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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, 2008                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                          |
| OR                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                            |
| [ ] TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE                                                                                                                                                                                                                                                                                                                           |
| SECURITIES EXCHANGE  ACT OF 1934                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                             |
| For the transition  period from                        to                                                                                                                                            |
|                                                                                                                                                                                                                                                                                      |
| **Commission File  Number 1-12486**                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                         |
| **Associated Estates Realty Corporation**                                                                                                                                                                                                                                                                                                                                                |
| *(Exact name of registrant as specified in its  charter)*                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                              |
| **OHIO**                                                                                                                                                                                                                                                                                                                                                                                 |    | **34-1747603** |
| *(State or other  jurisdiction of*                                                                                                                                                                                                                                                                                                                                                       |    | *(I.R.S. Employer* |
| *incorporation or  organization)*                                                                                                                                                                                                                                                                                                                                                        |    | *Identification  Number)* |
|                                                                                                                                                                                                                                                                                                                              |  |
|                                                                                                                                                                                                                                                                                                                              |    |
| **1 AEC Parkway****,   Richmond****Hts., Ohio  44143-1467**                                                                                                                                                                                                                                                                                                                         |
| *(Address of principal executive offices)*                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                 |
| **(216) 261-5000**                                                                                                                                                                                                                                                                                                                                                                       |
| *(Registrant's telephone number, including area code)*                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                             |
| Indicate by check mark whether  the registrant (1) has filed all reports required to be filed by Section 13  or 15(d) of the Securities Exchange Act of 1934 during the preceding 12  months (or for such shorter period that the registrant was required to file  such reports), and (2) has been subject to such filing requirements for the  past 90 days.  Yes [x]  No [ ] |
|                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                              |
| Indicate by check mark whether  the registrant is a large accelerated filer, an accelerated filer, a  non-accelerated filer, or a smaller reporting company.  See the definitions  of "large accelerated filer", "accelerated filer" and "smaller  reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):                           |
|                                                                                                                                                                                                                                                   |
| Large accelerated  filer [  ]  Accelerated filer [x ]  Non-accelerated filer [  ]  Smaller  reporting company [  ]                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                 |
| Indicate by check  mark whether the registrant is a shell company (as defined in Rule 12b-2 of  the Exchange Act).  Yes [  ]  No [ x ]                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                     |
| The number of  shares outstanding as of July 30, 2008 was 16,379,851 shares                                                                                                                                                                                                                                                                                                              |
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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, 2008 and December 31, 2007                                                                                                                                                      | 3 |
|                                         |                                                                                                                      |  |
|                                         | Consolidated  Statements of Operations for the three and six month                                                                                                                                                       |  |
|                                         |     periods ended June 30, 2008 and 2007                                                                                                                                                                  | 4 |
|                                         |                                                                                                       |  |
|                                         | Consolidated  Statements of Cash Flows for the six month periods                                                                                                                                                         |  |
|                                         |     ended June 30, 2008 and 2007                                                                                                                                                                          | 5 |
|                                         |                                                                                        |  |
|                                         | Notes to  Consolidated Financial Statements                                                                                                                                                                              | 6 |
|                                         |                                                                                             |  |
| 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**                          | 31                                                                                                                                                                                                                       |

* *

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

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

| *(In thousands, except  share amounts)*                                                                | June 30,      |               | December 31,  |
|--------------------------------------------------------------------------------------------------------|---------------|---------------|---------------|
| **ASSETS**                                                                                             | 2008          |               | 2007          |
| Real estate assets                                                                                     |               |               |               |
| Land                                                                                                   |  $       | 110,350  |               |  $ | 107,912  |
| Buildings  and improvements                                                                            | 810,783  |               | 826,226  |
| Furniture  and fixtures                                                                                | 28,889   |               | 30,154   |
|                                                                                                        | 950,022  |               | 964,292  |
| Less:   accumulated depreciation                                                                  | (268,586)     |               | (305,427)     |
|                                                                                                        | 681,436  |               | 658,865  |
| Construction  in progress                                                                              | 1,238    |               | 721      |
| Real  estate, net                                                                                      | 682,674  |               | 659,586  |
| Cash and cash equivalents                                                                              | 2,625    |               | 1,549    |
| Restricted cash                                                                                        | 6,880    |               | 6,730    |
| Accounts and notes  receivable, net                                                                    |               |               |               |
| Rents                                                                                                  | 1,138    |               | 1,128    |
| Affiliates                                                                                             | 364      |               | 1,875    |
| Other                                                                                                  | 971      |               | 820      |
| Goodwill                                                                                               | 1,725    |               | 1,725    |
| Other assets, net                                                                                      | 10,255   |               | 13,383   |
| **Total assets**                                                                                       |  $       | 706,632  |               |  $ | 686,796  |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**                                                               |               |               |               |
| Mortgage notes payable                                                                                 |  $       | 511,659  |               |  $ | 510,915  |
| Unsecured revolving credit  facility                                                                   | 13,100   |               | 20,000   |
| Unsecured debt                                                                                         | 25,780   |               | 25,780   |
| Total  debt                                                                                            | 550,539  |               | 556,695  |
| Accounts payable, accrued  expenses and other liabilities                                              | 22,687   |               | 25,909   |
| Dividends payable                                                                                      | 2,858    |               | 2,848    |
| Resident security deposits                                                                             | 3,406    |               | 3,826    |
| Funds held on behalf of  managed properties - affiliates                                               | 264      |               | 344      |
| Funds held on behalf of  managed properties - other                                                    | 470      |               | 1,476    |
| Accrued interest                                                                                       | 2,433    |               | 2,737    |
| Accumulated losses in excess  of investments in joint ventures                                         | 1,391    |               | 1,346    |
| **Total liabilities**                                                                                  | 584,048  |               | 595,181  |
| Operating partnership  minority interest                                                               | 1,829    |               | 1,829    |
| Shareholders' equity                                                                                   |               |               |               |
| Preferred  shares, without par value; 9,000,000 shares authorized; 8.70% Class B Series  II cumulative |               |               |               |
|  redeemable,  $250 per share liquidation preference, 232,000 issued and 220,850 outstanding       | 55,213   |               | 55,213   |
| Common  shares, without par value, $.10 stated value; 41,000,000 authorized;  22,995,763 issued and    |               |               |               |
| 16,378,018  and 16,353,700 outstanding at June 30, 2008 and December 31, 2007,  respectively           | 2,300    |               | 2,300    |
| Paid-in  capital                                                                                       | 281,418  |               | 281,152  |
| Accumulated  distributions in excess of accumulated net income                                         | (149,962)     |               | (180,436)     |
| Accumulated  other comprehensive loss                                                                  | (1,330)       |               | (1,050)       |
| Less:   Treasury shares, at cost, 6,617,745 and 6,642,063 shares                                  |               |               |               |
| at  June 30, 2008 and December 31, 2007, respectively                                                  | (66,884)      |               | (67,393)      |
| **Total shareholders' equity**                                                                         | 120,755  |               | 89,786   |
| **Total liabilities and shareholders' equity**                                                         |  $       | 706,632  |               |  $ | 686,796  |
|                                                                                                        |               |               |               |
| The accompanying notes are an integral part of these  consolidated financial statements.               |
|                                                                                                   |

