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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 June 30, 2007                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                          |
| 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, or a  non-accelerated filer.  See definition of "accelerated filer and large  accelerated filer" in rule 12b-2 of the Exchange Act.  (Check one):                                                                                                                 |
|                                                                                                                                                                                                                                                   |
| Large accelerated  filer [  ]   Accelerated filer [x ]    Non-accelerated filer [  ]                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                 |
| 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 July 27, 2007 was 17,376,519 shares                                                                                                                                                                                                                                                                                                              |
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|                                                                                                                                                                                                                                                                                                                                                                                     |  |  |  |

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**ASSOCIATED ESTATESREALTY CORPORATION**

** **

**INDEX**

** **

** **

| **PART I - FINANCIAL INFORMATION** | **Page**                                                                                                                                                                                                                 |
|------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                    |                                                                                                                                                                                                                          | ** ** |
| ITEM 1                             | Consolidated Financial Statements (Unaudited)                                                                                                                                                                            | ** ** |
| ** **                         | **                    **                                                                                             |   |
|                                    | Consolidated Balance Sheets at June 30, 2007 and December  31, 2006                                                                                                                                                      | 3 |
|                                    |                                                                                                                      |  |
|                                    | Consolidated Statements of Operations for the three and  six                                                                                                                                                             |  |
|                                    |     month periods ended June 30, 2007 and 2006                                                                                                                                                            | 4 |
|                                    |                                                                                                       |  |
|                                    | Consolidated Statement of Shareholders' Equity for the six  month                                                                                                                                                        |  |
|                                    |     period ended June 30, 2007                                                                                                                                                                            | 5 |
|                                    |                                                                                                                           |  |
|                                    | Consolidated Statements of Cash Flows for the six month  periods                                                                                                                                                         |  |
|                                    |     ended June 30, 2007 and 2006                                                                                                                                                                          | 6 |
|                                    |                                                                                        |  |
|                                    | Notes to Consolidated Financial Statements                                                                                                                                                                               | 7 |
|                                    |                                                                                             |  |
| ITEM 2                             | Management's Discussion and Analysis of Financial                                                                                                                                                                        |  |
|                                    |     Condition and Results of Operations                                                                                                                                                                   | 20 |
|                                    |                                                                         |  |
| ITEM 3                             | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                                               | 26 |
|                                    |                                                                                   |  |
| ITEM 4                             | Controls and Procedures                                                                                                                                                                                                  | 26 |
|                                    |                                      |  |
| **PART II - OTHER INFORMATION**    |                                                                                                                                                                                                                          |
| ** **                         | **                          **                                                         |  |
| ITEM 1                             | Legal Proceedings                                                                                                                                                                                                        | 27 |
|                                    |                                                                                   |  |
| ITEM 1A                            | Risk Factors                                                                                                                                                                                                             | 27 |
|                                    |                                                                              |  |
| ITEM 2                             | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                                                                                                             | 27 |
|                                    |                                                                                             |  |
| ITEM 4                             | Submission of Matters to a Vote of Security Holders                                                                                                                                                                      | 28 |
|                                    |                                                                                        |  |
| ITEM 6                             | Exhibits                                                                                                                                                                                                                 | 29 |
|                                    |                                                                              |  |
| **SIGNATURES**                     | 32                                                                                                                                                                                                                       |

** **

* *

* *

| 2 |
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**ASSOCIATED ESTATESREALTY CORPORATIONCONSOLIDATED BALANCE SHEETS(UNAUDITED)**

|                                                                                                    |                                                                                             | June 30,            |               | December 31,        |
|----------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|---------------------|---------------|---------------------|
| *(In thousands, except  share amounts)*                                                            | 2007                                                                                        |                     | 2006          |
| ** **                                                                                         | **ASSETS**                                                                                  |                     |               |                     |
| Real estate assets                                                                                 |                                                                                             |                     |               |
|                                                                                                    | Land                                                                                        |  $             | 109,179  |                     |  $ | 92,341  |
|                                                                                                    | Buildings and improvements                                                                  | 827,520        |               | 751,393        |
|                                                                                                    | Furniture and fixtures                                                                      | 29,028         |               | 28,126         |
|                                                                                                    |                                                                                             | 965,727        |               | 871,860        |
|                                                                                                    | Less:  accumulated  depreciation                                                       | (291,741)           |               | (281,994)           |
|                                                                                                    |                                                                                             | 673,986        |               | 589,866        |
|                                                                                                    | Construction in progress                                                                    | 1,880          |               | 1,323          |
|                                                                                                    | Real estate associated with  property held for sale, net                                    | -              |               | 331            |
|                                                                                                    | Real estate, net                                                                            | 675,866        |               | 591,520        |
| Cash and cash equivalents                                                                          | 4,059                                                                                  |                     | 30,010   |
| Restricted cash                                                                                    | 8,612                                                                                  |                     | 7,279    |
| Accounts and notes  receivable, net                                                                |                                                                                             |                     |               |
|                                                                                                    | Rents                                                                                       | 1,133          |               | 1,582          |
|                                                                                                    | Affiliates                                                                                  | 1,149          |               | 322            |
|                                                                                                    | Other                                                                                       | 2,076          |               | 1,955          |
| Investments in joint  ventures, net                                                                | -                                                                                      |                     | 5,247    |
| Goodwill                                                                                           | 1,725                                                                                  |                     | 1,725    |
| Other assets, net                                                                                  | 12,178                                                                                 |                     | 9,155    |
| Other assets associated with  property held for sale, net                                          | -                                                                                      |                     | 34       |
|                                                                                                    | **Total assets**                                                                            |  $             | 706,798  |                     |  $ | 648,829  |
|                                                                                                    |                                                                                             |                     |               |                     |
| ** **                                                                                         | **LIABILITIES AND SHAREHOLDERS' EQUITY**                                                    |                     |               |                     |
| Mortgage notes payable                                                                             |  $                                                                                     | 451,914        |               |  $             | 472,854  |
| Unsecured revolving credit  facility                                                               | 75,350                                                                                 |                     | -        |
| Unsecured debt                                                                                     | 25,780                                                                                 |                     | 25,780   |
|                                                                                                    | Total debt                                                                                  | 553,044        |               | 498,634        |
| Accounts payable, accrued  expenses and other liabilities                                          | 25,997                                                                                 |                     | 24,568   |
| Dividends payable                                                                                  | 2,955                                                                                  |                     | 2,934    |
| Resident security deposits                                                                         | 3,737                                                                                  |                     | 3,601    |
| Funds held on behalf of  managed properties                                                        |                                                                                             |                     |               |
|                                                                                                    | Affiliates                                                                                  | 400            |               | 200            |
|                                                                                                    | Other                                                                                       | 2,624          |               | 1,978          |
| Accrued interest                                                                                   | 2,797                                                                                  |                     | 2,992    |
| Accumulated losses in excess  of investments in joint ventures                                     | 1,327                                                                                  |                     | -        |
| Other liabilities associated  with property held for sale                                          | -                                                                                      |                     | 20       |
|                                                                                                    | **Total liabilities**                                                                       | 592,881        |               | 534,927        |
|                                                                                                    |                                                                                             |                     |               |                     |
| Operating partnership  minority interest                                                           | 1,829                                                                                  |                     | 1,851    |
|                                                                                                    |                                                                                             |                     |               |                     |
| 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 and 232,000  outstanding at June 30, 2007 and December 31, 2006, respectively       | 55,213    |               | 58,000    |
| Common shares, without par  value, $.10 stated value; 41,000,000 authorized; 22,995,763 issued and |                                                                                             |                     |               |
|                                                                                                    | 17,376,519 and 17,261,224  outstanding at June 30, 2007 and December 31, 2006, respectively | 2,300          |               | 2,300          |
| Paid-in capital                                                                                    | 280,355                                                                                |                     | 280,369  |
| Accumulated distributions in  excess of accumulated net income                                     | (171,886)                                                                                   |                     | (173,962)     |
| Accumulated other  comprehensive loss                                                              | -                                                                                 |                     | (71)          |
| Less:  Treasury shares, at  cost, 5,619,244 and 5,734,539 shares                              |                                                                                             |                     |               |
|                                                                                                    | at June 30, 2007 and  December 31, 2006, respectively                                       | (53,894)            |               | (54,585)            |
| ** **                                                                                         | **Total shareholders' equity**                                                              | 112,088   |               | 112,051   |
| ** **                                                                                         | **Total liabilities and  shareholders' equity**                                             |  $             | 706,798  |                     |  $ | 648,829  |
|                                                                                                    |                                                                                             |                     |               |                     |
| The accompanying notes are an integral part of these  consolidated financial statements            |

** **

| 3 |
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**ASSOCIATED ESTATESREALTY CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)**

