This Form 10-Q/A is being filed for the purpose of revising the annualized EBITDA amounts of the
Company's unencumbered wholly owned properties as disclosed in MD&A the first and second paragraphs
on page 26.  The amounts are being revised due to the miscalculation of the annualization of EBITDA.

The following amendments to the Form 10-Q have been made:

Page 26 of MD&A - Adjusted annualized EBITDA in first paragraph relating to unencumbered
wholly owned properties from $57.2 million to $34.1 million (adjusted Market-rate Properties
from $47.8 million to $28.5 million and adjusted Government-Assisted Properties from $9.4
million to $5.6 million).  Adjusted annualized EBITDA in second paragraph relating to
unencumbered wholly owned properties from $56.6 million to $32.6 million (adjusted Market-rate Properties
from $47.2 million to $27.0 million and adjusted Government-Assisted
Properties from $9.4 million to $5.6 million).







**Form 10-Q/A**

















**Associated Estates Realty Corporation**



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



|Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
|-----------------------------------------------------------------------------------------------
|Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding                
|12 months (or for such shorter period that the registrant was required                         
|to file such reports), and (2) has been subject to such                                        
|filing requirements for the past 90 days.                                                      
|Yes [ x ]   No [   ]                                                                           





**PART I, ITEM II**

**ASSOCIATED ESTATES REALTY CORPORATION**

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

**CONDITION AND RESULTS OF OPERATIONS.**

*******Overview***

Associated Estates Realty Corporation (the "Company") is a self-administered and self-managed real
estate investment trust ("REIT") which specializes in the acquisition, development, ownership and
management of multifamily properties.  In connection with the merger of MIG Realty Advisors, Inc. ("MIGRA")
on June 30, 1998, the Company also acquired the property and advisory management businesses of several
of MIGRA's affiliates and the right to receive certain asset management fees, including disposition and
incentive fees, that would have otherwise been received by MIGRA upon the sale of certain of the properties
owned by institutions advised by MIGRA.  MIG II Realty Advisors, Inc. ("MIG") MIGRA's successor,  is a
registered investment advisor and also functions as a mortgage banker and as a real estate advisor to pension
funds.  MIG recognizes revenue primarily from its clients' real estate acquisitions and dispositions, loan
origination and consultation,  mortgage servicing, asset and property management and construction lending
activities.  MIG earns the majority of its mortgage servicing fee revenue from two of its pension fund clients.
MIG's asset management, property management, investment advisory and mortgage servicing operations,
including those of the prior MIG affiliates, are collectively referred to herein as the "MIGRA Operations".

At September 30, 1999, the Company owned directly or indirectly, or was a joint venture partner in
96 multifamily properties containing 20,868 units.  Of these properties, 71 were located in Ohio, 11 in
Michigan, two in Florida, two in Georgia, three in Maryland, one in North Carolina, one in Texas, one in
Arizona, three in Indiana and one in Pennsylvania.  Additionally, the Company managed 53 non-owned
properties, 47 of which were multifamily properties consisting of 11,261 units (16 of which are owned by
various institutional investors consisting of 5,751 units) and six of which were commercial properties
containing an aggregate of approximately 621,000 square feet of gross leasable area.  Through affiliates,
collectively referred to as the "Service Companies", the Company provides property and asset management,
investment advisory, painting and computer services as well as mortgage origination and servicing to both
owned and non-owned properties.

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

***Liquidity and Capital Resources***

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended, commencing with its taxable year ending December 31, 1993.  REITs
are subject to a number of organizational and operational requirements including a requirement that 95% of
the income that would otherwise be considered as taxable income be distributed to

shareholders.  Providing the Company continues to qualify as a REIT, it will generally not be subject to a
Federal income tax on net income.

The Company expects to meet its short-term liquidity requirements generally through its net cash
provided by operations, secured borrowings and property sales proceeds.  The Company believes that  these
sources will be sufficient to meet both operating requirements and the payment of dividends in accordance
with REIT requirements.  During the remainder of 1999 and 2000, approximately $.9 million and $93.2 million,
respectively, of the Company's debt will mature.  Although the Company may no longer be in a position to
access public unsecured debt markets due to revised credit ratings, the Company believes it has adequate
alternatives available to provide for its liquidity needs including new secured borrowings and property sales
proceeds.

*Financing:*

During 1999 through November 9, 1999, the Company has received proceeds of $309.8 million in
project specific, nonrecourse mortgage loans which are collateralized by 26 properties owned by qualified
REIT subsidiaries, having a net book value of $375.2 million.  These qualified REIT subsidiaries are separate
legal entities and maintain records, books of accounts and depository accounts separate and apart from any
other person or entity.  Most of the proceeds from these loans were used to pay down the Company's floating
rate unsecured line of credit facility and a $20 million Medium-Term Note.  The proceeds were also used to
increase the Company's cash balances which will be used to fund construction in progress, fund joint venture
opportunities with pension fund clients, and buy back limited quantities of the Company's stock as authorized
by the Board of Directors.  There are no cross-default or cross-collateralization provisions in the mortgages.
After repayment of the unsecured line of credit facility, the Company's total floating rate debt outstanding was
reduced to $18.1 million, and all outstanding unsecured floating rate debt was repaid.  These nonrecourse
financings had the effect of increasing the Company's weighted average debt maturity from approximately 4
years to approximately 9 years.

*Cash Tender Offers for Unsecured Debt Securities:*

On October 21, 1999, the Company commenced cash tender offers and concurrent consent
solicitations for all of the Company's outstanding unsecured debt securities.  The vote of the holders of a
simple majority of the principal amount of outstanding notes voting together as one class was required  to
obtain the requisite consents.  The initial offer provided for a discount to par; however, on November 3, 1999,
the Company had not received the requisite consents.  The Company has notified the noteholders that it will
tender the notes for par.  The Company intends to fund the tender offers with project specific, non-recourse
loans from The Chase Manhattan Bank and a secured line of credit from National City Bank.   The loans will
be collateralized by individual mortgages on as many as  31 properties.  This structure is intended to give the
Company more operating and financial flexibility than that under the indenture governing the notes.

Upon completion of the revised tender and the related financing, the Company's total debt structure
will consist of approximately $560 million in long-term, secured, fixed rate financing, encumbering
approximately 66 properties (excluding 7 unconsolidated joint venture properties).  The Company owns an
additional 21 properties that will remain unencumbered at the completion of the tender and the related
financing.

The tender offers and consent solicitations are being made pursuant to an Offer to Purchase and
Consent Solicitation Statement and related materials, which set forth the terms of the tender offers and
consent solicitations.  The tender offers are, among other matters, expressly conditional upon the successful
consummation of the secured financing.  The Company expressly reserves the right, in its sole discretion, to
terminate the tender offers and the consent solicitations.