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

|                                                                                          | Three Months Ended | Six Months Ended |
|------------------------------------------------------------------------------------------|--------------------|------------------|
|                                                                                          | June 30,           | June 30,         |
| *(In thousands, except per  share amounts)*                                              | 2008               |                  | 2007 |  | 2008 |  | 2007 |
| **Revenue**                                                                              |                    |                  |  |  |  |  |  |
| Property  revenue                                                                        |  $            | 33,435      |  |  $ | 28,274  |  |  $ | 64,866  |  |  $ | 55,650  |
| Management  and service company revenue:                                                 |                    |                  |  |  |  |  |  |
| Fees,  reimbursements and other                                                          | 397           |                  | 3,149  |  | 950  |  | 5,843  |
| Painting  services                                                                       | 188           |                  | 620  |  | 325  |  | 1,236  |
| Total  revenue                                                                           | 34,020        |                  | 32,043  |  | 66,141  |  | 62,729  |
| **Expenses**                                                                             |                    |                  |  |  |  |  |  |
| Property  operating and maintenance                                                      | 14,292        |                  | 13,163  |  | 27,531  |  | 24,852  |
| Depreciation  and amortization                                                           | 9,463         |                  | 6,784  |  | 18,011  |  | 13,400  |
| Direct  property management and service company expenses                                 | 398           |                  | 3,629  |  | 793  |  | 6,871  |
| Painting  services                                                                       | 277           |                  | 563  |  | 520  |  | 1,153  |
| General  and administrative                                                              | 3,183         |                  | 2,699  |  | 6,711  |  | 5,411  |
| Total  expenses                                                                          | 27,613        |                  | 26,838  |  | 53,566  |  | 51,687  |
| Operating income                                                                         | 6,407         |                  | 5,205  |  | 12,575  |  | 11,042  |
| Interest  income                                                                         | 92            |                  | 64  |  | 108  |  | 329  |
| Interest  expense                                                                        | (8,977)            |                  | (9,882) |  | (18,111) |  | (21,087) |
| (Loss) income before equity  in net loss of joint ventures,                              |                    |                  |  |  |  |  |  |
| minority  interest and income from discontinued operations                               | (2,478)            |                  | (4,613) |  | (5,428) |  | (9,716) |
| Equity  in net loss of joint ventures                                                    | (23)               |                  | (144) |  | (45) |  | (216) |
| Minority  interest in operating partnership                                              | (13)               |                  | (13) |  | (27) |  | (27) |
| (Loss) income from  continuing operations                                                | (2,514)            |                  | (4,770) |  | (5,500) |  | (9,959) |
| Income  from discontinued operations:                                                    |                    |                  |  |  |  |  |  |
| Operating  income (loss)                                                                 | 42            |                  | 2,517  |  | (1,237) |  | 3,595  |
| Gain  on disposition of properties                                                       | 2,293         |                  | 12,482  |  | 45,203  |  | 17,043  |
| Income  from discontinued operations                                                     | 2,335         |                  | 14,999  |  | 43,966  |  | 20,638  |
| **Net (loss) income**                                                                    | (179)              |                  | 10,229  |  | 38,466  |  | 10,679  |
| Preferred share dividends                                                                | (1,201)            |                  | (1,261) |  | (2,402) |  | (2,523) |
| Preferred share repurchase  costs                                                        | -             |                  | (172) |  | -  |  | (172) |
| **Net (loss) income  applicable to common shares**                                       |  $            | (1,380)          |  |  $ | 8,796  |  |  $ | 36,064  |  |  $ | 7,984  |
|                                                                                          |                    |                  |  |  |  |  |  |
| **Earnings per common share  - basic and diluted:**                                      |                    |                  |  |  |  |  |  |
| (Loss)  income from continuing operations applicable                                     |                    |                  |  |  |  |  |  |
| to  common shares                                                                        |  $            | (0.23)           |  |  $ | (0.36) |  |  $ | (0.49) |  |  $ | (0.74) |
| Income  from discontinued operations                                                     | 0.14          |                  | 0.87  |  | 2.72  |  | 1.21  |
| Net  (loss) income applicable to common shares                                           |  $            | (0.09)           |  |  $ | 0.51  |  |  $ | 2.23  |  |  $ | 0.47  |
|                                                                                          |                    |                  |  |  |  |  |  |
| **Dividends declared per  common share**                                                 |  $            | 0.17        |  |  $ | 0.17  |  |  $ | 0.34  |  |  $ | 0.34  |
|                                                                                          |                    |                  |  |  |  |  |  |
| **Weighted average number  of common shares**                                            |                    |                  |  |  |  |  |  |
| **outstanding - basic and diluted**                                                      | 16,200        |                  | 17,153  |  | 16,184  |  | 17,131  |
|                                                                                          |                    |                  |  |  |  |  |  |
| The accompanying notes are an integral part of these  consolidated financial statements. |

