Per Common Share - Basic:**   |                      |                    
|Net income                               | $ 2,406              | $ 8,516            
|Less:	Preferred share dividends          | 1,371                | 1,371              
|Net income applicable to common shares   | $ 1,035              | $ 7,145            
|                                         |                      |                    
|**Earnings Per Share - Diluted:**        |                      |                    
|Net income                               | $ 2,406              | $ 8,516            
|Less:	Preferred share dividends          | 1,371                | 1,371              
|Net income applicable to common shares   | $ 1,035              | $ 7,145            
|                                         |                      |                    
|**Number of Shares:**                    |                      |                    
|Basic-average shares outstanding         | 19,430               | 19,724             
|Diluted-average shares outstanding       | 19,714               | 19,734             
|                                         |                      |                    
|**Earnings Per Common Share - Basic:**   |                      |                    
|Net income                               | $     .05            | $     .36          
|                                         |                      |                    
|**Earnings Per Common Share - Diluted:** |                      |                    
|Net income                               | $     .05            | $     .36          

Options to purchase 3.1 million and 1.8 million common shares were outstanding at September
30, 2001 and 2000, respectively, which has been reflected above using the treasury stock method.

The exchange of operating partnership minority interests into common shares was not included
in the computation of diluted EPS because the Company plans to settle these OP units in cash.

**11.	INTERIM SEGMENT REPORTING**

The Company has four reportable segments: (1) Acquisition/Disposition multifamily properties,
(2) Same Store Market Rate ("Market Rate") multifamily properties, (3) Affordable Housing multifamily
properties, and (4) Management and Service Operations.  The Company has identified these segments
because this discrete information is the basis upon which management makes decisions regarding
resource allocation and performance assessment.  The Acquisition/Disposition properties represent
acquired or developed properties which have not yet reached stabilization (the Company considers a
property stabilized when its occupancy rate reaches 93.0%) and properties that have been sold.  The
Market Rate multifamily properties are same store conventional multifamily residential apartments.  The
Affordable Housing properties are multifamily properties for which the rents are subsidized and certain
aspects of the operations are regulated by HUD pursuant to Section 8 of the National Housing Act of
1937.  The Management and Service Operations provide management and advisory services to the
Acquired, Market Rate and Affordable Housing properties which are owned by the Company, as well as
to clients and properties not owned by the Company.  All of the Company's segments are located in the
United States.  Effective January 1, 2001, management revised its reported segments by showing
Acquisition/Disposition properties as a separate segment.  Previously, Acquisition/Disposition properties
were included within the Market Rate segment.  Also, the Unallocated Corporate Overhead segment has
been eliminated and the costs previously allocated to this segment have been reallocated to the other
four segments.  Management has adjusted the reportable segments in order to reflect a better
representation of the operations of the Company.  For comparability purposes, the presentation for the
three and nine months ended September 30, 2000 have been restated to reflect these revisions to the
Company's reportable segments.

The accounting policies of the reportable segments are the same as those described in the
"Basis of Presentation and Significant Accounting Policies".  The Company previously evaluated the
performance of its reportable segments based on EBITDA; however, effective January 1, 2001,
management changed its evaluation performance measure to Net Operating Income ("NOI"), as the
Company believes that NOI represents a more accurate measure of the reportable segment's activity.
NOI is determined by deducting property operating and maintenance expenses from total revenues for
the Acquisition/Disposition, Market Rate and Affordable Housing segments and deducting service
companies expense, which is included within the general and administrative expenses in the
Consolidated Statements of Income and painting service expenses from total revenues for the
Management and Service Operations segment.  NOI should not be considered as an alternative to net
income (determined in accordance with GAAP), as an indicator of the Company's financial performance,
cash flow from operating activities (determined in accordance with GAAP) or as a measure of the
Company's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company's
needs.  Certain other real estate companies may define NOI in a different manner.

Information on the Company's segments for the three and nine months ended September 30,
2001 and 2000 is as follows:

|                                              | For the three months ended September 30, 2001
|--------------------------------------------- | ---------------------------------------------
|                                              |                                              
|                                              | Acquisition/                                 
|(In thousands)                                | Disposition                                  
|                                              |                                              
|Total segment revenues                        | $  2,200                                     
|Elimination of intersegment revenues          | -                                            
|Consolidated revenues                         | 2,200                                        
|                                              |                                              
|Equity in net (loss) income of joint ventures | (143)                                        
|                                              |                                              
|*NOI                                          | 1,015                                        
|                                              |                                              
|Total assets                                  | 81,427                                       

|                                     | For the nine months ended September 30, 2001
|------------------------------------ | --------------------------------------------
|                                     |                                             
|                                     | Acquisition/                                
|(In thousands)                       | Disposition                                 
|                                     |                                             
|Total segment revenues               | $ 8,465                                     
|Elimination of intersegment revenues | -                                           
|Consolidated revenues                | 8,465                                       
|                                     |                                             
|Equity in net loss of joint ventures | (274)                                       
|                                     |                                             
|*NOI                                 | 3,862                                       
|                                     |                                             
|Total assets                         | 81,427                                      

|                                              | For the three months ended September 30, 2000
|--------------------------------------------- | ---------------------------------------------
|                                              |                                              
|                                              | Acquisition/                                 
|(In thousands)                                | Disposition                                  
|                                              |                                              
|Total segment revenues                        | $ 3,570                                      
|Elimination of intersegment revenues          | -                                            
|Consolidated revenues                         | 3,570                                        
|                                              |                                              
|Equity in net (loss) income of joint ventures | (81)                                         
|                                              |                                              
|*NOI                                          | 1,929                                        
|                                              |                                              
|Total assets                                  | 95,747                                       

|                                              | For the nine months ended September 30, 2000
|--------------------------------------------- | --------------------------------------------
|                                              |                                             
|                                              | Acquisition/                                
|(In thousands)                                | Disposition                                 
|                                              |                                             
|Total segment revenues                        | $ 10,831                                    
|Elimination of intersegment revenues          | (2)                                         
|Consolidated revenues                         | 10,829                                      
|                                              |                                             
|Equity in net (loss) income of joint ventures | (111)                                       
|                                              |                                             
|*NOI                                          | 5,850                                       
|                                              |                                             
|Total assets                                  | 95,747                                      

*Intersegment revenues and expenses have been eliminated in the computation of NOI for each of the segments.

A reconciliation of total segment NOI to total consolidated net income for the three and nine
months ended September 30, 2001 and 2000 is as follows:

|                                              | For the three months ended | For the nine months ended
|--------------------------------------------- | -------------------------- | -------------------------
|                                              | September 30,              | September 30,            
|(In thousands)                                | 2001                       | 2000                     
|                                              |                            |                          
|Total NOI for reportable segments             | $ 20,795                   | $ 21,733                 
|Depreciation and amortization                 | (8,490)                    | (8,638)                  
|General and administrative expense            | (1,906)                    | (1,779)                  
|Interest expense                              | (10,665)                   | (11,190)                 
|Gain on sale of operating properties          | 2,694                      | 8,536                    
|Equity in net income (loss) of joint ventures | 99                         | (18)                     
|Minority interest in operating partnership    | (121)                      | (128)                    
|Consolidated net income                       | $   2,406                  | $   8,516                

**12.	CONTINGENCIES**

The Company settled a lawsuit pending in the Harris County, Texas District Court against MIG
Realty Advisors, Inc. ("MIGRA") (MIG's predecessor company) and others involving a claim for
contribution and indemnity arising out of MIGRA having served as an investment advisor to an advisory
client in connection with the acquisition of an apartment project located in Houston, Texas.  On or about
December 30, 1998, the advisory client that acquired the property filed suit against the seller, the
consulting engineer who performed the engineering due diligence and others seeking damages for
defective conditions discovered at the property that were allegedly concealed by the seller and not
discovered by the consulting engineer during the pre-purchase due diligence investigation conducted by
the engineer.  The consulting engineer filed a third party claim against MIGRA, alleging that MIGRA  was
responsible for the conduct of the due diligence investigation and consequently MIGRA, rather than the
engineer was responsible for any damages suffered by the advisory client.  Some of the other
defendants, including the seller and the general contractor filed cross actions against MIGRA under the
Texas contribution and proportionate liability statutes alleging that MIGRA was responsible in whole or in
part for the damages alleged to have been suffered by the plaintiff advisory client.  The consulting
engineer later amended its cross action to include similar claims against MIGRA for contribution and
determination of proportionate responsibility.  The advisory client and MIGRA entered into a tolling
agreement for the purpose of tolling any claims that the advisory client may have had against MIGRA in
connection with the apartment project.  The effect of the cross actions was to attempt to make MIGRA
potentially responsible for some or all of the claims of the advisory client irrespective of whether MIGRA
had been sued directly by the advisory client.  On March 28, 2001, the Company entered into a
settlement agreement, which had the effect of releasing MIGRA, the Company and others from all
liability in connection with the lawsuit.  The terms of the settlement agreement are confidential.  In
respect to the above settlement, the Company recorded a liability and a charge to its results of
operations to reflect the cash settlement.  In addition, the Company is entitled to indemnification from the
former MIGRA stockholders arising out of the Merger Agreement between the Company and MIGRA
dated April 16, 1998 which had the effect of offsetting a portion of the aforementioned costs recorded by
the Company.  The Company believes that the amounts not recovered under the aforementioned
indemnification, are covered under MIG's liability insurance policy.  Accordingly, the net amounts
charged to the Company's general and administrative expense in respect of the settlement were not
material.

On August 10, 2001, Fluor Daniel, Inc. ("FDI") filed a Demand For Arbitration with the American
Arbitration Association ("AAA") arising out of construction services provided by FDI to MIG/Orlando
Development, LTD ("MOD"), an affiliate of the Company, pursuant to a construction contract between
FDI and MOD for the construction of a 460 suite apartment community located in Orlando, Florida.  FDI
claims that it suffered damages in performing the work because of the owner's breach of the
construction contract.  FDI has not specified the amount of its damages, which it claims is yet to be
determined.  Both MOD and the Company are named as party defendants in this litigation.  MOD and
the Company have filed a counterclaim with the AAA against FDI seeking liquidated damages of $1.917
million arising out of FDI's failure to complete the project in a timely manner as required by the terms of
the construction contract.  The Company acquired this project in 1998 as part of the acquisition of MIG
Realty Advisors from a group that includes persons who are now officers and directors of the Company,
which group could have a material interest adverse to the Company, because of indemnification
obligations owing to the Company in connection with this litigation.  The Company is vigorously
defending this claim and pursuing its counterclaim, but cannot predict the final outcome of this dispute.