|                                                                                         |                                                          |                                    | Three Months Ended | Six Months Ended   |
|-----------------------------------------------------------------------------------------|----------------------------------------------------------|------------------------------------|--------------------|--------------------|
| *(In thousands, except per  share amounts)*                                             | 2007                                                     |                                    | 2006               |                    | 2007 |  | 2006 |
| Revenue                                                                                 |                                                          |                                    |                    |                    |  |  |  |  |
|                                                                                         | Property revenue                                         |  $                            | 34,683        |                    |  $ | 31,483  |  |  $ | 66,850  |  |  $ | 62,085  |
|                                                                                         | Management and service company  revenue:                 |                                    |                    |                    |  |  |  |  |
|                                                                                         |                                                          | Fees, reimbursements and  other    | 3,149         |                    | 3,181  |  | 5,843  |  | 6,259  |
|                                                                                         |                                                          | Painting services                  | 620           |                    | 282  |  | 1,236  |  | 594  |
|                                                                                         |                                                          | Total revenue                      | 38,452        |                    | 34,946  |  | 73,929  |  | 68,938  |
| Expenses                                                                                |                                                          |                                    |                    |                    |  |  |  |  |
|                                                                                         | Property operating and  maintenance                      | 15,726                        |                    | 14,918        |  | 29,904  |  | 29,276  |
|                                                                                         | Depreciation and  amortization                           | 7,573                         |                    | 7,468         |  | 14,979  |  | 15,177  |
|                                                                                         | Direct property management  and service company expenses | 3,629                         |                    | 3,501         |  | 6,871  |  | 6,724  |
|                                                                                         | Painting services                                        | 563                           |                    | 342           |  | 1,153  |  | 749  |
|                                                                                         | General and administrative                               | 2,699                         |                    | 2,647         |  | 5,411  |  | 4,993  |
|                                                                                         |                                                          | Total expenses                     | 30,190        |                    | 28,876  |  | 58,318  |  | 56,919  |
| Operating income                                                                        | 8,262                                               |                                    | 6,070         |                    | 15,611  |  | 12,019  |
|                                                                                         | Interest income                                          | 73                            |                    | 112           |  | 344  |  | 490  |
|                                                                                         | Interest expense                                         | (10,241)                           |                    | (12,449)           |  | (21,802) |  | (24,637) |
| (Loss) income before equity  in net loss of joint ventures, minority                    |                                                          |                                    |                    |                    |  |  |  |
|                                                                                         | interest, and income from  discontinued operations       | (1,906)                            |                    | (6,267)            |  | (5,847) |  | (12,128) |
|                                                                                         | Equity in net loss of joint  ventures                    | (144)                              |                    | (142)              |  | (216) |  | (248) |
|                                                                                         | Minority interest in  operating partnership              | (13)                               |                    | (16)               |  | (27) |  | (32) |
| (Loss) income from  continuing operations                                               | (2,063)                                                  |                                    | (6,425)            |                    | (6,090) |  | (12,408) |
|                                                                                         | Income from discontinued  operations:                    |                                    |                    |                    |  |  |  |  |
|                                                                                         |                                                          | Operating (loss) income            | (190)              |                    | (336) |  | (274) |  | (1,976) |
|                                                                                         |                                                          | Gain on disposition of  properties | 12,482        |                    | 34,723  |  | 17,043  |  | 34,723  |
|                                                                                         | Income from discontinued  operations                     | 12,292                        |                    | 34,387        |  | 16,769  |  | 32,747  |
| **Net income**                                                                          | 10,229                                              |                                    | 27,962        |                    | 10,679  |  | 20,339  |
| Preferred share dividends                                                               | (1,261)                                                  |                                    | (1,261)            |                    | (2,523) |  | (2,523) |
| Preferred share repurchase  costs                                                       | (172)                                                    |                                    | -             |                    | (172) |  | -  |
| **Net income applicable to  common shares**                                             |  $                                                  | 8,796                         |                    |  $            | 26,701  |  |  $ | 7,984  |  |  $ | 17,816  |
|                                                                                         |                                                          |                                    |                    |                    |  |  |  |  |  |
| **Earnings per common share  - basic and diluted:**                                     |                                                          |                                    |                    |                    |  |  |  |
| ** **                                                                              | (Loss) income from  continuing operations applicable     |                                    |                    |                    |  |  |  |  |
|                                                                                         |                                                          | to common shares                   |  $            | (0.20)             |  |  $ | (0.46) |  |  $ | (0.51) |  |  $ | (0.87) |
|                                                                                         | Income from discontinued  operations                     | 0.71                          |                    | 2.04          |  | 0.98  |  | 1.91  |
|                                                                                         | Net income applicable to  common shares                  |  $                            | 0.51          |                    |  $ | 1.58  |  |  $ | 0.47  |  |  $ | 1.04  |
|                                                                                         |                                                          |                                    |                    |                    |  |  |  |  |  |
| **Dividends declared per  common share**                                                |  $                                                  | 0.17                          |                    |  $            | 0.17  |  |  $ | 0.34  |  |  $ | 0.34  |
|                                                                                         |                                                          |                                    |                    |                    |  |  |  |  |  |
| **Weighted average number  of common shares**                                           |                                                          |                                    |                    |                    |  |  |  |
| ** **                                                                              | **outstanding - basic and  diluted**                     | 17,153                   |                    | 16,872   |  | 17,131   |  | 17,076   |
|                                                                                         |                                                          |                                    |                    |                    |  |  |  |  |  |
| The accompanying notes are an integral part of these  consolidated financial statements |

** **

** **

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**ASSOCIATED ESTATESREALTY CORPORATIONCONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY(UNAUDITED)**

** **

|                                                                                         |                                        |                                |              |          |              |  Class B    |               |  Common   |                  | ** **    | ** **    |  Accumulated   |                 |                     |  |                |
|-----------------------------------------------------------------------------------------|----------------------------------------|--------------------------------|--------------|----------|--------------|------------------|---------------|----------------|------------------|---------------|---------------|---------------------|-----------------|---------------------|--|----------------|
|                                                                                         |                                        |                                |              |          |              |  Cumulative |               |  Shares   |                  |               | ** **    |  Distributions |                 |  Accumulated   |  |                |
|                                                                                         |                                        |                                |              |          |              |  Redeemable |               |  (at $.10 |                  |  Total   | ** **    |  In Excess of  |                 |  Other         |  |  Treasury |
|                                                                                         |                                        |                                |              |          |              |  Preferred  |               |  stated   |                  |  Paid-In | ** **    |  Accumulated   |                 |  Comprehensive |  |  Shares   |
| *(In thousands, except  share amounts)*                                                 |  Total                  |                                |  Shares |          |  value) |                  |  Capital |                |  Net Income |               |  Income  |                     |  (at Cost) |
| * *                                                                                |                                        |                                |              |          |              |                  |               |                |                  |               |               |                     |                 |                     |  |                |
| Balance, December 31, 2006                                                              |  $                                | 112,051                   |              |  $  | 58,000  |                  |  $       | 2,300     |                  |  $       | 280,369  |                     |  $         | (173,962)           |  |  $        | (71) |  |  $ | (54,585) |
| Comprehensive income:                                                                   |                                        |                                |              |          |              |                  |               |                |                  |               | thomas        |                     |                 |
|                                                                                         | Net income                             | 10,679                    |              | -   |              | -           |               | -         |                  | 10,679   |               | -              |                 | -              |
|                                                                                         | Other comprehensive income:            |                                |              |          |              |                  |               |                |                  |               |               |                     |                 |                     |
|                                                                                         |                                        | Change in fair value of  hedge |              |          |              |                  |               |                |                  |               |               |                     |                 |                     |  |
|                                                                                         |                                        |                                | instruments  | 71  |              | -           |               | -         |                  | -        |               | -              |                 | 71             |  | -         |
|                                                                                         | Total comprehensive income             | 10,750                    |              | -   |              | -           |               | -         |                  | 10,679   |               | 71             |                 | -              |
|                                                                                         |                                        |                                |              |          |              |                  |               |                |                  |               |               |                     |                 |                     |  |                |
| Share-based compensation                                                                | 804                               |                                | -       |          | -       |                  | (24)          |                | 5           |               | -        |                     | 823        |
| Purchase of 22,269 common  shares                                                       | (352)                                  |                                | -       |          | -       |                  | -        |                | -           |               | -        |                     | (352)           |
| Issuance of 18,979 common  shares for stock                                             |                                        |                                |              |          |              |                  |               |                |                  |               |               |                     |                 |
|                                                                                         | option exercises from  treasury shares | 173                       |              | -   |              | -           |               | (47)           |                  | -        |               | -              |                 | 220            |
| Repurchase of Class B  Cumulative                                                       |                                        |                                |              |          |              |                  |               |                |                  |               |               |                     |                 |
|                                                                                         | Redeemable Preferred Shares            | (2,902)                        |              | (2,787)  |              | -           |               | 57        |                  | (172)         |               | -              |                 | -              |
| Common share dividends                                                                  | (5,913)                                |                                | -       |          | -       |                  | -        |                | (5,913)          |               | -        |                     | -          |
| Preferred share dividends                                                               | (2,523)                                |                                | -       |          | -       |                  | -        |                | (2,523)          |               | -        |                     | -          |
| Balance, June 30, 2007                                                                  |  $                                | 112,088                   |              |  $  | 55,213  |                  |  $       | 2,300     |                  |  $       | 280,355  |                     |  $         | (171,886)           |  |  $        | -  |  |  $ | (53,894) |
|                                                                                         |                                        |                                |              |          |              |                  |               |                |                  |               |               |                     |                 |                     |  |                |
| The accompanying notes are an integral part of these  consolidated financial statements |

** **

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**ASSOCIATED ESTATESREALTY CORPORATIONCONSOIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)**