**  **

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

|                                                                                          | Six Months Ended |
|------------------------------------------------------------------------------------------|------------------|
|                                                                                          | June 30,         |
| *(In thousands)*                                                                         | 2008             |  | 2007 |
| **Cash flow from operating  activities:**                                                |                  |  |  |
| Net  income                                                                              |  $          | 38,466  |  |  $ | 10,679  |
| Adjustments  to reconcile net income to net cash provided by operating activities:       |                  |  |  |
| Depreciation  and amortization (including discontinued operations)                       | 18,764      |  | 15,563  |
| Loss  on fixed asset replacements write-off                                              | 38          |  | 64  |
| Gain  on disposition of properties                                                       | (45,203)         |  | (17,043) |
| Amortization  of deferred financing costs and other                                      | 664         |  | 956  |
| Amortization  of swap termination payments received                                      | -           |  | (132) |
| Share-based  compensation                                                                | 996         |  | 709  |
| Equity  in net loss of joint ventures and minority interest expense                      | 72          |  | 243  |
| Net  change in assets and liabilities:                                                   |                  |  |  |
| Accounts  and notes receivable                                                           | 1,505       |  | (499) |
| Accounts  payable and accrued expenses                                                   | (4,926)          |  | 862  |
| Other  operating assets and liabilities                                                  | 858         |  | 857  |
| Restricted  cash                                                                         | (150)            |  | (344) |
| Total  adjustments                                                                       | (27,382)         |  | 1,236  |
| Net  cash flow provided by operations                                                    | 11,084      |  | 11,915  |
| **Cash flow from investing  activities:**                                                |                  |  |  |
| Recurring  fixed asset additions                                                         | (3,756)          |  | (3,832) |
| Revenue  enhancing/non-recurring fixed asset additions                                   | (360)            |  | (804) |
| Acquisition  fixed asset additions                                                       | (34,310)         |  | (70,547) |
| Net  proceeds from disposition of operating properties                                   | 88,357      |  | 37,921  |
| Contribution  to joint ventures                                                          | -           |  | (46) |
| Purchase  of operating partnership units                                                 | -           |  | (22) |
| Net  cash flow provided by (used for) investing activities                               | 49,931      |  | (37,330) |
| **Cash flow from financing  activities:**                                                |                  |  |  |
| Principal  payments on mortgage notes payable                                            | (44,258)         |  | (117,978) |
| Payment  of debt procurement costs                                                       | (601)            |  | (1,407) |
| Proceeds  from mortgage notes obtained                                                   | -           |  | 55,038  |
| Revolver  borrowings                                                                     | 77,850      |  | 97,250  |
| Revolver  repayments                                                                     | (84,750)         |  | (21,900) |
| Common  share dividends paid                                                             | (5,534)          |  | (5,908) |
| Preferred  share dividends paid                                                          | (2,402)          |  | (2,523) |
| Operating  partnership distributions paid                                                | (27)             |  | (27) |
| Exercise  of stock options                                                               | -           |  | 173  |
| Purchase  of preferred and/or treasury shares                                            | (217)            |  | (3,254) |
| Net  cash flow used for financing activities                                             | (59,939)         |  | (536) |
| Increase (decrease) in cash  and cash equivalents                                        | 1,076       |  | (25,951) |
| Cash and cash equivalents,  beginning of period                                          | 1,549       |  | 30,010  |
| **Cash and cash  equivalents, end of period**                                            |  $          | 2,625  |  |  $ | 4,059  |
|                                                                                          |                  |  |  |
| Supplemental disclosure of  cash flow information:                                       |                  |  |  |
| Dividends  declared but not paid                                                         |  $          | 2,784  |  |  $ | 2,954  |
| Cash  paid for interest                                                                  | 20,077      |  | 21,486  |
| Fixed  asset replacement and other write-offs                                            | 1,345       |  | 1,344  |
| Net  change in accounts payable related to recurring fixed asset additions               | (189)            |  | 748  |
| Assumption  of debt in connection with property acquisition                              | 45,002      |  | 42,000  |
|                                                                                          |                  |  |  |
| The accompanying notes are an integral part of these  consolidated financial statements. |

