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| UNITED STATES SECURITIES AND EXCHANGE COMMISSION                                                                                                                                                                                                                                                                                                                                         |
| Washington, D.C.  20549                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                         |
| **Form 10-Q**                                                                                                                                                                                                                                                                                                                                                                            |
| **                     **                                                                                                                                                                                                                                                       |
| [x]  QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE                                                                                                                                                                                                                                                                                                                      |
| SECURITIES EXCHANGE  ACT OF 1934                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                             |
| For the quarterly  period ended March  31, 2008                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                          |
| OR                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                            |
| [ ] TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE                                                                                                                                                                                                                                                                                                                           |
| SECURITIES EXCHANGE  ACT OF 1934                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                             |
| For the transition  period from                        to                                                                                                                                            |
|                                                                                                                                                                                                                                                                                      |
| **Commission File  Number 1-12486**                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                         |
| **Associated Estates Realty Corporation**                                                                                                                                                                                                                                                                                                                                                |
| *(Exact name of registrant as specified in its  charter)*                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                              |
| **OHIO**                                                                                                                                                                                                                                                                                                                                                                                 |    | **34-1747603** |
| *(State or other  jurisdiction of*                                                                                                                                                                                                                                                                                                                                                       |    | *(I.R.S. Employer* |
| *incorporation or  organization)*                                                                                                                                                                                                                                                                                                                                                        |    | *Identification  Number)* |
|                                                                                                                                                                                                                                                                                                                              |  |
|                                                                                                                                                                                                                                                                                                                              |    |
| **1 AEC Parkway****,   Richmond****Hts., Ohio  44143-1467**                                                                                                                                                                                                                                                                                                                         |
| *(Address of principal executive offices)*                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                 |
| **(216) 261-5000**                                                                                                                                                                                                                                                                                                                                                                       |
| *(Registrant's telephone number, including area 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 [ ] |
|                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                              |
| Indicate by check mark whether  the registrant is a large accelerated filer, an accelerated filer, a  non-accelerated filer, or a smaller reporting company.  See the definitions  of "large accelerated filer”, “accelerated filer” and “smaller reporting  company" in rule 12b-2 of the Exchange Act.  (Check one):                           |
|                                                                                                                                                                                                                                                   |
| Large accelerated  filer [  ]  Accelerated filer [x ]  Non-accelerated filer [  ]  Smaller  reporting company [  ]                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                 |
| Indicate by check  mark whether the registrant is a shell company (as defined in Rule 12b-2 of  the Exchange Act).  Yes [  ]  No[ x ]                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                     |
| The number of  shares outstanding as of April 28, 2008 was 16,378,746 shares                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                          |  |  |  |

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**ASSOCIATED ESTATESREALTY CORPORATION**

** **

**INDEX**

| **PART I – FINANCIAL INFORMATION**                                                                                                              | **Page**                                                                                                                                                                                                                 |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                      |                                                     | ** ** |
| ITEM 1                                                                                                                                               | Consolidated Financial Statements (Unaudited)                                                                                                                                                                            | ** ** |
|                                                                                                                                                      |                                                                                                                      |   |
|                                                                                                                                                      | Consolidated Balance  Sheets at March 31, 2008 and December 31, 2007                                                                                                                                                     | 3 |
|                                                                                                                                                      |                                                                                                                      |  |
|                                                                                                                                                      | Consolidated  Statements of Operations for the three month                                                                                                                                                               |  |
|                                                                                                                                                      |     periods ended March 31, 2008 and 2007                                                                                                                                                                 | 4 |
|                                                                                                                                                      |                                                                                                       |  |
|                                                                                                                                                      | Consolidated  Statements of Cash Flows for the three month periods                                                                                                                                                       |  |
|                                                                                                                                                      |     ended March 31, 2008 and 2007                                                                                                                                                                         | 5 |
|                                                                                                                                                      |                                                                                        |  |
|                                                                                                                                                      | Notes to  Consolidated Financial Statements                                                                                                                                                                              | 6 |
|                                                                                                                                                      |                                                                                             |  |
| ITEM 2                                                                                                                                               | Management's  Discussion and Analysis of Financial                                                                                                                                                                       |  |
|                                                                                                                                                      |     Condition and Results of Operations                                                                                                                                                                   | 17 |
|                                                                                                                                                      |                                                                         |  |
| ITEM 3                                                                                                                                               | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                                              | 23 |
|                                                                                                                                                      |                                                                                   |  |
| ITEM 4                                                                                                                                               | Controls and Procedures                                                                                                                                                                                                  | 23 |
|                                                                                                                                                      |                                      |  |
| **PART II – OTHER INFORMATION**                                                                                                                 |                                                                                                                                                                                                                          |
| ** **                                                                                                                                           | **                          **                                                         |  |
| ITEM 1                                                                                                                                               | Legal Proceedings                                                                                                                                                                                                        | 24 |
|                                                                                                                                                      |                                                                                   |  |
| ITEM 1A                                                                                                                                              | Risk Factors                                                                                                                                                                                                             | 24 |
|                                                                                                                                                      |                                                                              |  |
| ITEM 2                                                                                                                                               | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                                                                                             | 24 |
|                                                                                                                                                      |                                                                                             |  |
| ITEM 6                                                                                                                                               | Exhibits                                                                                                                                                                                                                 | 25 |
|                                                                                                                                                      |                                                                              |  |
| **SIGNATURES**                                                                                                                                       | 27                                                                                                                                                                                                                       |
| **                        ** |                                                                                                                                                                                                                          |

* *

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**PART 1.  FINANCIALINFORMATIONITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS**

**ASSOCIATED ESTATES REALTY CORPORATIONCONSOLIDATED BALANCE SHEETS(UNAUDITED)**

| *(In thousands, except  share amounts)*                                                                                                                                  | March 31,     |               | December 31,  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|---------------|---------------|
| **ASSETS**                                                                                                                                                               | 2008          |               | 2007          |
| Real estate assets                                                                                                                                                       |               |               |               |
| Land                                                                                                                                                                     |  $       | 99,650   |               |  $ | 107,912  |
| Buildings  and improvements                                                                                                                                              | 747,504  |               | 826,226  |
| Furniture  and fixtures                                                                                                                                                  | 27,807   |               | 30,154   |
|                                                                                                                                                                          | 874,961  |               | 964,292  |
| Less:   accumulated depreciation                                                                                                                                    | (261,002)     |               | (305,427)     |
|                                                                                                                                                                          | 613,959  |               | 658,865  |
| Construction  in progress                                                                                                                                                | 789      |               | 721      |
| Real  estate associated with property held for sale, net                                                                                                                 | 935      |               | -        |
| Real  estate, net                                                                                                                                                        | 615,683  |               | 659,586  |
| Cash and cash equivalents                                                                                                                                                | 2,911    |               | 1,549    |
| Restricted cash                                                                                                                                                          | 29,278   |               | 6,730    |
| Accounts and notes  receivable, net                                                                                                                                      |               |               |               |
| Rents                                                                                                                                                                    | 1,456    |               | 1,128    |
| Affiliates                                                                                                                                                               | 394      |               | 1,875    |
| Other                                                                                                                                                                    | 1,278    |               | 820      |
| Goodwill                                                                                                                                                                 | 1,725    |               | 1,725    |
| Other assets, net                                                                                                                                                        | 13,209   |               | 13,383   |
| Other assets associated with  property held for sale, net                                                                                                                | 57       |               | -        |
| **Total assets**                                                                                                                                                         |  $       | 665,991  |               |  $ | 686,796  |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**                                                                                                                                 |               |               |               |
| Mortgage notes payable                                                                                                                                                   |  $       | 467,321  |               |  $ | 510,915  |
| Unsecured revolving credit  facility                                                                                                                                     | 13,000   |               | 20,000   |
| Unsecured debt                                                                                                                                                           | 25,780   |               | 25,780   |
| Total  debt                                                                                                                                                              | 506,101  |               | 556,695  |
| Accounts payable, accrued  expenses and other liabilities                                                                                                                | 24,444   |               | 25,909   |
| Dividends payable                                                                                                                                                        | 2,847    |               | 2,848    |
| Resident security deposits                                                                                                                                               | 3,315    |               | 3,826    |
| Funds held on behalf of  managed properties - affiliates                                                                                                                 | 199      |               | 344      |
| Funds held on behalf of  managed properties - other                                                                                                                      | 386      |               | 1,476    |
| Accrued interest                                                                                                                                                         | 2,394    |               | 2,737    |
| Accumulated losses in excess  of investments in joint ventures                                                                                                           | 1,368    |               | 1,346    |
| Other liabilities associated  with property held for sale                                                                                                                | 28       |               | -        |
| **Total liabilities**                                                                                                                                                    | 541,082  |               | 595,181  |
| Operating partnership  minority interest                                                                                                                                 | 1,829    |               | 1,829    |
| Shareholders' equity                                                                                                                                                     |               |               |               |
| Preferred  shares, without par value; 9,000,000 shares authorized; 8.70% Class B Series  II                                                                              |               |               |               |
| cumulative  redeemable, $250 per share liquidation preference, 232,000 issued and                                                                                        |               |               |               |
| 220,850  outstanding at March 31, 2008 and December 31, 2007                                                                                                             | 55,213   |               | 55,213   |
| Common  shares, without par value, $.10 stated value; 41,000,000 authorized;  22,995,763                                                                                 |               |               |               |
| issued  and 16,378,722 and 16,353,700 outstanding at March 31, 2008 and                                                                                                  |               |               |               |
| December  31, 2007, respectively                                                                                                                                         | 2,300    |               | 2,300    |
| Paid-in  capital                                                                                                                                                         | 281,008  |               | 281,152  |
| Accumulated  distributions in excess of accumulated net income                                                                                                           | (145,774)     |               | (180,436)     |
| Accumulated  other comprehensive loss                                                                                                                                    | (2,743)       |               | (1,050)       |
| Less:   Treasury shares, at cost, 6,617,041 and 6,642,063 shares                                                                                                    |               |               |               |
| at  March 31, 2008 and December 31, 2007, respectively                                                                                                                   | (66,924)      |               | (67,393)      |
| **Total shareholders' equity**                                                                                                                                           | 123,080  |               | 89,786   |
| **Total liabilities and shareholders' equity**                                                                                                                           |  $       | 665,991  |               |  $ | 686,796  |
|                                                                                                                                                                          |               |               |               |
| The accompanying notes are an integral part of these  consolidated financial statements                                                                                  |
|                              |