Under the revised terms of the offers and solicitations, investors who tender their securities prior to
the Consent Date will receive the revised consideration of $975 per $1,000 principal amount plus a Consent
Fee of $25 per $1,000 Note; investors tendering after that date will receive the new purchase price but not
the Consent Fee.  Investors who have previously validly tendered their notes will receive the increased
purchase price, as well as the Consent Fee.  In either event, accrued and unpaid interest will be paid up to,
but excluding the settlement date of the tender offers.

On November 5, 1999, the Company received consents from holders of more than a majority in
aggregate principal amount of its outstanding notes pursuant to the amended terms of its cash tender offers
and concurrent consent solicitations for all of its outstanding senior and medium-term notes totaling $177.5
million in principal.  Accordingly, the Company and the trustee for the notes will execute a supplemental
indenture containing the proposed amendments approved by noteholders, which becomes effective upon
acceptance by the Company for payment of all notes validly tendered pursuant to the tender offers.

Upon completion of this transaction, the Company will recognize an extraordinary charge of
approximately $1.6 million which represents a write off of deferred finance costs related to the termination of
these unsecured debt securities.

Prior to its termination in May 1999, the Company had available a $250 million revolving credit facility
(the "Line of Credit") which contained various restrictive covenants.  At December 31, 1998, $226.0 million
was outstanding under this facility.  The weighted average interest rate on borrowings outstanding under the
Line of Credit was 6.88% at December 31, 1998, representing a variable rate based on the prime rate or
LIBOR plus a specified spread, depending on the Company's long term senior unsecured debt rating from
Standard and Poor's and Moody's Investors Service.  An annual commitment fee of 15 basis points on the
maximum commitment, as defined in the agreement, was payable annually in advance on each anniversary
date.  In May 1999,  the Company  repaid all outstanding obligations under this Line of Credit through
proceeds received from financing project specific, nonrecourse mortgage loans (Note 5) and terminated the
facility.   The Company recognized an extraordinary charge of $1,808,742 which represents a $750,000 facility
fee charge, $126,559 breakage fee, and a $932,183 write off of deferred finance costs related to the
termination of the unsecured line of credit facility.

The Company was in violation of certain financial ratio covenants under the Line of Credit for the first
quarter 1998 reporting period.  The Company received waivers of those violations through June 30, 1998.
Additionally, the Company advised its bank group that it was not in compliance with one of the financial
covenants concerning the Company's net worth for the third quarter 1998 reporting period.  The net worth
covenant required that the Company maintain a minimum net worth of $400 million, based on a formula that
incorporates the annualized multiple of the most recent quarter's earnings before interest, taxes, depreciation
and amortization ("EBITDA"), as defined in the agreement.  The Company negotiated with its bank group for
a waiver by the banks of the breach of the net worth covenant, along with an increase in borrowing costs
under its Line of Credit from LIBOR plus 100 basis points to LIBOR plus 140 basis points (based on the then-current credit rating).  In addition, certain of the covenants, including the minimum net worth covenant, were
modified to provide the Company a limited increase in flexibility.  The minimum net worth covenant was
reduced from $400 million to $325 million.  The bank group continued to make advances under the Line of
Credit following the Company's notification that it was not in compliance with the net worth covenant.  A
$395,000 default waiver fee was paid in December 1998 and was reflected in the Consolidated Statements
of Income at December 31, 1998.

MIGRA maintained a $500,000 Line of Credit facility ("MIGRA Line of Credit Facility") which the
Company assumed at the time of the merger. During February 1999, the Company paid off the $446,565
outstanding MIGRA Line of Credit Facility and terminated this facility.

Fifty-two (40 Market-rate Properties which refers to the Core and Acquired/Disposed Property
portfolios and 12 Government-Assisted Properties) of the Company's 89 (76 Market-rate Properties and 13
Government-Assisted Properties) wholly owned properties were unencumbered at September 30, 1999 with
annualized EBITDA of approximately $34.1 million (approximately $28.5 million represents the Market-rate
Properties and approximately $5.6 million represents the Government-Assisted Properties) and a historical
gross cost basis of approximately $336.4  million (approximately $300.9 million represents the Market-rate
Properties and approximately $35.5 million represents the Government-Assisted Properties).  The remaining
37 of the Company's wholly owned properties, (all of which are Market-rate Properties except one which is
a Government-Assisted Property), have an historical gross cost basis of $555.6 million ($553.0 million
represents the Market-rate Properties and $2.6 million represents the Government-Assisted Property) and
secured property specific debt of $374.9 million ($1.8 million relates to the Government-Assisted Property)
at September 30, 1999.  Unsecured debt, which totaled $177.5 million at September 30, 1999, consisted of
$92.5 million in Medium-Term Notes and $85 million of Senior Notes.  The Company's proportionate share
of the mortgage debt relating to the seven joint venture properties was $17.3 million at September 30, 1999.
The weighted average interest rate on the secured, unsecured and the Company's proportionate share of the
joint venture debt was 7.28% at September 30, 1999.

After considering the effect of the October 8, 1999 $13.3 million mortgage refinancing of one property,
51 (39 Market-rate Properties and 12 Government-Assisted Properties) of the Company's 89 (76 Market-rate
Properties and 13 Government-Assisted Properties) wholly owned properties remain unencumbered with
annualized EBITDA of approximately $32.6 million (approximately $27.0 million represents the Market-rate
Properties and approximately $5.6 million represents the Government-Assisted Properties) and a historical
gross cost basis of approximately $316.7 million (approximately $281.2 million represents the Market-rate
Properties and approximately $35.5 million represents the Government-Assisted Properties).  The remaining
38 of the Company's wholly owned properties, (all of which are Market-rate Properties except one which is
a Government-Assisted Property), have a historical gross cost basis of $575.4 million ($572.8 million
represents the Market-rate Properties and $2.6 million represents the Government-Assisted Property).

**Medium-Term Notes Program**

The Company had 10 and 11 Medium-Term Notes (the "MTN's") outstanding having an aggregate
balance of $92.5 million and $112.5 million at September 30, 1999 and December 31, 1998, respectively.
During September 1999, a $20 million MTN matured and was paid off using funds from the sale of an
operating property and financing proceeds.  The principal amounts of these MTN's range from $2.5 million
to $20 million and bear interest from 6.18% to 7.93% over terms ranging from two to 30 years, with a stated
weighted average maturity of 7.33 years at September 30, 1999.  The holders of two MTN's with stated terms
of 30 years each have a right to repayment in five and seven years from the issue date of the respective MTN.
If these holders exercised their right to prepayment, the weighted average maturity of the MTN's would be 5.44
years.

The Company's current MTN Program provides for the issuance, from time to time, of up to $102.5
million of MTN's due nine months or more from the date of issue and may be subject to redemption at the
option of the Company or repayment at the option of the holder prior to the stated maturity date.  These MTN's
may bear interest at fixed rates or at floating rates and can be issued in minimum denominations of $1,000.
At September 30, 1999, there was $62.5 million of additional MTN borrowings available under the program.
However, the Company may no longer be in a position to access public unsecured debt markets due to
revised credit ratings.