|                                                                                         |                                                                                                  |                                                                    |                                                                                       | For the six months |
|-----------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|--------------------------------------------------------------------|---------------------------------------------------------------------------------------|--------------------|
|                                                                                         |                                                                                                  |                                                                    |                                                                                       | ended June 30,     |
| *(In thousands)*                                                                        | 2007                                                                                             |                                                                    | 2006                                                                                  |
| Cash flow from operating  activities:                                                   |                                                                                                  |                                                                    |                                                                                       |
|                                                                                         | Net income                                                                                       |  $                                                            | 10,679                                                                           |                    |  $ | 20,339  |
|                                                                                         | Adjustments to reconcile net  income to net cash provided by operating activities:               |                                                                    |                                                                                       |                    |
|                                                                                         |                                                                                                  | Depreciation and  amortization (including discontinued operations) | 15,563                                                                           |                    | 16,963  |
|                                                                                         |                                                                                                  | Loss on fixed asset  replacements write-off                        | 64                                                                               |                    | 86  |
|                                                                                         |                                                                                                  | Gain on disposition of  properties                                 | (17,043)                                                                              |                    | (34,723) |
|                                                                                         |                                                                                                  | Minority interest in operating  partnership                        | 27                                                                               |                    | 32  |
|                                                                                         |                                                                                                  | Amortization of deferred  financing costs and other                | 956                                                                              |                    | 414  |
|                                                                                         |                                                                                                  | Amortization of swap  termination payments received                | (132)                                                                                 |                    | (243) |
|                                                                                         |                                                                                                  | Share-based compensation                                           | 709                                                                              |                    | 478  |
|                                                                                         |                                                                                                  | Equity in net loss of joint  ventures                              | 216                                                                              |                    | 248  |
|                                                                                         |                                                                                                  | Distribution from joint  ventures                                  | -                                                                                |                    | 319  |
|                                                                                         |                                                                                                  | Net change in assets and  liabilities:                             |                                                                                       |                    |  |
|                                                                                         |                                                                                                  |                                                                    |      - Accounts and notes  receivable                             | 328           |  | 1,335  |
|                                                                                         |                                                                                                  |                                                                    |      - Accounts and notes  receivable of affiliates               | (827)              |  | 611  |
|                                                                                         |                                                                                                  |                                                                    |      - Accounts payable and  accrued expenses                     | 16            |  | 1,699  |
|                                                                                         |                                                                                                  |                                                                    |      - Other operating  assets and liabilities                    | 857           |  | 953  |
|                                                                                         |                                                                                                  |                                                                    |      - Restricted cash                                            | (344)              |  | 213  |
|                                                                                         |                                                                                                  |                                                                    |      - Funds held for  non-owned managed properties               | 646           |  | 763  |
|                                                                                         |                                                                                                  |                                                                    |      - Funds held for  non-owned managed properties of affiliates | 200           |  | (401) |
|                                                                                         |                                                                                                  |                                                                    | Total adjustments                                                                     | 1,236         |  | (11,253) |
|                                                                                         |                                                                                                  | Net cash flow provided by  operations                              | 11,915                                                                           |                    | 9,086  |
| Cash flow from investing  activities:                                                   |                                                                                                  |                                                                    |                                                                                       |
|                                                                                         | Recurring fixed asset  additions                                                                 | (3,832)                                                            |                                                                                       | (5,255)            |
|                                                                                         | Revenue  enhancing/non-recurring fixed asset additions                                           | (804)                                                              |                                                                                       | (869)              |
|                                                                                         | Net proceeds from  disposition of operating properties                                           | 37,921                                                        |                                                                                       | 40,129        |
|                                                                                         | Acquisition fixed asset  additions                                                               | (70,547)                                                           |                                                                                       | (256)              |
|                                                                                         | Purchase of operating  partnership units                                                         | (22)                                                               |                                                                                       | -             |
|                                                                                         | Contributions to joint  ventures                                                                 | (46)                                                               |                                                                                       | (77)               |
|                                                                                         |                                                                                                  | Net cash flow (used for)  provided by investing activities         | (37,330)                                                                              |                    | 33,672  |
| Cash flow from financing  activities:                                                   |                                                                                                  |                                                                    |                                                                                       |
|                                                                                         | Principal payments on  mortgage notes payable                                                    | (117,978)                                                          |                                                                                       | (74,183)           |
|                                                                                         | Payment of debt procurement  costs                                                               | (1,407)                                                            |                                                                                       | -             |
|                                                                                         | Proceeds from mortgage notes  obtained                                                           | 55,038                                                        |                                                                                       | -             |
|                                                                                         | Revolver and/or line of  credit borrowings                                                       | 97,250                                                        |                                                                                       | 47,500        |
|                                                                                         | Revolver and/or line of  credit repayments                                                       | (21,900)                                                           |                                                                                       | (35,100)           |
|                                                                                         | Common share dividends paid                                                                      | (5,908)                                                            |                                                                                       | (5,950)            |
|                                                                                         | Preferred share dividends  paid                                                                  | (2,523)                                                            |                                                                                       | (2,523)            |
|                                                                                         | Operating partnership  distributions paid                                                        | (27)                                                               |                                                                                       | (32)               |
|                                                                                         | Exercise of stock options                                                                        | 173                                                           |                                                                                       | 269           |
|                                                                                         | Purchase of preferred and/or  treasury shares                                                    | (3,254)                                                            |                                                                                       | (10,254)           |
|                                                                                         |                                                                                                  | Net cash flow used for  financing activities                       | (536)                                                                                 |                    | (80,273) |
| Decrease in cash and cash  equivalents                                                  | (25,951)                                                                                         |                                                                    | (37,515)                                                                              |
| Cash and cash equivalents,  beginning of period                                         | 30,010                                                                                      |                                                                    | 39,733                                                                           |
| Cash and cash equivalents,  end of period                                               |  $                                                                                          | 4,059                                                         |                                                                                       |  $            | 2,218  |
|                                                                                         |                                                                                                  |                                                                    |                                                                                       |                    |  |  |
| Supplemental disclosure of  cash flow information:                                      |                                                                                                  |                                                                    |                                                                                       |
|                                                                                         | Cash paid for interest                                                                           |  $                                                            | 21,486                                                                           |                    |  $ | 27,616  |
|                                                                                         | Fixed asset replacement and  other write-offs                                                    | 1,344                                                         |                                                                                       | 1,243         |
|                                                                                         | Net change in accounts  payable related to recurring fixed asset additions                       | 748                                                           |                                                                                       | 675           |
|                                                                                         | Net change in accounts  payable related to revenue enhancing/non-recurring fixed asset additions | -                                                             |                                                                                       | 150           |
|                                                                                         | Final adjustment to fixed  assets related to 2002 non-monetary joint venture exchange            | -                                                             |                                                                                       | 496           |
|                                                                                         | Assumption of debt in  connection with property acquisition                                      | 42,000                                                        |                                                                                       | -             |
|                                                                                         |                                                                                                  |                                                                    |                                                                                       |                    |  |  |
| The accompanying notes are an integral part of these  consolidated financial statements |

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**ASSOCIATED ESTATESREALTY CORPORATION**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**UNAUDITED**

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

**           ***Except as the context otherwise requires, all references to"we," "our," "us" and the "Company" inthis report collectively refer to Associated Estates Realty Corporation and itsconsolidated subsidiaries.*

****Business**

            We are a self-administered and self-managed equity real estateinvestment trust ("REIT") specializing in multifamily propertymanagement, advisory, development, acquisition, disposition, operation andownership activities.  In addition to rental revenue, we receive certainproperty, asset management and disposition fees.

            As of June 30, 2007, we owned or property managed 99 apartmentcommunities in ten states consisting of 19,969 units.  We own, either directlyor indirectly through subsidiaries, or hold ownership interests in 65 of those99 apartment communities containing 14,554 units in nine states, 12 of whichare Affordable Housing communities.  We also property manage 34 apartment communitiesconsisting of 5,415 units.  Additionally, we asset manage a 186-unit apartmentcommunity and a commercial property containing approximately 145,000 squarefeet.

**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 presentation 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, 2006.

**Share-Based Compensation**

****            The Amended and Restated 2001 Equity-Based Award Plan (the"Plan") was the only share-based compensation plan in effect on June30, 2007.  The Plan provides for equity award grants to our officers, employeesand directors.  Equity awards available under the Plan include stock options,share appreciation rights, restricted shares, deferred shares and other awardsbased on common shares.  We also have share-based awards outstanding that hadbeen issued under two other plans that have since expired and outstanding stockoption awards that had been issued to our outside directors.  For additionalinformation regarding these share-based compensation plans, see Note 17 of theNotes to the Consolidated Financial Statements of our Annual Report on Form10-K for the year ended December 31, 2006.

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             Our share-basedcompensation awards, which consist primarily of restricted shares, containservice and/or performance conditions that may affect the number and timing ofshares that ultimately vest.  In 2007, an award consisting solely of restrictedshares was granted in which the majority of the shares are subject to marketand service conditions, with the remaining shares being subject to performanceand service conditions.  Compensation cost for awards with performanceconditions is recognized based on our best estimate of the number of awards thatwill vest and the period of time in which they will vest.  Compensation costfor the award with market conditions is based on the estimated fair value ofthe award on the date granted, as described below, and the vesting period.

            During the three months ended June 30, 2007 and 2006, we recognizedtotal share-based compensation cost of $365,000 and $267,000, respectively, in"General and administrative expense" in the Consolidated Statementsof Operations.  During the six months ended June 30, 2007 and 2006, werecognized total share-based compensation cost of $665,000 and $450,000,respectively, in "General and administrative expense".  Additionally,we allocate an immaterial amount of equity compensation expense to individualproperties, which is included in "Property operating and maintenanceexpense" in the Consolidated Statements of Operations.

            *Stock Options.*  We use the Black-Scholes option pricingmodel to estimate the fair value of share-based awards.  During the six monthsended June 30, 2007 and 2006, there were 4,000 and 237,155 options awarded,respectively.

             *Restricted Shares*.  The following table representsrestricted share activity for the six months ended June 30, 2007:

|                                   |               |  | Weighted Average |
|-----------------------------------|---------------|--|------------------|
|                                   | Number of     |  | Grant-Date       |
|                                   | Shares        |  | Fair Value       |
|                                   |               |  |                  |
| Nonvested at beginning of  period | 171,509  |  |  $          | 10.26  |
| Granted                           | 120,507  |  |  $          | 11.74  |
| Vested                            | 70,887   |  |  $          | 6.94  |
| Forfeited                         | 1,922    |  |  $          | 12.46  |
| Nonvested at end of period        | 219,207  |  |  $          | 11.36  |

            During June 2007, a portion of the restricted shares that had beengranted during the first quarter of 2007 were deferred under the AssociatedEstates Realty Corporation Elective Deferred Compensation Program, which was implementedin June 2007.  See Note 9 for additional information regarding this program.

            A portion of the restricted shares granted during the six monthsended June 30, 2007, were awards in which the number of shares that willultimately vest are subject to market conditions.  The total estimatedgrant-date fair value of these awards, including the awards that were deferredas noted above, was $1.4 million.  We used the Monte Carlo method to estimatethe fair value of these awards.  The Monte Carlo method, which is similar tothe binomial analysis, evaluates the award for changing stock prices over theterm of vesting and uses random situations that are averaged based on paststock characteristics.  There were one million simulation paths used toestimate the fair value of these awards.  The expected volatility was based uponthe historical volatility of our daily share closing prices over a period equalto the market condition performance periods.  The risk-free interest rate usedwas based on a yield curve derived from U.S. Treasury zero-coupon bonds on thedate of grant with a maturity equal to the market condition performanceperiods.  The expected life used was the market condition performance periods.

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            The following tablerepresents the assumption ranges used in the Monte Carlo method:

|                                     | For six months ended |
|-------------------------------------|----------------------|
|                                     | June 30, 2007        |
|                                     |                      |
| Expected volatility                 | 25.7% to 27.7%       |
| Risk-free interest rate             | 4.5% to 5.1%         |
| Expected life (performance  period) | One to three years   |

**Operating Partnership MinorityInterest**

            In conjunction with the 1998 acquisition of an operatingpartnership that owned two apartment communities, we issued a total of 522,032operating partnership units ("OP units").  In January 2007, 942 ofthe OP units were redeemed.  As of June 30, 2007, there were 78,335 OP unitsremaining.