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**ASSOCIATED ESTATESREALTY CORPORATIONCONSOLIDATED STATEMENTS OFOPERATIONS(UNAUDITED)**

|                                                                                                                                                                                      | Three Months Ended |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
|                                                                                                                                                                                      | March 31,          |
| *(In thousands, except per  share amounts)*                                                                                                                                          | 2008               |  | 2007 |
| **Revenue**                                                                                                                                                                          |                    |  |  |
| Property  revenue                                                                                                                                                                    |  $            | 31,431  |  |  $ | 27,375  |
| Management  and service company revenue:                                                                                                                                             |                    |  |  |
| Fees,  reimbursements and other                                                                                                                                                      | 553           |  | 2,694  |
| Painting  services                                                                                                                                                                   | 137           |  | 616  |
| Total  revenue                                                                                                                                                                       | 32,121        |  | 30,685  |
| **Expenses**                                                                                                                                                                         |                    |  |  |
| Property  operating and maintenance                                                                                                                                                  | 13,239        |  | 11,688  |
| Depreciation  and amortization                                                                                                                                                       | 8,548         |  | 6,617  |
| Direct  property management and service company expenses                                                                                                                             | 396           |  | 3,241  |
| Painting  services                                                                                                                                                                   | 243           |  | 591  |
| General  and administrative                                                                                                                                                          | 3,528         |  | 2,712  |
| Total  expenses                                                                                                                                                                      | 25,954        |  | 24,849  |
| Operating income                                                                                                                                                                     | 6,167         |  | 5,836  |
| Interest  income                                                                                                                                                                     | 16            |  | 265  |
| Interest  expense                                                                                                                                                                    | (9,133)            |  | (11,205) |
| (Loss) income before equity  in net loss of joint ventures,                                                                                                                          |                    |  |  |
| minority  interest and income from discontinued operations                                                                                                                           | (2,950)            |  | (5,104) |
| Equity  in net loss of joint ventures                                                                                                                                                | (22)               |  | (72) |
| Minority  interest in operating partnership                                                                                                                                          | (14)               |  | (13) |
| (Loss) income from  continuing operations                                                                                                                                            | (2,986)            |  | (5,189) |
| Income  from discontinued operations:                                                                                                                                                |                    |  |  |
| Operating  (loss) income                                                                                                                                                             | (1,279)            |  | 1,078  |
| Gain  on disposition of properties                                                                                                                                                   | 42,910        |  | 4,561  |
| Income  from discontinued operations                                                                                                                                                 | 41,631        |  | 5,639  |
| **Net income**                                                                                                                                                                       | 38,645        |  | 450  |
| Preferred share dividends                                                                                                                                                            | (1,200)            |  | (1,262) |
| **Net income (loss)  applicable to common shares**                                                                                                                                   |  $            | 37,445  |  |  $ | (812) |
|                                                                                                                                                                                      |                    |  |  |
| **Earnings per common share  - basic and diluted:**                                                                                                                                  |                    |  |  |
| (Loss)  income from continuing operations applicable                                                                                                                                 |                    |  |  |
| to  common shares                                                                                                                                                                    |  $            | (0.26) |  |  $ | (0.38) |
| Income  from discontinued operations                                                                                                                                                 | 2.58          |  | 0.33  |
| Net  income (loss) applicable to common shares                                                                                                                                       |  $            | 2.32  |  |  $ | (0.05) |
|                                                                                                                                                                                      |                    |  |  |
| **Dividends declared per  common share**                                                                                                                                             |  $            | 0.17  |  |  $ | 0.17  |
|                                                                                                                                                                                      |                    |  |  |
| **Weighted average number  of common shares**                                                                                                                                        |                    |  |  |
| **outstanding - basic and diluted**                                                                                                                                                  | 16,167        |  | 17,109  |
|                                                                                                                                                                                      |                    |  |  |
| The accompanying notes are an integral part of these  consolidated financial statements                                                                                              |
|                                |

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**ASSOCIATED ESTATESREALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASHFLOWS(UNAUDITED)**

|                                                                                                                                                                    | Three Months Ended |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
|                                                                                                                                                                    |  March 31,    |
| *(In thousands)*                                                                                                                                                   | 2008               |  | 2007 |
| **Cash flow from operating  activities:**                                                                                                                          |                    |  |  |
| Net  income                                                                                                                                                        |  $            | 38,645  |  |  $ | 450  |
| Adjustments  to reconcile net income to net cash provided by operating activities:                                                                                 |                    |  |  |
| Depreciation  and amortization (including discontinued operations)                                                                                                 | 9,302         |  | 7,762  |
| Loss  on fixed asset replacements write-off                                                                                                                        | 19            |  | 23  |
| Gain  on disposition of properties                                                                                                                                 | (42,910)           |  | (4,561) |
| Amortization  of deferred financing costs and other                                                                                                                | 357           |  | 399  |
| Amortization  of swap termination payments received                                                                                                                | -             |  | (66) |
| Share-based  compensation                                                                                                                                          | 542           |  | 317  |
| Equity  in net loss of joint ventures and minority interest expense                                                                                                | 36            |  | 85  |
| Net  change in assets and liabilities:                                                                                                                             |                    |  |  |
| Accounts  and notes receivable                                                                                                                                     | 1,132         |  | (553) |
| Accounts  payable and accrued expenses                                                                                                                             | (4,259)            |  | 85  |
| Other  operating assets and liabilities                                                                                                                            | (1,246)            |  | (989) |
| Restricted  cash                                                                                                                                                   | 1,001         |  | 877  |
| Total  adjustments                                                                                                                                                 | (36,026)           |  | 3,379  |
| Net  cash flow provided by operations                                                                                                                              | 2,619         |  | 3,829  |
| **Cash flow from investing  activities:**                                                                                                                          |                    |  |  |
| Recurring  fixed asset additions                                                                                                                                   | (1,362)            |  | (431) |
| Revenue  enhancing/non-recurring fixed asset additions                                                                                                             | (86)               |  | (249) |
| Acquisition  fixed asset additions                                                                                                                                 | (5,630)            |  | -  |
| Net  proceeds from disposition of operating properties                                                                                                             | 84,791        |  | 4,825  |
| Deposit  of sale proceeds to escrow account                                                                                                                        | (23,581)           |  | -  |
| Contribution  to joint ventures                                                                                                                                    | -             |  | (46) |
| Purchase  of operating partnership units                                                                                                                           | -             |  | (14) |
| Net  cash flow provided by investing activities                                                                                                                    | 54,132        |  | 4,085  |
| **Cash flow from financing  activities:**                                                                                                                          |                    |  |  |
| Principal  payments on mortgage notes payable                                                                                                                      | (43,594)           |  | (46,569) |
| Payment  of debt procurement costs                                                                                                                                 | (601)              |  | (107) |
| Proceeds  from mortgage notes obtained                                                                                                                             | -             |  | 19,000  |
| Revolver  borrowings                                                                                                                                               | 66,750        |  | -  |
| Revolver  repayments                                                                                                                                               | (73,750)           |  | -  |
| Common  share dividends paid                                                                                                                                       | (2,765)            |  | (2,934) |
| Preferred  share dividends paid                                                                                                                                    | (1,200)            |  | (1,262) |
| Operating  partnership distributions paid                                                                                                                          | (14)               |  | (14) |
| Exercise  of stock options                                                                                                                                         | -             |  | 130  |
| Purchase  of treasury shares                                                                                                                                       | (215)              |  | -  |
| Other  financing activities, net                                                                                                                                   | -             |  | (301) |
| Net  cash flow used for financing activities                                                                                                                       | (55,389)           |  | (32,057) |
| Increase (decrease) in cash  and cash equivalents                                                                                                                  | 1,362         |  | (24,143) |
| Cash and cash equivalents,  beginning of period                                                                                                                    | 1,549         |  | 30,010  |
| **Cash and cash  equivalents, end of period**                                                                                                                      |  $            | 2,911  |  |  $ | 5,867  |
|                                                                                                                                                                    |                    |  |  |
| Supplemental disclosure of  cash flow information:                                                                                                                 |                    |  |  |
| Dividends  declared but not paid                                                                                                                                   |  $            | 2,847  |  |  $ | 2,975  |
| Cash  paid for interest                                                                                                                                            | 11,441        |  | 11,966  |
| Fixed  asset replacement and other write-offs                                                                                                                      | 499           |  | 530  |
| Net  change in accounts payable related to recurring fixed asset additions                                                                                         | (257)              |  | 548  |
|                                                      |                    |  |  |
| The accompanying notes are an integral part of these  consolidated financial statements                                                                            |
|                             |

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**ASSOCIATED ESTATESREALTY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED**

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

**           *** Except as the context otherwise requires, allreferences to "we," "our," "us" and the"Company" in this report collectively refer to Associated EstatesRealty Corporation and its consolidated subsidiaries.*

**Business**

               We are a self-administered and self-managed equity real estateinvestment trust ("REIT") engaged in property acquisition, advisory,development, management, disposition, operation and ownership activities.  Inaddition to rental revenue, we receive certain property and asset management fees.

             As of March 31, 2008, our property portfolio consisted of: (i) 50apartment communities containing 12,395 units in eight states owned, eitherdirectly or indirectly through subsidiaries, or that we hold an ownershipinterest in, one of which is a joint venture Affordable Housing property containing108 units; (ii) three apartment communities that we manage for third partyowners consisting of 616 units; and (iii) a 186-unit apartment community and acommercial property containing approximately 145,000 square feet that we assetmanage.

            In April 2008, we acquired two apartment communities located in the Richmond, Virginia metropolitan area, totaling 536 units and sold one 151-unitAffordable Housing property located in Northeast Ohio.  See Note 11 foradditional information.

**Basis of Presentation**

            The accompanying unaudited consolidated financial statements havebeen prepared by management in accordance with accounting principles generallyaccepted in the United States of America ("GAAP") for interimfinancial information and applicable rules and regulations of the Securitiesand Exchange Commission.  Accordingly, they do not include all of theinformation and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal andrecurring adjustments considered necessary for a fair statement, have beenincluded.  The reported results of operations are not necessarily indicative ofthe results that may be expected for the full year.  These financial statementsshould be read in conjunction with the audited financial statements andaccompanying notes in our Annual Report on Form 10-K for the year endedDecember 31, 2007.

**Share-Based Compensation**

            During the three months ended March 31, 2008 and 2007, werecognized total share-based compensation cost of $471,000 and $292,000,respectively, in "General and administrative expense" in theConsolidated Statements of Operations.