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**ASSOCIATED ESTATESREALTY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED**

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

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

**Business**

               We are a self-administered and self-managed equity real estateinvestment trust ("REIT") engaged in property acquisition, advisory,development, management, disposition, operation and ownership activities.  Ourmain source of income is rental revenue.  Additional income is derived from propertyand asset management fees.

             As of June 30, 2008, our property portfolio consisted of: (i) 50apartment communities containing 12,672 units in eight states that are wholly owned,either directly or indirectly through subsidiaries; (ii) one joint ventureAffordable Housing property containing 108 units; (iii) three apartment communitiesthat we manage for third party owners consisting of 616 units; and (iv) a 186-unitapartment community and a commercial property containing approximately 145,000square feet that we asset manage for a government sponsored pension fund.

**Basis of Presentation**

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

**Share-Based Compensation**

            During the three months ended June 30, 2008 and 2007, werecognized total share-based compensation cost of $429,000 and $365,000,respectively, in "General and administrative expense" in theConsolidated Statements of Operations.  During the six months ended June 30,2008 and 2007, we recognized total share-based compensation cost of $900,000and $665,000, respectively, in "General and administrative expense"in the Consolidated Statements of Operations.

            *Stock Options.*  We use the Black-Scholes option pricingmodel to estimate the fair value of share-based awards.  There were no stockoptions awarded or exercised during the six months ended June 30, 2008.  Duringthe six months ended June 30, 2007, there were 4,000 options awarded and 18,979options exercised.

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             *Restricted Shares*. The following table represents restricted share activity for the six monthsended June 30, 2008:           

|                                                        |        |               |        | Weighted                                                |
|--------------------------------------------------------|--------|---------------|--------|---------------------------------------------------------|
|                                                        |        |               |        |  Average                                           |
|                                                        |        | Number of     |        | Grant-Date                                              |
|                                                        |        | Shares        |        | Fair Value                                              |
|           |        |               |        |                                                         |
| Nonvested at beginning of  period                      |        | 210,213  |        |  $       11.36            |
| Granted                                                |        | 55,961   |        |  $       10.45            |
| Vested                                                 |        | 62,684   |        |  $       11.25            |
| Forfeited                                              |        | 11,029   |        |  $         9.20 |
| Nonvested at end of period                             |        | 192,461  |        |  $       11.34            |
|                                                   |   |          |   |                                                    |

            At June 30, 2008,there was $2.4 million of unrecognized compensation cost related to nonvestedrestricted share awards that we expect to recognize over a weighted averageperiod of 2.7 years.  Certain of our officers elected to defer the receipt of aportion of the restricted shares granted them during the six months ended June30, 2008, pursuant to the terms of the Associated Estates Realty CorporationElective Deferred Compensation Program.

**Derivative Instruments and Hedging Activities**

**               **During the six months ended June 30, 2008**,**we hadtwo interest rate swaps outstanding that were used to mitigate the economicimpact of changes in interest rates.  These swaps are designated as cash flowhedges and are being used to offset the risk of changes in cash flowsassociated with benchmark interest payments on two of our variable ratemortgage loans.  We reassess these hedges on a quarterly basis to determine ifthey continue to be effective.  The effective portion of the changes in thefair value of these hedges are recorded in other comprehensive income ("OCI")and the amounts in OCI will be reclassified into earnings over the term of theloan as interest payments are made.  As of June 30, 2008, there was no hedgeineffectiveness.  These swaps were reported at fair value on the ConsolidatedBalance Sheets as "Accounts payable, accrued expenses and otherliabilities" in the amount of $1.3 million and $1.0 million at June 30,2008 and December 31, 2007, respectively.

**Restricted Cash**

**           **Restricted cash represents legally restricted deposits withfinancial institutions for taxes and insurance, security deposits, and reservefunds for replacements.  The reserve funds for replacements are intended toprovide cash to defray future maintenance costs for certain mortgagedproperties.**  **

**Classification of Fixed Asset Additions**

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

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**Recent AccountingPronouncements**

            In September 2006, the Financial Accounting Standards Board ("FASB")issued Statement No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157provides guidance for using fair value to measure assets and liabilities. Thisstatement clarifies the principle that fair value should be based on theassumptions that market participants would use when pricing the asset orliability. SFAS 157 establishes a fair value hierarchy, giving the highestpriority to quoted prices in active markets and the lowest priority tounobservable data. SFAS 157 applies whenever other standards require assets orliabilities to be measured at fair value. SFAS 157 also provides for certaindisclosure requirements, including, but not limited to, the valuation techniquesused to measure fair value and a discussion of changes in valuation techniques,if any, during the period. We adopted this statement on January 1, 2008, exceptfor nonfinancial assets and nonfinancial liabilities that are not recognized ordisclosed at fair value on a recurring basis, for which the effective date is January1, 2009. The adoption of this standard did not have a material effect on ourfinancial position and results of operations.  See Note 8 for additional informationon the adoption of SFAS 157.