**Classification of Fixed Asset Additions**

            We consider recurring fixed asset additions to a property to becapital expenditures made to replace worn out assets to maintain the property'svalue.  We consider investment/revenue enhancing and/or nonrecurring fixed assetadditions to be capital expenditures if such improvements increase the value ofthe property and/or enable us to increase rents.  We consider acquisition anddevelopment fixed asset additions to be for the purchase or construction of newproperties to be added to our portfolio, or fixed asset additions identified atthe time of purchase that are not made until subsequent periods.

**Recent Accounting Pronouncements**

             The Financial Accounting Standards Board ("FASB")Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" -an interpretation of FASB Statement No. 109 "Accounting for IncomeTaxes" ("FIN 48") became effective January 1, 2007.  We adoptedFIN 48 and it had no material impact on our financial condition, results ofoperations and cash flows.

            In September 2006, the FASB issued SFAS No. 157, "Fair ValueMeasurements" ("SFAS 157"), which upon adoption will replacevarious definitions of fair value in existing accounting literature with asingle definition, establish a framework for measuring fair value, and requireadditional disclosures about fair value measurements.  The statement clarifiesthat fair value is the price that would be received to sell an asset or theprice paid to transfer a liability in the most advantageous market available tothe entity and emphasizes that fair value is a market-based measurement andshould be based on the assumptions market participants would use.  Thestatement also creates a three-level hierarchy under which individual fairvalue estimates are to be ranked based on the relative reliability of theinputs used in the valuation.  This hierarchy is the basis for the disclosurerequirements, with fair value estimates based on the least reliable inputsrequiring more extensive disclosures about the valuation method used and thegains and losses associated with those estimates.  SFAS 157 is required to beapplied whenever another financial accounting standard requires or permits anasset or liability to be measured at fair value.  The statement does not expandthe use of fair value to any new circumstances.  We will be required to applythe new guidance beginning January 1, 2008.  We are currently evaluating theimpact that this statement will have on our financial condition, results ofoperations and cash flows.

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            In February 2007, theFASB issued SFAS No. 159, "The Fair Value Option for Financial Assets andFinancial Liabilities" ("SFAS 159"), which permits the option tomeasure financial instruments and certain other items at fair value, withchanges in fair value recorded in earnings.  This Statement, which will beeffective for us beginning January 1, 2008, is not expected to have a materialimpact on our financial condition, results of operations and cash flows.

**Reclassifications**

            Certain reclassifications have been made to the 2006 financial statementsto conform to the 2007 presentation.

**2.         PROPERTIES ACQUIRED**

            On May 25, 2007, we acquired the land on which one of our AffordableHousing properties is located for a purchase price of $897,000.  We had beenleasing this land pursuant to a ground lease which was scheduled to mature in2021.

            On June 8, 2007, we acquired a 268-unit multifamily communitylocated in Norfolk, Virginia for a purchase price of $48.3 million.  Thepurchase was funded primarily by 1031 proceeds from the disposition of a Market-Rateproperty which we sold on May 30, 2007, and with borrowings from our revolvingcredit facility.

            On June 29, 2007, we acquired our joint venture partner's 51.0% interestin Idlewylde Apartments, a Market-Rate property located in Atlanta, Georgia.  We previously owned a 49.0% interest in this partnership and had accounted for thisinvestment under the equity method of accounting.  We paid our partner $21.6million in cash.  This acquisition was structured as a 1031 reverse exchangeand was funded with borrowings from our revolving credit facility.  CommencingJune 29, 2007, the results of operations, financial condition, including theexisting $42.0 million non-recourse mortgage loan, and cash flows of thisproperty are included in our consolidated financial statements.

**3.         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 generally classifyproperties as held for sale when all significant contingencies surrounding the closinghave been resolved.  In many transactions, these contingencies are notsatisfied until the actual closing of the transaction.  Interest expenseincluded in discontinued operations is limited to interest on mortgage debtspecifically associated with properties sold or classified as held for sale. As of June 30, 2007, there were no properties classified as held for sale.

            On May 30, 2007, we completed the sale of a Market-Rate propertylocated in Northeast Ohio.  The sales price was a net $34.6 million and werecorded a gain of $12.5 million.  This property was part of a Like-KindExchange under Section 1031 of the Internal Revenue Code.

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              On February 20,2007, we completed the sale of a congregate care Market-Rate property locatedin Northeast Ohio.  The sales price was $5.2 million and we recorded a gain of$4.6 million.  The proceeds of this sale are primarily being used to fund revenueenhancing/non-recurring capital expenditures during 2007.

            On May 15, 2006, we completed the sale of a Market-Rate propertylocated in Northeast Ohio.  The sales price was a net $28.4 million and werecorded a gain of $23.4 million.  In connection with our IPO in 1993, weacquired a Noteholder Interest which was secured by a limited partnershipinterest in one-half of this property.  We had declared the notes to be indefault because of nonpayment of interest and principal.  On July 16, 2004, weaccepted a 98.999% limited partnership interest in the limited partnership thatowned the property in full satisfaction of all obligations under the notes.  Inaddition, one of our subsidiaries acquired the remaining 1.001% generalpartnership interest in that limited partnership held by our President and CEO,Jeffrey I. Friedman and a company controlled by him.  The subsidiary acquiredsuch partnership interest in return for a promise to pay Mr. Friedman and hiscontrolled company 1.001% of the net sale proceeds derived from any future saleof the property.  Pursuant to the terms of the buyout, Mr. Friedman and hiscontrolled company were paid a total of $127,000 from the proceeds of thissale.  The independent members of the Board of Directors approved the terms ofthe buyout.  The proceeds of this sale were used primarily to fund thedefeasance of fixed rate mortgage loans.  See Note 4 for further information onthe defeasance of fixed rate mortgage loans.

            On May 10, 2006, we completed the sale of a Market-Rate propertylocated in Northeast Ohio.  The sales price was a net $13.9 million and werecorded a gain of $11.3 million.  The proceeds of this sale were usedprimarily to fund the defeasance of fixed rate mortgage loans.  See Note 4 forfurther information on the defeasance of fixed rate mortgage loans.

            "Income fromdiscontinued operations" in the accompanying Consolidated Statements ofOperations for the three and six months ended June 30, 2007 and 2006 includesthe operating results for the two properties sold in 2007 and eight properties soldin 2006 as well as gain recognized on the property sales referenced above.   Thefollowing chart summarizes "Income from discontinued operations" forthe three and six months ended June 30, 2007 and 2006: 

|                                                           | Three Months Ended June 30, | Six Months Ended June 30, |
|-----------------------------------------------------------|-----------------------------|---------------------------|
|                                                           | 2007                        |                           | 2006 |  | 2007 |  | 2006 |
| **REVENUE**                                               |                             |                           |  |  |  |  |  |
| Property revenue                                          |  $                     | 1,084                |  |  $ | 4,646  |  |  $ | 2,943  |  |  $ | 10,181  |
|                                                           |                             |                           |  |  |  |  |  |
| **EXPENSES**                                              |                             |                           |  |  |  |  |  |
| Property operating and  maintenance                       | 1,046                  |                           | 2,941  |  | 2,633  |  | 7,132  |
| Depreciation and  amortization                            | 228                    |                           | 806  |  | 584  |  | 1,785  |
|         Total expenses | 1,274                  |                           | 3,747  |  | 3,217  |  | 8,917  |
| Operating (loss) income                                   | (190)                       |                           | 899  |  | (274) |  | 1,264  |
| Interest income                                           | -                      |                           | 3  |  | -  |  | 6  |
| Interest expense (1)                                      | -                      |                           | (1,238) |  | -  |  | (3,246) |
| Gain on disposition of  properties                        | 12,482                 |                           | 34,723  |  | 17,043  |  | 34,723  |
| **Income from discontinued  operations**                  |  $                     | 12,292               |  |  $ | 34,387  |  |  $ | 16,769  |  |  $ | 32,747  |
|                                                           |                             |                           |  |  |  |  |  |

| (1)    | Interest  expense for the three and six months ended June 30, 2006, includes $671,000  and $1.9 million of defeasance costs, respectively. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                       |

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**4.         DEBT**

**Mortgage Notes Payable**

            During the six months ended June 30, 2007, we defeased (prepaid)five fixed rate mortgage loans totaling $47.2 million.  In connection withthese defeasances, other prepayments and refinancings (see below) we recognized$4.2 million in defeasance and other prepayment costs, which are included in"Interest expense" in the Consolidated Statements of Operations.  Wecompleted the refinancing of four fixed rate mortgage loans that were to maturein 2007 totaling $53.3 million.  Two of the new loans, which total $35.0million, are variable rate mortgage loans that mature in 2009.  The interestrate on both of these loans is LIBOR plus 1.5%, or 6.8% at June 30, 2007.  Theother two new loans, which total $20.0 million, are 5.4% fixed rate mortgageloans that mature in 2014.  Additionally, we prepaid two variable rate mortgageloans totaling $15.7 million with funds borrowed on our unsecured revolvingcredit facility.

            On June 29, 2007, we acquired our joint venture partner's 51.0% interestin Idlewylde Apartments.  In connection with the acquisition, effective June29, 2007, we are including the results of operations, financial condition,including the existing $42.0 million non-recourse mortgage loan, and cash flowsin our consolidated financial statements.  The interest rate on this loan isLIBOR plus 1.1%, or 6.5% at June 30, 2007.  This loan matures in 2010.  SeeNote 2 for additional information regarding this acquisition.

            During the six months ended June 30, 2006, we defeased (prepaid) eightfixed rate mortgage loans totaling $71.3 million and incurred $7.1 million indefeasance and other prepayment costs, $5.2 million of which are included in"Interest expense" and $1.9 million are included in "Income fromdiscontinued operations" in the Consolidated Statements of Operations.

**Revolving Credit Facility/Lines of Credit**

            In April 2007, we obtained an unsecured revolving credit facility ("therevolver") in the amount of $100.0 million to be used for the refinancingof existing debt, general corporate purposes, and/or the acquisition ofproperties.  This revolver matures in April 2010 and accrues interest at avariable rate of LIBOR plus 1.6%.  The weighted average interest rate onborrowings outstanding at June 30, 2007, was 7.0%.  In connection withobtaining the revolver, we terminated both our secured $17.0 million and our secured$14.0 million lines of credit.  At June 30, 2007, the revolver had outstandingborrowings of $75.4 million.  There were no borrowings outstanding on the $17.0million or $14.0 million secured lines of credit at December 31, 2006.