On August 28, 2001, Helene Fien filed a complaint in the Court of Common Pleas, Cuyahoga
County, Ohio against the Company, its CEO, Jeffrey I. Friedman, AEC Management Company (a
corporation that merged with the Company at the time of the IPO in 1993) and Associated Estates
Corporation (a non-affiliated company).  The complaint alleges fraud, breach of fiduciary duty and
conversion against each of the defendants and a RICO claim against the individual defendant in
connection with various minority interests (5% or less) in pre IPO entities allegedly held by Mrs. Fien's
deceased husband at the time of his death in 1985.  The Complaint demands compensatory damages in
the amount of $10.0 million plus punitive damages, attorneys' fees, interests and costs.  The litigation is
in a preliminary stage.  The Company believes it has meritorious defenses and intends to vigorously
defend this claim, but cannot predict the final outcome of this dispute.

The Company is also subject to other legal proceedings and claims which arise in the ordinary
course of its business.  Although occasional adverse decisions (or settlements) may occur, the Company
believes that the final disposition of any such pending matters will not have a material adverse effect on
the financial position or results of operations of the Company.

**13.	GUARANTIES**

The Company has guaranteed completion of certain improvements totaling $1.8 million in
connection with the refinancing of the Americana Apartments, a 738 unit multifamily community located
in Euclid, Ohio, in which the Company is a 33.33% joint venture partner.  This obligation is secured by a
$1.8 million letter of credit.  Additionally, in connection with the refinancing of the Watergate Apartments,
a 949 unit multifamily community located in Euclid, Ohio, in which the Company is a 33.33% joint
venture partner, the Company has guaranteed completion of certain improvements totaling
approximately $7.0 million.  This obligation is secured by a $3.5 million letter of credit.  Also, the
Company provided a $407,000 performance bond to the City of Boynton Beach, Florida, which
guarantees performance by a Company subsidiary of certain improvements in connection with the
Company's proposed Boynton Beach development.  Furthermore, the Company has guaranteed the
payment of a $30.0 million construction loan in connection with the Idlewylde Apartments Phase II, a 535
unit multifamily community located in Atlanta, Georgia which is being developed by the Company and its
pension fund joint venture partner.  The Company also has guaranty obligations under a $220,000 letter
of credit for purposes of guaranteeing certain equity contributions required by the construction lender in
connection with Berkley Manor, a 252 unit multifamily community located in Cranberry Township,
Pennsylvania, which is being developed by the Company and its joint venture partner.

**14.	SUBSEQUENT EVENTS**

**Dividends Declared and Paid**

On September 25, 2001, the Company declared a dividend of $0.25 per common share which
was paid on November 1, 2001 to shareholders of record on October 15, 2001.

******Sale of Property**

On October 11, 2001, the Company completed the sale of one Market Rate property located in
Northeast Ohio.  The buyer purchased the property for a sales price of $5.3 million.  The sale resulted in
an estimated gain of approximately $587,000 which will be recognized in the quarter ending December
31, 2001.

On November 1, 2001, the Company completed the sale of a property located in Northeast Ohio,
in which the Company had been a 33.33% owner and had purchased the other 66.67% ownership in
December 2000.  The buyer purchased the property for a sales price of $2.2 million.  The sale resulted
in an estimated gain of $441,000 which will be recognized in the quarter ending December 31, 2001.

**Secured Debt**

The Company has obtained a 90-day extension on a $11.0 million non-recourse first mortgage
loan which was scheduled to mature November 1, 2001.

**Line of Credit**

The Company has extended its $12.0 million line of credit which matured October 31, 2001 to
December 31, 2002.  The Company's borrowings under this line of credit bear interest at either the prime
rate or LIBOR plus 2.0% at the Borrower's option.  There were no borrowings under this line of credit at
September 30, 2001, however, the amount currently available under this line of credit is limited to $6.5
million because of outstanding letters of credit.

**Joint Venture Loan**

The partnership, which owns the Americana Apartments and in which the Company is a 33.33%
joint venture partner, has obtained a six month extension with an option for an additional six month
extension in connection with the first mortgage loan which matured November 1, 2001.



**ASSOCIATED ESTATES REALTY CORPORATION**

**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS.**

The following discussion should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this report.  Historical results and percentage relationships set forth in
the Consolidated Statements of Income contained in the financial statements, including trends which
might appear, should not be taken as indicative of future operations.  This discussion may also contain
forward-looking statements based on current judgments and current knowledge of management, which
are subject to certain risks, trends and uncertainties that could cause actual results to vary from those
projected.  Accordingly, readers are cautioned not to place undue reliance on forward-looking
statements. These forward-looking statements are intended to be covered by the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995.  Investors are cautioned that the Company's
forward-looking statements involve risks and uncertainty, including without limitation, changes in
economic conditions in the markets in which the Company owns properties, the impact of the events of
September 11, 2001, risks of a lessening of demand for the multifamily units owned by the Company,
changes in government regulations affecting the Affordable Housing Properties, changes in or
termination of contracts relating to third party management and advisory business, and expenditures that
cannot be anticipated such as utility rate and usage increases, unanticipated repairs, additional staffing,
insurance increases and real estate tax valuation reassessments.

**Federal Income Taxes**

The Company has elected to be taxed as a real estate investment trust ("REIT") under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with its taxable year
ending December 31, 1993.  REITs are subject to a number of organizational and operational
requirements including a requirement that 90.0% of the income that would otherwise be considered as
taxable income be distributed to shareholders.  Providing the Company continues to qualify as a REIT, it
will generally not be subject to federal income tax on net income.  However, the Company's Service
Companies may be subject to federal income tax.

On December 17, 1999, as part of a larger bill, the President signed into law the REIT
Modernization Act ("RMA").  Effective beginning January 1, 2001, the RMA has amended the tax rules
relating to the composition of a REIT's assets.  Under prior law, a REIT was precluded from owning
more than 10.0% of the outstanding voting securities of any one issuer, other than a wholly owned
subsidiary or another REIT.  Beginning in 2001, a REIT will generally remain subject to this current
restriction and will also be precluded from owning more than 10.0% of the value of all securities of any
one issuer.

As an exception to this prohibition, a REIT will be allowed to own up to 100% of the securities of
a Taxable REIT Subsidiary ("TRS") that can provide non-customary services to REIT tenants and others
without disqualifying the rents that a REIT receives from its tenants.  However, no more than 20.0% of
the value of a REIT's total assets can be represented by securities of one or more TRS's.  The amount
of interest and other expenses from a TRS to a REIT will be limited to ensure that a TRS is subject to an
appropriate level of corporate tax.  The new 10.0% asset test will not apply to certain arrangements
(including third party subsidiaries) in place on July 12, 1999, provided that a subsidiary does not engage
in a "substantial new line of business" or acquire any "substantial asset", and a REIT does not acquire
any new securities in the subsidiary.  Under the RMA, a subsidiary will be able to convert tax free into a
TRS.  The Company has elected TRS status for all of its preferred stock subsidiaries for 2001.

**Liquidity and Capital Resources**

The Company expects to meet its short-term liquidity requirements generally through its net
cash provided by operations, secured borrowings and property sales proceeds.  The Company believes
that these sources will be sufficient to meet both operating requirements and the payment of dividends in
accordance with REIT requirements.  In November 2001, an $11.0 million non-recourse first mortgage
loan matured.  The Company has executed a 90-day extension for this loan.  The Company plans to
complete the refinancing of this loan prior to January 31, 2002.  Additionally, during the remainder of
2001 and 2002, approximately $1.4 million and $5.8 million, respectively, of principal amortization
payments on secured debt are required.  The Americana Apartments, a property located in Euclid, Ohio,
in which the Company is a 33.33% joint venture partner, had an $11.6 million first mortgage loan that
matured in November 2001. The maturity date of this loan was extended to May 1, 2002, and may be
extended for an additional six month period subject to the satisfaction of certain conditions.  The
Company's 33.33% share of this loan is approximately $3.9 million.

On July 16, 2001, the joint venture partners obtained a new loan in the amount of $17.2 million
on the Watergate Apartments, a 949 unit multifamily community located in Euclid, Ohio, in which the
Company owns a 33.33% interest.  Approximately $14.0 million of proceeds were used to repay the
maturing loan on the property and the balance will be used to pay for a portion of the improvements to
the property's underground parking garage.

In 2000, the Company caused to be obtained a $14.0 million first mortgage loan encumbering a
property owned by a subsidiary.  The loan provided for disbursement in two installments.  The first
installment of $9.8 million was disbursed in September 2000.  The balance of $4.2 million was disbursed
in March 2001.  The loan requires monthly interest-only payments at the rate of 7.76% through October
15, 2002 at which time payments of principal and interest are required through the maturity date of
October 15, 2005.

At September 30, 2001, the Company had $7.0 million outstanding under a $20.0 million
secured line of credit.  Borrowings under this line of credit are currently restricted up to an amount of
$12.6 million.  The remaining $7.4 million may become available upon completion of certain
requirements.  Borrowings under this line of credit bear interest at a rate of LIBOR plus 1.5%.  There
were no borrowings outstanding under this line of credit at December 31, 2000.  Additionally, the
Company also has a $12.0 million line of credit which matured October 31, 2001.  This loan has been
extended to December 31, 2002.  The Company's borrowings under this line of credit bear interest at
either the prime rate or LIBOR plus 2.0% at the Borrower's option.  There were no borrowings
outstanding at either September 30, 2001 or December 31, 2000; however, the amount currently
available under this line of credit is limited to $6.5 million because of outstanding letters of credit..