            *Stock Options.*  We use the Black-Scholes option pricingmodel to estimate the fair value of share-based awards.  There were no stockoptions awarded or exercised during the three months ended March 31, 2008.  Duringthe three months ended March 31, 2007, there were 4,000 options awarded and13,979 options exercised.

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             *Restricted Shares*. The following table represents restricted share activity for the three monthsended March 31, 2008: 

|                                                                                                                                                                                                        |               |  | Weighted   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|--|------------|
|                                                                                                                                                                                                        |               |  | Average    |
|                                                                                                                                                                                                        | Number of     |  | Grant-Date |
|                                                                                                                                                                                                        | Shares        |  | Fair Value |
|                                                                                                                                                                                                        |               |  |            |
| Nonvested at beginning of  period                                                                                                                                                                      | 210,213  |  |  $    | 11.36  |
| Granted                                                                                                                                                                                                | 47,347   |  |  $    | 10.24  |
| Vested                                                                                                                                                                                                 | 59,040   |  |  $    | 11.05  |
| Forfeited                                                                                                                                                                                              | 1,935    |  |  $    | 12.36  |
| Nonvested at end of period                                                                                                                                                                             | 196,585  |  |  $    | 11.18  |
|                                   |               |  |            |  |

            At March 31, 2008,there was $2.6 million of unrecognized compensation cost related to nonvestedrestricted share awards that we expect to recognized over a weighted averageperiod of 2.8 years.  Certain of our officers elected to defer, under theAssociated Estates Realty Corporation Elective Deferred Compensation Program,the receipt of a portion of the restricted shares that had been granted duringthe three months ended March 31, 2008.

**Derivative Instruments and Hedging Activities**

**               **During the three months ended March 31, 2008**,**we utilizedtwo interest rate swaps to mitigate the economic impact of changes in interestrates.  These swaps are designated as cash flow hedges and are being used tooffset the risk of changes in cash flows associated with interest payments ontwo of our variable rate mortgage loans.  We reassess these hedges on a quarterlybasis to determine if they continue to be effective.  Changes in the fair valueof these hedges are recorded in other comprehensive income ("OCI")and the amounts in OCI will be reclassified into earnings over the term of theloan as interest payments are made.  As of March 31, 2008, there was no hedgeineffectiveness.  These swaps were reported at fair value on the ConsolidatedBalance Sheets as “Accounts payable, accrued expenses and other liabilities” inthe amount of $2.7 million and $1.0 million at March 31, 2008 and December 31,2007, respectively.

**Restricted Cash**

**           **Restricted cash represents legally restricted deposits withfinancial institutions for taxes and insurance, security deposits, and reservefunds for replacements, as well as certain internally restricted deposits withqualified intermediaries related to like-kind exchanges.  The reserve funds forreplacements are intended to provide cash to defray future costs that may beincurred to maintain the associated property.**  **

**Classification of Fixed Asset Additions**

            We define recurring fixed asset additions to a property to becapital expenditures made to replace worn out assets to maintain the property'svalue.  We define revenue enhancing/non-recurring fixed asset additions to becapital expenditures that increase the value of the property and/or enable usto increase rents.  We define acquisition fixed asset additions to be capitalexpenditures for the purchase or construction of new properties to be added toour portfolio, or fixed asset additions identified at the time of purchase thatare not made until subsequent periods.

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**Recent AccountingPronouncements**

            In September 2006, the Financial Accounting Standards Board ("FASB")issued Statement No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157provides guidance for using fair value to measure assets and liabilities. Thisstatement clarifies the principle that fair value should be based on theassumptions that market participants would use when pricing the asset orliability. SFAS 157 establishes a fair value hierarchy, giving the highestpriority to quoted prices in active markets and the lowest priority tounobservable data. SFAS 157 applies whenever other standards require assets orliabilities to be measured at fair value. SFAS 157 also provides for certaindisclosure requirements, including, but not limited to, the valuationtechniques used to measure fair value and a discussion of changes in valuationtechniques, if any, during the period. We adopted this statement on January 1,2008, except for nonfinancial assets and nonfinancial liabilities that are notrecognized or disclosed at fair value on a recurring basis, for which theeffective date is January 1, 2009. The adoption of this standard did not have amaterial effect on our financial position and results of operations.  See Note8 for additional information on the adoption of SFAS 157.

            In February 2007, the FASB issued Statement No. 159, "The FairValue Option for Financial Assets and Financial Liabilities" ("SFAS159"), which gives entities the option to measure eligible financialassets, financial liabilities and firm commitments at fair value on aninstrument-by-instrument basis, that are otherwise not permitted to beaccounted for at fair value under other accounting standards. The election touse the fair value option is available when an entity first recognizes afinancial asset or financial liability or upon entering into a firm commitment.Subsequent changes (i.e., unrealized gains and losses) in fair value must berecorded in earnings.  Additionally, SFAS 159 allows for a one-time electionfor existing positions upon adoption, with the transition adjustment recordedto beginning retained earnings.  We adopted this statement on January 1, 2008.  Wedid not elect the fair value option for any instruments.

            In December 2007, the FASB issued Statement No. 141 (revised 2007),"Business Combinations" ("SFAS 141(R)"), which establishesprinciples and requirements for how the acquirer shall recognize and measure inits financial statements the identifiable assets acquired, liabilities assumed,any noncontrolling interest in the acquiree and goodwill acquired in a businesscombination. This statement is effective for us for business combinations forwhich the acquisition date is on or after January 1, 2009.  We are currentlyassessing the potential impact that the adoption of SFAS 141(R) will have on ourfinancial position and results of operations. 

            In December 2007, the FASB issued Statement No. 160, "NoncontrollingInterests in Consolidated Financial Statements — an Amendment of ARB No. 51"("SFAS 160"), which establishes and expands accounting and reportingstandards for minority interests, which will be recharacterized asnoncontrolling interests, in a subsidiary and the deconsolidation of asubsidiary. SFAS 160 is effective for us on or after January 1, 2009.  Earlieradoption is prohibited.  We are currently assessing the potential impact thatthe adoption of SFAS 160 will have on our financial position and results ofoperations. 

            In March 2008, the FASB issued Statement No. 161, “Disclosuresabout Derivative Instruments and Hedging Activities” (“SFAS 161”), which amendsand expands the disclosure requirements of SFAS 133.  This statement requires entitiesto provide enhanced disclosures about how and why it uses derivate instruments,how derivative instruments and related hedged items are accounted for, and howderivative instruments and related hedged items affect an entity’s financialposition, financial performance, and cash flows.  This statement requiresdisclosure of the fair values of derivative instruments and their gains andlosses in a tabular format, and disclosure of credit risk related features. This statement also requires cross-referencing within the footnotes to helpusers of financial statements locate important information about derivativeinstruments.  SFAS 161 is effective for us on or after January 1, 2009.  We arecurrently assessing the potential impact that the adoption of SFAS 161 willhave on our financial position and results of operations.

| 8 |
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**Reclassifications**

            Certain reclassifications have been made to the 2007 financialstatements to conform to the 2008 presentation.

**2.         PROPERTIES SOLD OR HELD FOR SALE**

            We report the results of operations and gain/loss related to thesale of real estate assets as discontinued operations in accordance with SFAS144, "Accounting for the Impairment or Disposal of Long-Lived Assets"("SFAS 144").  Real estate assets that are classified as held forsale are also reported as discontinued operations.  We classify properties asheld for sale when all significant contingencies surrounding the closing havebeen resolved.  In many transactions, these contingencies are not satisfieduntil the actual closing of the transaction.  Interest expense included indiscontinued operations is limited to interest on mortgage debt specificallyassociated with properties sold or classified as held for sale.  

            On March 19, 2008, we completed the sale of four properties locatedin Toledo, Ohio.  The total salesprice was $47.0 million and we recorded a gain of $13.9 million.  A portion ofthe proceeds of this sale was placed in escrow to be used in connection with aLike-Kind Exchange under Section 1031 of the Internal Revenue Code.  Theremaining proceeds were primarily used to reduce debt and for general corporatepurposes.

            Additionally, on March 19, 2008, we completed the sale of ten ofthe eleven wholly owned Affordable Housing properties, which are located in Northeast Ohio.  The total sales price was $41.3 million and we recorded a gain of $29.0million.  We used the proceeds primarily to reduce debt and for generalcorporate purposes.  Prior to and as a condition of the sale of thoseproperties, we acquired the ground lessor’s interest in six of those propertiesfor a combined purchase price of $5.2 million.  We classified our remaining whollyowned Affordable Housing property as held for sale at March 31, 2008.  Wetested this property for impairment under SFAS 144 and determined that it wasnot impaired.  The major classes of assets and liabilities related to thisproperty have been reclassified as held for sale in the accompanyingConsolidated Balance Sheet at March 31, 2008.  This property was subsequentlysold on April 25, 2008.  See Note 11 for additional information regarding thissale.

             On February 20, 2007, we completed the sale of a congregate careproperty located in Northeast Ohio.  The sales price was $5.2 million and werecorded a gain of $4.6 million.  The proceeds of this sale were primarily usedto fund revenue enhancing/non-recurring capital expenditures and for generalcorporate purposes.

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            "Income fromdiscontinued operations" in the accompanying Consolidated Statements ofOperations for the three months ended March 31, 2008 and 2007, includes theoperating results for the properties sold in 2008 and prior years and theproperty classified as held for sale at March 31, 2008, as well as the gainsrecognized on the property sales referenced above.   The following tablesummarizes "Income from discontinued operations" for the three monthsended March 31, 2008 and 2007:

|                                                                                                                                | Three Months Ended |
|--------------------------------------------------------------------------------------------------------------------------------|--------------------|
|                                                                                                                                | March 31,          |
| *(In thousands)*                                                                                                               | 2008               |  | 2007 |
| **REVENUE**                                                                                                                    |                    |  |  |
| Property revenue                                                                                                               |  $            | 4,014  |  |  $ | 6,651  |
|                                                                                                                                |                    |  |  |
| **EXPENSES**                                                                                                                   |                    |  |  |
| Property operating and  maintenance                                                                                            | 2,221         |  | 4,077  |
| Depreciation and  amortization                                                                                                 | 753           |  | 1,145  |
| Total  expenses                                                                                                                | 2,974         |  | 5,222  |
| Operating income                                                                                                               | 1,040         |  | 1,429  |
| Interest income                                                                                                                | 3             |  | 6  |
| Interest expense (1)                                                                                                           | (2,322)            |  | (357) |
| Gain on disposition of  properties                                                                                             | 42,910        |  | 4,561  |
| **Income from discontinued  operations**                                                                                       |  $            | 41,631  |  |  $ | 5,639  |
|                       |                    |  |  |
|                                                                                                                           |               |   |   |

| (1) | Interest expense for the  three months ended March 31, 2008, includes $2.0 million of defeasance and  other prepayment costs. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

**3.         DEBT**

**Mortgage Notes Payable**

            During the three months ended March 31, 2008, we prepaid seven fixedrate mortgage loans totaling $31.9 million that had a weighted average interestrate of 7.9% and were scheduled to mature in June 2008.  Additionally, we defeased/prepaidan $11.0 million loan that had been secured by a property that was sold onMarch 19, 2008 and recognized $2.0 million in defeasance/prepayment costs inconnection therewith.  These costs are included in "Income fromdiscontinued operations" in the Consolidated Statements of Operations.