**5.         GOODWILL AND OTHER INTANGIBLE ASSETS**

**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.

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            In addition to theannual review of goodwill completed during the three months ended March 31,2007, we reviewed goodwill during the three months ended June 30, 2007, as aresult of the loss of fee revenue associated with our acquisition of our jointventure partner's 51.0% interest in Idlewylde Apartments (see Note 2 fordetails of this purchase).  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 June 30, 2007. Should the estimates used to determine alternatives or the probabilities of theoccurrence thereof change, an impairment may result which could materiallyimpact our results of operations for the period 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 approximatelytwelve to sixteen 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 the two property acquisitions completed duringthe second quarter of 2007, as discussed in Note 2, we recorded totalintangible assets in the amount of $2.6 million related to existing leases,which will be amortized over 12 months, and $589,000 related to tenantrelationships, which will be amortized over 16 months.

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

**           **We provide management and other services to (and are reimbursedfor certain expenses incurred on behalf of) certain non-owned properties inwhich our Chief Executive Officer ("CEO") and/or other relatedparties have varying ownership interests.  The entities which own theseproperties, as well as other related parties, are referred to as"affiliates."  We also provide similar services to joint ventureproperties.  Property management fees and other service company revenues recognizedfor the three and six months ended June 30, 2007 were $126,000 and $250,000,respectively.  Property management fees and other service company revenuesrecognized for the three and six months ended June 30, 2006 were $144,000 and$334,000, respectively.

            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.

            Merit Enterprises, Inc., ("Merit"), a subsidiary of ours,has provided services to JAS Construction, Inc. ("JAS") related toproperty rehabilitation and other work from time to time.  JAS is owned by ason of our CEO.  Reported revenue related to work performed by Merit for JASfor the three and six months ended June 30, 2007 were $405,000 and $889,000,respectively.  Reported revenue related to work performed by Merit for JAS forthe three and six months ended June 30, 2006 were $109,000 and $271,000,respectively.  Accounts receivable from affiliates related to JAS at June 30,2007 and December 31, 2006, were $162,000 and $33,000, respectively.

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            On June 29, 2007, weacquired our joint venture partner's 51.0% interest in Idlewylde Apartments, aMarket-Rate property located in Atlanta, Georgia.  Accounts receivable fromaffiliates related to this acquisition was $638,000 at June 30, 2007.  Thefinal settlement of operating cash will occur during the third quarter at whichtime we will receive these funds.

**7.         SHARES**

            Our Board of Directors authorized the repurchase of up to $50.0million of our common shares and Class B Series II Preferred Shares.  Duringthe six months ended June 30, 2007, we repurchased 111,500 depository shares ata cost of $2.9 million, leaving a total of $19.5 million remaining under the$50.0 million authorization.

**8.         EARNINGS PER SHARE**

            Earnings per share ("EPS") has been computed pursuant tothe provisions of SFAS 128, "Earnings per Share."  There were 1.9million and 2.2 million options to purchase common shares outstanding at June30, 2007 and 2006.  None of the options were included in the calculation ofdiluted earnings per share for the periods presented as their inclusion wouldbe antidilutive to the net loss applicable to common shares from continuingoperations.

            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.

**9.         DIRECTOR/EXECUTIVECOMPENSATION**

**           **On June18, 2007, we implemented The Associated Estates Realty Corporation ElectiveDeferred Compensation Program (the "Plan").  The Plan is an unfunded,non-qualified deferred compensation program that is subject to the provisionsof Section 409A of the Internal Revenue code, which strictly regulates thetiming of elections and payment.  This plan was developed in lieu of updatingour Executive Deferred Compensation Plan, which was initially adopted by theBoard of Directors on July 1, 1999.  Eligibility under the Plan shall bedetermined by the Executive Compensation Committee or its designee, andinitially consists of each of our appointed or elected officers.

            The Plan permits deferral of up to 90.0% of base salary and up to100% of any incentive payment.  An individual bookkeeping account will bemaintained for each participant.  Participants are provided a number ofmeasurement funds from which they may select to determine earnings, which maybe, but are not required to be, the same as those offered under our 401(k)Savings Plan.  Deferrals of base salary and incentive payments (other thanrestricted shares, discussed below) are fully vested.

            The Plan also permits the deferral of restricted shares grantedunder the Equity-Based Award Plan, which also will be reflected in a separatebookkeeping account for each individual as share equivalent units.  Dividendcredits shall be made to such account in the form of share equivalent units. Distribution of amounts reflected by such share equivalents will be made in theform of shares.  The vesting of share equivalent units occurs on the sameschedule as the restricted shares that had been deferred. 

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            The Plan allows forin-service and separation sub-accounts to permit election of distribution ateither a specified date or following separation.  Payment of each deferralunder the Plan will be made in the form specified in the participant'selection, and may be in the form of a lump sum or annual installment paymentsover a period not to exceed four years.  Payment of each deferral under thePlan will be made on account of separation from service, death, or disability,or at a time specified by the participant, within the parameters set forth inthe Plan.  Redeferral elections are permitted within the parameters set forthin the Plan.  Accounts will be distributed upon a change of control, anddistribution due to unforeseen financial hardship is also possible.

**10.        INTERIM SEGMENT REPORTING**

            We have four reportable segments:  (1)  Acquisition/DispositionMultifamily Properties; (2) Same Community Market-Rate("Market-Rate") Multifamily Properties; (3) Affordable HousingMultifamily Properties; and (4) Management and Service Operations.  We haveidentified these segments based upon how management makes decisions regardingresource allocation and performance assessment.  The Acquisition/Dispositionproperties represent acquired or developed properties which have not yetreached stabilization (we consider a property stabilized when its occupancyrate reaches 93.0% and we have owned the property for one year), and propertiesthat have been sold or are classified as held for sale in accordance with SFAS144.  The Market-Rate properties are same community (owned during the entiretyof the comparison periods) conventional multifamily residential apartments. The Affordable Housing properties are multifamily properties for which therents are subsidized and certain aspects of the operations are regulated by theUnited States Department of Housing and Urban Development ("HUD")pursuant to Section 8 of the National Housing Act of 1937.  The Management andService Operations provide management and advisory services to theAcquisition/Disposition, Market-Rate and Affordable Housing properties that weown, as well as to third party clients and properties, both affiliate andnon-affiliates.  All of our segments are located in the United States.

            The accounting policies of the reportable segments are the same asthose described in the "Basis of Presentation and Significant AccountingPolicies" in our Annual Report on Form 10-K for the year ended December 31,2006.  We evaluate the performance of our reportable segments based on NetOperating Income ("NOI").  NOI is determined by deducting propertyoperating and maintenance expenses from property revenue for theAcquisition/Disposition (excluding amounts classified as discontinuedoperations), Market-Rate and Affordable Housing segments and deducting directproperty management and service companies' expenses and painting servicesexpenses from Management and Service Company revenue for the Management and ServiceOperations segment.  We consider NOI to be an appropriate supplemental measureof our performance because it reflects the operating performance of our realestate portfolio and management and service companies at the property andmanagement and service company level and is used to assess regional propertylevel performance.  NOI should not be considered (i) as an alternative to netincome (determined in accordance with GAAP), (ii) as an indicator of financialperformance, (iii) as cash flow from operating activities (determined inaccordance with GAAP) or (iv) as a measure of liquidity; nor is it necessarilyindicative of sufficient cash flow to fund all of our needs.  Certain otherreal estate companies may define NOI in a different manner.

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            Segment informationfor the three and six months ended June 30, 2007 and 2006 is as follows:

|                                              |                     | For the three months  ended June 30, 2007 |
|----------------------------------------------|---------------------|-------------------------------------------|
|                                              |                     |                                           |  |  |  |  |  | Management |  |  |
|                                              |                     | Acquisition/                              |  |  |  | Affordable |  | and Service |  | Total |
| *(In  thousands)*                            | Disposition         |                                           | Market Rate |  | Housing |  | Operations |  | Consolidated |
|                                              |                     |                                           |  |  |  |  |  |  |  |  |
| Total  segment revenue                       |  $             | 243                                  |  |  $ | 30,462  |  |  $ | 3,997  |  |  $ | 5,572  |  |  $ | 40,274  |
| Elimination  of intersegment revenue         | -    |                                           | (8) |  | (11) |  | (1,803) |  | (1,822) |
| Consolidated  revenue                        | 243            |                                           | 30,454  |  | 3,986  |  | 3,769  |  | 38,452  |
|                                              |                     |                                           |  |  |  |  |  |  |  |  |
| Equity  in net loss of joint ventures        | -    |                                           | (110) |  | (34) |  | -    |  | (144) |
|                                              |                     |                                           |  |  |  |  |  |  |  |  |
| Operating  loss from discontinued operations | (190)               |                                           | -    |  | -    |  | -    |  | (190) |
|                                              |                     |                                           |  |  |  |  |  |  |  |  |
| *NOI                                         | 126            |                                           | 16,104  |  | 2,727  |  | (423) |  | 18,534  |
|                                              |                     |                                           |  |  |  |  |  |  |  |  |
| Total  assets                                | 118,830        |                                           | 564,865  |  | 7,664  |  | 15,439  |  | 706,798  |
|                                              |                     |                                           |  |  |  |  |  |  |  |  |  |  |  |  |  |

*Intersegment revenue and expenses have beeneliminated in the computation of NOI for each of the segments.

|                                              |                     | For the six months ended  June 30, 2007 |
|----------------------------------------------|---------------------|-----------------------------------------|
|                                              |                     |                                         |  |  |  |  |  | Management |  |  |
|                                              |                     | Acquisition/                            |  |  |  | Affordable |  | and Service |  | Total |
| *(In  thousands)*                            | Disposition         |                                         | Market Rate |  | Housing |  | Operations |  | Consolidated |
|                                              |                     |                                         |  |  |  |  |  |  |  |  |
| Total  segment revenue                       |  $             | 243                                |  |  $ | 60,247  |  |  $ | 6,399  |  |  $ | 10,703  |  |  $ | 77,592  |
| Elimination  of intersegment revenue         | -    |                                         | (18) |  | (21) |  | (3,624) |  | (3,663) |
| Consolidated  revenue                        | 243            |                                         | 60,229  |  | 6,378  |  | 7,079  |  | 73,929  |
|                                              |                     |                                         |  |  |  |  |  |  |  |  |
| Equity  in net loss of joint ventures        | -    |                                         | (147) |  | (69) |  | -    |  | (216) |
|                                              |                     |                                         |  |  |  |  |  |  |  |  |
| Operating  loss from discontinued operations | (274)               |                                         | -    |  | -    |  | -    |  | (274) |
|                                              |                     |                                         |  |  |  |  |  |  |  |  |
| *NOI                                         | 126            |                                         | 32,986  |  | 3,834  |  | (945) |  | 36,001  |
|                                              |                     |                                         |  |  |  |  |  |  |  |  |
| Total  assets                                | 118,830        |                                         | 564,865  |  | 7,664  |  | 15,439  |  | 706,798  |
|                                              |                     |                                         |  |  |  |  |  |  |  |  |  |  |  |  |  |

*Intersegment revenue and expenses have beeneliminated in the computation of NOI for each of the segments.