The Company has guaranteed completion of certain improvements totaling $1.8 million in
connection with the refinancing of the Americana Apartments, a 738 unit multifamily community located
in Euclid, Ohio, in which the Company is a 33.33% joint venture partner.  This obligation is secured by a
$1.8 million letter of credit.  Additionally, the Company has guaranteed completion of certain
improvements totaling $7.0 million in connection with the refinancing of the Watergate Apartments, a
949 unit multifamily community located in Euclid, Ohio, in which the Company is a 33.33% joint venture
partner.  This obligation is secured by a $3.5 million letter of credit.  Also, the Company provided a
$407,000 performance bond to the City of Boynton Beach, Florida, which guarantees performance by a
Company subsidiary of certain improvements in connection with the Company's proposed Boynton
Beach development.  Furthermore, the Company has guaranteed the payment of a $30.0 million
construction loan in connection with the Idlewylde Apartments Phase II, a 535 unit multifamily community
located in Atlanta, Georgia which is being developed by the Company and its pension fund joint venture
partner.  The Company also has guaranty obligations under a $220,000 letter of credit for purposes of
guaranteeing certain equity contributions required by the construction lender in connection with Berkley
Manor, a 252 unit multifamily community located in Cranberry Township, Pennsylvania, which is being
developed by the Company and its joint venture partner.

*Operating Partnership:*  In conjunction with the settlement of the lawsuit in the Harris County,
Texas District Court against MIG Realty Advisors, Inc. ("MIGRA"), MIG's predecessor company (see
Note 12 of the Notes to the Financial Statements presented in Part I, Item 1 of this report for further
details concerning the settlement), the former MIGRA shareholders redeemed 39,314 Operating
Partnership units ("OP units") for cash in the amount of approximately $393,000, which represented a
value of $10.00 per unit.  The proceeds of the redemption were used to satisfy certain indemnification
obligations owed by the former MIGRA stockholders to the Company in connection with this lawsuit.
These units had a recorded value of approximately $929,000  when issued.  The difference between the
redeemed value and the recorded value was approximately $536,000, which reduced the recorded
value of the underlying real estate.

**Acquisitions, Dispositions and Development**

Any future multifamily property acquisitions or developments, whether wholly owned or through
a co-investment, would be financed with the most appropriate sources of capital, which may include the
assumption of mortgage indebtedness, bank and other institutional borrowings, the exchange of
properties, secured debt financings, or the issuance of shares or units exchangeable into common
shares.

*Advisory Potential Acquisitions and Dispositions:* While over $40.0 million in assets are currently
listed for sale, it is anticipated that those assets will not be sold until the first quarter 2002.  Additionally,
acquisitions on behalf of advisory clients are not expected to occur prior to the end of the current year.

*Advisory Acquisitions:*  In January 2001 and March 2001, MIG acquired two multifamily
properties in Florida containing 319 units and 364 units, respectively.  In August 2001, MIG acquired a
multifamily property in California containing 288 units.  All three acquisitions were made on behalf of
MIG advisory clients.  MIG was retained to provide asset property management services for all three
properties and a Company subsidiary was hired to provide property management services.

*Advisory Dispositions:*  In January 2001, one property containing 236 units was sold on behalf of
a MIG advisory client.

*Potential Dispositions:*  The Company is strategically marketing 11 properties.  These 11
properties are comprised of one Affordable Housing property and 10 Market Rate properties (seven
located in Ohio and three located in Michigan).  As of September 30, 2001, the Company had entered
into contracts to sell three of these properties.

*Dispositions:*  In June 2001, the Company completed a sale of four Market Rate properties
located in Central and Southwestern Ohio.  The buyer purchased the four properties for $5.1 million in
gross cash proceeds plus assumed mortgage obligations of $18.1 million.  The sale resulted in the
Company recording a gain of $3.3 million.  Additionally, in July 2001, the Company completed the sale
of one Market Rate property located in Northeast Ohio.  The buyer purchased the property for $158,000
in gross cash proceeds plus the assumption of mortgage obligations of $7.2 million.  The sale resulted in
a gain of  $2.7 million.  Also, on October 11, 2001, the Company completed the sale of one Market Rate
property located in Northeast Ohio.  The buyer purchased the property for a sales price of $5.3 million.
The sale resulted in an estimated gain of approximately $587,000 which will be recognized in the period
ending December 31, 2001.  Additionally, on November 1, 2001, the Company completed the sale of a
property located in Northeast Ohio, in which the Company had been a 33.33% owner and had
purchased the other 66.67% ownership in December 2000.  The buyer purchased the property for a
sales price of $2.2 million.  The sale resulted in an estimated gain of $441,000 which will be recognized
in the quarter ending December 31, 2001.

In the short run, the sale of properties will likely result in a reduction in net income and portfolio
size for the Company; however, it is expected that sale proceeds will either be redeployed into new
growth opportunities, fund existing assets' investment capital or will be used by the Company to alter its
capital structure.  Investment alternatives are chosen based on whether they are anticipated to be
accretive to earnings per share in the long run.  The proceeds from sales will be allocated to investment
alternatives with the highest projected marginal returns.

*Development:*  For the nine month period ended September 30, 2001, the Company completed
the construction and leasing of 16 units at one of the Company's development properties.  Additionally,
the partnership, of which the Company is a 49.0% joint venture partner, completed the construction and
commenced leasing 100 units of the scheduled 252 units for Berkley Manor.

The Company is in the process of constructing or planning the construction of an additional
1,304 units as follows:

|                                               |                    | Additional | Anticipated
|---------------------------------------------- | ------------------ | ---------- | -----------
|Property                                       | Location           | Units      | Completion 
|Boynton Beach-Land                             | Boynton Beach, FL  | 229        | TBD1       
|Courtney Chase-Land                            | Orlando, FL        | 288        | TBD1       
|Berkley Manor (49.0% owned Joint Venture)      | Cranberry Twp., PA | 252        | 2001       
|Idlewylde-Phase II (49.0% owned Joint Venture) | Atlanta, GA        | 535        | 2002       
|                                               |                    | 1,304      |            

1To be Determined

**Management Contract Cancellation**

During 2001, the Company's management contracts associated with the following properties
were terminated:

|Effective                          |            | Management         | Approximate        | Approximate Annualized
|---------------------------------- | ---------- | ------------------ | ------------------ | ----------------------
|Date of                            | Management | Contract           | Management Fees    | Loss of Management    
|Termination                        | Company    | Canceled           | Earned During 2001 | Fees During 2001      
|                                   |            |                    | (In thousands)    
|**Affordable Housing Properties:** |            |                   
|3/08/01                            | AERC       | Jaelot             | $ 16               | $ 80                  
|3/21/01                            | AERC       | Spring Hill Villa  | 11                 | 33                    
|3/21/01                            | AERC       | Warrensville Manor | 11                 | 33                    
|                                   |            |                    |                   
|**Advisory Properties:**           |            |                    |                   
|1/02/01                            | AERC       | Advised Assets     | -                  | 474                   
|1/25/01                            | AERC       | Advised Assets     | 3                  | 123                   

Additionally, the Company anticipates that the following management contracts may be
canceled during 2001 primarily because of proposed sales:

|                            |            |                                           | Approximate       
|--------------------------- | ---------- | ----------------------------------------- | ------------------
|                            |            |                                           | Management Fees   
|Effective                   |            |                                           | Earned During The 
|Date of                     | Management |                                           | Nine Months Ended 
|Termination                 | Company    | Management Contract Canceled              | September 30, 2001
|                            |            |                                           | (In thousands)    
|**Affordable Housing:**     |            |                                          
|Undetermined                | AEMC       | Hillwood II                               | $   92            
|                            |            |                                          
|**Market Rate Properties:** |            |                                          
|11/30/01                    | AEMC       | Empire House                              | 12                
|Undetermined                | AERC       | Americana (33.33% Joint Venture)          | 90*               
|Undetermined                | AERC       | Gates Mills Towers (33.33% Joint Venture) | 141*              
|Undetermined                | AERC       | Watergate (33.33% Joint Venture)          | 188*              
|Undetermined                | AERC       | College Towers (50.00% Joint Venture)     | 69*               
|                            |            |                                           |                   
|**Advisory Properties:**    |            |                                          
|Undetermined                | AERC       | Advised Assets                            | 152               
|Undetermined                | AERC       | Advised Assets                            | 79                

*Net fees

*Dividends*:  On September 25, 2001, the Company declared a dividend of $0.25 per common
share which was paid on November 1, 2001 to shareholders of record on October  15, 2001.  On August
16, 2001, the Company declared a dividend of $0.60938 per depository share on the Company's Class
A Cumulative Preferred Shares which was paid on September 17, 2001 to shareholders of record on
September 4, 2001.

*Cash flow sources and applications:*  Net cash provided by operating activities increased $6.8
million from $17.4 million to $24.2 million for the nine months ended September 30, 2001 when
compared with the nine months ended September 30, 2000.  This increase was primarily due to the net
activity of the following items:

(i)	For the nine months ended September 30, 2001, the net loss before the gain on sale of
operating properties was $1.2 million compared to a net loss of $2.3 million for the nine
months ended September 30, 2000, an improvement of $1.2 million. This improvement
was primarily due to an increase of $887,000 in total revenues and a decrease of
$537,000 in total expenses.  As explained in greater detail below, the primary reason for
the increase in total revenues was due to other revenues increasing $857,000 mainly as
a result of the recording of a $363,000 supervisory fee earned at the time of the sale of a
non-owned managed Affordable Housing property and the recognition of increased
income related to the residential utility billings program during 2001.  The decrease in
total expenses was primarily due to a decrease of $1.1 million in general and
administrative expenses and $846,000 in interest expense net of a $1.4 million increase
in property operating expenses.

(ii)	For 2001, accounts and notes receivable and accounts and notes receivable of affiliates
and joint ventures decreased $173,000, while for 2000 they decreased $1.4 million.
This results in an increase of $1.2 million when comparing the two periods.

(iii)	For 2001, accounts payable and accrued expenses decreased $49,000, while for 2000
they decreased $1.8 million resulting in an increase to cash flow provided by operations
of $1.8 million.  The primary reason for this variance relates to the timing of the payment
of liabilities, thus lowering the necessity of accruals due to cash payments at September
30, 2001 compared to September 30, 2000.

(iv)	For 2001, other assets and liabilities increased $2.0 million, primarily as a result of the
payment of the Company's insurance premium that increased substantial in 2001
primarily due to an increase in the premium for hurricane insurance on the Company's
Florida properties, prepaid real estate taxes and a reduction in security deposits held for
tenants, while for 2000 they increased $1.1 million primarily due to prepaid real estate
taxes.  This results in a decrease of $900,000 when comparing the two periods.