            During the three months ended March 31, 2007, we defeased/prepaid twofixed rate mortgage loans totaling $30.9 million and recognized $2.7 million indefeasance and other prepayment costs, which are included in "Interestexpense" in the Consolidated Statements of Operations.  Additionally, wecompleted the refinancing of one $14.6 million fixed rate mortgage loan thatwas to mature in May 2007 with a $19.0 million fixed rate mortgage loan thatmatures in February 2009.

**Revolving Credit Facility/Lines of Credit**

            On March 20, 2008, we increased the borrowing capacity on ourunsecured revolving credit facility (the "revolver") up to $150.0million from $100.0 million by entering into an amendment to the revolver withour line of credit banks.  The amendment also extended the maturity date of therevolver for an additional year to March 20, 2011 and modified variousfinancial covenants.  Currently, the revolver accrues interest at a variablerate of LIBOR plus 1.6%.  The weighted average interest rate on borrowingsoutstanding at March 31, 2008, was 4.5%.  The revolver had outstandingborrowings of $13.0 million and $20.0 million at March 31, 2008, and December31, 2007, respectively.

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**4.         GOODWILL AND OTHER INTANGIBLEASSETS**

**Goodwill**

            In June 1998, we recorded goodwill in connection with the MIGRealty Advisors, Inc. merger.  The goodwill was allocated fully to theManagement and Service Operations Segment.

            We completed our annual review of goodwill during the three monthsended March 31, 2008.  In performing this analysis, we use a multiple ofrevenues to the range of potential alternatives and assign a probability of thevarious alternatives under consideration by management.  Based on thisanalysis, we determined that goodwill was not impaired as of March 31, 2008.  Assuch, there were no changes to the carrying amount of goodwill during the threemonths ended March 31, 2008.  Should the estimates used to determinealternatives or the probabilities of the occurrence thereof change, impairmentmay result which could materially impact our results of operations for theperiod in which it is recorded.

**Intangible Assets**

            In accordance with SFAS 141, "Business Combinations", weallocate a portion of the total purchase price of a property acquisition to anyintangible assets identified, such as existing leases and tenantrelationships.  The intangible assets are amortized over the remaining leaseterms or estimated life of the tenant relationship, which is approximately12 to 16 months.  Due to the short term nature of residential leases,we believe that existing lease rates approximate market rates, and therefore,no allocation is made for above/below market leases.

            In connection with two property acquisitions completed during 2007,we recorded total intangible assets in the amount of $2.6 million related toexisting leases, which are being amortized over 12 months, and $589,000 relatedto tenant relationships, which are being amortized over 16 months.

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

**           **We provide management and other services to (and are reimbursedfor certain expenses incurred on behalf of) a non-owned property in which ourChief Executive Officer ("CEO") and/or other related parties have anownership interest.  The entity that owns this property, as well as otherrelated parties, are referred to as "affiliates."  We also providesimilar services to a joint venture property.  Property management fees andother service company revenues recognized for the three months ended March 31,2008, and 2007, related to these affiliate properties were $27,000 and $124,000respectively.

            In the normal course of business, we have advanced funds on behalfof affiliates and joint ventures and held funds for the benefit of affiliatesand joint ventures.  Funds due from affiliates were $295,000 and $452,000 at March31, 2008 and December 31, 2007, respectively.

            Merit Enterprises, Inc., ("Merit"), a subsidiary of ours,has from time to time provided services to JAS Construction, Inc.("JAS") related to property rehabilitation and other work.  JAS isowned by a son of our CEO.  Reported revenue related to work performed by Meritfor JAS for the three months ended March 31, 2008 and 2007, was $4,000 and $484,000,respectively.  Accounts receivable related to JAS at March 31, 2008 andDecember 31, 2007, was $123,000 and $360,000, respectively.

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**6.         SHAREHOLDERS'EQUITY**

            The following table provides a reconciliation of activity in Shareholder'sEquity accounts:            

|                                                                                                  |  | Three Months Ended March 31, 2008 |
|--------------------------------------------------------------------------------------------------|--|-----------------------------------|
|                                                                                                  |  | ** **                        | ** ** |  Accumulated |  |  |  |  |
|                                                                                                  |  |                                   | ** ** |  Distributions |  |  Accumulated |  |  |
|                                                                                                  |  |                                   | ** ** |  In Excess of |  |  Other |  |  Treasury |
|                                                                                                  |  |  Paid-In                     | ** ** |  Accumulated |  |  Comprehensive |  |  Shares |
| *(In thousands)*                                                                                 |  |  Capital                     |  |  Net Income |  |  Income |  |   (at Cost) |
| Balance, December 31, 2007                                                                       |  |  $                           | 281,152  |  |  $ | (180,436) |  |  $ | (1,050) |  |  $ | (67,393) |
| Comprehensive income:                                                                            |  |                                   |  |  |  |  |  |  |
| Net  income                                                                                      |  | -                            |  | 38,645  |  | -  |  | -  |
| Other  comprehensive income:                                                                     |  |                                   |  |  |  |  |  |  |
| Change  in fair value of hedge                                                                   |  | -                            |  | -  |  | (1,693) |  | -  |
| Total  comprehensive income                                                                      |  | -                            |  | 38,645  |  | (1,693) |  | -  |
| Share-based compensation                                                                         |  | (144)                             |  | 2  |  | -  |  | 684  |
| Purchase of common shares                                                                        |  | -                            |  | -  |  | -  |  | (215) |
| Common share dividends  declared                                                                 |  | -                            |  | (2,784) |  | -  |  | -  |
| Preferred share dividends  declared                                                              |  | -                            |  | (1,201) |  | -  |  | -  |
| Balance, March 31, 2008                                                                          |  |  $                           | 281,008  |  |  $ | (145,774) |  |  $ | (2,743) |  |  $ | (66,924) |
|                  |  |                                   |  |  |  |  |  |  |

            The following table identifies total comprehensive income:            

|                                                                                                                                      | Three Months Ended |
|--------------------------------------------------------------------------------------------------------------------------------------|--------------------|
|                                                                                                                                      |  March 31,    |
| *(In thousands)*                                                                                                                     | 2008               |  | 2007 |
| **Comprehensive income:**                                                                                                            |                    |  |  |
| Net income                                                                                                                           |  $            | 38,645  |  |  $ | 450  |
| Other comprehensive (loss)  income:                                                                                                  |                    |  |  |
| Change  in fair value of hedge instruments                                                                                           | (1,693)            |  | 71  |
| Total comprehensive income                                                                                                           |  $            | 36,952  |  |  $ | 521  |
|                        |                    |  |  |

**7.         EARNINGSPER SHARE**

            Earnings per share ("EPS") has been computed pursuant tothe provisions of SFAS 128, "Earnings per Share."  There were 1.6million and 1.9 million options to purchase common shares outstanding at March31, 2008 and 2007, respectively.  None of the options were included in thecalculation of diluted earnings per share for the periods presented as theirinclusion would be antidilutive to the net loss applicable to common sharesfrom continuing operations.

            The exchange of operating partnership minority interests intocommon shares was also not included in the computation of diluted EPS becausewe plan to settle these OP units in cash.

 

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**8.         FAIR VALUE**

** **On January 1, 2008, we adopted certain provisions of SFAS 157.  See “Recentaccounting pronouncements” in Note 1 for information regarding additionalprovisions of SFAS 157, which will be effective for us on January 1, 2009.  SFAS157 clarifies the principle that fair value should be based on the assumptionsthat market participants would use when pricing the asset or liability, andestablishes the following fair value hierarchy:

| • | Level 1 inputs utilize quoted  prices (unadjusted) in active markets for identical assets or liabilities  that we have the ability to access;                                                      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Level 2 inputs may include  quoted prices for similar assets and liabilities in active markets, as well  as interest rates and yield curves that are observable at commonly quoted  intervals; and |
| • | Level 3 inputs are unobservable  inputs for the asset or liability that are typically based on an entity’s own  assumptions, as there is little, if any, related market activity.             |

            In instances where the determination of the fair value measurementis based on inputs from different levels of the fair value hierarchy, the fairvalue measurement will fall within the lowest level input that is significantto the fair value measurement in its entirety.

            The following table presents the financial liability that wemeasured at fair value on a recurring basis as of March 31, 2008:           

| *(In thousands)*    |  | Level 1 |                     | Level 2 |         | Level 3     |  | Total   |
|---------------------|--|---------|---------------------|---------|---------|-------------|--|---------|
| Interest rate swaps |  |  $ | -    |         |  $ | 2,743  |  |  $ | -    |  |  $ | 2,743  |
|                     |  |         |                     |         |         |             |  |         |  |  |  |  |

            To comply with the provisions of SFAS 157, we incorporate creditvaluation adjustments to appropriately reflect both our own nonperformance riskand that of the respective counterparty in the fair value measurements.  Thecredit valuation adjustments utilize Level 3 inputs, such as estimates ofcurrent credit spreads, to evaluate the likelihood of default by the either therespective counterparty or us.  However, we determined that as of March 31,2008, the impact of the credit valuation adjustments were not significant tothe overall valuation of the swaps.  See “Derivative instruments and hedgingactivity” in Note 1 for additional information regarding the swaps.