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|                                              |                     | For the three months  ended June 30, 2006 |
|----------------------------------------------|---------------------|-------------------------------------------|
|                                              |                     |                                           |  |  |  |  |  | Management |  |  |
|                                              |                     | Acquisition/                              |  |  |  | Affordable |  | and Service |  | Total |
| *(In  thousands)*                            | Disposition         |                                           | Market Rate |  | Housing |  | Operations |  | Consolidated |
|                                              |                     |                                           |  |  |  |  |  |  |  |  |
| Total  segment revenue                       |  $             | -                          |  |  $ | 29,183  |  |  $ | 2,320  |  |  $ | 5,429  |  |  $ | 36,932  |
| Elimination  of intersegment revenue         | -    |                                           | (7) |  | (13) |  | (1,966) |  | (1,986) |
| Consolidated  revenue                        | -    |                                           | 29,176  |  | 2,307  |  | 3,463  |  | 34,946  |
|                                              |                     |                                           |  |  |  |  |  |  |  |  |
| Equity  in net loss of joint ventures        | -    |                                           | (97) |  | (45) |  | -    |  | (142) |
|                                              |                     |                                           |  |  |  |  |  |  |  |  |
| Operating  loss from discontinued operations | (336)               |                                           | -    |  | -    |  | -    |  | (336) |
|                                              |                     |                                           |  |  |  |  |  |  |  |  |
| *NOI                                         | -    |                                           | 15,383  |  | 1,182  |  | (380) |  | 16,185  |
|                                              |                     |                                           |  |  |  |  |  |  |  |  |
| Total  assets                                | 53,790         |                                           | 582,226  |  | 7,131  |  | 18,185  |  | 661,332  |
|                                              |                     |                                           |  |  |  |  |  |  |  |  |  |  |  |  |  |

*Intersegment revenue and expenses have beeneliminated in the computation of NOI for each of the segments.

|                                              |                     | For the six months ended  June 30, 2006 |
|----------------------------------------------|---------------------|-----------------------------------------|
|                                              |                     |                                         |  |  |  |  |  | Management |  |  |
|                                              |                     |  Acquisition/                      |  |  |  |  Affordable |  | and Service |  |  Total  |
| *(In  thousands)*                            |  Disposition   |                                         |  Market Rate |  |  Housing |  | Operations |  |  Consolidated |
|                                              |                     |                                         |  |  |  |  |  |  |  |  |
| Total  segment revenue                       |  $             | -                        |  |  $ | 57,486  |  |  $ | 4,638  |  |  $ | 10,784  |  |  $ | 72,908  |
| Elimination  of intersegment revenue         |                     |                                         | (18) |  | (21) |  | (3,931) |  | (3,970) |
| Consolidated  revenue                        | -    |                                         | 57,468  |  | 4,617  |  | 6,853  |  | 68,938  |
|                                              |                     |                                         |  |  |  |  |  |  |  |  |
| Equity  in net loss of joint ventures        | -    |                                         | (164) |  | (84) |  | -    |  | (248) |
|                                              |                     |                                         |  |  |  |  |  |  |  |  |
| Operating  loss from discontinued operations | (1,976)             |                                         | -    |  | -    |  | -    |  | (1,976) |
|                                              |                     |                                         |  |  |  |  |  |  |  |  |
| *NOI                                         | -    |                                         | 30,769  |  | 2,040  |  | (620) |  | 32,189  |
|                                              |                     |                                         |  |  |  |  |  |  |  |  |
| Total  assets                                | 53,790         |                                         | 582,226  |  | 7,131  |  | 18,185  |  | 661,332  |
|                                              |                     |                                         |  |  |  |  |  |  |  |  |  |  |  |  |  |

*Intersegment revenue and expenses have beeneliminated in the computation of NOI for each of the segments.

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            A reconciliation oftotal NOI to total consolidated net income is as follows:

|                                             |                                    | Three Months Ended June 30, |              | Six Months Ended June 30, |
|---------------------------------------------|------------------------------------|-----------------------------|--------------|---------------------------|
| (In thousands)                              | 2007                               |                             | 2006         |                           | 2007 |  | 2006 |
|                                             |                                    |                             |              |                           |  |  |  |  |
| Total NOI for reportable  segments          |  $                            | 18,534                 |              |  $                   | 16,185  |  |  $ | 36,001  |  |  $ | 32,189  |
| Depreciation and  amortization              | (7,573)                            |                             | (7,468)      |                           | (14,979) |  | (15,177) |
| General and administrative  expense         | (2,699)                            |                             | (2,647)      |                           | (5,411) |  | (4,993) |
| Interest income                             | 73                            |                             | 112     |                           | 344  |  | 490  |
| Interest expense                            | (10,241)                           |                             | (12,449)     |                           | (21,802) |  | (24,637) |
| Equity in net loss of joint  ventures       | (144)                              |                             | (142)        |                           | (216) |  | (248) |
| Minority interest in operating  partnership | (13)                               |                             | (16)         |                           | (27) |  | (32) |
| Income from discontinued  operations:       |                                    |                             |              |                           |  |  |  |
|                                             | Operating (loss) income            | (190)                       |              | (336)                     |  | (274) |  | (1,976) |
|                                             | Gain on disposition of  properties | 12,482                 |              | 34,723               |  | 17,043  |  | 34,723  |
| Income from discontinued  operations        | 12,292                        |                             | 34,387  |                           | 16,769  |  | 32,747  |
| Consolidated net income                     |  $                            | 10,229                 |              |  $                   | 27,962  |  |  $ | 10,679  |  |  $ | 20,339  |
|                                             |                                    |                             |              |                           |  |  |  |  |

**11.        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 ultimateaggregate monetary liability or financial impact with respect to the Litigationmatters described in the following paragraphs as of June 30, 2007, and noaccruals have been made for these matters other than those identified in thefollowing paragraphs.  We believe that other Litigation will not have amaterial adverse impact on us after final disposition.  However, because of theuncertainties of Litigation, one or more lawsuits could ultimately result in amaterial obligation.

***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 security deposit,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 pending before the Court.  We intend to vigorously defend ourselves against theseclaims.

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***Government Investigations***

            On or about August 7, 2002, the Maryland Attorney General served uswith a subpoena seeking information concerning certain of our leasing practicesin connection with our Maryland properties.  The subpoena sought extensiveinformation going back a number of years, including information about ourSuredeposit programs and certain non-refundable deposits.  The MarylandAttorney General completed its review of the information we furnished and basedupon that information contended that certain of our leasing practices were inviolation of Maryland's landlord tenant laws.  We reached an out of courtsettlement with the Maryland Attorney General for the purpose of resolving thismatter and recorded our estimate of the settlement amount in "General andadministrative expense" in the Consolidated Statements of Operationsduring the second and third quarters of 2006.

            On or about December 22, 2003, the Montgomery County, MarylandOffice of Landlord-Tenant Affairs commenced an investigation into possibleviolations of state and county Landlord-Tenant laws involving two propertiesoperated by us located in Montgomery County, Maryland.  The matters that werethe subject of this investigation were for the most part the same leasingpractices being investigated by the Maryland Attorney General. Although these Montgomery County charges were never formally withdrawn, we believe that Montgomery County will not pursue these matters based upon our settlement with the Maryland AttorneyGeneral.

             Montgomery County commenced additional investigations concerningthe charging of trash fees.  We reached an out of court settlement with Montgomery concerning this matter and our estimate of the settlement amount was recorded in"General and administrative expense" in the Consolidated Statementsof Operations during the second and third quarters of 2006.

**12.        GUARANTEES**

            We previously were a 49.0% partner in the joint venture partnershipthat owned Idlewylde Apartments, an 843-unit multifamily community, located in Atlanta, Georgia.  In connection with the $42.0 million mortgage loan encumbering thisproperty, we guaranteed certain obligations of the partnership includingenvironmental indemnification obligations and typical nonrecourse carveouts. Although we had not recorded a liability for a potential loss, we were requiredby GAAP to estimate the fair value of this guaranty.  We estimated the fairvalue of the guaranty to be $290,000, and at December 31, 2006, this amount wasincluded as an asset in "Investments in joint ventures, net" and as aliability in "Accounts payable, accrued expenses and otherliabilities" in the accompanying Consolidated Balance Sheets.  On June 29,2007, we acquired our joint venture partner's 51.0% interest in this property. Consequently, at June 30, 2007, the asset and liability representing the fairvalue of the guarantee were removed in the accompanying Consolidated BalanceSheets.  In addition, we routinely guaranty mortgage debt of our wholly ownedsubsidiaries.

**13.**        **PROPERTY REVENUE**

            During the three months ended June 30, 2007, we recordednon-recurring rental revenue of $1.6 million as a result of a settlement of alawsuit with HUD relating to rents at some of our Affordable Housing properties.

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            The operating performance of the Market-Rate properties is affectedby factors such as interest rates, unemployment rates, and the supply anddemand of rental housing in particular markets.  Rental revenue collections area combination of rental rates, occupancy levels and rent concessions.  Weattempt to adjust these factors from time to time, based on market conditions,in order to maximize rental revenue.  Indicators that we use in measuring thesefactors include physical occupancy and net collected rent.  These indicatorsare more fully described in the Results of Operations comparison. Additionally, we consider property net operating income ("NOI") to be animportant 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 10 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.

           **2007 Expectations. **

•        ***Portfolio performance****-*We expect toincrease our Market-Rate property NOI by approximately 4.6% to 5.1% in 2007,     drivenby property revenue increases of 3.6% to 4.1%.

•        ***Property acquisitions and sales*** - We plan to acquirebetween $90.0 million and $150.0 million of properties and sell     between $100.0 millionand $150.0 million of properties in 2007.