(v)	For 2001, funds held for non-owned managed properties and non-owned managed
properties of affiliates and joint ventures increased $2.1 million.  For 2000, they
decreased $1.9 million.  This results in an increase of $4.0 million when comparing the
two periods.  The primary reason for the increase was the funding, in July 2001, of a
new $17.2 million loan on the Watergate Apartments in which the Company is a 33.33%
joint venture partner.  Approximately $13.2 million of the proceeds were used to repay
the maturing loan and the balance, which is held by the Company, is being used to pay
for a portion of the improvements to the property's underground parking garage.

Net cash flows used for investing activities of $11.1 million for the nine months ended
September 30, 2001 were primarily the net result of $10.9 million used for the development of
multifamily real estate, the purchase of development land and other capital expenditures, and $4.9
million used for capital improvements to certain joint venture properties net of $4.8 million of net
proceeds from the sale of five operating properties.

Net cash flows used for financing activities of $12.3 million for the nine months ended
September 30, 2001 were primarily used to pay dividends on the Company's common and preferred
shares and to pay principal payments on secured debt offset by proceeds from secured debt and by net
borrowings on the Company's line of credit.

***RESULTS OF OPERATIONS***

***Comparison of the quarter and nine months ended September 30, 2001 to the quarter and nine
months ended September 30, 2000*****

In the following discussion of the comparison of the quarter and nine months ended September
30, 2001 to the quarter and nine months ended September 30, 2000, Market Rate properties refers to
the Same Store Market Rate property portfolio.  Market Rate properties represents 61 wholly owned
properties and one property which is 66.67% owned.  Acquired/Disposed properties represents two
recently constructed properties that have not yet reached a stabilization occupancy rate of at least
93.0%, one property in which the Company was a 33.33% owner and purchased the remaining 66.67%
ownership in December 2000 and properties which have been sold.  Affordable Housing represents 13
properties subject to HUD regulations.

The Company uses Net Operating Income ("NOI") as a measure of the performance of its
properties.  NOI is determined by deducting property operating and maintenance expenses and service
companies expense for the Management and Service Operations segment from total revenues.  For the
nine months ended September 30, 2001, NOI was $62.9 million, a decrease of $592,000 when
compared to the NOI of $63.5 million for the nine months ended September 30, 2000.  The NOI for each
of the four segments of the Company for the nine months ended September 30, 2001 and 2000 was:
Acquisition/Disposition $3.9 million and $5.9 million, Market Rate $52.2 million and $50.8 million,
Affordable Housing $4.1 million and $4.3 million and Management and Service Operations $2.7 million
and $2.5 million, respectively.  The components of NOI together with an explanation of the variances are
described as follows:

Overall, total revenues decreased $1.0 million or 2.5% and increased $887,000 or 1.0% and
total expenses decreased $605,000 or 1.5% and $537,000 when comparing the quarter and nine
months ended September 30, 2001 to the quarter and nine months ended September 30, 2000,
respectively.  Net income applicable to common shares after deduction for the dividends on the
Company's preferred shares decreased $6.1 million or 85.5% for the quarter and $1.4 million or 66.1%
for the nine months.

*Rental Revenues:* Rental revenues decreased $910,000 or 2.5% for the quarter and $429,000
for the nine months.  Rental revenues from the Acquired/Disposed properties decreased $1.4 million or
39.3% for the quarter and $2.4 million or 22.7% for the nine months.  For both periods, the decrease was
primarily the result of the properties sold during 2000 which contributed $675,000 and $2.8 million of
rental income for the quarter and nine months, respectively.  Also contributing to the quarter decrease
were the properties sold in 2001, which contributed $47,000 to revenue in 2001 compared to $1.3 million
in 2000. Finally, it should be noted that the three acquisition properties contributed $2.1 million of rent for
the current quarter compared to $1.6 million for the same quarter one year ago.  The Market Rate
properties increased $445,000 for the quarter and $2.0 million for the nine months primarily due to
increased rental rates.  The average rental rate per unit was $777 for the 2001 quarter compared to
$747 for the 2000 quarter and $772 for the 2001 nine months compared to $742 for the 2000 nine
months.  During these periods, the economic occupancies were 89.5% and 89.7% for the 2001 quarter
and nine months, respectively, compared to 91.3% and 90.8% for the 2000 quarter and nine months,
respectively.

*Other Revenues:* Other Income increased $82,000 or 9.7% and $857,000 or 34.3% for the
quarter and nine month periods, respectively.  The increase for the quarter was primarily due to
revenues earned in connection with the residential utility billings ("RUBS") program ($573,000 for 2001
compared to $292,000 for 2000).  The RUBS program is expected to continue to provide quarter over
quarter increases until it levels off in the fourth quarter of the current year.  The RUBS revenue was
primarily earned on the Market Rate properties.  In addition to the RUBS program ($1.5 million for 2001
compared to $532,000 for 2000), the nine month increase also included a $363,000 supervisory fee,
recorded on the Management and Service companies segment, earned in March 2001 upon the sale of
a non-owned Affordable Housing property.  It should also be noted that interest income decreased
$123,000 and $589,000 when comparing the quarter and nine months ended September 30, 2001 to the
same periods in 2000.

The management and Service Companies recognized property and asset management fees of
$2.0 million and $6.1 million for the quarter and nine months 2001 compared to $2.0 million and $5.7
million for the quarter and nine months 2000.  The increase in the nine month period 2001 was primarily
due to the addition of eight client management contracts (five added during 2000 and three during 2001)
offset by the loss of two client management contracts.  Additionally, the quarter and nine months 2001
activity excludes revenue previously generated by three management contracts on non-owned
properties that were lost in 2001 (the three properties were sold in March 2001).

*Property Operating and Maintenance Expenses:*  Property operating and maintenance expenses
decreased $122,000 for the quarter and increased $1.4 million or 3.0% for the nine months.  These
expenses for the Acquisition/Disposition properties decreased $455,000 for the quarter and $377,000 for
the nine months.  For both periods, the variance was primarily the result of the sale of the six properties
during 2000 which incurred expenses of $387,000 for the quarter and $1.4 million for the nine months.
Offsetting these decreases were increases of $493,000 and $1.6 million for the quarter and nine months,
respectively, for a property acquired in December 2000 and two development properties which came on
line during 2000.  For the Market Rate properties, these expenses increased $351,000 for the quarter
and $1.7 million or 4.1% for the nine months.  The increase for the nine month period was primarily due
to utility costs which increased $709,000 or 10.8% mainly because of increased gas costs as both usage
and rates were higher in 2001 then 2000.    Additionally, personnel expense increased $747,000 or 5.8%
primarily as a result of reallocation of personnel resources by the Company due to the decentralization of
property operations.  These expenses were included in general and administrative expenses prior to
2001.  For the Affordable Housing properties, these expenses decreased $17,000 for the quarter and
increased $164,000 or 5.4% for the nine months, primarily due to increased utility costs, principally gas
costs which were up due to greater usage and increased rates.

*Other Expenses:*  The Company allocates general and administrative expenses to its four
segments as follows: Based on an internal cost analysis, an amount equal to 85.0% of the management
and Service Companies' revenues is classified as Service Companies' expense ($1.5 million and $4.7
million for the quarter and nine months 2001 and $1.6 million and $4.8 million for the quarter and nine
months 2000), the balance of the general and administrative expenses is allocated to the other three
segments on a per unit basis (number of units in the segment divided by the total units in the portfolio).
Since the general and administrative expenses are allocated as described above, the Company believes
that a comparative analysis of the total expenses is more meaningful than by segments.  General and
administrative expenses increased $11,000 for the quarter and decreased $1.1 million or 9.6% for the
nine months.  The decrease for the nine months was primarily attributable to a decrease in payroll and
related expenses, mainly because of the refinement of certain estimates used by the Company that
resulted in allocating certain payroll and related expenses to the properties, and a decrease in consulting
and professional fees incurred by the Company.

Interest expense decreased $525,000 or 4.7% for the quarter and $846,000 or 2.5% for the nine
months.  Interest expense for the Acquired/Disposed properties decreased $370,000 for the quarter and
$162,000 for the nine months.  Since the Company capitalizes interest costs on funds used in
construction, the related reduction of interest expense is recorded in the Acquired/Disposed properties
segment as this is the segment to which development properties are classified.   For the quarter ended
September 30, 2001, capitalized interest was $42,000 higher than 2000 while for the nine months ended
September 30, 2001, capitalized interest was $34,000 lower than the comparable period in 2000.  For
the Market Rate properties, interest expense decreased $212,000 for the quarter and $647,000 for the
nine months, primarily as a result of lower outstanding balances as the majority of the first mortgages
secured by Market Rate properties require monthly principal payments.  Also, there are fewer loans
outstanding as the five properties sold in 2001 all secured loans which were transferred to the buyers.
For the Affordable Housing properties, interest expense was the same for the quarter and decreased
$2,000 for the nine months, primarily due to lower outstanding balances.

***Equity in net income (loss) of joint ventures*****

For the quarter ended September 30, 2001, the combined equity in net income (loss) of joint
ventures increased $117,000 when compared to the quarter ended September 30, 2000.  The increase
was primarily due to a decline in interest expense, as one joint venture property's loan was refinanced at
a lower rate (current rate is 6.55%, previous rate was 10.0%).  For the nine months ended September
30, 2001, the combined equity in net loss of joint ventures increased $228,000.  This was primarily the
result of increased depreciation expense in connection with the two 49.0% investments made by the
Company, one in May 2000 and the second, a property under construction which commenced leasing
100 of the scheduled 252 units to be built, in August 2001.

The following table presents the historical statements of operations of the Company's beneficial
interest in the operations of the joint ventures for the three and nine months ended September 30, 2001
and 2000.

|                                                 | For the three months | For the nine months
|------------------------------------------------ | -------------------- | -------------------
|                                                 | ended September 30,  | ended September 30,
|(In thousands)                                   | 2001                 | 2000               
|                                                 |                      |                    
|Beneficial interests in joint venture operations |                      |                    
|Rental revenue                                   | $ 1,999              | $ 2,052            
|Cost of operations                               | 1,176                | 1,249              
|                                                 | 823                  | 803                
|Interest income                                  | 3                    | 7                  
|Interest expense                                 | (476)                | (585)              
|Depreciation                                     | (247)                | (231)              
|Amortization                                     | (4)                  | (12)               
|Net income (loss)                                | $      99            | $     (18)         

**Inflation**

Management's belief is that the effects of inflation would be minimal on the operational
performance of its portfolio primarily due to the high correlation between inflation and housing costs
combined with the short term nature, typically one year, of the leases.