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

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

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

            In March 2008, the FASB issued Statement No. 161, "Disclosuresabout Derivative Instruments and Hedging Activities" ("SFAS 161"),which amends and expands the disclosure requirements of SFAS 133.  Thisstatement requires entities to provide enhanced disclosures about how and whyit uses derivate instruments, how derivative instruments and related hedgeditems are accounted for, and how derivative instruments and related hedgeditems affect an entity’s financial position, financial performance, and cashflows.  This statement requires disclosure of the fair values of derivativeinstruments and their gains and losses in a tabular format, and disclosure ofcredit risk related features.  This statement also requires cross-referencingwithin the footnotes to help users of financial statements locate importantinformation about derivative instruments.  SFAS 161 is effective for us beginningon January 1, 2009.  We are currently assessing the potential impact that theadoption of SFAS 161 will have on our financial position and results ofoperations.

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

**2.         ACQUISITION AND DISPOSITION ACTIVITY**

**Acquisition Activity**

**           **On April 21, 2008, we acquired two apartment communitieslocated in the Richmond, Virginia metropolitan area totaling 536 units for apurchase price of $75.0 million.  The acquisition also included a 5.92 acre futuredevelopment land parcel, adjacent to one of the properties.  This purchase wasprimarily funded by the assumption of mortgage loans on the acquired properties,by 1031 cash proceeds received from the disposition of a Same Community propertythat we sold on March 19, 2008, and by borrowings on our revolving creditfacility.

            The following pro forma financial information is presented as ifthe 2008 acquisitions had occurred at the beginning of each period presented. This information is presented for informational purposes only and is not necessarilyindicative of what the Company's actual results of operations would have beenhad the acquisitions occurred at such times:

|                                                                                            | Three Months Ended |              | Six Months Ended |
|--------------------------------------------------------------------------------------------|--------------------|--------------|------------------|
|                                                                                            |  June 30,     |              |  June 30,   |
| *(In thousands except per  share data)*                                                    | 2008               |              | 2007             |  | 2008 |  | 2007 |
| Pro forma revenue                                                                          |  $            | 34,171  |                  |  $ | 33,720  |  |  $ | 68,011  |  |  $ | 66,083  |
| Pro forma net (loss) income  applicable to common shares                                   | (1,473)            |              | 8,008       |  | 35,311  |  | 6,407  |
|                 |                    |              |                  |  |  |  |  |
| Earnings per common share -  basic and diluted:                                            |                    |              |                  |  |  |  |  |
| Pro  forma net (loss) income applicable to common shares                                   |  $            | (0.09)       |                  |  $ | 0.47  |  |  $ | 2.18  |  |  $ | 0.37  |

**           **On May 25, 2007, we acquired the ground lessor's interest andaccompanying land on which one of our Affordable Housing communities waslocated for a purchase price of $897,000.  This property was subsequently soldin March 2008, as noted below.

            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 with 1031 proceeds from the disposition of a SameCommunity property which we sold on May 30, 2007 and with borrowings from ourrevolving credit facility.

            On June 29, 2007, we acquired our joint venture partner’s 51.0%interest in Idlewylde Apartments, a multifamily property located in Atlanta,Georgia.  We previously owned a 49.0% interest in this partnership and had accountedfor this investment under the equity method of accounting.  We paid our partner$21.6 million in cash.  This acquisition was structured as a 1031 reverseexchange and was funded with borrowings from our revolving credit facility. Commencing June 29, 2007, the results of operations, financial condition,including the existing $42.0 million non-recourse mortgage loan, and cash flowsof this property have been included in our consolidated financial statements.** **

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**Disposition Activity**

            We report the results of operations and gain/loss related tothe sale of real estate assets as discontinued operations in accordance withSFAS 144, "Accounting for the Impairment or Disposal of Long-LivedAssets" ("SFAS 144").  Real estate assets that are classified asheld for sale are also reported as discontinued operations.  We classifyproperties as held for sale when all significant contingencies surrounding theclosing have 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. 

            On March 19, 2008, wecompleted the sale of ten of our eleven formerly wholly owned AffordableHousing properties located in Northeastern Ohio.  The total sales proceeds were$41.3 million resulting in a gain of $29.0 million.  We used the sales proceedsprimarily to reduce debt and for general corporate purposes.  As a condition ofthe sale, we acquired the ground lessor’s interest in six of those propertiesfor a combined purchase price of $5.2 million.   On April 25, 2008, wecompleted the sale of our last remaining wholly owned Affordable Housingproperty for a sales price of $3.5 million resulting in a gain of $2.3 million. The proceeds were primarily used to reduce debt and for general corporatepurposes.

            On March 19, 2008, we also completed the sale of four SameCommunity properties located in Toledo, Ohio.  The total sales proceeds were $47.0 million resulting in again of $13.9 million.  The proceeds from one of those properties were placedin escrow to be used in connection with a 1031 exchange.  The remainingproceeds were primarily used to reduce debt and for general corporate purposes.

             On May 30, 2007, we completed the sale of a Same Communityproperty located in Northeast Ohio.  The sales price was a net $34.6 million resultingin a gain of $12.5 million.  This property was part of a 1031 exchange.