**9.         INTERIM SEGMENT REPORTING**

            We have three reportable segments:  (1) Acquisition/DispositionMultifamily Properties; (2) Same Community Multifamily Properties; and (3)Management and Service Operations.  We previously reported a fourth segment,the Affordable Housing Multifamily Properties; however, during the firstquarter of 2008, ten of the eleven wholly owned Affordable Housing propertieswere sold and we classified the remaining property as held for sale at March31, 2008.  Therefore, the financial information at March 31, 2008, and allprior periods for all of the wholly owned Affordable Housing properties arereported as discontinued operations, which are included in theAcquisition/Disposition Multifamily Properties segment.  We have identifiedthese segments based upon how management makes decisions regarding resourceallocation and performance assessment.  The Acquisition/Disposition propertiesrepresent acquired or developed properties which have not yet reachedstabilization (we consider a property stabilized when its occupancy ratereaches 93.0% and we have owned the property for one year), and properties thathave been sold or are classified as held for sale in accordance with SFAS 144. The Same Community properties are conventional multifamily residentialapartments that have been owned during the entirety of the comparison periods. The Management and Service Operations provide management and advisory servicesto the Acquisition/Disposition and Same Community properties that we own, aswell as to third party clients and properties, both affiliate andnon-affiliates.  All of our segments are located in the United States.

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            The accountingpolicies of the reportable segments are the same as those described in the"Basis of Presentation and Significant Accounting Policies" in ourAnnual Report on Form 10-K for the year ended December 31, 2007.  We evaluatethe performance of our reportable segments based on Net Operating Income("NOI").  NOI is determined by deducting property operating andmaintenance expenses from property revenue for the Acquisition/Disposition(excluding amounts classified as discontinued operations), and Same Communitysegments and deducting direct property management and service company expensesand painting service expenses from Management and Service Company revenue forthe Management and Service Operations segment.  We consider NOI to be anappropriate supplemental measure of our performance because it reflects theoperating performance of our real estate portfolio and management and servicecompanies at the property and management and service company level and is usedto assess regional property level performance.  NOI should not be considered(i) as an alternative to net income (determined in accordance with GAAP), (ii)as an indicator of financial performance, (iii) as cash flow from operatingactivities (determined in accordance with GAAP) or (iv) as a measure ofliquidity; nor is it necessarily indicative of sufficient cash flow to fund allof our needs.  Certain other real estate companies may define NOI in adifferent manner.

            Segment information for the three months ended March 31, 2008 and2007 is as follows: 

|                                                                                                                                      |  | Three Months Ended March 31, 2008 |
|--------------------------------------------------------------------------------------------------------------------------------------|--|-----------------------------------|
|                                                                                                                                      |  |                              |   |  |  | Management |  |  |
|                                                                                                                                      |  | Acquisition/                      |  | Same |  | and Service |  | Total |
| *(In thousands)*                                                                                                                     |  | Disposition                       |  | Community |  | Operations |  | Consolidated |
|                                                                                                                                      |  |                                   |  |  |  |  |  |  |
| Total segment revenue                                                                                                                |  |  $                           | 3,052  |  |  $ | 28,379  |  |  $ | 2,332  |  |  $ | 33,763  |
| Elimination of intersegment  revenue                                                                                                 |  | -                            |  | -  |  | (1,642) |  | (1,642) |
| Consolidated revenue                                                                                                                 |  | 3,052                        |  | 28,379  |  | 690  |  | 32,121  |
|                                                                                                                                      |  |                                   |  |  |  |  |  |  |
| Operating (loss) income from  discontinued operations                                                                                |  | (1,279)                           |  | -  |  | -  |  | (1,279) |
|                                                                                                                                      |  |                                   |  |  |  |  |  |  |
| *NOI                                                                                                                                 |  | 1,937                        |  | 16,255  |  | 51  |  | 18,243  |
|                                                                                                                                      |  |                                   |  |  |  |  |  |  |
| Total assets                                                                                                                         |  | 114,188                      |  | 512,912  |  | 38,891  |  | 665,991  |
|                        |  |                                   |  |  |  |  |  |  |
|                                                                                                                                      |  |                                   |  |  |  |  |  |  |  |  |  |  |

            *Intersegment revenue and expenseshave been eliminated in the computation of NOI for each of the segments. 

|                                                                                                              |  | Three Months Ended March 31, 2007 |
|--------------------------------------------------------------------------------------------------------------|--|-----------------------------------|
|                                                                                                              |  |                              |   |  |  | Management |  |  |
|                                                                                                              |  | Acquisition/                      |  | Same |  | and Service |  | Total |
| *(In thousands)*                                                                                             |  | Disposition                       |  | Community |  | Operations |  | Consolidated |
|                                                                                                              |  |                                   |  |  |  |  |  |  |
| Total segment revenue                                                                                        |  |  $                           | -  |  |  $ | 27,384  |  |  $ | 5,132  |  |  $ | 32,516  |
| Elimination of intersegment  revenue                                                                         |  | -                            |  | (9) |  | (1,822) |  | (1,831) |
| Consolidated revenue                                                                                         |  | -                            |  | 27,375  |  | 3,310  |  | 30,685  |
|                                                                                                              |  |                                   |  |  |  |  |  |  |
| Operating income from  discontinued operations                                                               |  | 1,078                        |  | -  |  | -  |  | 1,078  |
|                                                                                                              |  |                                   |  |  |  |  |  |  |
| *NOI                                                                                                         |  | -                            |  | 15,687  |  | (522) |  | 15,165  |
|                                                                                                              |  |                                   |  |  |  |  |  |  |
| Total assets                                                                                                 |  | 66,869                       |  | 528,638  |  | 22,193  |  | 617,700  |
|                    |  |                                   |  |  |  |  |  |  |
|                                                                                                              |  |                                   |  |  |  |  |  |  |  |  |  |  |

            *Intersegment revenue and expenseshave been eliminated in the computation of NOI for each of the segments.

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            A reconciliation of total NOI to total consolidated net incomeis as follows:           

|                                                                                                                                                                                | Three Months Ended |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
|                                                                                                                                                                                | March 31,          |
| *(In thousands)*                                                                                                                                                               | 2008               |  | 2007 |
|                                                                                                                                                                                |                    |  |  |
| Property NOI                                                                                                                                                                   |  $            | 18,192  |  |  $ | 15,687  |
| Management and service  operations NOI                                                                                                                                         | 51            |  | (522) |
| Depreciation and  amortization                                                                                                                                                 | (8,548)            |  | (6,617) |
| General and administrative  expense                                                                                                                                            | (3,528)            |  | (2,712) |
| Interest income                                                                                                                                                                | 16            |  | 265  |
| Interest expense (1)                                                                                                                                                           | (9,133)            |  | (11,205) |
| Equity in net loss of joint  ventures                                                                                                                                          | (22)               |  | (72) |
| Minority interest in  operating partnership                                                                                                                                    | (14)               |  | (13) |
| Income from discontinued  operations:                                                                                                                                          |                    |  |  |
|     Operating (loss) income                                                                                                                                     | (1,279)            |  | 1,078  |
|     Gain on disposition of  properties                                                                                                                          | 42,910        |  | 4,561  |
| Income from discontinued  operations                                                                                                                                           | 41,631        |  | 5,639  |
|                                                                                                                                                                                |                    |  |  |
| Consolidated net income                                                                                                                                                        |  $            | 38,645  |  |  $ | 450  |
|                               |                    |  |  |

| (1) | Interest expense for the  three months ended March 31, 2007, includes $2.7 million of defeasance and  other prepayment costs. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

**10.        CONTINGENCIES**

***Legal Proceedings***

            We are subject to legal proceedings, lawsuits and other claims,including proceedings by government authorities (collectively"Litigation").  Litigation is subject to uncertainties and outcomesare difficult to predict.  Consequently, we are unable to estimate ultimate aggregatemonetary liability or financial impact with respect to the Litigation matterdescribed in the following paragraph as of March 31, 2008, and no accrual hasbeen made for this matter.  We believe that other Litigation will not have a material adverseimpact on us after final disposition.  However, because of the uncertainties ofLitigation, one or more lawsuits could ultimately result in a materialobligation.

***Pending Lawsuits***

            On or about April 14, 2002, Melanie and Kyle Kopp commenced anaction against us in the Franklin County, Ohio Court of Common Pleas seekingundetermined damages, injunctive relief and class action certification.  Thiscase arose out of our Suredeposit program.  This program allowed cash shortprospective residents to purchase a bond in lieu of paying a security deposit. The bond serves as a fund to pay those resident obligations that wouldotherwise have been funded by the security deposit.  Plaintiffs allege that thenonrefundable premium paid for the bond is a disguised form of securitydeposit, which is otherwise required to be refundable in accordance with Ohio's Landlord-Tenant Act.  Plaintiffs further allege that certain pet deposits and othernonrefundable deposits required by us are similarly security deposits that mustbe refundable in accordance with Ohio's Landlord-Tenant Act.  On or aboutJanuary 15, 2004, the Plaintiffs filed a motion for class certification.  Wesubsequently filed a motion for summary judgment.  Both motions are pendingbefore the Court.  We intend to vigorously defend ourselves against theseclaims.

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**11.        SUBSEQUENT EVENTS**

***Acquisitions.***  

           On April 21, 2008, we completed the acquisition of two properties containing atotal of 536 units located in the Richmond, Virginia metropolitan area.

***Dispositions.***  

            On April 25, 2008, we completed the sale of a wholly owned Affordable Housingproperty located in Northeast Ohio.  The sales price was $3.5 million andwe will record a gain of approximately $2.3 million during the second quarter of2008 in connection with the sale of this property.  We had classified thisproperty as held for sale at March 31, 2008.