The market for the Affordable Housing properties is unique in that the residents of these
properties receive assistance under various HUD programs.  At many of the Affordable Housing
properties, waiting lists of qualified applicants are maintained which minimizes the need to advertise
these units.  The average economic occupancy of these properties consistently exceeds 98.0%.
However, changes in government programs could potentially create decreased rental revenues,
additional vacancies, require more marketing costs and, in some cases, these properties may be
converted to Market Rate properties.

**CONTINGENCIES**

**Litigation**

The Company settled a lawsuit pending in the Harris County, Texas district court against MIG
Realty Advisors, Inc. ("MIGRA") (MIG's predecessor company and others ) involving a claim for
contribution and indemnity arising out of MIGRA having served as an investment advisor to an advisory
client in connection with the acquisition of an apartment project located in Houston, Texas.  On or about
December 30, 1998, the advisory client that acquired the property filed suit against the seller, the
consulting engineer who performed the engineering due diligence and others seeking damages for
defective conditions discovered at the property that were allegedly concealed by the seller and not
discovered by the consulting engineer during the pre-purchase due diligence investigation conducted by
the engineer.  The consulting engineer filed a third party claim against MIGRA, alleging that MIGRA  was
responsible for the conduct of the due diligence investigation and consequently MIGRA, rather than the
engineer was responsible for any damages suffered by the advisory client.  Some of the other
defendants, including the seller and the general contractor filed cross actions against MIGRA under the
Texas contribution and proportionate liability statutes alleging that MIGRA was responsible in whole or in
part for the damages alleged to have been suffered by the plaintiff advisory client.  The consulting
engineer later amended its cross action to include similar claims against MIGRA for contribution and
determination of proportionate responsibility.  The advisory client and MIGRA entered into a tolling
agreement for the purpose of tolling any claims that the advisory client may have had against MIGRA in
connection with the apartment project.  The effect of the cross actions was to attempt to make MIGRA
potentially responsible for some or all of the claims of the advisory client irrespective of whether MIGRA
had been sued directly by the advisory client.  On March 28, 2001, the Company entered into a
settlement agreement, which had the effect of releasing MIGRA, the Company and others from all
liability in connection with the lawsuit.  The terms of the settlement agreement are confidential.  In
respect to the above settlement, the Company recorded a liability and a charge to its results of
operations to reflect the cash settlement.  In addition, the Company is entitled to indemnification from the
former MIGRA stockholders arising out of the Merger Agreement between the Company and MIGRA
dated April 16, 1998 which had the effect of offsetting a portion of the aforementioned costs recorded by
the Company.  The Company believes that the amounts not recovered under the aforementioned
indemnification, are covered under MIG's liability insurance policy.  Accordingly, the net amounts
charged to the Company's general and administrative expense in respect of the settlement were not
material.  (See Note 12 of the Notes to the Financial Statements presented in Part 1, Item 1 of this report
for additional discussion).

On August 10, 2001, Fluor Daniel, Inc. ("FDI") filed a Demand For Arbitration with the American
Arbitration Association ("AAA") arising out of construction services provided by FDI to MIG/Orlando
Development, LTD ("MOD"), an affiliate of the Company, pursuant to a construction contract between
FDI and MOD for the construction of a 460 suite apartment community located in Orlando, Florida.  FDI
claims that it suffered damages in performing the work because of the owner's breach of the
construction contract.  FDI has not specified the amount of its damages, which it claims is yet to be
determined.  Both MOD and the Company are named as party defendants in this litigation.  MOD and
the Company have filed a counterclaim with the AAA against FDI seeking liquidated damages of $1.917
million arising out of FDI's failure to complete the project in a timely manner as required by the terms of
the construction contract.  The Company acquired this project in 1998 as part of the acquisition of MIG
Realty Advisors from a group that includes persons who are now officers and directors of the Company,
which group could have a material interest adverse to the Company, because of indemnification
obligations owing to the Company in connection with this litigation.  The Company is vigorously
defending this claim and pursuing its counterclaim, but cannot predict the final outcome of this dispute.

On August 28, 2001, Helene Fien filed a complaint in the Court of Common Pleas, Cuyahoga
County, Ohio against the Company, its CEO, Jeffrey I. Friedman, AEC Management Company (a
corporation that merged with the Company at the time of the IPO in 1993) and Associated Estates
Corporation (a non-affiliated company).  The complaint alleges fraud, breach of fiduciary duty and
conversion against each of the defendants and a RICO claim against the individual defendant in
connection with various minority interests (5% or less) in pre IPO entities allegedly held by Mrs. Fien's
deceased husband at the time of his death in 1985.  The Complaint demands compensatory damages in
the amount of $10.0 million plus punitive damages, attorneys' fees, interests and costs.  The litigation is
in a preliminary stage.  The Company believes it has meritorious defenses and intends to vigorously
defend this claim, but cannot predict the final outcome of this dispute.

The Company is also subject to other legal proceedings and claims which arise in the ordinary
course of its business.  Although occasional adverse decisions (or settlements) may occur, the Company
believes that the final disposition of any such pending matters will not have a material adverse effect on
the financial position or results of operations of the Company.

**Expected Property Sales**

Three Market Rate properties located in Ohio were sold on December 31, 1999.  To facilitate the
sale, the Company financed the sale with fixed rate debt maturing July 1, 2001.  The maturity date of this
debt has been extended to December 31, 2001.  The sale provided for the Company's continued
management of the properties.  These sales will not be recognized for GAAP purposes until the seller
financing is repaid.  These three properties are presented as "Properties held for sale" in the
Consolidated Balance Sheets at September 30, 2001 and December 31, 2000.

The following tables present information concerning the Multifamily Properties owned by Associated Estates Realty Corporation.

|                                 |          |                |              |       |          |           | For the three months ending | For the three months ending
|-------------------------------- | -------- | -------------- | ------------ | ----- | -------- | --------- | --------------------------- | ---------------------------
|                                 |          |                |              |       |          |           | September 30, 2001          | September 30, 2000         
|                                 |          |                |              |       | Year     | Average   | Average                     |                            
|                                 | Date     |                | Type of      | Total | Built or | Unit Size | Economic                    | Physical                   
|The Multifamily Properties       | Acquired | Location       | Construction | Units | Rehab.   | Sq. Ft.   | Occupancy                   | Occupancy                  
|                                 |          |                |              |       |          |           |                             |                            
|MARKET RATE                      |          |                |              |       |          |           |                             |                            
|Acquired Properties              |          |                |              |       |          |           |                             |                            
|Ohio                             |          |                |              |       |          |           |                             |                            
|Euclid House                     | 12/01/00 | Euclid         | Mid Rise     | 126   | 1969     | 654       | 87.5%                       | 94.4%                      
|Village at Avon (completed 2/01) | 02/01/01 | Avon           | Ranch        | 312   | 2001     | 1,069     | 84.4                        | 89.7                       
|Windsor Kirkman (completed 6/00) | 06/01/00 | Orlando        | Garden       | 460   | 2000     | 1,070     | 82.8                        | 97.0                       
|                                 |          |                |              | 898   |          | 1,011     | 83.8%                       | 94.1%                      
|                                 |          |                |              |       |          |           |                             |                            
|JOINT VENTURE                    |          |                |              |       |          |           |                             |                            
|Idlewylde                        | 5/15/00  | Deluth         | Garden       | 308   | 2000     | 968       | 92.4%                       | 94.8%                      
|Total Acquired Properties        |          |                |              | 1,206 |          | 1,000     | 85.8%                       | 94.3%                      
|                                 |          |                |              |       |          |           |                             |                            
|                                 |          |                |              |       |          |           |                             |                            
|SAME STORE-MARKET RATE           |          |                |              |       |          |           |                             |                            
|Phoenix, Arizona                 |          |                |              |       |          |           |                             |                            
|20th & Campbell Apartments       | 06/30/98 | Phoenix        | Garden       | 204   | 1989     | 982       | 81.9%                       | 86.3%                      
|                                 |          |                |              |       |          |           |                             |                            
|Florida                          |          |                |              |       |          |           |                             |                            
|Cypress Shores Apartments        | 02/03/98 | Coconut Creek  | Garden       | 300   | 1991     | 991       | 88.3%                       | 95.7%                      
|Windsor Pines                    | 10/23/98 | Pembroke Pines | Garden       | 368   | 1998     | 1,132     | 91.3                        | 99.2                       
|                                 |          |                |              | 668   |          | 1,069     | 90.1%                       | 97.6%                      
|                                 |          |                |              |       |          |           |                             |                            
|Atlanta, Georgia                 |          |                |              |       |          |           |                             |                            
|The Falls Apartments             | 02/03/98 | Atlanta        | Garden       | 520   | 1986     | 963       | 75.0%                       | 81.5%                      
|Morgan Place Apartments          | 06/30/98 | Atlanta        | Garden       | 186   | 1989     | 679       | 85.8                        | 90.9                       
|                                 |          |                |              | 706   |          | 888       | 78.2%                       | 84.0%                      
|                                 |          |                |              |       |          |           |                             |                            
|Indianapolis, Indiana            |          |                |              |       |          |           |                             |                            
|The Gables at White River        | 02/06/97 | Indianapolis   | Garden       | 228   | 1991     | 974       | 90.3%                       | 93.0%                      
|Steeplechase Apartments          | 08/11/98 | Indianapolis   | Garden       | 264   | 1998     | 929       | 87.4                        | 95.8                       
|Waterstone Apartments            | 08/29/97 | Indianapolis   | Garden       | 344   | 1997     | 984       | 94.2                        | 99.7                       
|                                 |          |                |              | 836   |          | 964       | 91.1%                       | 96.7%                      
|**Maryland**                     |          |                |              |       |          |           |                             |                            
|Reflections Apartments           | 02/03/98 | Metro D.C.     | Garden       | 184   | 1985     | 1,020     | 96.7%                       | 98.4%                      
|The Gardens at Annen Woods       | 06/30/98 | Metro D.C.     | Garden       | 132   | 1987     | 1,269     | 96.1                        | 97.7                       
|Hampton Point Apartments         | 06/30/98 | Metro D.C.     | Garden       | 352   | 1986     | 817       | 95.4                        | 98.3                       
|                                 |          |                |              | 668   |          | 962       | 95.9%                       | 98.2%                      