From time to time, the Company may enter into hedge agreements to minimize its exposure to interest
rate risks.  There are no interest rate protection agreements outstanding as of September  30, 1999.

*Registration statements:*

The Company has a shelf registration statement on file with the Securities and Exchange Commission
relating to the proposed offering of up to $368.8 million of debt securities, preferred shares, depositary shares,
common shares and common share warrants.  The total amount of the shelf filing includes a $102.5 million
MTN Program of which MTN's totaling $40.0 million have been issued leaving $62.5 million available. The
securities may be offered from time to time at prices and upon terms to be determined at the time of sale.
However, due to the currently depressed price of the Company's common shares and downgrades of the
Company's public debt and preferred stock ratings in March, June,  July and October 1999, it is unlikely that
the Company will be in a position to offer any securities under its shelf registration statement in the near future.

*Operating Partnership:*

The Company entered into an operating partnership structured as a DownREIT of which an aggregate
20% is owned by limited partners.  Interests held by limited partners in real estate partnerships controlled by
the Company are reflected as "Operating partnership minority interest" in the Consolidated Balance Sheets.
Capital contributions, distributions and profits and losses are allocated to minority interests in accordance with
the terms of the operating partnership agreement.  In conjunction with the acquisition of the operating
partnership, the Company issued a total of 522,032 operating partnership units ("OP units") which consist of
84,630 Class A OP units, 36,530 Class B OP units, 115,124 Class C OP units, 62,313 Class D OP units, and
223,435 Class E OP units.  Pursuant to terms of the underlying agreements, the B and C OP units were
exchanged into A OP units effective June 30, 1999.  The OP units may, under certain circumstances, become
exchangeable into common shares of the Company on a one-for-one basis.  The Class A unitholders are
entitled to receive cumulative distributions per OP unit equal to the per share distributions on the Company's
common shares.  At September 30, 1999, the Company  charged $152,704 to minority interest in operating
partnership in the Consolidated Statements of Income relating to the Class A unitholders  allocated share of
net income.  At September 30, 1999, the Class D and Class E unitholders were not entitled to receive an
allocation of net income and did not receive nor were entitled to receive any cash distributions from the
operating partnership.

*Merger Contingent Consideration Paid and Payable:*

Subject to certain conditions, adjustments and achievements of specified performance goals, the
MIGRA Stockholders' Conversion Rights entitle the MIGRA Stockholders to receive (a) on the second
issuance date (June 30, 1999), an amount of $872,935 payable in common shares of the Company using the
average closing price of the common shares for the 20 trading days immediately preceding June 30, 1999,
(approximately 74,994 common shares at a price of $11.64 per share) subject to certain price adjustments
as provided for in the Merger Agreement and (b) on the third issuance date (June 30, 2000) $2,982,917 worth
of common shares of the Company of which $872,935 is based on the average closing price of the common
shares for the 20 trading days immediately preceding the date the consideration was paid and $2,109,982 is
based on a closing price of $23.63 per the merger agreement.  The obligation of the Company to issue
common shares on the second issuance date was contingent upon the issuance of a certificate of occupancy
for the Windsor Pines property and the MIGRA stockholders' submission to the Company of multifamily
property acquisition opportunities with an aggregate gross asset value of at least $50 million and an average
yield of at least 85% of the pro forma yield of the properties being acquired by the Company in connection with
the acquisitions (the "Minimum Yield").  The obligation of the Company to issue common shares on the third
issuance date is contingent upon the issuance of a certificate of occupancy for the Windsor at Kirkman
property and the MIGRA stockholders' submission to the Company of an additional $50 million of multifamily
property acquisition opportunities with the Minimum Yield.

In 1999, the Company issued 74,994 common shares for the benefit of the former MIGRA
shareholders.  This issuance was made pursuant to the contingent consideration provisions of the MIGRA
merger agreement.  These shares were entitled to the dividend payments which were declared on June 21
and October 7, 1999, and amounted to $56,246.  Such shares were recorded at their, then, fair value of
$872,935 and increased the recorded amount of the intangible asset associated with the purchase of MIGRA.
At September 30, 1999, a total of 30,000 shares of the 74,994 shares were held in escrow for the benefit of
the former MIGRA shareholders.

In October 1999, the Company settled the purchase price adjustment relating to the assets and
liabilities (as defined in the related agreement) assumed in connection with the MIGRA merger.  The MIGRA
merger agreement provided that such adjustment would be determined on the one-year anniversary of the
merger.  Accordingly, the Company paid a net of approximately $1.25 million with respect to the purchase
price adjustment.  The consideration paid was funded by proceeds from the sale, at par (including accrued
interest) of a large receivable to affiliates, the former MIGRA shareholders.  This purchase price adjustment
increased the Company's recorded amount of the intangible asset initially recorded at the date of the merger.

The Company also believes that the conditions for the payment of additional contingent consideration
on the second anniversary of the merger pursuant to the MIGRA merger agreement will be satisfied.  Such
amounts, although not recorded as of September 30, 1999, since the consideration has not yet been
exchanged, approximate $3.0 million.  It is expected that this amount will increase the Company's recorded
intangible asset.  Amortization expense of approximately $149,150 was recorded at September 30, 1999 in
respect of this portion of the consideration.  This second anniversary payment represents the final payment
pursuant to the merger agreement.

*Acquisitions, development and dispositions:*

Any future multifamily property acquisitions or development would be financed with the most
appropriate sources of capital, which may include the assumption of mortgage indebtedness, bank and other
institutional borrowings, through the exchange of properties, undistributed Funds From Operations, or secured
debt financings.

The Company currently has letters of intent to purchase one multifamily property, located in
Lawrenceville, Georgia, containing an aggregate of 308 units for a total purchase price of approximately $23.4
million and a 24 acre parcel of land located in Cranberry Township, Pennsylvania on which the Company
plans to construct 436 units for a total purchase price of approximately $2.1 million.  The Company may
finance the acquisition of the multifamily property or may purchase the property in a joint venture transaction
using the funds received from the sale of five operating properties, which have been set aside to execute a
like-kind exchange and proceeds received from the project specific, nonrecourse mortgage refinancing.

For the nine month period ended September 30, 1999, the Company completed the construction and
leasing of 440 units at three of the Company's development properties.

The Company is in the process of constructing or planning the construction of an additional 1,615
units to be owned by the Company as follows:

|                              |                  | Additional | Anticipated  
|----------------------------- | ---------------- | ---------- | -------------
|Property                      | Location         | Units      | Completion   
|                              |                  |            |              
|Idlewylde                     | Atlanta, Georgia | 843        | 2nd Qtr. 2002
|Village at Avon               | Avon, Ohio       | 312        | 4th Qtr. 2000
|Windsor at Kirkman Apartments | Orlando, Florida | 460        | 4thQtr. 1999 
|                              |                  | 1,615      |              

The Company is exploring opportunities to dispose of some of its joint venture, Government-Assisted
and congregate care multifamily properties and 22 Market-rate Properties (18 located in Ohio and four located
in Michigan).  The Company has retained a financial advisor to evaluate the alternatives relating to the
disposition of its ownership of some of its Government-Assisted properties.