•        ***Defeasance and other prepayment costs*** - We expectto incur approximately $7.0 million to $10.0 million in     costs to defease/prepayor refinance debt during 2007.

**LIQUIDITY AND CAPITAL RESOURCES**

            **Cash Flows and Liquidity.**  Significant sources and uses ofcash in the six months ended June 30, 2007 and 2006, are summarized as follows: 

|                                                              |  For the six months |
|--------------------------------------------------------------|--------------------------|
|                                                              | ended June 30,           |
| *(In thousands)*                                             | 2007                     |  | 2006 |
|                                                              |                          |  |  |
| Net cash provided by  operating activities                   |  $                  | 11,915  |  |  $ | 9,086  |
| Fixed assets:                                                |                          |  |  |
| Property  acquisitions, net                                  | (70,547)                 |  | (256) |
| Property  disposition proceeds, net                          | 37,921              |  | 40,129  |
| Recurring  and non-recurring capital expenditures            | (4,636)                  |  | (6,124) |
| Debt:                                                        |                          |  |  |
| Decrease  in mortgage notes                                  | (62,940)                 |  | (74,183) |
| Increase  in revolver or line of credit borrowings           | 75,350              |  | 12,400  |
| Cash dividends and operating  partnership distributions paid | (8,458)                  |  | (8,505) |
| Purchase of preferred and/or  treasury shares                | (3,254)                  |  | (10,254) |
|                                                              |                          |  |  |  |  |

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            Our primary sourcesof liquidity are cash flow provided by operations, short-term borrowings on ourrevolver and proceeds from property sales.  Cash provided by operations in 2007increased compared to 2006 primarily due to increased property revenue anddecreased interest expense in 2007, which was partially offset by changes inaccounts payable and accounts receivable resulting from the timing of cashpayments and cash receipts.

            During the six months ended June 30, 2007, we received $37.9million from the sale of two properties.  We also acquired two properties andpurchased land for a total cash outlay of $70.5 million primarily with fundsfrom sold properties and from borrowings on the revolver.  We paid dividendsand distributions of $8.4 million and paid a total of $4.6 million forrecurring and non-recurring capital additions.  Additionally, we paid $2.9million to repurchase a portion of our outstanding Class B preferred depositoryshares.

            During the six months ended June 30, 2007, we defeased/prepaid fivefixed rate mortgages and prepaid two variable rate mortgage loans withborrowings on the revolver.  We refinanced four fixed rate mortgages that wereto mature in 2007 with two variable rate mortgages that mature in 2009 and twofixed rate mortgages that mature in 2014.  Additionally, in connection with ourJune 29, 2007 acquisition of our joint venture partner's 51.0% interest inIdlewylde Apartments, the existing $42.0 million variable rate, non-recoursemortgage loan that matures in 2010, is now included in our consolidatedfinancial statements.

            In April 2007, we obtained a $100.0 million revolver to be used forthe refinancing of existing debt, general corporate purposes, and/or theacquisition of properties.  In connection with the revolver, we terminated our$17.0 million and $14.0 million secured lines of credit.  At June 30, 2007,there were borrowings of $75.4 million outstanding on the revolver leaving$24.6 million available for additional borrowings.

            We anticipate funding approximately $9.4 million for recurring,investment/revenue enhancing and nonrecurring capital expenditures for theremainder of 2007.  These expenditures are expected to be funded from cash flowprovided by operating 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.

            We anticipate that we will meet our liquidity requirements for theremainder of 2007 generally through net cash provided by operations andproperty sales' proceeds.  We believe that these and other sources, such as therevolver, should be sufficient to meet operating requirements, capitaladditions, mortgage amortization payments and the payment of dividends inaccordance with REIT requirements.  We anticipate that we will continue payingquarterly dividends and that we will sustain our current dividend rate.

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            **Guarantees.** We routinely guaranty mortgage debt of our wholly owned subsidiaries.  In thenormal course of business, we may enter into contractual arrangements underwhich we may agree to indemnify the third party to such arrangement from anylosses incurred related to the services they perform on our behalf or forlosses arising from certain events as defined within the particular contract,which may include, for example, litigation or claims relating to pastperformance.  Such indemnification obligations may not be subject to maximumloss clauses.  Historically, payments made related to these indemnificationshave not been material.

            **Off-Balance Sheet Investments and Financing Commitments.**  AtJune 30, 2007, we had an investment in one joint venture that owns anAffordable Housing multifamily apartment community.  The operation of thisproperty is similar to the operations of our wholly owned portfolio.  Jointventure investments enable us to exercise influence over the operations of suchproperties and share in their profits, while earning additional fee income.  Weaccount for our investment in the unconsolidated joint venture under the equitymethod of accounting as we exercise significant influence, but do not controlthis entity and are not required to consolidate it in accordance with FASBInterpretation No. 46, "Consolidation of Variable Interest Entities"or under EITF 04-05, "Investor's Accounting for an Investment in a LimitedPartnership When the Investor Is the Sole General Partner and the LimitedPartners Have Certain Rights".  This investment was initially recorded atcost as investment in joint ventures and subsequently adjusted for equity inearnings and cash contributions and distributions.  This joint venture propertyhad negative cash flow during 2006 and is expected to have negative cash flowduring 2007 as a result of operating expenses exceeding tenant rents and thehousing assistance payments from HUD.  We are pursuing a request to HUD for anincrease in housing assistance payments in order to address the deficit.  Thejoint venture partnership that owns this property intends to sell it. Additional cash contributions that may be required of us to pay deficits, ifany, are not expected to be material.  Our proportionate share of the debt onthis property at June 30, 2007, was $2.1 million.

**Management and Service Operations.**  In January 2007, we entered into amanagement contract for a property located in Pennsylvania for which weanticipate receiving approximately $64,000 in annual fee revenue.

            In June 2007, we were notified that a management contract for aproperty located in Northeast Ohio was to be terminated effective July 31,2007.  Annual fees received in connection with this contract were approximately$35,000.

***RESULTS OF OPERATIONS***

***Comparison of the three and six months ended June 30, 2007 to the three and sixmonths ended June 30, 2006. ***

***           ***In the following discussion, Market-Rate propertiesrepresent 51 wholly owned Same Community Market-Rate properties that we haveowned during the entirety of the comparison periods.  Affordable Housingproperties represent 11 properties subject to HUD regulations. Acquired/Disposed properties represent two recently acquired properties and allsold properties.

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            Overall, the net lossfrom continuing operations for 2007 decreased in both comparison periodsprimarily due to an increase in property revenue and a decrease in interestexpense during 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 and six months ended June 30, 2007 to the three andsix months ended June 30, 2006:

|                                                    |                                  | Increase (decrease) in |                       | Increase (decrease) in |
|----------------------------------------------------|----------------------------------|------------------------|-----------------------|------------------------|
|                                                    |                                  | three month comparison |                       | six month comparison   |
|                                                    |                                  | period ended June 30,  |                       | period ended June 30,  |
| *(In thousands)*                                   | 2007 to June 30, 2006            |                        | 2007 to June 30, 2006 |
|                                                    |                                  |                        |                       |                        |  |  |
| Property revenue                                   |  $                          | 3,200             | 10.2 %           |                        |  $ | 4,765  | 7.7 % |
| Property operating and  maintenance expense items: |                                  |                        |                       |                        |  |
|                                                    | Real estate taxes and  insurance | 307               | 6.6 %            |                        | 65  | 0.7 % |
|                                                    | Other operating expenses         | 226               | 20.5 %           |                        | 506  | 25.0 % |
| Interest expense                                   | (2,208)                          | (17.7)%                |                       | (2,835)                | (11.5)% |
|                                                    |                                  |                        |                       |                        |  |  |  |  |

*            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 table for the three and six months ended June 30, 2007 and2006 (information for the three and six months ended June 30, 2006 reflectresults based upon the operating properties and their respective segments as ofJune 30, 2007):

|                         |                        | For the three months ended |
|-------------------------|------------------------|----------------------------|
|                         |                        | June 30, 2007              |  | June 30, 2006 |
|                         |                        |                            |  | Average Monthly |  |  |  | Average Monthly |
|                         |                        | Physical                   |  | Net Collected |  | Physical |  | Net Collected |
|                         |                        | Occupancy                  |  | Rent Per Unit |  | Occupancy |  | Rent Per Unit |
| Market-Rate Properties: |                        |                            |  |  |  |  |  |
|                         | Midwest                | 96.8 %                |  |  $ | 726  |  | 95.8 % |  |  $ | 697  |
|                         | Mid-Atlantic/Southeast | 94.8 %                |  |  $ | 1,061  |  | 95.3 % |  |  $ | 1,018  |
| Total Market-Rate       | 96.3 %            |                            |  $ | 807  |  | 95.7 % |  |  $ | 774  |
| Affordable Housing      | 99.6 %            |                            |  $ | 659  |  | 99.7 % |  |  $ | 646  |

|                         |                        | For the six months ended |
|-------------------------|------------------------|--------------------------|
|                         |                        | June 30, 2007            |  | June 30, 2006 |
|                         |                        |                          |  | Average Monthly |  |  |  | Average Monthly |
|                         |                        | Physical                 |  | Net Collected |  | Physical |  | Net Collected |
|                         |                        | Occupancy                |  | Rent Per Unit |  | Occupancy |  | Rent Per Unit |
| Market-Rate Properties: |                        |                          |  |  |  |  |  |
|                         | Midwest                | 96.8 %              |  |  $ | 720  |  | 95.8 % |  |  $ | 685  |
|                         | Mid-Atlantic/Southeast | 94.8 %              |  |  $ | 1,052  |  | 95.3 % |  |  $ | 1,008  |
| Total Market-Rate       | 96.3 %            |                          |  $ | 799  |  | 95.7 % |  |  $ | 763  |
| Affordable Housing      | 99.1 %            |                          |  $ | 482  |  | 99.7 % |  |  $ | 645  |
|                    |                   |                     |   |   |   |   |   |   |   |

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            Property revenueincreased in 2007 during both comparison periods primarily as a result of increasedoccupancy and a combination of rental rate increases and an overall reductionin concessions being offered in the Market-Rate segment.  Additionally, duringthe three months ended June 30, 2007, we recorded non-recurring rental revenueof $1.6 million as a result of a settlement of a lawsuit with HUD relating torents at some of our Affordable Housing properties.