|                              |          |                  |              |       |          |           | For the three months ending | For the three months ending
|----------------------------- | -------- | ---------------- | ------------ | ----- | -------- | --------- | --------------------------- | ---------------------------
|                              |          |                  |              |       |          |           | September 30, 2001          | September 30, 2000         
|                              |          |                  |              |       | Year     | Average   | Average                     |                            
|                              | Date     |                  | Type of      | Total | Built or | Unit Size | Economic                    | Physical                   
|The Multifamily Properties    | Acquired | Location         | Construction | Units | Rehab.   | Sq. Ft.   | Occupancy                   | Occupancy                  
|                              |          |                  |              |       |          |           |                             |                            
|Michigan                      |          |                  |              |       |          |           |                             |                            
|Arbor Landings Apartments     | 01/20/95 | Ann Arbor        | Garden       | 328   | 1990     | 1,115     | 95.7%                       | 95.4%                      
|Aspen Lakes                   | 09/04/96 | Grand Rapids     | Garden       | 144   | 1981     | 789       | 96.6                        | 98.6                       
|Central Park Place            | 12/29/94 | Grand Rapids     | Garden       | 216   | 1988     | 850       | 97.3                        | 99.5                       
|Clinton Place                 | 08/25/97 | Clinton Twp.     | Garden       | 202   | 1988     | 954       | 94.3                        | 93.6                       
|Country Place Apartments      | 06/19/95 | Mt. Pleasant     | Garden       | 144   | 1987-89  | 859       | 95.0                        | 96.5                       
|Georgetown Park Apartments    | 12/28/94 | Fenton           | Garden       | 480   | 1987-96  | 1,005     | 87.6                        | 91.9                       
|The Landings at the Preserve  | 09/21/95 | Battle Creek     | Garden       | 190   | 1990-91  | 952       | 97.1                        | 99.5                       
|The Oaks and Woods at Hampton | 08/08/95 | Rochester Hills  | Gdn/Tnhms    | 544   | 1986-88  | 1,050     | 91.0                        | 94.3                       
|Spring Brook Apartments       | 06/20/96 | Holland          | Gdn/Tnhms    | 168   | 1986-88  | 818       | 86.7                        | 89.9                       
|Spring Valley Apartments      | 10/31/97 | Farmington Hills | Garden       | 224   | 1987     | 893       | 95.0                        | 94.2                       
|Summer Ridge Apartments       | 04/01/96 | Kalamazoo        | Garden       | 248   | 1989-91  | 960       | 98.1                        | 100.0                      
|                              |          |                  |              | 2,888 |          | 966       | 93.2%                       | 95.3%                      
|**North Carolina**            |          |                  |              |       |          |           |                             |                            
|Windsor Falls Apartments      | 06/30/98 | Raleigh          | Garden       | 276   | 1994     | 979       | 79.9%                       | 90.9%                      
|                              |          |                  |              |       |          |           |                             |                            
|Central Ohio                  |          |                  |              |       |          |           |                             |                            
|Arrowhead Station             | 02/28/95 | Columbus         | Townhomes    | 102   | 1987     | 1,344     | 94.5%                       | 100.0%                     
|Bedford Commons               | 12/30/94 | Columbus         | Townhomes    | 112   | 1987     | 1,157     | 94.1                        | 97.3                       
|Bolton Estates                | 07/27/94 | Columbus         | Garden       | 196   | 1992     | 687       | 92.3                        | 92.3                       
|Bradford at Easton            | 05/01/98 | Columbus         | Garden       | 324   | 1996     | 1,010     | 93.5                        | 97.8                       
|Colony Bay East               | 02/21/95 | Columbus         | Garden       | 156   | 1994     | 903       | 94.7                        | 97.4                       
|Heathermoor                   | 08/18/94 | Worthington      | Gdn/Tnhms    | 280   | 1989     | 829       | 95.3                        | 98.9                       
|Kensington Grove              | 07/17/95 | Westerville      | Gdn/Tnhms    | 76    | 1995     | 1,109     | 94.8                        | 100.0                      
|Lake Forest                   | 07/28/94 | Columbus         | Garden       | 192   | 1994     | 788       | 91.5                        | 97.9                       
|Muirwood Village at Bennell   | 03/07/94 | Columbus         | Ranch        | 164   | 1988     | 769       | 94.1                        | 97.6                       
|Muirwood Village at London    | 03/03/94 | London           | Ranch        | 112   | 1989     | 769       | 90.8                        | 91.1                       
|Oak Bend Commons              | 05/30/97 | Canal Winchester | Garden/Tnhms | 102   | 1997     | 1,110     | 97.6                        | 100.0                      
|Pendleton Lakes East          | 08/25/94 | Columbus         | Garden       | 256   | 1990-93  | 899       | 94.6                        | 100.0                      
|Perimeter Lakes               | 09/20/96 | Dublin           | Gdn/Tnhms    | 189   | 1992     | 999       | 94.6                        | 95.8                       
|Residence at Christopher Wren | 03/14/94 | Gahanna          | Gdn/Tnhms    | 264   | 1993     | 1,062     | 92.7                        | 98.9                       
|Residence at Turnberry        | 03/16/94 | Pickerington     | Gdn/Tnhms    | 216   | 1991     | 1,182     | 90.8                        | 93.1                       
|Saw Mill Village              | 04/22/97 | Columbus         | Garden       | 340   | 1987     | 1,161     | 91.7                        | 99.1                       
|Sterling Park                 | 08/25/94 | Grove City       | Garden       | 128   | 1994     | 763       | 96.0                        | 100.0                      
|                              |          |                  |              | 3,209 |          | 969       | 93.4%                       | 97.5%                      
|                              |          |                  |              |       |          |           |                             |                            
|Cincinnati, Ohio              |          |                  |              |       |          |           |                             |                            
|Remington Place Apartments    | 03/31/97 | Cincinnati       | Garden       | 234   | 1988-90  | 830       | 94.7%                       | 93.6%                      
|                              |          |                  |              |       |          |           |                             |                            
|                              |          |                  |              |       |          |           |                             |                            
|                              |          |                  |              |       |          |           |                             |                            
|                              |          |                  |              |       |          |           |                             |                            

|                                  |          |                  |              |        |          |           | For the three months ending | For the three months ending
|--------------------------------- | -------- | ---------------- | ------------ | ------ | -------- | --------- | --------------------------- | ---------------------------
|                                  |          |                  |              |        |          |           | September 30, 2001          | September 30, 2000         
|                                  |          |                  |              |        | Year     | Average   | Average                     |                            
|                                  | Date     |                  | Type of      | Total  | Built or | Unit Size | Economic                    | Physical                   
|The Multifamily Properties        | Acquired | Location         | Construction | Units  | Rehab.   | Sq. Ft.   | Occupancy                   | Occupancy                  
|                                  |          |                  |              |        |          |           |                             |                            
|Northeastern Ohio                 |          |                  |              |        |          |           |                             |                            
|Bay Club                          | IPO      | Willowick        | Garden       | 96     | 1990     | 925       | 92.2%                       | 93.8%                      
|Residence at Barrington           | 06/30/99 | Aurora           | Gdn/Tnhms    | 288    | 1999     | 1,131     | 89.3                        | 93.8                       
|Edgewater Landing                 | 04/20/94 | Cleveland        | High Rise    | 241    | 1988r    | 585       | 93.1                        | 91.3                       
|Gates Mills III                   | IPO      | Mayfield Hts.    | High Rise    | 320    | 1978     | 874       | 68.7                        | 74.1                       
|Mallard's Crossing                | 02/16/95 | Medina           | Garden       | 192    | 1990     | 998       | 91.8                        | 97.4                       
|Portage Towers                    | IPO      | Cuyahoga Falls   | High Rise    | 376    | 1973     | 869       | 94.4                        | 96.0                       
|The Triangle (a)                  | IPO      | Cleveland        | High Rise    | 279    | 1989     | 616       | 95.4                        | 93.2                       
|Village at Western Reserve        | 08/01/98 | Streetsboro      | Ranch        | 108    | 1998     | 999       | 95.9                        | 99.1                       
|Westchester Townhouses            | IPO      | Westlake         | Townhomes    | 136    | 1989     | 1,000     | 94.2                        | 97.8                       
|Williamsburg at Greenwood Village | 02/18/94 | Sagamore Hills   | Townhomes    | 260    | 1990     | 938       | 91.9                        | 93.1                       
|Westlake Townhomes                | IPO      | Westlake         | Townhomes    | 7      | 1985     | 1,000     | 95.1                        | 100.0                      
|Winchester Hills I  (b)           | IPO      | Willoughby Hills | High Rise    | 362    | 1972     | 822       | 74.0                        | 78.2                       
|Winchester Hills II               | IPO      | Willoughby Hills | High Rise    | 362    | 1979     | 822       | 67.3                        | 70.2                       
|                                  |          |                  |              | 3,027  |          | 864       | 85.7%                       | 87.6%                      
|                                  |          |                  |              |        |          |           |                             |                            
|CONGREGATE CARE                   |          |                  |              |        |          |           |                             |                            
|Gates Mills Club                  | IPO      | Mayfield Heights | High Rise    | 120    | 1980     | 721       | 70.9%                       | 67.5%                      
|The Oaks                          | IPO      | Westlake         | Garden       | 50     | 1985     | 672       | 67.7                        | 66.0                       
|                                  |          |                  |              | 170    |          | 707       | 69.9%                       | 67.1%                      
|                                  |          |                  |              |        |          |           |                             |                            
|Toledo, Ohio                      |          |                  |              |        |          |           |                             |                            
|Country Club Apartments           | 02/19/98 | Toledo           | Garden       | 316    | 1989     | 811       | 92.6%                       | 97.5%                      
|Hawthorne Hills Apartments        | 05/14/97 | Toledo           | Garden       | 88     | 1973     | 1,145     | 89.4                        | 88.6                       
|Kensington Village                | 09/14/95 | Toledo           | Gdn/Tnhms    | 506    | 1985-90  | 1,072     | 90.3                        | 94.7                       
|Vantage Villa                     | 10/30/95 | Toledo           | Garden       | 150    | 1974     | 935       | 91.4                        | 94.0                       
|                                  |          |                  |              | 1,060  |          | 981       | 91.1%                       | 94.9%                      
|**Pittsburgh, Pennsylvania**      |          |                  |              |        |          |           |                             |                            
|Chestnut Ridge                    | 03/01/96 | Pittsburgh       | Garden       | 468    | 1986     | 769       | 81.4%                       | 86.1%                      
|                                  |          |                  |              |        |          |           |                             |                            
|Texas                             |          |                  |              |        |          |           |                             |                            
|Fleetwood Apartments              | 06/30/98 | Houston          | Garden       | 104    | 1993     | 1,019     | 92.3%                       | 100.0%                     
|Same Store Market Rate            |          |                  |              | 14,518 |          | 936       | 89.5%                       | 93.1%                      
|                                  |          |                  |              |        |          |           |                             |                            
|AFFORDABLE HOUSING-ELDERLY        |          |                  |              |        |          |           |                             |                            
|Ellet Development                 | IPO      | Akron            | High Rise    | 100    | 1978     | 589       | 99.3%                       | 100.0%                     
|Hillwood I                        | IPO      | Akron            | High Rise    | 100    | 1976     | 570       | 97.3                        | 100.0                      
|Puritas Place (c)                 | IPO      | Cleveland        | High Rise    | 100    | 1981     | 518       | 96.3                        | 100.0                      
|Riverview                         | IPO      | Massillon        | High Rise    | 98     | 1979     | 553       | 99.7                        | 99.0                       