On October 29, 1999,  one of MIG's advisory client's sold a property that MIG was managing and
advising which generated $335,000 of disposition fee income.  The Company recognized management fees
of $46,080 for the nine months ended September 30, 1999.

During September 1999, MIG sold a multifamily property on behalf of a pension fund client.  The
Company recognized an asset disposition fee of $127,500 and management fees of $70,700 for the nine
months ended September 30, 1999.

On August 17, 1999, the Company  entered into a contract to sell one of its Northeast Ohio Market-rate properties.  The Company anticipates that this asset will be sold during 1999.  The net real estate assets
of this property is presented in the Consolidated Balance Sheet as property held for sale.

The sale of any or all of these assets may have either an accretive or dilutive effect on earnings
depending upon the application of proceeds derived from the sale, which will not be known until shortly before
or at the time of sale.

During 1999, the Company sold seven operating properties for net cash proceeds of $32.2 million,
resulting in a gain of $15.3 million.  The net cash proceeds of $13.4 million which were received from the sale
of five operating properties were placed in a trust which restricts the Company's use of these funds for the
exclusive purchase of other property of like-kind and qualifying use.  These funds are presented in the
Consolidated Balance Sheet as restricted cash.  The like-kind exchange must occur prior to December 3,
1999.

MIG has two properties under contract to be acquired for two of its advisory clients, which will be
managed in accordance with the terms of advisory contracts currently in place.

*Management Contract Cancellation:*

On January 13, 1999, the Company terminated its management contract for Longwood Apartments,
which resulted in a loss of management fee income for the nine months ended September 30, 1999 of
approximately $222,000.  Moreover, pursuant to the terms of the HUD Settlement Agreement discussed in
Note 7 of the notes to the financial statements, the Company may terminate its management contract for Park
Village Apartments, which will result in a partial loss of management fee income in 1999.  The management
fees collected for Park Village Apartments for the nine months ended September 30, 1999 were $16,007.

In addition, pursuant to the terms of a separate settlement agreement with affiliates entered into in
conjunction with the settlement agreement with the Corporation as discussed in Note 8, the Company has
agreed to end its management of two commercial properties owned by certain affiliated persons upon 60 days
prior written notice from the respective owners of those properties.  Effective October 1, 1999, the
management contracts of these commercial properties were canceled.  The management fees generated from
these two commercial properties were $27,562 for the nine months ended September 30, 1999.

In March 1999, the Company lost management fees from Euclid Medical & Commercial Arts Building,
a non-owned commercial property, because of foreclosure proceedings.  The management fees generated
from this property for the three months ended March 31, 1999 were $20,728; no fees were recognized for the
period after March 31, 1999.  Additionally, due to the sale of a property in September 1999, the Company has
lost management fees from a managed, but non-owned property.  The management fees generated from this
property for the nine months ended September 30, 1999 were $7,835.

In addition, if the Company proceeds with the proposed sale of its interests in certain joint venture
properties, the Company would no longer receive the management fees attributable to those properties and
one other property.  The management fees net of consulting fees generated for these properties for the nine
months ended September 30, 1999 were $649,125.  Certain third party owners of properties currently
managed by the Company have entered into contracts to sell those properties, subject to certain
contingencies.  To the extent those third party owned properties are sold, the Company would similarly no
longer receive the management fees generated from the respective properties.  The aggregate management
fees generated for these properties for the nine months ended September 30, 1999 were $313,620.

The owners of two non-owned managed properties have contracted to sell these properties.  Upon
the sale of these properties, it is likely that the management contracts will be canceled.  The Company
recognized management fees of $10,708 for the nine months ended September 30, 1999.

The impact of the loss of management fee revenues would generally be partially offset by a reduction
in operating expenses.

*Dividends*:

On October 7, 1999, the Company declared a dividend of $0.375 per common share for the quarter
ending September 30, 1999, which was paid on November 1, 1999 to shareholders of record on October 15,
1999.  The common share dividend was reduced to $0.375 from $0.465 in order to reduce the Company's
dividend payout ratio.  On August 17, 1999, the Company declared a dividend of $0.60938 per Depositary
Share on its Class A Cumulative Preferred Shares (the "Perpetual Preferred Shares") which was paid on
September 15, 1999 to shareholders of record on September 1, 1999.  At the current dividend level, the
Company is a net borrower and will continue to monitor earnings expectations to determine if any changes
should be made with respect to the dividend policy.

*Cash flow sources and applications:*

Net cash provided by operating activities increased $1,766,100 from $30,168,600 to $28,402,500
for the nine months ended September 30, 1999 when compared with the nine months ended September 30,
1998. This increase was the result of increases in depreciation and amortization, restricted cash, accounts
and notes receivable and other operating assets and liabilities offset by funds received from accounts and
notes receivable of affiliates and joint ventures and decreases in funds held for non-owned managed
properties as well as an increase in accounts payable and accrued expenses and funds held for non-owned
managed properties of affiliates and joint ventures.

Net cash flows used for investing activities of $16,531,100 for the nine months ended September 30,
1999 were primarily used for the development of multifamily real estate and capital expenditures.

Net cash flows used for financing activities of $1,360,100 for the nine months ended September 30,
1999 were primarily comprised of proceeds received from the mortgage financing of 25 properties.  Funds
were also used to pay dividends on the Company's common and Perpetual Preferred Shares as well as
repayments on the Line of Credit and a $20 million MTN that matured in September 1999.

During the remainder of 1999 and 2000, approximately $94.1 million of the Company's debt will
mature.  The Company intends to repay any such debt as it matures through a combination of new secured
borrowings and property sales proceeds.  The Company intends to pay off all of its outstanding Senior Notes
and MTN's pursuant to the tender offer described herein.

*********RESULTS OF OPERATIONS***

***Comparison of the quarter ended September 30, 1999 to the quarter ended September 30, 1998***

In the following discussion of the comparison of the quarter ended September 30, 1999 to the quarter
ended September 30, 1998, Market-rate Properties refers to the Same Store-Market Rate ("Same Store") and
Acquired/Disposed Property portfolios.  Same Store Properties represents 28 of the 34 wholly owned
multifamily properties acquired by the Company at the time of the IPO and the 52 properties acquired in
separate transactions or developed by the Company during 1994 through June 30, 1998 and the acquisition
of the remaining 50% interest in two properties in which the Company was a joint venture partner at the time
of the IPO.  Acquired/Disposed Properties refers to six properties which were acquired between July 1, 1998
and September 30, 1999 as well as the newly constructed and repositioned properties, the sale of six
operating properties and Rainbow Terrace Apartments.