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**ITEM 2. ****MANAGEMENT'S DISCUSSION ANDANALYSIS****OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

            The following discussion should be read in conjunction with theconsolidated financial statements and notes thereto included in Part I, Item 1of this report on Form 10-Q.  This discussion may contain forward-lookingstatements based on current judgments and current knowledge of management,which are subject to certain risks, trends and uncertainties that could causeactual results to vary from those projected, including but not limited to,expectations regarding our 2008 performance, which are based on certainassumptions.  Accordingly, readers are cautioned not to place undue reliance onforward-looking statements which speak only as of the dates of the document. These forward-looking statements are intended to be covered by the safe harborprovisions of the Private Securities Litigation Reform Act of 1995.  The words"expects", "projects", "believes","plans", "anticipates", and similar expressions areintended to identify forward-looking statements.  Investors are cautioned thatthese forward-looking statements involve risks and uncertainty that could causeactual results to differ from estimates or projections contained in theseforward-looking statements, including without limitation the following:

| •    | changes in the economic climate  in the markets in which we own and manage properties, including interest  rates, our ability to consummate the sale of properties pursuant to our  current plan, the overall level of economic activity, the availability of  consumer credit and mortgage financing, unemployment rates and other factors; |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •    | our ability to refinance debt  on favorable terms at maturity;                                                                                                                                                                                                                                                                               |
| •    | our ability to defease or  prepay debt pursuant to our current plan;                                                                                                                                                                                                                                                                         |
| •    | risks of a lessening of demand  for the multifamily units that we own or manage;                                                                                                                                                                                                                                                             |
| •    | competition from other  available multifamily units and change in market rental rates;                                                                                                                                                                                                                                                       |
| •    | increases in property and  liability insurance costs;                                                                                                                                                                                                                                                                                        |
| •    | unanticipated increases in real  estate taxes and other operating expenses (e.g., cleaning, utilities, repairs  and maintenance costs, insurance and administrative costs, security,  landscaping, staffing and other general costs);                                                                                                        |
| •    | weather and other conditions  that might adversely affect operating expenses;                                                                                                                                                                                                                                                                |
| •    | expenditures that cannot be  anticipated such as utility rate and usage increases, unanticipated repairs  and real estate tax valuation reassessments or millage rate increases;                                                                                                                                                             |
| •    | our inability to control  operating expenses or achieve increases in revenue;                                                                                                                                                                                                                                                                |
| •    | the results of litigation filed  or to be filed against us;                                                                                                                                                                                                                                                                                  |
| •    | changes in tax legislation;                                                                                                                                                                                                                                                                                                                  |
| •    | risks of personal injury claims  and property damage related to mold claims because of diminished insurance  coverage;                                                                                                                                                                                                                       |
| •    | catastrophic property damage  losses that are not covered by our insurance;                                                                                                                                                                                                                                                                  |
| •    | our ability to acquire  properties at prices consistent with our investment criteria;                                                                                                                                                                                                                                                        |
| •    | risks associated with property  acquisitions such as environmental liabilities, among others;                                                                                                                                                                                                                                                |
| •    | changes in or termination of  contracts relating to third party management and advisory business;                                                                                                                                                                                                                                            |
| •    | risks related to our joint  ventures; and                                                                                                                                                                                                                                                                                                    |
| •    | risks related to the perception  of residents and prospective residents as to the attractiveness, convenience  and safety of our properties or the neighborhoods in which they are located.                                                                                                                                                  |
|                |                                                                                                                                                                                                  |

*** ***17

|   |
|--------|

----

***           *Overview.** We are engaged primarily in the ownership and operation of multifamilyresidential units.  We also provide asset and property management services tothird party owners of multifamily residential units for which we are paidfees.  Our primary source of cash and revenue from operations is rents from theleasing of owned apartment units, which represented 97.9% of our consolidatedrevenue for the three months ended March 31, 2008.

             The operating performance of our properties is affected by factorssuch as interest rates, unemployment rates, job growth, household formation andthe supply and demand of rental apartment communities and in certain marketsother housing alternatives, such as condominiums, single and multifamily rentalhomes and owner occupied single and multifamily homes.  Rental revenuecollections are a combination of rental rates, occupancy levels and rentconcessions.  We attempt to adjust these factors from time to time, based onmarket conditions, in order to maximize rental revenue.  Indicators that we usein measuring these factors include physical occupancy and net collected rent. These indicators are more fully described in the Results of Operationscomparison.  Additionally, we consider property net operating income (“NOI”) tobe an important indicator of our overall performance.  Property NOI (propertyoperating revenue less property operating and maintenance expenses) is ameasure of the profitability of our properties, which has the largest impact ofall of our sources of income and expense on our financial condition andoperating results.  See Note 9 of the Notes to Consolidated FinancialStatements presented in Part I, Item 1 of this report on Form 10-Q foradditional information regarding property NOI and total NOI, in addition to areconciliation of total NOI to consolidated net income in accordance with GAAP.

            In 2007, we made the decision to exit the Affordable Housingbusiness and during the first quarter of 2008 we sold ten of the eleven whollyowned Affordable Housing properties.  In April 2008, we sold the remainingAffordable Housing property.  We also continued to execute on our strategy toreposition our portfolio by selling older properties with lower margins and replacingthem with newer properties in higher growth submarkets by selling four olderproperties located in Toledo, Ohio.  In April, 2008, we acquired two Class Aproperties located in the Richmond, Virginia metropolitan area.

**            Updated 2008 Expectations. **

| • ** ** | ***Portfolio performance****-*We continue to expect to increase our Same Community property NOI by  approximately 3.3% to 3.7% in 2008, driven by property revenue increases of  3.0% to 3.3%.  However, these expectations may be adversely impacted if the  economy suffers a broad and prolonged recessionary period. |
|-------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • ** ** | ***Property acquisitions and  sales*** - We plan to acquire and dispose of approximately $100.0  million of properties in 2008.  As of the date of this report, we have  acquired and disposed of $75.0 million and $92.0 million of properties,  respectively.                                                          |
| • ** ** | ***Defeasance and other  prepayment costs*** – We have incurred $2.0 million in costs to  defease/prepay or refinance debt during 2008 and, as of the date of this  report, we do not expect to incur any additional defeasance costs.                                                                                   |
|              |                                                                                                                                                                                                                                                                                                                          |

| 18 |
|----|

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**LIQUIDITY AND CAPITAL RESOURCES**

            **Cash Flows and Liquidity.**  Significant sources and uses ofcash in the three months ended March 31, 2008 and 2007 are summarized asfollows:           

|                                                                                                                                                                    |  Three Months Ended |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|
|                                                                                                                                                                    |  March 31,          |
| *(In thousands)*                                                                                                                                                   | 2008                     |  | 2007 |
| Net cash provided by  operating activities                                                                                                                         |  $                  | 2,619  |  |  $ | 3,829  |
| Fixed assets:                                                                                                                                                      |                          |  |  |
| Property/land  acquisitions, net                                                                                                                                   | (5,630)                  |  | -    |
| Property  disposition proceeds, net of 1031 exchange deposit                                                                                                       | 61,210              |  | 4,825  |
| Recurring  and non-recurring capital expenditures                                                                                                                  | (1,448)                  |  | (680) |
| Debt:                                                                                                                                                              |                          |  |  |
| Decrease  in mortgage notes                                                                                                                                        | (43,594)                 |  | (27,569) |
| Decrease  in revolver or line of credit borrowings                                                                                                                 | (7,000)                  |  | -    |
| Cash dividends and operating  partnership distributions paid                                                                                                       | (3,979)                  |  | (4,210) |
|                             |                          |  |  |
|                                                                                                                                                                    |                          |  |  |  |  |

            Our primary sourcesof liquidity are cash flow provided by operations, short-term borrowings on ourrevolver and proceeds from property sales.  Cash flow provided by operations decreasedduring 2008 primarily as a result of changes in accounts payable and accruedexpenses compared to 2007, which is a result of the timing of the payment ofsuch expenses.  Partially offsetting the decrease related to accounts payableand accrued expenses was an increase in cash flow from property operations anda decrease in cash paid for interest in 2008 when compared with 2007.

            During the three months ended March 31, 2008, we received $84.8million from the sale of 14 properties.  We placed $23.6 million of theseproceeds in escrow and used it to partially fund the acquisition in April oftwo properties located in the Richmond, Virginia metropolitan area.  Additionally,we used $5.2 million to reimburse ourselves for the cost of purchasing theground lessor’s interest in ground leases at six of the Affordable Housingproperties that were sold that had been subject to ground leases.  Theremaining proceeds were primarily used to prepay/defease $42.9 million of debtand for general corporate purposes.

            In March 2008, we completed an amendment increasing the borrowingcapacity on our unsecured revolving credit facility (the "revolver")to $150.0 million from $100.0 million.  The amendment also extended thematurity date of the revolver for an additional year to March 20, 2011 andmodified certain financial covenants.

            We anticipate funding approximately $13.3 million for recurring, revenueenhancing and nonrecurring capital expenditures for the remainder of 2008. These expenditures are expected to be funded from cash flow provided byoperating activities and the sale of properties.

            Any future multifamily property acquisitions or developments wouldbe financed with the most appropriate sources of capital, which may include borrowingson the revolver, the assumption of mortgage indebtedness, bank and otherinstitutional borrowings, the exchange of properties, undistributed earnings,secured or unsecured debt financings, or the issuance of shares or unitsexchangeable into common shares.

| 19 |
|----|

----

            We anticipate that wewill meet our liquidity requirements for the remainder of 2008 generallythrough cash flow provided by operations.  We believe that this and othersources, such as the revolver, should be sufficient to meet operatingrequirements, capital additions, mortgage amortization payments and the paymentof dividends in accordance with REIT requirements.  We anticipate that we willcontinue paying quarterly dividends and sustain our current dividend rate of$0.17 per quarter.

            **Off-Balance Sheet Investments and Financing Commitments.**  AtMarch 31, 2008, we had an investment in a joint venture that owns an AffordableHousing property.  Joint venture investments enable us to exercise influenceover the operations of such properties and share in their profits, whileearning additional fee income.  We account for our investment in the unconsolidatedjoint venture under the equity method of accounting as we exercise significantinfluence, but do not control this entity and are not required to consolidate itin accordance with FASB Interpretation No. 46, "Consolidation of VariableInterest Entities" or under EITF 04-05, "Investor's Accounting for anInvestment in a Limited Partnership When the Investor Is the Sole GeneralPartner and the Limited Partners Have Certain Rights".  This investment wasinitially recorded at cost as investment in joint ventures and subsequentlyadjusted for equity in earnings/loss and cash contributions and distributions. This joint venture property had negative cash flow during 2007 and is expectedto have negative cash flow during 2008 as a result of operating expensesexceeding tenant rents and the housing assistance payments from HUD.  The jointventure partnership that owns this property has entered into a contract to sellit.  Our proportionate share of the debt on this property at March 31, 2008,was $2.1 million.

***RESULTS OF OPERATIONS***

***Comparison of the three months ended March 31, 2008 to the three months ended March31, 2007. ***

***           ***In the following discussion, Same Community propertiesrepresent 46 wholly owned properties that we have owned during the entirety ofthe comparison periods, and Acquired properties represent two propertiesacquired in June 2007.