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

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            "Income fromdiscontinued operations" in the accompanying Consolidated Statements ofOperations for the three and six months ended June 30, 2008 and 2007, includesthe operating results for the properties sold in 2008 and prior years, as wellas the gains recognized on the property sales referenced above.   The followingtable summarizes "Income from discontinued operations" for the three andsix months ended June 30, 2008 and 2007:               

|                                                  | Three Months Ended |             | Six Months Ended |
|--------------------------------------------------|--------------------|-------------|------------------|
|                                                  | June 30,           |             | June 30,         |
| *(In thousands)*                                 | 2008               |             | 2007             |  | 2008 |  | 2007 |
| **REVENUE**                                      |                    |             |                  |  |  |  |  |
| Property revenue                                 |  $            | 69     |                  |  $ | 7,493  |  |  $ | 4,084  |  |  $ | 14,144  |
|          |                    |             |                  |  |  |  |  |
| **EXPENSES**                                     |                    |             |                  |  |  |  |  |
| Property operating and  maintenance              | 12            |             | 3,609       |  | 2,234  |  | 7,686  |
| Depreciation and  amortization                   | 10            |             | 1,017       |  | 764  |  | 2,163  |
| Total  expenses                                  | 22            |             | 4,626       |  | 2,998  |  | 9,849  |
| Operating income                                 | 47            |             | 2,867       |  | 1,086  |  | 4,295  |
| Interest income                                  | -             |             | 9           |  | 3  |  | 15  |
| Interest expense (1)                             | (5)                |             | (359)            |  | (2,326) |  | (715) |
| Gain on disposition of  properties               | 2,293         |             | 12,482      |  | 45,203  |  | 17,043  |
| **Income from discontinued  operations**         |  $            | 2,335  |                  |  $ | 14,999  |  |  $ | 43,966  |  |  $ | 20,638  |
|                                                  |                    |             |                  |  |  |  |  |

| (1) | Interest expense for the six  months ended June 30, 2008, includes $2.0 million of defeasance and other  prepayment costs. |
|-----|----------------------------------------------------------------------------------------------------------------------------|

**3.         DEBTMortgage Notes Payable**

            During the six months ended June 30, 2008, we prepaid seven fixedrate mortgage loans totaling $31.9 million that had a weighted average interestrate of 7.9% and were scheduled to mature in June 2008.  We also defeased/prepaidan $11.0 million loan that had been secured by a property that was sold onMarch 19, 2008 and recognized $2.0 million in defeasance/prepayment costs inconnection therewith.  These costs are included in "Income fromdiscontinued operations" in the Consolidated Statements of Operations forthe six months ended June 30, 2008.  Additionally, we assumed two mortgageloans aggregating $45.0 million in connection with the two properties we acquiredin April 2008; one in the amount of $18.9 million at a fixed rate of 5.7% whichis secured by one property and the other in the amount of $26.1 million at afixed rate of 5.6% which is secured by the other property.  These loans wererecorded at their fair value on the date of acquisition, which approximated theamounts assumed.  Both of these loans mature in 2046.

            During the six months ended June 30, 2007, we defeased/prepaid fivefixed rate mortgage loans totaling $47.2 million and we completed the refinancingof four fixed rate mortgage loans that were to mature in 2007 totaling $53.3million.  Two of the refinanced loans totaling $35.0 million are variable ratemortgage loans that mature in 2009.  The interest rate on one of these loans isLIBOR plus 1.1% and the interest rate on the other is LIBOR plus 1.2%.  Theother two refinanced loans totaling $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 revolving creditfacility.  In connection with these defeasances, other prepayments andrefinancings, we recognized $4.2 million in defeasance and other prepaymentcosts, which are included in "Interest expense" in the ConsolidatedStatements of Operations.

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            On June 29, 2007, weacquired our joint venture partner’s 51.0% interest in Idlewylde Apartments. In connection with the acquisition, effective June 29, 2007, we included theresults of operations, financial condition, including the existing $42.0million non-recourse mortgage loan, and cash flows in our consolidatedfinancial statements.  This loan has a floating interest rate of LIBOR plus1.1%, however, in August 2007 we executed an interest rate swap thateffectively fixed the interest rate at 5.9%.  This loan matures in 2010.  SeeNote 2 for additional information regarding this acquisition and Note 1 foradditional information regarding the interest rate swap.

**Revolving Credit Facility/Lines of Credit**

            On March 20, 2008, we increased the borrowing capacity on ourunsecured revolving credit facility up to $150.0 million from $100.0 million. We also extended the maturity date of that facility for an additional year toMarch 20, 2011 and modified various financial covenants.  Currently, thisfacility accrues interest at a variable rate of LIBOR plus 1.6%.  The weightedaverage interest rate on borrowings outstanding at June 30, 2008, was 4.1%.  Ouroutstanding borrowings on this facility were $13.1 million and $20.0 million atJune 30, 2008, and December 31, 2007, respectively.