Overall, total revenue increased $21,400 or 0.05% and total expenses increased $4,939,700  or
14.2% for the quarter.  Net income applicable to common shares after deduction for the dividends on the
Company's Perpetual Preferred Shares decreased $3,917,200 or 123.2%.

During the quarter ended September 30, 1999, the Market-rate Properties generated total revenues
of $33,657,100 while incurring property operating and maintenance expenses of $15,638,500. Of these
amounts, the Acquired/Disposed and Same Store Properties contributed total revenues of $5,340,200 and
$28,316,900, respectively, while incurring property operating and maintenance expenses of $2,579,500  and
$13,059,000, respectively.  The Government-Assisted Properties generated total revenues of $2,486,200
while incurring property operating and maintenance expenses of $996,100 for the quarter ended September
30, 1999.

*Rental Revenues*:

Rental revenues increased $320,200 or 0.89% for the quarter.  Rental revenues from the
Acquired/Disposed Properties increased $619,400 for the quarter.  Occupancy and unit rents at the Same
Store Properties and Government-Assisted Properties resulted in a decrease of $404,200 or 1.42% and an
increase of $31,244 or 1.3%, respectively, in rental revenue from these properties.

*Other Revenues*:

Other income decreased $140,500 or 15.5% for the quarter.  The decrease is due primarily to the
receipt of a workers compensation refund during the third quarter of 1998.

The Company recognized property and asset management fee revenues of $1,287,100 and $611,400,
respectively, for the quarter ended September 30, 1999 as compared to $1,426,700 of property management
fees and $636,100 of asset management fees for the quarter ended September 30, 1998.  The decrease in
property and asset management fee revenues is primarily due to the loss of management contracts and sale
of an advisory client.

The Company recognized asset disposition fee revenue of $127,500 and $0 for the quarters ended
September 30, 1999 and 1998, respectively.  The fee relates to MIG selling a multifamily property on behalf
of a pension fund client in September 1999.

*Property operating and maintenance expenses:*

Property operating and maintenance expenses increased $63,200 or 0.38% for the quarter.  Property
operating and maintenance expenses at the Acquired/Disposed Properties decreased $98,900  for the quarter
due primarily to the operating and maintenance expenses incurred at the 6 properties acquired in 1998, the
newly constructed properties of The Village of Western Reserve and The Residence at Barrington.  Property
operating and maintenance expenses at the Same Store Properties increased $196,700 or 1.5% when
compared to the three months ended September 30, 1998 primarily due to increases in personnel and real
estate and local taxes.  Property operating and maintenance expenses at the Government-Assisted Properties
decreased $34,700 or 2.1% for the quarter

*Other expenses:*

Depreciation and amortization increased $1,902,800 or 26.9% for the quarter primarily due to the
increased depreciation expense recognized on the Acquired/Disposed Properties and the additional
depreciation as a result of the adoption of the new capitalization policy as well as the amortization expense
of the intangible assets associated with the merger with MIGRA.  The amortization expense related to the
intangible assets is reflected as a charge to the Management and Service Operations.

General and administrative expenses increased $523,200 or 17% for the quarter.  This increase is
primarily attributable to payroll and related expenses  and other consulting and professional fees incurred by
the Company principally related to system processes, tax, accounting and operating consulting services.  The
increase related to general and administrative expenses of approximately $699,200 is classified as
Unallocated Corporate Overhead.

Interest expense increased $2,742,900 or 37.3% for the quarter primarily due to the interest incurred
with respect to the project specific, nonrecourse mortgage financing collateralized by 25 properties owned by
the REIT.

The gain on sale of properties of $1,049,700 for 1999 resulted from the sale of an operating property.

*Net income applicable to common shares:*

Net income applicable to common shares is equal to net income less dividends on the Perpetual
Preferred Shares of $1,371,100.

***RESULTS OF OPERATIONS***

***Comparison of the nine months ended September 30, 1999 to the nine months ended September 30,
1998***

In the following discussion of the comparison of the nine months ended September 30, 1999 to the
nine months ended September 30, 1998, Market-rate Properties refers to the Same Store and
Acquired/Disposal Property portfolios.  Same Store Properties represents 28 of the 34 wholly owned
multifamily properties acquired by the Company at the time of the IPO, the 41 properties acquired in separate
transactions or developed by the Company during 1994 and 1997 and the acquisition of the remaining 50%
interest in two properties in which the Company was a joint venture partner at the time of the IPO.
Acquired/Disposed Properties refers to 17 properties which were acquired between January 1, 1998 and
September 30, 1999 as well as the newly constructed and repositioned properties, the sale of six operating
properties and Rainbow Terrace Apartments.

Overall, total revenue increased $13,846,400 or 13.5% and total expenses increased $26,141,300
or 29.4% for the nine month period.  Net income applicable to common shares after deduction for the
dividends on the Company's Perpetual Preferred Shares increased $4,137,800 or 41.7%.

During the nine months ended September 30, 1999, the Market-rate Properties generated total
revenues of $100,529,500 while incurring property operating and maintenance expenses of $45,512,800.  Of
these amounts, the Acquired/Disposed and Same Store Properties contributed total revenues of $35,302,900
and $65,226,500, respectively, while incurring property operating and maintenance expenses of $16,165,000
and $29,347,800 respectively.  The Government-Assisted Properties generated total revenues of $7,420,200
while incurring property operating and maintenance expenses of $3,007,800 for the nine months ended
September 30, 1999.

*Rental Revenues*:

Rental revenues increased $11,820,500 or 12.3% for the nine month period.  Rental revenues from
the Acquired/Disposed Properties increased $11,616,500 for the nine month period.  Occupancy and suite
rents at the Same Store and Government-Assisted Properties resulted in an increase of $98,000 or .15% and
$15,900 or .22%, respectively, in rental revenue from these properties.

***Other Revenues*:

The Company recognized property and asset management fee revenues of $3,912,200 and
$1,785,500, respectively, for the nine months ended September 30, 1999 as compared to $3,256,700 of
property management fees and $636,100 of asset management fees for the nine months ended September
30, 1998.  The increase in property and asset management fee revenues is primarily due to additional  fees
earned by MIGRA relating to their institutional investor clients.

The Company recognized asset acquisition fee revenue of $121,700 and $0 for the nine months
ended September 30, 1999 and 1998, respectively.  The fee relates to MIG acquiring a multifamily property
on behalf of a pension fund client in May 1999.

The Company recognized asset disposition fee revenue of $127,500 and $0 for the nine months
ended September 30, 1999 and 1998, respectively.  The fee relates to MIG selling a multifamily property on
behalf of a pension fund client in September 1999.