            The net loss from continuing operations for 2008 decreased $2.2million when compared to 2007 primarily due to a reduction in interest expensein 2008.  Operating income increased $331,000 during 2008 primarily as a resultof improved property operations in 2008 compared to 2007.  Property revenuesincreased $4.1 million in 2008, of which 3.1 million was due to the Acquiredproperties, while property operating expenses increased $1.6 million, of which$1.1 million was due to Acquired properties.  These increases resulted in increasedproperty NOI of $2.5 million in 2008 compared to 2007.  The increase inproperty NOI was partially offset by an increase in depreciation andamortization expense of $1.9 million in 2008 compared to 2007.

            The following chart reflects the amount and percentage change inline items that are relevant to the changes in overall operating performancewhen comparing the three months ended March 31, 2008 to the three months ended March31, 2007:

| 20 |
|----|

----

               

|                                                                                                                                            |  | Increase (decrease) when   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--|----------------------------|
|                                                                                                                                            |  | comparing the three months |
|                                                                                                                                            |  | ended March 31, 2008       |
| *(In thousands)*                                                                                                                           |  | to March 31, 2007          |
|                                                                                                                                            |  |                            |  |
| Property revenue                                                                                                                           |  |  $                    | 4,056  | 14.8 % |
| Fees, reimbursements and  other                                                                                                            |  | (2,141)                    | (79.5)% |
| Property operating and  maintenance expense items:                                                                                         |  |                            |  |
| Personnel                                                                                                                                  |  | 527                   | 16.5 % |
| Real  estate taxes and insurance                                                                                                           |  | 627                   | 17.2 % |
| Depreciation and  amortization                                                                                                             |  | 1,931                 | 29.2 % |
| Direct property management  and service company expenses                                                                                   |  | (2,845)                    | (87.8)% |
| General and administrative                                                                                                                 |  | 816                   | 30.1 % |
| Interest expense                                                                                                                           |  | (2,072)                    | (18.5)% |
|                         |  |                            |  |
|                                                                                                                                            |  |                            |  |  |

*            Property revenue.*  Property revenue is impacted by acombination of rental rates, rent concessions and occupancy levels.  We measurethese factors using indicators such as physical occupancy (number of unitsoccupied divided by total number of units at the end of the period) and averagemonthly net collected rent per unit (gross potential rents less vacancies andconcessions divided by total number of units).  This information is presentedin the following tables for the three months ended March 31, 2008 and 2007:                

|                                                                                                              |        | Physical Occupancy   |
|--------------------------------------------------------------------------------------------------------------|--------|----------------------|
|                                                                                                              |        | For the Three Months |
|                                                                                                              |        | Ended March 31,      |
|                                                                                                              |        | 2008                 |  | 2007 |
| Same Community Properties:                                                                                   |        |                      |  |  |
| Midwest                                                                                                      |        | 95.2%                |  | 96.2% |
| Mid-Atlantic/Southeast                                                                                       |        | 94.4%                |  | 95.3% |
| Total Same Community                                                                                         |        | 95.0%                |  | 96.0% |
| Acquired Properties                                                                                          |        | 91.1%                |  | N/A |
|                    |        |                      |  |  |
|                                                                                                         |   |                 |   |   |

|                                                                                                                                            |        | Average Monthly Net Collected |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|
|                                                                                                                                            |        | Rent Per Unit                 |
|                                                                                                                                            |        | For the Three Months          |
|                                                                                                                                            |        | Ended March 31,               |
|                                                                                                                                            |        | 2008                          |  | 2007 |
| Same Community Properties:                                                                                                                 |        |                               |  |  |
| Midwest                                                                                                                                    |        |  $                       | 753  |  |  $ | 723  |
| Mid-Atlantic/Southeast                                                                                                                     |        |  $                       | 1,059  |  |  $ | 1,047  |
| Total Same Community                                                                                                                       |        |  $                       | 831  |  |  $ | 806  |
| Acquired Properties                                                                                                                        |        |  $                       | 888  |  | N/A  |
|                         |        |                               |  |  |  |
|                                                                                                                                       |   |                          |   |   |   |

| 21 |
|----|

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            Total propertyrevenue increased in 2008 primarily as a result of the contribution of $3.1 millionfrom the Acquired properties.  Property revenue for the Same Community segmentincreased $1.0 million primarily as a result of stable occupancy combined withrental rate increases and an overall reduction in concessions being offered.  The Midwest portfolio, which contains 75.0% of the Same Community units, was theprimary contributor as average net collected rents increased 4.1% for thatportfolio while the Mid-Atlantic/Southeast portfolio increased 1.1%.

            *Property operating and maintenance expenses.*  Propertyoperating and maintenance expenses increased during 2008 primarily as a resultof increases in personnel expense and real estate tax expense and insurancecosts.  Personnel expense increased primarily due to increased salary andbenefit costs at the Same Community properties and personnel costs at the Acquiredproperties.  Real estate tax costs increased primarily due to taxes totaling$353,000 at the Acquisition properties, and the Same Community properties realestate taxes increasing $160,000 due to estimated millage rate increases.

            *Fees, reimbursements and other revenue. *The management andservice operations recognized a $538,000 decrease in fee revenue in 2008 primarilyas a result of the loss of management fee revenue associated with our exit fromthe Affordable Housing fee management business at the end of 2007 and theresulting reduction of properties managed for third party owners. Reimbursement of expense from managed properties decreased $1.8 million in 2008also as a result of the reduction of properties managed.  This reduction had noimpact to the net loss from continuing operations as these reimbursements arealso included in “Direct property management expenses”.

            *Depreciation and amortization. *Depreciation andamortization expense increased in 2008 primarily as a result of depreciationand amortization expense related to the Acquisition properties.  As a result ofthe acquisition of these properties in June 2007, we recorded intangible assetstotaling $3.2 million which are being amortized over a 12 to 16 monthperiod.

            *Direct property management and service company expenses. *Directproperty management and service company expenses decreased in 2008 as a resultof the reduction in the number of properties managed for third party owners. The reimbursement of expenses from the managed properties decreased $1.8million in 2008 compared to 2007.  As noted above, this reduction had no impactto the net loss from continuing operations as these reimbursements are alsoincluded in “Fees, reimbursements, and other” revenue.  Service companyexpenses, which represent the portion of general and administrative expensethat relates to the management of third party owned properties, also decreased$1.1 million in 2008 compared to 2007 due to the reduction in the number ofproperties managed.

            *General and administrative expense.*  General andadministrative expense increased in 2008 compared to 2007 primarily as a resultof the reduction in costs allocated to "Direct property management andservice company expenses" in 2008 and increases in payroll related costs.

            *Interest expense. *Interest expense decreased in 2008primarily due to defeasance/prepayment costs recognized in 2007 of $2.7million, which were included in “Income from continuing operations”.  Thisdecrease was partially offset by an increase of $350,000 in interest expenserelated to borrowings on the revolver during the first quarter of 2008, whereasthere were no borrowings on the lines of credit during the first quarter of2007.

| 22 |
|----|

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            *Income fromDiscontinued Operations.*  Discontinued operations include the operatingresults of 14 properties that were sold during 2008, one held for sale propertyand three properties that were sold during 2007 and the gains related to salescompleted during each of the comparison periods.  Defeasance/prepayment costsrecognized in 2008 totaling $2.0 million were included in discontinuedoperations.  For further details on "Income from discontinuedoperations," see Note 2 of the Notes to Consolidated Financial Statementspresented in Part I, Item 1 of this report on Form 10-Q.

**CONTINGENCIES**

            For a discussion of contingencies, see Note 10 of the Notes toConsolidated Financial Statements presented in Part I, Item 1 of this report onForm 10-Q.

**ITEM 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

            We are exposed to interest rate changes associated with variablerate debt as well as refinancing risk on our fixed-rate debt.  Based on ourvariable rate debt outstanding at March 31, 2008 and 2007, an interest ratechange of 100 basis points would impact interest expense approximately $480,000and $560,000 on an annual basis, respectively. We occasionally use derivativeinstruments to manage our exposure to interest rates.  See Note 1 of the Notesto Consolidated Financial Statements presented in Part I, Item 1 of this reporton Form 10-Q for additional information regarding derivative instruments and "Item7A Qualitative and Quantitative Disclosures About Market Risk" of ourAnnual Report on Form 10-K for the year ended December 31, 2007, for a morecomplete discussion of interest rate sensitive assets and liabilities.

**ITEM 4.  CONTROLS AND PROCEDURES**

            *Disclosure Controls and Procedures.*  We have evaluatedthe design and operations of our disclosure controls and procedures todetermine whether they are effective in ensuring that the disclosure ofrequired information is timely made in accordance with the Securities ExchangeAct of 1934 ("Exchange Act") and the rules and forms of theSecurities and Exchange Commission.  This evaluation was made under thesupervision and with the participation of management, including our ChiefExecutive Officer ("CEO") and Chief Financial Officer("CFO"), as of the end of the period covered by this report on Form10-Q.  The CEO and CFO have concluded, based on their review, that ourdisclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e)and 15d-15(e), are effective to ensure that information required to bedisclosed in reports that we file under the Exchange Act is (i) recorded,processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms, and (ii) accumulated andcommunicated to management, including the principal executive and principalfinancial officers, as appropriate, to allow timely decisions regardingdisclosure.

            *Changes in Internal Control over Financial Reporting.*  Therewere no changes in our internal control over financial reporting during the firstquarter of 2008 that materially affected, or are reasonably likely tomaterially affect, internal control over financial reporting.

            We believe that because of its inherent limitations, internalcontrol over financial reporting may not always prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods aresubject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

| 23 |
|----|

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**PART II.     OTHER INFORMATION**

**ITEM 1.      LEGAL PROCEEDINGS**

                  For information related to legal proceedings, see Note 10of the Notes to Consolidated Financial Statements presented in Part I, Item 1of this report on Form 10-Q.

**ITEM 1A.    RISK FACTORS**

                  See "Risk Factors" in Part I, Item 1A of our AnnualReport on Form 10-K for the year ended December 31, 2007.