**4.         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.

            We completed our annual review of goodwill during the three monthsended March 31, 2008.  In performing this analysis, we use a multiple ofrevenues to the range of potential alternatives and assign a probability of thevarious alternatives under consideration by management.  Based on thisanalysis, we determined that goodwill was not impaired as of March 31, 2008.  Assuch, there were no changes to the carrying amount of goodwill during the six monthsended June 30, 2008.  Should the estimates used to determine alternatives orthe probabilities of the occurrence thereof change, impairment may result whichcould materially impact our results of operations for the period in which it isrecorded.

**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 approximately 12to 16 months.  Due to the short term nature of residential leases, we believethat existing lease rates approximate market rates, and therefore, noallocation is made for above/below market leases.

            In connection with two property acquisitions completed during 2008,as discussed in Note 2, we recorded total intangible assets in the amount of $1.9million related to existing leases, which are being amortized over 12 months,and $680,000 related to tenant relationships, which are being amortized over 16months.  We are in the process of completing our valuations of the real estateand certain other assets acquired, and as a result, the purchase priceallocation recorded as of June 30, 2008 is preliminary and subject to change.

            In connection with two property acquisitions completed during 2007,as discussed in Note 2, we recorded total intangible assets in the amount of $2.6million related to existing leases, which were amortized over 12 months, and$589,000 related to tenant relationships, which are being amortized over 16months.

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

**           **We provide management and other services to (and are reimbursedfor certain expenses incurred on behalf of) a non-owned property in which ourChief Executive Officer ("CEO") and/or other related parties have anownership interest.  The entity that owns this property, as well as otherrelated parties, are referred to as "affiliates."  We also providesimilar services to a joint venture property.  Property management fees andother service company revenues recognized for the three and six months ended June30, 2008, were $27,000 and $54,000, respectively.  Property management fees andservice company revenues recognized for the three and six months ended June 30,2007 were $126,000 and $250,000, 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.  Funds due from affiliates were $293,000 and $452,000 at June30, 2008 and December 31, 2007, respectively.

            Merit Enterprises, Inc., ("Merit"), a subsidiary of ours,has from time to time provided services to JAS Construction, Inc.("JAS") related to property rehabilitation and other work.  JAS isowned by a son of our CEO.  Reported revenue related to work performed by Meritfor JAS for the three and six months ended June 30, 2008 were $0 and $4,000,respectively. Reported revenue related to work performed by Merit for JAS forthe three and six months ended June 30, 2007 were $405,000 and $889,000,respectively. Accounts receivable related to JAS at June 30, 2008 and December31, 2007, was $0 and $360,000, respectively.

            In April 2008 we executed a $2.0 million contract with JAS, whichwas approved by our Board of Directors, under which JAS will provide generalcontractor services for the interior rehabilitation of one of our properties. As of June 30, 2008, we have paid $270,000 to JAS pursuant to this contract.

**6.         SHAREHOLDERS'EQUITY**

            The following table provides a reconciliation of activity in Shareholders'equity accounts:           

|                                     |        | Six Months Ended June 30, 2008 |
|-------------------------------------|--------|--------------------------------|
|                                     |        | ** **                     | ** ** |  Accumulated |  |  |  |  |
|                                     |        |                                | ** ** |  Distributions |  |  Accumulated |  |  |
|                                     |        |                                | ** ** |  In Excess of |  |  Other |  |  Treasury |
|                                     |        |  Paid-In                  | ** ** |  Accumulated |  |  Comprehensive |  |  Shares |
| *(In thousands)*                    |        |  Capital                  |  |  Net Income |  |  Income |  |  (at Cost) |
| Balance, December 31, 2007          |        |  $                        | 281,152  |  |  $ | (180,436) |  |  $ | (1,050) |  |  $ | (67,393) |
| Comprehensive income:               |        |                                |  |  |  |  |  |  |
| Net  income                         |        | -                         |  | 38,466  |  | -  |  | -  |
| Other  comprehensive (loss) income: |        |                                |  |  |  |  |  |  |
| Change  in fair value of hedge      |        | -                         |  | -  |  | (280) |  | -  |
| Total  comprehensive income         |        | -                         |  | 38,466  |  | (280) |  | -  |
| Share-based compensation            |        | 266                       |  | 4  |  | -  |  | 726  |
| Purchase of common shares           |        | -                         |  | -  |  | -  |  | (217) |
| Common share dividends  declared    |        | -                         |  | (5,594) |  | -  |  | -  |
| Preferred share dividends  declared |        | -                         |  | (2,402) |  | -  |  | -  |
| Balance, June 30, 2008              |        |  $                        | 281,418  |  |  $ | (149,962) |  |  $ | (1,330) |  |  $ | (66,884) |
|                                     |        |                                |  |  |  |  |  |  |
|                                |   |                           |   |   |   |   |   |   |

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            The following tableidentifies total comprehensive income:           

|                                            | Six Months Ended |
|--------------------------------------------|------------------|
|                                            |  June 30,   |
| *(In thousands)*                           | 2008             |  | 2007 |
| **Comprehensive income:**                  |                  |  |  |
| Net income                                 |  $          | 38,466  |  |  $ | 10,679  |
| Other comprehensive (loss)  income:        |                  |  |  |
| Change  in fair value of hedge instruments | (280)            |  | 71  |
| Total comprehensive income                 |  $          | 38,186  |  |  $ | 10,750  |
|              |                  |  |  |

            During the six monthsended June 30, 2007, we repurchased 111,500 Class B Series II PreferredDepositary Shares at a cost of $2.9 million.  These purchases were made under a$50.0 million repurchase authorization for common and preferred shares.