*Property operating and maintenance expenses:*

Property operating and maintenance expenses increased $6,810,200 or 16.3% for the nine month
period.  Property operating and maintenance expenses at the Acquired/Disposed Properties increased
$5,131,200 or 46.5% for the nine month period due primarily to the operating and maintenance expenses
incurred at the 17 properties acquired between January 1, 1998 and September 30, 1999 as well as the newly
constructed and repositioned properties.  Property operating and maintenance expenses at the Same Store
Properties increased $1,532,500 or 5.5% when compared to the prior nine month period primarily due to
increases in personnel, advertising, utilities, real estate taxes and local taxes, and the one time effect of
refining certain cutoff procedures and its estimation process for the accumulation of property operating
expense accrual adjustments.  Property operating and maintenance expenses at the Government-Assisted
Properties increased $66,700 or 2.3% for the nine month period due primarily to an increase in other operating
expenses.

***Other expenses:*

Depreciation and amortization increased $7,485,200 or 41.3% for the nine months ended September
30, 1999 primarily due to the increased depreciation expense recognized on the Acquired/Disposed Properties
and the additional depreciation as a result of the adoption of the new capitalization policy as well as the
amortization expense of the intangible assets  associated with the merger with MIGRA.  The amortization
expense related to the intangible assets is reflected as a charge to the Management and Service Operations.

General and administrative expenses increased $5,450,500 or 81.2% for the nine months ended
September 30, 1999.  This increase is primarily attributable to increased payroll and related expenses arising
principally from the MIGRA merger as well as from increased employee headcount and wages, and other
consulting and professional fees incurred by the Company principally related to system processes, tax,
accounting and operating consulting services.  During the second quarter of 1999, a severance benefit of
$550,000 was paid to an executive officer of the Company.  The increase related to general and administrative
expenses of approximately $4,528,700 is classified as Unallocated Corporate Overhead.

Interest expense increased $6,554,500 or 31.4% for the nine months ended September 30, 1999
primarily due to the interest incurred with respect to the project specific, nonrecourse mortgage financing
collateralized by 25 properties owned by the REIT.

The Company recognized a charge for funds advanced to a non-owned property totaling $150,000
for the nine months ended September 30, 1999.  The Company is continuing its collection efforts in connection
with this receivable.

The gain on sale of properties of $13,880,000 for 1999 resulted from the sale of six operating
properties.

*Extraordinary items:*

The extraordinary item of $1,808,700 recognized during 1999 represents a $750,000 facility fee
charge, $126,500 interest breakage fee and a $932,200 write off of deferred finance costs related to the
termination of the unsecured line of credit facility.  The $124,900 charge recognized in 1998 relates to the write
off of the deferred financing fees related to the termination of a $100 million unsecured revolving credit facility.

*Cumulative effect:*

****Effective January 1, 1999, the Company changed its method of accounting to capitalize expenditures
for certain replacements and improvements, such as new HVAC equipment, structural replacements,
appliances, flooring, carpeting and kitchen/bath replacements and renovations to the capitalization method.
Previously, these costs were charged to operations as incurred.  Ordinary repairs and maintenance, such as
suite cleaning and painting, and appliance repairs are expensed.  The Company believes the change in the
capitalization method provides an improved measure of the Company's capital investment, provides a better
matching of expenses with the related benefit of such expenditures, including associated revenues, and is in
the opinion of management, consistent with industry practice.  The cumulative effect of this change in
accounting principle increased net income for the nine months ended September 30, 1999  by $4,319,162 or
$.19 per share (basic and diluted).  The effect of this change was to increase income before cumulative effect
of a change in accounting principle by $5,530,903 or $.25 per share (basic and diluted) for the nine months
ended September 30, 1999.   The pro forma amounts shown on the income statement have been adjusted
to reflect the retroactive application of the capitalization of such expenditures and related depreciation for the
nine months ended September 30, 1998 of which increased net income by $579,200 or $.03 per share (basic
and diluted).

*Net income applicable to common shares:*

Net income applicable to common shares is reduced by dividends on the Perpetual Preferred Shares
of $4,113,300.

***Equity in net income of joint ventures:*****

The combined equity in net income of joint ventures increased $200 or 0.17% and $30,700 or 9.8%
for the three and nine months ended September 30, 1999 and 1998, respectively.  The increase is due
primarily to a decrease in the costs of operations.

The following table presents the historical statements of operations of the Company's beneficial
interest in the operations of the joint ventures for the three and nine months ended September 30, 1999 and
1998.

|                         | For the three months ended | For the nine months
|------------------------ | -------------------------- | -------------------
|                         | September 30,              | ended September 30,
|                         | 1999                       | 1998               
|                         |                            |                    
|Beneficial interests in  |                            |                    
|joint venture operations |                            |                    
|Rental revenue           | $1,726,249                 | $1,750,253         
|Cost of operations       | 1,038,571                  | 1,093,541          
|                         | 687,678                    | 656,712            
|Interest income          | 2,674                      | 3,653              
|Interest expense         | (428,418)                  | (434,836)          
|Depreciation             | (142,946)                  | (106,559)          
|Amortization             | (12,861)                   | (13,020)           
|Net income               | $   106,127                | $    105,950       

**Outlook**

The long term goal for the Company is to acquire and develop a portfolio of economically and
geographically diversified institutional quality multifamily assets.  The goal extends to the effective and efficient
operation and management of those assets.  Implementation of this goal will be through balanced investment
in direct acquisition and co-investment with institutional investors.

It is expected that individual acquisitions will be primarily located in the select metropolitan areas of
Atlanta, Washington, D.C., Orlando, South Florida and Tampa until operational efficiencies are maximized.
 Management believes that these markets offer excellent diversification characteristics as well as growth
potential.  Over the next several years, the Company's focus is expected to expand to multiple major markets.
In addition to these direct investment markets, the Company plans to co-invest with institutional clients in
many markets that are in the long term investment horizon.  As with all growth markets at this time, new
development is active in these markets.  The Company's market research and operational experience in these
areas will guide site selection and pricing.

Investing for and with institutional investors is a major component of the Company's growth strategy.
The recent allocation from two advised clients for discretionary multifamily acquisition will enhance the
Company's acquisition efforts.  Purchases on behalf of these clients are expected to  improve operational
efficiency and generate advisory income.

In addition to acquisitions on behalf of advised clients, the Company is initiating co-investment with
institutional investors.  These co-investments will include both purchase and development opportunities.  Co-investment in the purchase of stabilized assets is expected to offer low volatility and immediate cash flow.
The development program allows the Company and its institutional partners to seek the high yields anticipated
with development.  The expected equity division for both co-investment forms is 25% to 49% from the
Company and 51% to 75% from institutional investors.

Management believes this co-investment program should allow the Company to increase operational
efficiency in growth markets at a more rapid pace than direct individual investment because it requires less
capital resources from the Company but allows the Company to apply its expertise in multifamily management.
The programs described above are currently being actively marketed and there can be no assurance that the
Company will be able to attract institutional capital to fund these programs.