|                                         |          |                |              |        |          |           | For the three months ending | For the three months ending
|---------------------------------------- | -------- | -------------- | ------------ | ------ | -------- | --------- | --------------------------- | ---------------------------
|                                         |          |                |              |        |          |           | September 30, 2001          | September 30, 2000         
|                                         |          |                |              |        | Year     | Average   | Average                     |                            
|                                         | Date     |                | Type of      | Total  | Built or | Unit Size | Economic                    | Physical                   
|The Multifamily Properties               | Acquired | Location       | Construction | Units  | Rehab.   | Sq. Ft.   | Occupancy                   | Occupancy                  
|                                         |          |                |              |        |          |           |                             |                            
|AFFORDABLE HOUSING-ELDERLY               |          |                |              |        |          |           |                             |                            
|**Continued**                            |          |                |              |        |          |           |                             |                            
|State Road Apartments                    | IPO      | Cuyahoga Falls | Garden       | 72     | 1977 r   | 750       | 98.3%                       | 97.2%                      
|Statesman II                             | IPO      | Shaker Heights | Garden       | 47     | 1987 r   | 796       | 97.7                        | 97.9                       
|Sutliff Apartments II                    | IPO      | Cuyahoga Falls | High Rise    | 185    | 1979     | 577       | 100.0                       | 100.0                      
|Tallmadge Acres                          | IPO      | Tallmadge      | Mid Rise     | 125    | 1981     | 641       | 100.0                       | 100.0                      
|Twinsburg Apartments                     | IPO      | Twinsburg      | Garden       | 100    | 1979     | 554       | 99.1                        | 99.0                       
|Village Towers                           | IPO      | Jackson Twp.   | High Rise    | 100    | 1979     | 557       | 99.7                        | 100.0                      
|West High Apartments                     | IPO      | Akron          | Mid Rise     | 68     | 1981 r   | 702       | 97.7                        | 100.0                      
|                                         |          |                |              | 1,095  |          | 602       | 98.9%                       | 99.5%                      
|                                         |          |                |              |        |          |           |                             |                            
|AFFORDABLE HOUSING-FAMILY                |          |                |              |        |          |           |                             |                            
|Jennings Commons                         | IPO      | Cleveland      | Garden       | 50     | 1981     | 823       | 99.9%                       | 100.0%                     
|Shaker Park Gardens II                   | IPO      | Warrensville   | Garden       | 151    | 1964     | 753       | 94.5                        | 93.4                       
|                                         |          |                |              | 201    |          | 770       | 96.0%                       | 95.0%                      
|Total Affordable Housing                 |          |                |              | 1,296  |          | 628       | 98.5%                       | 98.8%                      
|Wholly Owned Portfolio                   |          |                |              | 16,712 |          | 916       | 89.7%                       | 93.6%                      
|                                         |          |                |              |        |          |           |                             |                            
|JOINT VENTURE PROPERTIES                 |          |                |              |        |          |           |                             |                            
|Northeastern Ohio-Market Rate            |          |                |              |        |          |           |                             |                            
|Americana                                | IPO      | Euclid         | High Rise    | 738    | 1968     | 803       | 75.0%                       | 80.9%                      
|College Towers                           | IPO      | Kent           | Mid Rise     | 458    | 1969     | 662       | 96.5                        | 98.9                       
|Gates Mills Towers                       | IPO      | Mayfield Hts.  | High Rise    | 757    | 1969     | 856       | 78.5                        | 81.8                       
|Highland House                           | IPO      | Painesville    | Garden       | 36     | 1964     | 539       | 97.7                        | 97.2                       
|Watergate                                | IPO      | Euclid         | High Rise    | 949    | 1971     | 831       | 85.2                        | 88.8                       
|                                         |          |                |              | 2,938  |          | 801       | 82.0%                       | 86.7%                      
|**AFFORDABLE HOUSING-FAMILY**            |          |                |              |        |          |           |                             |                            
|Lakeshore Village                        | IPO      | Cleveland      | Garden       | 108    | 1982     | 786       | 97.7%                       | 97.2%                      
|Total Joint Venture                      |          |                |              | 3,046  |          | 800       | 82.7%                       | 87.1%                      
|Total Portfolio Less Acquired Properties |          |                | 18,860       |        | 893      | 89.2%     | 92.5%                       | $734                       
|Total Portfolio                          |          |                |              | 20,066 |          | 900       | 89.0%                       | 92.6%                      

(a)	The Triangle also contains 63,321 square feet of office/retail space.

(b)	The Company acquired a noteholder interest entitling the Company to substantially all cash flows from operations.  The Company has certain rights under a security agreement

to foreclose on the property to the extent that the unpaid principal and interest on the underlying notes exceed seven years equivalent principal and interest payments.

(c)	The property was developed in 1981 subject to a warranty deed provision which states that the assignment of fee simple title of the property to the Company shall expire in 2037.

R = 	Rehabilitated

**HISTORICAL FUNDS FROM OPERATIONS AND DISTRIBUTABLE CASH FLOW**



Industry analysts generally consider Funds From Operations ("FFO") to be an appropriate
measure of the performance of an equity REIT.  FFO is defined as the inclusion of all operating results,
both recurring and non-recurring, except those results defined as "extraordinary items" under generally
accepted accounting principles ("GAAP") and gains and losses from sales of depreciable operating
property.  Non-recurring items that are not defined as "extraordinary" under GAAP will be reflected in the
calculation of FFO.  Adjustments for joint ventures are calculated to reflect FFO on the same basis.  FFO
does not represent cash generated from operating activities in accordance with GAAP and is not
necessarily indicative of cash available to fund cash needs and should not be considered an alternative
to net income as an indicator of the Company's operating performance or as an alternative to cash flow
as a measure of liquidity.  Distributable Cash Flow ("DCF") is calculated as FFO less recurring capital
expenditures funded by operations, depreciation on other assets and amortization of deferred financing
fees.  The Company believes that in order to facilitate a clear understanding of the consolidated
historical operating results of the Company, FFO and DCF should be presented in conjunction with net
income as presented in the consolidated financial statements and data included elsewhere in this report.
Certain other real estate companies may define FFO in a different manner.

FFO and Funds Available for Distribution ("Distributable Cash Flow") for the three and nine
month periods ended September 30, 2001 and 2000 are summarized in the following table:

|                                           | For the three months | For the nine months
|------------------------------------------ | -------------------- | -------------------
|                                           | ended September 30,  | ended September 30,
|(In thousands)                             | 2001                 | 2000               
|                                           |                      |                    
|**Net income applicable to common shares** | $ 1,035              | $ 7,145            
|                                           |                      |                    
|Depreciation on real estate assets:        |                      |                    
|Wholly owned properties                    | 7,696                | 7,713              
|Joint venture properties                   | 215                  | 210                
|Amortization of intangible assets          | 289                  | 403                
|Gain on sale of properties                 | (2,694)              | (8,536)            
|**Funds From Operations**                  | 6,541                | 6,935              
|                                           |                      |                    
|Depreciation - other assets                | 538                  | 543                
|Amortization of deferred financing fees    | 308                  | 302                
|Fixed asset additions:                     |                      |                    
|Wholly owned properties                    | (2,840)              | (4,069)            
|Joint venture properties                   | (124)                | (95)               
|**Distributable Cash Flow**                | $ 4,423              | $ 3,616            
|                                           |                      |                    
|**Weighted average shares - Basic**        | 19,430               | 19,724             
|**- Diluted**                              | 19,714               | 19,734             

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**

The Company is exposed to interest rate changes associated with variable rate debt as well as
refinancing risk on its fixed-rate debt.  The Company's involvement with derivative financial instruments
is limited and management does not expect to use such instruments for trading or other speculative
purposes.  The Company occasionally uses derivative instruments to manage its exposure to interest
rates.  See the Company's Form 10-K "Item 7A Qualitative and Quantitative Disclosures About Market
Risk" for a more complete discussion of the Company's interest rate sensitive assets and liabilities.  As
of September 30, 2001, the fair market value of the Company's debt has increased approximately $18.5
million or 3.4% as a result of the decline in interest rates since December 31, 2000.  There have been no
other material changes in the fair value of assets and liabilities since the date of the Company's Form
10-K.



**OTHER INFORMATION**

**ITEM 1.  LEGAL PROCEEDINGS**

Except as provided below, there are no material pending legal proceedings to which the
Company or any of its subsidiaries or service companies is a party or of which any of their properties is
subject that is required to be reported pursuant to Item 103 of Regulation S-K.