**ITEM 2.       UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

| Issuer Purchases of Equity Securities for the Three  Months Ended March 31, 2008                 |
|--------------------------------------------------------------------------------------------------|
|                                                                                                  |  |  |  |  |  |  |  |  |
|                                                                                                  |  |  |  |  |  |  |  | Approximate |
|                                                                                                  |  |  |  |  |  |  |  | Dollar Value of |
|                                                                                                  |  |  |  |  |  | Total Number of |  | Shares That May |
|                                                                                                  |  |  |  |  |  | Shares Purchased |  | Yet Be Purchased |
|                                                                                                  |  | Total Number |  | Average |  | As Part of |  | Under the Plans |
|                                                                                                  |  | of Shares |  | Price Paid |  | Publicly Announced |  | or Programs |
| Period                                                                                           |  | Purchased |  | Per Share |  | Plans or Programs |  | (in thousands) |
| January 1 through                                                                                |  |  |  |  |  |  |  |  |
| January  31                                                                                      |  | -    |  |  $ | -    |  | -    |  |  $ | 5,949  |
| February 1 through                                                                               |  |  |  |  |  |  |  |  |
| February  29                                                                                     |  | 18,758  |  | 10.52  |  | -    |  | 5,949  |
| March 1 through                                                                                  |  |  |  |  |  |  |  |  |
| March  31                                                                                        |  | 1,660  |  | 9.90  |  | -    |  | 5,949  |
| Total                                                                                            |  | 20,418  |  |  $ | 10.47  |  | -    |  |  |
|                  |  |  |  |  |  |  |  |  |

            On July 27, 2005, our Board of Directors authorized the repurchaseof up to $50.0 million of our common shares.  On October 20, 2006, our Board ofDirectors expanded this authorization to include the repurchase of our Class BSeries II Preferred Shares.  Additionally, we have a policy which allowsemployees to pay their portion of the payroll taxes related to restricted sharevesting by surrendering a number of shares to us equal in value on the day ofvesting to the amount of taxes due up to the minimum statutory withholdingamount.

| 24 |
|----|

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**ITEM 6.     EXHIBITS**

 

| ** **                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **Filed herewith or**                                                             |
|--------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|
| ** **                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **incorporated herein**                                                           |
| **Number**                     | ** ** | **Title**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | **by reference**                                                                  |
|                           |       |                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                                                              |
| 3.1                            |            | Amendment to Second Amended  and Restated Articles of Incorporation.                                                                                                                                                                                                                                                                                                                                                                                                                               |            | Exhibit 3.1 to Form 8-K  filed December 8, 2004.                                  |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                                               |            |                                                                                   |
| 3.2                            |            | Second Amended and Restated  Articles of Incorporation.                                                                                                                                                                                                                                                                                                                                                                                                                                            |            | Exhibit 3.2 to Form 10-Q  filed July 31, 2007.                                    |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                           |            |                                                                                   |
| 3.3                            |            | Amended and Restated Code of  Regulations of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                          |            | Exhibit 3.3 to Form 10-Q  filed August 1, 2006.                                   |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                                |            |                                                                                   |
| 4.1                            |            | Specimen Common Share  Certificate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |            | Exhibit 3.1 to Form S-11  filed September 2, 1993 (File No. 33-68276 as amended). |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                  |            |                                                                                   |
| 4.2                            |            | Specimen 8.70% Class B  Series II Cumulative Redeemable Preferred Shares.                                                                                                                                                                                                                                                                                                                                                                                                                          |            | Exhibit 4.3 to Form 8-A  filed December 8, 2004.                                  |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                           |            |                                                                                   |
| 4.3                            |            | Deposit Agreement by and  among Associated Estates Realty Corporation and National City Bank and  Depositary Receipts.                                                                                                                                                                                                                                                                                                                                                                             |            | Exhibit 4.5 to Form 8-A  filed December 8, 2004.                                  |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                                               |            |                                                                                   |
| 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.                                  |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                                                         |            |                                                                                   |
| 4.13                           |            | Credit Agreement Dated As of  April 24, 2007 among Associated Estates Realty Corporation, as Borrower and  National City Bank as Administrative Agent, Lead Arranger, and Book Manager  and The Several Lenders From Time to Time Parties Hereto, as Lenders.                                                                                                                                                                                                                                      |            | Exhibit 4.13 to Form 10-Q  filed July 31, 2007.                                   |
|       |            |                                                                                                                                                                                                                                                                                                                                                                                                               |            |                                                                                   |
| 4.14                           |            | Shareholder Rights Agreement  dated January 6, 1999 between Associated Estates Realty Corporation, an Ohio  corporation (the “Company”) and National City Bank, a national banking  association (the “Rights Agent”).                                                                                                                                                                                                                                                          |            | Exhibit 1 to Form 8-A filed  January 26, 1999.                                    |
|                                |            |                                                                                                                                                                                                                                                                                                                                    |            |                                                                                   |
| 4.15                           |            | First Amendment to Credit  Agreement dated March 20, 2008 by and among Associated Estates Realty Corporation  (the Borrower), National City Bank and other banks and financial institutions  (the Lenders) and National City Bank (the Administrative Agent).                                                                                                                                                                                                                                      |            | Exhibit 4.15 to Form 10-Q  filed herewith.                                        |
|                                |            | **                                       **                                                                                                                                                                                                                                                     |            |                                                                                   |
| 4.16                           |            | Joinder to Subsidiary  Guaranty dated March 20, 2008 for the benefit of National City Bank, as agent  for itself and certain other lenders, with respect to a loan from the Lenders  to Associated Estates Realty Corporation.                                                                                                                                                                                                                                                                     |            | Exhibit 4.16 to Form 10-Q  filed herewith.                                        |
|                 |            | **                **                                                                                                                                                                                                                                                                                                                                                                                               |            |                                                                                   |
|                                |            | Certain of the Registrant's  assets are subject to mortgage obligations each of which individually relates  to indebtedness totaling less than 10.0% of the total assets of the  Registrant.  The Registrant hereby agrees to furnish a copy of such  agreements to the Commission upon its request.                                                                                                                                                                                          |            |                                                                                   |
|       |            |                                                                                                                                                                                                                                                                                                                                                                                                                              |            |                                                                                   |
|                                |            | The Registrant issued  unsecured debt in the form of Trust Preferred Securities on March 15, 2005 in  a private placement in an amount less than 10.0% of the total assets of the  Registrant.  The Registrant hereby agrees to furnish a copy of the Purchase  Agreement dated March 15, 2005 between Associated Estates Realty Corporation,  AERC Delaware Trust and Taberna Preferred Funding 1, Ltd. and a specimen  Preferred Securities Certificate to the Commission upon its request. |            |                                                                                   |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |            |                                                                                   |

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| ** **               | ** ** | ** **                                                                                                                                                                                                              | ** ** | **Filed herewith or**                                                              |
|--------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|
| ** **               | ** ** | ** **                                                                                                                                                                                                              | ** ** | **incorporated herein**                                                            |
| **Number**               | ** ** | **Title**                                                                                                                                                                                                               | ** ** | **by reference**                                                                   |
|                     |       |                                                                                                                                                        |       |                                                                               |
|                          |            |                                                                                                                     |            |                                                                                    |
| 10                       |            | Associated Estates Realty  Corporation Directors' Deferred Compensation Plan.                                                                                                                                           |            | Exhibit 10 to Form 10-Q  filed November 14, 1996.                                  |
|                          |            |                                                                                                      |            |                                                                                    |
| 10.1                     |            | Stock Option Plan.                                                                                                                                                                                                      |            | Exhibit 10.2 to Form S-11  filed September 2, 1993 (File No. 33-68276 as amended). |
|                          |            |                                                                                                                |            |                                                                                    |
| 10.2                     |            | Amended and Restated  Employment Agreement between the Company and Jeffrey I. Friedman.                                                                                                                                 |            | Exhibit 10.1 to Form 10-Q  filed May 13, 1996.                                     |
|                          |            |                                                                                            |            |                                                                                    |
| 10.3                     |            | Equity-Based Incentive  Compensation Plan.                                                                                                                                                                              |            | Exhibit 10.4 to Form 10-K  filed March 29, 1995.                                   |
|                          |            |                                                                                                                               |            |                                                                                    |
| 10.4                     |            | 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.                                   |
|                          |            |                                                                                                                                                                                                                         |            |                                                                                    |
| 10.5                     |            | Form of Indemnification  Agreement.                                                                                                                                                                                     |            | Exhibit 4.2 to Form S-11  filed September 2, 1993 (File No. 33-68276 as amended).  |
|                          |            |                                                                                                      |            |                                                                                    |
| 10.8                     |            | 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.                                  |
|                          |            |                                                                                                                     |            |                                                                                    |
| 10.10                    |            | Associated Estates Realty  Corporation Amended and Restated 2001 Equity-Based Plan (as amended on May 4,  2005).  Incorporated by reference to Appendix 1 to the Definitive Proxy  Statement filed March 28, 2005. |            | Exhibit 99.01 to Form S-8  filed May 26, 2005.                                     |
|      |            |                                                                                                                                                   |            |                                                                                    |
| 10.11                    |            | Form of Equity Award  Agreement.                                                                                                                                                                                        |            | Exhibit 10.11 to Form 10-Q  filed August 2, 2005.                                  |
|                          |            |                                                                                                                                         |            |                                                                                    |
| 10.12                    |            | Long Term Incentive  Compensation Plan.                                                                                                                                                                                 |            | Exhibit 10.12 to Form 10-Q  filed November 1, 2005.                                |
|                          |            |                                                                                                                     |            |                                                                                    |
| 10.13                    |            | Associated Estates Realty  Corporation Elective Deferred Compensation Plan.                                                                                                                                             |            | Exhibit 10.13 to Form 10-Q  filed July 31, 2007.                                   |
|                          |            |                                                                                                      |            |                                                                                    |
| 31                       |            | Certification of Chief  Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act.                                                                                                                            |            | Exhibit 31 to Form 10-Q  filed herewith.                                           |
|                          |            |                                                                                                           |            |                                                                                    |
| 31.1                     |            | Certification of Chief  Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act.                                                                                                                            |            | Exhibit 31.1 to Form 10-Q  filed herewith.                                         |
|                          |            |                                                                                                                     |            |                                                                                    |
| 32                       |            | Certification of Chief  Executive Officer and Chief Financial Officer Pursuant to Section 906 of the  Sarbanes Oxley Act.                                                                                               |            | Exhibit 32 to Form 10-Q  filed herewith.                                           |
|      |            |                                                                                                                                                                                                                         |            |                                                                                    |

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**SIGNATURES**

            Pursuant to the requirements of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.

 

|                                                                                                                                                                                                                                                                                           | ASSOCIATED ESTATES REALTY  CORPORATION                                                                                                                                                                                                                                                                                                                                                             |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                        |
| May 6, 2008                                              | /s/ Lou Fatica                                                               |
| (Date)                                                                                                                                                                                                                                                                                    | Lou Fatica, Vice President                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                           | Chief Financial Officer and  Treasurer                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                    |

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