Given the Midwestern concentration of the Market-rate portfolio, management's performance
expectations are consistent with the recent past.  Management projects that the market-rate rental growth for
existing assets will be a modest 2.5% over the next twelve months.  General market expectations for locations
where the Company has significant concentrations are as follows:  Columbus is experiencing construction
levels consistent with recent employment growth, Cleveland continues to exhibit stability, Michigan markets
are slowing from rapid growth in 1998, Indianapolis continues to  improve, Washington, D.C., Atlanta, and
South Florida are in equilibrium with significant additions to employment and multifamily  supply, and Orlando
is currently performing well in spite of significant construction.

**Inflation**

Management's belief is that any effects of minor inflation fluctuations would be minimal on the
operational performance of its portfolio primarily due to the high correlation between inflation and housing
costs combined with the short term nature, typically one year, of the leases.  In addition, the fixed rate nature
of the Company's current debt obligations virtually eliminates any negative effect of inflation on income.

******Quantitative and Qualitative Disclosures About Market Risk**

At September 30, 1999, the Company had $18.1 million of variable rate debt.  Additionally, the Company has interest rate risk associated with fixed
rate debt at maturity.

Management has and will continue to manage interest rate risk as follows:  (i) maintain a conservative ratio of fixed rate, long term debt to total debt
such that variable rate exposure is kept at an acceptable level; (ii) consider a hedge for certain long term variable rate debt through the use of interest rate swaps
or interest rate caps; and (iii) use treasury locks where appropriate to hedge rates on anticipated debt transactions.  Management uses various financial models
and advisors to achieve those objectives.

The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates.  For debt obligations,
the table presents principal cash flows and related weighted average interest rates by expected maturity dates.

|                               | **********Expected Maturity Date** | ****           | ****       
|------------------------------ | ---------------------------------- | -------------- | -----------
|                               |                                    |                |            
|**Long term debt**             | **1999**                           | **2000**       | **2001**   
|****Fixed:                     |                                    |                |            
|Fixed rate mortgage debt       | $817,596                           | $18,189,184    | $14,877,890
|Weighted average interest rate | 7.70%                              | 7.69%          | 7.65%      
|                               |                                    |                |            
|MTN's                          | -                                  | -              | 10,000,000 
|Weighted average interest rate | -                                  | -              | 7.12%      
|                               |                                    |                |            
|Senior notes                   | -                                  | 74,963,603     | -          
|Weighted average interest rate | -                                  | 8.23%          | -          
|Total fixed rate debt          | $817,596                           | $93,152,787    | $24,877,890
|                               |                                    |                |            
|Variable:                      |                                    |                |            
|Variable rate mortgage debt    | $  92,307                          | $       61,687 | $16,314,997
|                               |                                    |                |            
|Total long term debt           | $909,903                           | $93,214,474    | $41,192,887

On October 8, 1999, the Company collateralized an individual mortgage on one property for $13.3 million in project specific, nonrecourse loans from
The Chase Manhattan Bank.  The loan has a maturity of 8 years and a fixed interest rate of 7.86%.

Upon completion of the anticipated cash tender offer transaction as discussed in Note 14 of the financial statements, the Company will pay off the MTN's
and Senior Notes during 1999 and anticipates replacing them with new property specific debt.

**Sensitivity Analysis**

****The Company estimates that a 100 basis point decrease in market interest rates would have changed
the fair value of fixed rate debt to a liability of $568.8 million.  The sensitivity to changes in interest rates of the
Company's fixed rate debt was determined with a valuation model based upon changes that measure the net
present value of such obligation which arise from the hypothetical estimate as discussed above.

**Year 2000 Compliance**

The year 2000 issue ("Year 2000") is the result of computer programs being written using two digits
rather than four to define the applicable year.  Any of the Company's computer programs or hardware that
have date sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than
the year 2000.  This could result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions, pay vendors or engage in similar
normal business activities.

The Company believes that it has identified all of its information technology ("IT") and non-IT systems
to assess their Year 2000 readiness.  Critical IT systems include, but are not limited to, operating and data
networking and communication systems, accounts receivable and rent collections, accounts payable and
general ledger, human resources and payroll, cash management and all IT hardware (such as servers,
desktop/laptop computers and data networking equipment).  Critical non-IT systems include telephone
systems, fax machines, copy machines and property environmental, access and security systems (such as
elevators and alarm systems).

The Company's plan to resolve the Year 2000 issue has involved the following four phases:
assessment, remediation, testing and implementation.  The Company has conducted an assessment and/or
survey of its core IT and non-IT systems at both its corporate offices and properties and believes it is 100%
complete on such assessment.

Much of the mission critical operating systems, networking and accounting software that has been
purchased over the past few years has been represented by vendors to already be Year 2000 compliant.  The
property management software currently being used at the Company's corporate offices and which has been
rolled out to the properties during the second and third quarters of 1999 has been affirmed by the vendor to
be tested and Year 2000 compliant.  Hardware upgrades at all of the properties are substantially complete.
Testing by the Company of all such critical systems represented by the vendors to be compliant is
substantially complete.  Software patches are being applied routinely as vendors continue to release through
year-end.

The costs to upgrade and convert have been considered in the Company's cash flow requirements
for 1999 and have already been substantially incurred as part of an overall upgrade plan implemented this
year.

The Company believes it has identified all non-IT systems at all properties and expects to have 100%
of its remediation and/or testing complete on these systems by mid-November.  Findings to date suggest a
low incidence of non-compliance on critical systems.

In most cases, various third party vendors have been queried on their Year 2000 readiness.  While
many responses have been received to such queries (especially by banks and other large financial
institutions), many vendors have not yet responded.  The Company continues to query its significant suppliers
and vendors to determine the extent to which the Company's interface systems are vulnerable to those third
parties' failure to remediate their own Year 2000 issues.  To date, the Company is not aware of any significant
suppliers or vendors with a Year 2000 issue that would materially impact the Company's results of operations,
liquidity or capital resources.  However, there can be no assurances that the systems of other companies, on
which the Company's systems rely, will be timely converted and would not have an adverse effect on the
Company's systems.

The Company believes it has an effective program in place that will resolve the Year 2000 issue in
a timely manner.  In addition, the Company has commenced its contingency planning for critical operational
areas that might be affected by the Year 2000 issue if compliance by the Company is delayed.  The
Company's contingency plans involve training and increased awareness at the property management level,
manual workarounds and adjustment of staffing strategies.  The Company intends to have its contingency
planning complete by mid-November.