On August 10, 2001, Fluor Daniel, Inc. ("FDI") filed a Demand For Arbitration with the American
Arbitration Association ("AAA") arising out of construction services provided by FDI to MIG/Orlando
Development, LTD ("MOD"), an affiliate of the Company, pursuant to a construction contract between
FDI and MOD for the construction of a 460 suite apartment community located in Orlando, Florida.  FDI
claims that it suffered damages in performing the work because of the owner's breach of the
construction contract.  FDI has not specified the amount of its damages, which it claims is yet to be
determined.  Both MOD and the Company are named as party defendants in this litigation.  MOD and
the Company have filed a counterclaim with the AAA against FDI seeking liquidated damages of $1.917
million arising out of FDI's failure to complete the project in a timely manner as required by the terms of
the construction contract.  The Company acquired this project in 1998 as part of the acquisition of MIG
Realty Advisors from a group that includes persons who are now officers and directors of the Company,
which group could have a material interest adverse to the Company, because of indemnification
obligations owing to the Company in connection with this litigation.

On August 28, 2001, Helene Fien filed a complaint in the Court of Common Pleas, Cuyahoga
County, Ohio against the Company, its CEO, Jeffrey I. Friedman, AEC Management Company (a
corporation that merged with the Company at the time of the IPO in 1993) and Associated Estates
Corporation (a non-affiliated company).  The complaint alleges fraud, breach of fiduciary duty and
conversion against each of the defendants and a RICO claim against the individual defendant in
connection with various minority interests (5% or less) in pre IPO entities allegedly held by Mrs. Fien's
deceased husband at the time of his death in 1985.  The Complaint demands compensatory damages in
the amount of $10.0 million plus punitive damages, attorneys' fees, interests and costs.

**ITEM 2.	CHANGES IN SECURITIES**

****None

**ITEM 3.	DEFAULTS UPON SENIOR SECURITIES**

None

**ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

None

**ITEM 5.	OTHER INFORMATION**

None

******ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K**

**(a)	Exhibits**

|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | **Filed herewith or**                                                            
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | **incorporated**                                                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | **herein by**                                                                    
|Number | **Title**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | **reference**                                                                    
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|2.01   | Second Amended and Restated Agreement and Plan of Merger by  and
among the Company, MIG Realty Advisors, Inc.  ("MIGRA")  and the
MIGRA stockholders dated as of March 30, 1998                                                                                                                                                                                                                                                                                                                                                                       |  | Exhibit 2.01 to Form 8-K filed March 31, 1998.                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|3.1    | Second Amended and Restated Articles of Incorporation of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Exhibit 3.1 to Form
S-11 filed June 30,
1994 (File No. 33-80950 as amended)      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|3.2    | Code of Regulations of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Exhibit 3.2 to Form
S-11 filed June 30,
1994 (File No. 33-80950 as amended).     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.1    | Specimen Stock Certificate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Exhibit 3.1 to Form S-11 filed September 2,
1993 (File No. 33-68276 as amended). 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.2    | Form of Indemnification Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Exhibit 4.2 to Form S-11 filed September 2,
1993 (File No. 33-68276 as amended). 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.3    | Promissory Note dated October 23, 1991 from Triangle Properties Limited
Partnership, et. al., in favor of PFL Life Insurance Company; Open End
Mortgage from Triangle Properties Limited Partnership I, et. al., in favor of
PFL Life Insurance Company (The Registrant undertakes to provide
additional long-term loan documents upon request).                                                                                                                                                                                                      |  | Exhibit 4.3 to Form S-11 filed September 2,
1993 (File No. 33-68276 as amended). 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.4    | Promissory Note dated February 28, 1994 in the amount of $25 million.
Open-End Mortgage Deed and Security Agreement from AERC to
National City Bank (Westchester Townhouse); Open-End Mortgage Deed
and Security Agreement from AERC to National City Bank (Bay Club);
Open-End Mortgage Deed and Security Agreement from Winchester II
Apartments, Inc. to National City Bank (Winchester II Apartments); and
Open-End Mortgage Deed and Security Agreement from Portage Towers
Apartments, Inc. to  National City Bank (Portage Towers Apartments). |  | Exhibit 4.4 to Form  10-K filed March 31, 1993.                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.5    | Form of Promissory Note and Form of Mortgage and Security Agreement
dated May 10, 1999 from AERC to The Chase Manhattan Bank.                                                                                                                                                                                                                                                                                                                                                                                                                         |  | Exhibit 4.5 to Form 10-Q filed August 13,
1999.                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.5a   | Form of Promissory Note and Form of Mortgage and Security Agreement
dated September 10, 1999 from AERC to The Chase Manhattan Bank.                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Exhibit 4.5a to Form
10-Q filed November
12, 1999.                               
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.5b   | Form of Promissory Note and Form of Mortgage and Security Agreement

dated November 18, 1999 from AERC to The Chase Manhattan Bank                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Exhibit 4.5b to Form
10-K filed March 15,
2000.                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.6    | Indenture dated as of March 31, 1995 between Associated Estates Realty
Corporation and National City Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Exhibit 4.6 to Form 10-Q filed May 11, 1995.                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.9    | Form of Medium-Term Note-Fixed Rate-Senior Security.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Exhibit 4(I) to Form S-3
filed December 7, 1995
(File No. 33-80169) as
amended.  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.10   | Form of Preferred Share Certificate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Exhibit 4.1 to Form 8-K
filed July 12, 1995.                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.11   | Form of Deposit Agreement and Depositary Receipt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Exhibit 4.2 to Form 8-K
filed July 12, 1995.                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.13   | Amended and Restated Loan Agreement between Associated Estates
Realty Corporation and National City Bank                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | Exhibit 4.13c to Form
10-Q filed herewith                                        
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|4.14   | Guaranty Agreement dated November 28, 2000 from Associated Estates
Realty Corporation to Southtrust Bank                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | Exhibit 4.14 to Form
10-K filed March 13,
2001.                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10     | Associated Estates Realty Corporation Directors' Deferred Compensation
Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Exhibit 10 to Form 10-Q filed November 14,
1996.                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.1   | Registration Rights Agreement among the Company and certain holders
of the Company's Common Shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Exhibit 10.1 to Form S-11 filed September 2,
1993 (File No. 33-68276 as amended).
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.2   | Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Exhibit 10.2 to Form S-11 filed September 2,
1993 (File No. 33-68276 as amended).
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.3   | Amended and Restated Employment Agreement between the Company
and Jeffrey I. Friedman.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Exhibit 10.1 to Form
10-Q filed May 13,
1996.                                    
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.4   | Equity-Based Incentive Compensation Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | Exhibit 10.4 to Form
10-K filed March 29,
1995.                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.5   | Long-Term Incentive Compensation Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Exhibit 10.5 to Form
10-K filed March 29,
1995.                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.6   | Lease Agreement dated November 29, 1990 between Royal American
Management Corporation and Airport Partners Limited Partnership.                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Exhibit 10.6 to Form
10-K filed March 29,
1995.                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.7   | Sublease dated February 28, 1994 between the Company as Sublessee,
and Progressive Casualty Insurance Company, as Sublessor.                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Exhibit 10.7 to Form
10-K filed March 29,
1995.                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.8   | Assignment and Assumption Agreement dated May 17, 1994 between the
Company, as Assignee, and Airport Partners Limited Partnership, as
Assignor.                                                                                                                                                                                                                                                                                                                                                                                                       |  | Exhibit 10.8 to Form
10-K filed March 29,
1995.                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.9   | Form of Restricted Agreement dated by and among the Company and Its
Independent Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Exhibit 10.9 to Form
10-K filed March 28,
1996.                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.10  | Pledge Agreement dated May 23, 1997 between Jeffrey I. Friedman and
the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | Exhibit 10.01 to Form
10-Q filed August 8,
1997                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.11  | Secured Promissory Note dated May 23, 1997 in the amount of
$1,671,000 executed by Jeffrey I. Friedman in favor of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Exhibit 10.02 to Form
10-Q filed August 8,
1997                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.12  | Unsecured Promissory Note dated May 23, 1997 in the amount of
$1,671,000 executed by Jeffrey I. Friedman in favor of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Exhibit 10.03 to Form
10-Q filed August 8,
1997                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.14  | Form of Share Option Agreement by and among the Company and Its
Independent Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Exhibit 10.14 to Form
10-K filed March 30,
1993.                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.15  | Agreement dated March 11, 1999 by and among the Company and The
Milstein Affiliates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Exhibit 10.15 to Form
10-Q filed May 17,
1999.                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.16  | Agreement dated March 11, 1999 by and among the Company and The
Milstein Affiliates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Exhibit 10.16 to Form
10-Q filed May 17,
1999.                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.19  | Amended and Restated Confidentiality and Noncompete Agreement
dated January 26, 2000 by and between the Company and James A.
Cote'.                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Exhibit 10.19 to Form
10-K filed March 15,
2000.                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.19a | Consulting Agreement between James A. Cote' and the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Exhibit 10.19a to Form
10-K filed March 13,
2001.                                
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.20  | Agreement dated October 11, 1999 by and among the Company and
certain of the former holders (the "MIGRA Stockholders") of the issued
and outstanding shares of common stock of MIG Realty Advisors, Inc.
("MIGRA").                                                                                                                                                                                                                                                                                                                                   |  | Exhibit 10.20 to Form
10-K filed March 15,
2000.                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.21  | Swap Agreement dated February 16, 2000 by and among the Company
and National City Bank                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Exhibit 10.21 to Form
10-Q filed May 10,
2000.                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|10.22  | Year 2000 Equity Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Exhibit 10.22 to Form
10-Q filed May 15,
2001.                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                  
|18.1   | Letter regarding change in accounting principles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | Exhibit 18.1 to Form
10-Q filed May 17,
1999.                                    

(b)	Reports on Form 8-K.

None



**SIGNATURES**

Pursuant to the requirements 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.

|                  |  | ASSOCIATED ESTATES REALTY CORPORATION                            
|----------------- |  | -----------------------------------------------------------------
|                  |  |                                                                  
|November 12, 2001 |  | /s/ Lou Fatica                                                   
|(Date)            |  | Lou Fatica, Vice President, Chief Financial Officer and Treasurer
|                  |  |                                                                  

**SIGNATURES**

Pursuant to the requirements 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.

ASSOCIATED ESTATES REALTY CORPORATION

November 12,	 2001

(Date)						Lou Fatica, Vice President, Chief Financial Officer and

Treasurer