            *Property Operating and Maintenance Expenses.*  Propertyoperating and maintenance expenses increased during both comparison periodsprimarily as a result of increases in real estate tax expense and otheroperating expenses.  Real estate taxes increased in both comparison periodsprimarily due to estimated increases in assessed property values and millagerates in 2007.  Other operating expenses increased primarily as a result of increasesin uncollectible tenant rent receivables and associated collection costs. These increases were partially offset by a credit recorded during 2007 relatedto our self-insurance property plan resulting from favorable loss experiences.

            *Interest Expense. *Interest expense decreased in 2007 duringboth comparison periods primarily as a result of reduced mortgage debtoutstanding during most of the 2007 comparison periods.  Additionally, costsrecorded in continuing operations related to the defeasance/prepayment ofmortgage loans during the three and six month comparison periods were $1.3million and $1.0 million, respectively, lower in 2007 than in 2006.

            *Income from Discontinued Operations.*  Discontinued operationsincludes the operating results of the properties that were sold during 2007 and2006 and the gains related to sales completed during each of the comparisonperiods.  For further details on "Income from discontinuedoperations," see Note 3 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 11 of the Notes toConsolidated Financial Statements presented in Part I, Item 1 of this report onForm 10-Q.

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**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 June 30, 2007, an interest rate change of 100basis points would impact interest expense approximately $1.7 million on anannual basis. We occasionally use derivative instruments to manage our exposureto interest rates.  See "Item 7A Qualitative and Quantitative DisclosuresAbout Market Risk" of our Annual Report on Form 10-K for the year endedDecember 31, 2006, for a more complete discussion of interest rate sensitiveassets and liabilities.

**ITEM 4.  CONTROLS AND PROCEDURES**

            *Disclosure Controls and Procedures.*  We have evaluated thedesign and operations of our disclosure controls and procedures to determinewhether they are effective in ensuring that the disclosure of requiredinformation is timely made in accordance with the Securities Exchange Act of1934 ("Exchange Act") and the rules and forms of the Securities andExchange Commission.  This evaluation was made under the supervision and withthe participation of management, including our Chief Executive Officer("CEO") and Chief Financial Officer ("CFO"), as of the endof the period covered by this report on Form 10-Q.  The CEO and CFO haveconcluded, based on their review, that our disclosure controls and procedures,as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), are effective toensure that information required to be disclosed in reports that we file underthe Exchange Act is (i) recorded, processed, summarized and reported within thetime periods specified in Securities and Exchange Commission rules and forms,and (ii) accumulated and communicated to management, including the principalexecutive and principal financial officers, as appropriate, to allow timelydecisions regarding disclosure.

            *Changes in Internal Control over Financial Reporting.*  Therewere no changes in our internal control over financial reporting during the secondquarter of 2007 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 detectmisstatements.  Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

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**PART II.     OTHER INFORMATION**

**ITEM 1.       LEGAL PROCEEDINGS**

****                  For information related to legal proceedings, see Note 11of 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, 2006.

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

|                 |          |                  |                     |           |                     |                   |                     |                     | Approximate        |
|-----------------|----------|------------------|---------------------|-----------|---------------------|-------------------|---------------------|---------------------|--------------------|
|                 |          |                  |                     |           |                     |                   |                     |                     | Dollar Value of    |
|                 |          |                  |                     |           |                     |                   | Total Number of     |                     | Shares That May    |
|                 |          |                  |                     |           |                     |                   | Shares Purchased    |                     | Yet Be Purchased   |
|                 |          |                  |                     |           | Average             |                   | As Part of Publicly |                     | Under the Plans or |
|                 |          |                  | Total Number of     |           | Price Paid          |                   | Announced           |                     | Programs           |
| Period          |          | Shares Purchased |                     | Per Share |                     | Plans or Programs |                     | (in thousands)      |
|                 |          |                  |                     |           |                     |                   |                     |                     |                    |
| April 1 through |          |                  |                     |           |                     |                   |                     |                     |
|                 | April 30 |                  | 3,121          |           |  $             | 14.79        |                     | -    |                    |  $ | 22,433  |
| May 1 through   |          |                  |                     |           |                     |                   |                     |                     |
|                 | May 31   |                  | 304            |           |  $             | 15.05        |                     | -    |                    |  $ | 22,433  |
| June 1 through  |          |                  |                     |           |                     |                   |                     |                     |
|                 | June 30  |                  | -    |           | -    |                   | 111,500        |                     |  $            | 19,530  |
| Total           |          | 3,425       |                     |  $   | 14.81          |                   | 111,500        |                     |                    |

                  On July 27, 2005, our Board of Directors authorized therepurchase of up to $50.0 million of our common shares.  On October 20, 2006,our Board of Directors expanded this authorization to include the repurchase ofour Class B Series II Preferred Shares.  Additionally, we have a policy whichallows employees to pay their portion of the payroll taxes related torestricted share vesting by surrendering shares equal in value on the day ofvesting to the amount of taxes due.

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

                  On May 2, 2007, we held our Annual Meeting of Shareholders. Following are the matters our shareholders voted upon and the results of thevote:

                  (1)  The election of the following directors:

                  

|                     |                       |  | Withheld            |
|---------------------|-----------------------|--|---------------------|
|                     | For                   |  | Authority           |
|                     |                       |  |                     |
| Albert T. Adams     |   9,686,295 |  | 4,485,846           |
| James M. Delaney    | 13,670,735            |  |   501,406 |
| Jeffrey I. Friedman | 12,243,260            |  | 1,928,881           |
| Michael E. Gibbons  | 13,681,201            |  |   490,940 |
| Mark L. Milstein    | 12,252,076            |  | 1,920,065           |
| James A. Schoff     | 13,673,536            |  |   498,605 |
| Richard T. Schwarz  | 13,663,748            |  |   508,393 |

(2)  Ratification of the selection of PricewaterhouseCoopers LLP as theCompany's  Independent Accountants.

| For        |   | Against |   | Abstain |
|------------|--------|---------|--------|---------|
| 14,123,304 |        | 21,217  |        | 24,620  |

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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 herewith.                                         |
|            |            |                                                                        |            |                                                                                   |
| 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.                                  |
|            |            |                                                                             |            |                                                                                   |
| 4.4        |            | Form of Indemnification  Agreement.                                                                                                                         |            | Exhibit 4.2 to Form S-11  filed September 2, 1993 (File No. 33-68276 as amended). |
|            |            |                                                                             |            |                                                                                   |
| 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.                                  |
|            |            |                                                                             |            |                                                                                   |
| 4.9        |            | Second Amended and Restated  Loan Agreement dated April 19, 2002  between Associated Estates Realty  Corporation and National City Bank.               |            | Exhibit 4.13a to Form 10-Q  filed August 13, 2002.                                |
|            |            |                                                                             |            |                                                                                   |
| 4.9a       |            | Third Amended and Restated  Loan Agreement dated November 1, 2005 between Associated Estates Realty  Corporation and National City Bank.                    |            | Exhibit 4.9a to From 10-K  filed March 1, 2006.                                   |
|            |            |                                                                             |            |                                                                                   |
| 4.9a(i)    |            | Amendment No. 1 to Third  Amended and Restated Loan Agreement dated May 15, 2006 between Associated  Estates Realty Corporation and National City Bank.     |            | Exhibit 4.9a(i) to Form 10-Q  filed August 1, 2006.                               |
|            |            |                                                                             |            |                                                                                   |
| 4.9b       |            | First Amendment to Second  Amended and Restated Loan Agreement dated May 14, 2002 between Associated  Estates Realty Corporation and National City Bank.    |            | Exhibit 4.13b to Form 10Q  filed August 13, 2002.                                 |
|            |            |                                                                             |            |                                                                                   |
| 4.9c       |            | Second Amendment to Second Amended and  Restated Loan Agreement dated April 17, 2003 between Associated Estates Realty  Corporation and National City Bank. |            | Exhibit 4.13c to Form 10-Q  filed August 1, 2003.                                 |

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| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **Filed herewith or**                                                              |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **incorporated herein**                                                            |
| **Number** | ** ** | **Title**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | **by reference**                                                                   |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                                                               |
| 4.11       |            | Loan Agreement dated July  22, 2003 between The Huntington National Bank and MIG/Orlando Development,  Ltd.                                                                                                                                                                                                                                                                                                                                                                                        |            | Exhibit 4.15 to Form 10-Q  filed November 20, 2003.                                |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                                    |            |                                                                                    |
| 4.12       |            | Amended and Restated Loan  Agreement dated February 20, 2006 between The Huntington National Bank and  MIG/Orlando Development Ltd.                                                                                                                                                                                                                                                                                                                                                                |            | Exhibit 4.12 to Form 10-Q  filed May 2, 2006.                                      |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                                    |            |                                                                                    |
| 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 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. |            |                                                                                    |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                                    |            |                                                                                    |
| 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.                                   |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                                    |            |                                                                                    |
| 10.8       |            | 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.                                  |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                                    |            |                                                                                    |
| 10.9       |            | Partnership Interests  Purchase Agreement dated July 17, 2004 by and among Jeffrey I. Friedman and  JIFCO, an Ohio Corporation and Winchester, Inc., an Ohio Corporation.                                                                                                                                                                                                                                                                                                                          |            | Exhibit 10.21 to Form 10-K  filed February 25, 2005.                               |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                                    |            |                                                                                    |
| 10.10      |            | Associated Estates Realty  Corporation Amended and Restated 2001 Equity-Based Plan (as amended on M ay  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.                                     |

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| ** ** | ** ** | ** **                                                                                                                | ** ** | **Filed herewith or**                            |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                | ** ** | **incorporated herein**                          |
| **Number** | ** ** | **Title**                                                                                                                 | ** ** | **by reference**                                 |
|            |            |                                                                                                                           |            |                                                  |
| 10.13      |            | Associated Estates Realty  Corporation Elective Deferred Compensation Plan                                                |            | Exhibit 10.13 to Form 10-Q  filed herewith. |
|            |            |                                           |            |                                                  |
| 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.         |

| 31 |
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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                                                                                                                                                                                                                                                                                                                                                              |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                    |
| July 31, 2007                                            | /s/ Lou Fatica                                                               |
| (Date)                                                                                                                                                                                                                                                                          | Lou Fatica, Vice President                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                 | Chief Financial Officer and  Treasurer                                                                                                                                                                                                                                                                                                                                                             |

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