Aside from the catastrophic failure of banks, utility providers or government agencies, the Company
believes it could continue its normal business operations even if compliance by the Company is delayed.  In
the event of such catastrophic failures, the Company would be unable to deposit rent checks, transfer cash,
wire money, pay vendors by check, or invest excess funds.  The Company could be subject to litigation for
its inability to access cash to pay vendors or failure to properly record business transactions or if utility,
security or access systems fail at properties.  However, given that the Company intends to have contingency
planning in place and that the nature of its day-to-day real estate operations is not heavily reliant on
technology, the Company does not believe that the Year 2000 issue will materially impact its results of
operations, liquidity or capital resources

**CONTINGENCIES**

**Environmental**

There are no recorded amounts resulting from environmental liabilities and there are no known
contingencies with respect thereto.  Future claims for environmental liabilities are not measurable given the
uncertainties surrounding whether there exists a basis for any such claims to be asserted and, if so, whether
any claims will, in fact, be asserted.  Furthermore, no condition is known to exist that would give rise to a
liability for site restoration, post closure and monitoring commitments, or other costs that may be incurred with
respect to the sale or disposal of a property.  Phase I environmental audits have been completed on all of the
Company's wholly owned and joint venture properties.

**Rainbow Terrace Apartments**

On February 9, 1998, the U.S. Department of Housing and Urban Development ("HUD") notified the
Company that Rainbow Terrace Apartments, Inc. ("RTA"), the Company's subsidiary corporation that owns
Rainbow Terrace Apartments, was in default under the terms of the Regulatory Agreement and Housing
Assistance Payments Contract ("HAP Contract") pertaining to this property.  Among other matters, HUD
alleged that the property was poorly managed and that RTA had failed to complete certain physical
improvements to the property.  Moreover, HUD claimed that the owner was not in compliance with numerous
technical regulations concerning whether certain expenses were properly chargeable to the property.  As
provided in the Regulatory Agreement and HAP Contract, in the event of a default, HUD has the right to
exercise various remedies including terminating future payments under the HAP Contract and foreclosing the
government-insured mortgage encumbering the property.

This controversy arose out of a Comprehensive Management Review of the property initiated by HUD
in the Spring of 1997, which included a complete physical inspection of the property.   In a series of written
responses to HUD, the Company stated its belief that it had corrected the management deficiencies cited by
HUD in the Comprehensive Management Review (other than the completion of certain physical improvements
to the property) and justified the expenditures questioned by HUD as being properly chargeable to the
property in accordance with HUD's regulations.  Moreover, the Company stated its belief that it had repaired
any physical deficiencies noted by HUD in its Comprehensive Management Review that might pose a threat
to the life and safety of its residents.

In June 1998, HUD notified the Company that all future Housing Assistance Payments ("HAP") for
RTA were abated and instructed the lender to accelerate the balance due under the mortgage.  Subsequent
to the notification of HAP abatements and the acceleration of the mortgage, the lender advised the Company
that the acceleration notification had been rescinded pursuant to HUD's instruction.  HUD then notified the
Company that the HAP payments would be reinstated and that HUD was reviewing further information
concerning RTA provided by the Company.  The Company has received all monthly HAP payments for RTA
during 1998.

In June 1998, the Company filed a lawsuit against HUD seeking to compel HUD to review certain
budget based rent increases submitted to HUD by the Company in 1995.

From June 1998 to March 1999, the Company was involved in ongoing negotiations with HUD for the
purpose of resolving these and other disputes concerning other properties managed or formerly managed by
the Company or one of the  Service Companies, which were similarly the subject of Comprehensive
Management Reviews initiated by HUD in the Spring of 1997.

On March 12, 1999, the Company, Associated Estates Management Company ("AEMC"), RTA, PVA
Limited Partnership ("PVA"), the owner of Park Village Apartments, and HUD, entered into a comprehensive
settlement agreement (the "Settlement Agreement") for the purpose of resolving certain disputes concerning
property operations at Rainbow Terrace Apartments, Park Village Apartments ("Park Village"), Longwood
Apartments ("Longwood") and Vanguard Apartments ("Vanguard").  Longwood was managed by the Company
until January 13, 1999.  Park Village is currently managed by the Company.  Vanguard was formerly managed
by AEMC until December 1997.  All four properties are encumbered by HUD insured mortgages, governed
by HUD imposed regulatory agreements and subsidized by Section 8 Housing Assistance Payments.

Under the terms of the Settlement Agreement, HUD has agreed to pay RTA a retroactive rent
increase totaling $1,784,467.  HUD has further agreed to release the Company, AEMC, RTA and the owners
and principals of PVA, Longwood and Vanguard from all claims (other than tax or criminal fraud claims)
regarding the ownership or operation of Rainbow Terrace Apartments, Park Village, Longwood and Vanguard.
Moreover, HUD has agreed not to issue a limited denial of participation, debarment or suspension, program
fraud civil remedy action or civil money penalty, resulting from the ownership or management of any of these
projects, or to deny eligibility to any of their owners, management agents or affiliates for participation in any
HUD program on such basis.

HUD's obligations under the Settlement Agreement are conditioned upon the performance by the
Company, RTA and PVA of certain obligations, the most significant of which is the obligation to identify, on
or before April 11, 1999, prospective purchasers for both Rainbow Terrace Apartments and Park Village who
are acceptable to HUD, and upon HUD's approval, convey those projects to such purchasers.  Alternatively,
if RTA and PVA are unable to identify prospective purchasers acceptable to HUD, then RTA and PVA have
agreed to convey both projects to HUD pursuant to deeds in lieu of foreclosure.  In either case (conveyance
to a HUD approved purchaser or deed in lieu of foreclosure), no remuneration will be received by either RTA
or PVA in return, except for the $1,784,467 retroactive rent increase payable to RTA mentioned above.  At
September 30, 1999, the Company had receivables of $1,784,467 related to the 1995 and 1998 retroactive
rental increase requests.  At September  30, 1999, RTA had net assets of approximately $1,827,319, including
the retroactive rent receivable of $1,784,467 due from HUD, and a remaining amount due under the mortgage
of $1,935,123.  The transfer of RTA to a purchaser which is acceptable to HUD or the direct transfer of RTA
to HUD is not expected to have a material impact on the results of operations or cash flows of the Company.
The Company has excluded RTA's results of operations from its Consolidated Statement of Income for 1999.
RTA and PVA requested HUD to extend the April 11, 1999 deadline for identification of potential purchasers.
HUD granted that request and the deadline was extended to May 31, 1999.  The Company believes that RTA
and PVA have satisfied their obligations to identify prospective purchasers for those properties.

During the third quarter, RTA, with respect to Rainbow Terrace Apartments, and PVA, with respect
to Park Village, entered into contracts to sell those properties, subject to, among other matters, HUD approval.
Under the terms of the Settlement Agreement, HUD has the right to approve or disapprove those prospective
purchasers.  Alternatively, HUD may require RTA and PVA to convey these properties to HUD by deed in lieu
of foreclosure.  The Company expects HUD to announce its decision soon.

**SIGNATURES**

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

|                  | ASSOCIATED ESTATES REALTY CORPORATION             
|----------------- | --------------------------------------------------
|                  |                                                   
|                  |                                                   
|November 18, 1999 | /s/ Kathleen L. Gutin                             
|(Date)            | Kathleen L. Gutin, Vice President, Chief Financial
|                  | Officer and Treasurer