**7.         EARNINGS PER SHARE**

            Earnings per share ("EPS") has been computed pursuant tothe provisions of SFAS 128, "Earnings per Share."  There were 1.6million and 1.9 million options to purchase common shares outstanding and192,461 and 219,207 nonvested restricted share awards outstanding at June 30,2008 and 2007, respectively.  The dilutive effect of these options andrestricted share awards were not included in the calculation of dilutedearnings per share for the periods presented as their inclusion would beantidilutive 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. 

**8.         FAIR VALUE**

**            **On January 1, 2008, we adopted certain provisions of SFAS157.  See "Recent accounting pronouncements" in Note 1 forinformation regarding additional provisions of SFAS 157 that will be effectiveJanuary 1, 2009.  SFAS 157 clarifies the principle that fair value should bebased on the assumptions that market participants would use when pricing theasset or liability, and establishes the following fair value hierarchy:

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

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

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            The following table presentsthe financial liability that we measured at fair value on a recurring basis asof June 30, 2008: 

| *(In thousands)*    |  | Level 1                                                                |  | Level 2                    |  | Level 3                                                                |  | Total                      |
|---------------------|--|------------------------------------------------------------------------|--|----------------------------|--|------------------------------------------------------------------------|--|----------------------------|
| Interest rate swaps |  | $           -   |  |  $    1,330 |  | $           -   |  |  $    1,330 |

            To comply with the provisions of SFAS 157, we incorporate creditvaluation adjustments to appropriately reflect both our own nonperformance riskand that of the respective counterparty in the fair value measurements.  Thecredit valuation adjustments utilize Level 3 inputs, such as estimates ofcurrent credit spreads, to evaluate the likelihood of default by the either therespective counterparty or us.  However, we determined that as of June 30,2008, the impact of the credit valuation adjustments were not significant tothe overall valuation of the swaps.  See "Derivative instruments andhedging activity" in Note 1 for additional information regarding theswaps.

**9.         EQUITY BASED AWARD PLANS**

           On May 7, 2008, our shareholders approved the 2008 Equity Based Award Plan (the"Plan") which previously had been adopted by our Board of Directors (the"Board") on March 14, 2008, subject to shareholder approval.  Subsequent toreceiving shareholder approval on May 7, 2008, the Board adopted amendedlanguage to the Plan consistent with the additional proxy materials filed by theCompany on May 1, 2008.

            Under the Plan, a total of 750,000 common shares are available forawards.  The Plan provides for the grant to our officers, other employees anddirectors, of options to purchase our common shares, rights to receive theappreciation in value of common shares, awards of common shares subject tovesting and restrictions on transfer, awards of common shares issuable in thefuture upon satisfaction of certain conditions and other awards based on commonshares.

**10.        INTERIM SEGMENTREPORTING**

            We have three reportable segments:  (1) Acquisition/DispositionMultifamily Properties; (2) Same Community Multifamily Properties; and (3)Management and Service Operations.  We previously reported a fourth segment,Affordable Housing Multifamily Properties; however, during the first half of2008, all of our wholly owned Affordable Housing properties were sold.  Therefore,the financial information at June 30, 2008, and all prior periods for all ofthe wholly owned Affordable Housing properties are reported as discontinuedoperations in the Acquisition/Disposition Multifamily Properties segment.  Wehave identified our reportable segments based upon how management makesdecisions regarding resource allocation and performance assessment.  TheAcquisition/Disposition properties represent acquired or developed propertieswhich have not yet reached stabilization (we consider a property stabilizedwhen its occupancy rate reaches 93.0% and we have owned the property for oneyear), and properties that have been sold or are classified as held for sale inaccordance with SFAS 144.  The Same Community properties are conventional multifamilyresidential apartments that have been owned during the entirety of thecomparison periods.  The Management and Service Operations provide managementand advisory services to the Acquisition/Disposition and Same Communityproperties that we own, as well as to third party clients and properties, bothaffiliate and non-affiliates.  All of our segments are located in the United States.

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

            Segment information for the three and six months ended June 30, 2008and 2007 is as follows:

|                                                |  | Three Months Ended June 30, 2008 |
|------------------------------------------------|--|----------------------------------|
|                                                |  |                                  |  |  |  | Management |  |  |
|                                                |  | Acquisition/                     |  | Same |  | and Service |  | Total |
| *(In thousands)*                               |  | Disposition                      |  | Community |  | Operations |  | Consolidated |
|                                                |  |                                  |  |  |  |  |  |  |
| Total segment revenue                          |  |  $                          | 4,490  |  |  $ | 28,950  |  |  $ | 2,033  |  |  $ | 35,473  |
| Elimination of intersegment  revenue           |  | -                           |  | (5) |  | (1,448) |  | (1,453) |
| Consolidated revenue                           |  | 4,490                       |  | 28,945  |  | 585  |  | 34,020  |
|                                                |  |                                  |  |  |  |  |  |  |
| Operating income from  discontinued operations |  | 42                          |  | -  |  | -  |  | 42  |
|                                                |  |                                  |  |  |  |  |  |  |
| *NOI                                           |  | 2,911                       |  | 16,232  |  | (90) |  | 19,053  |
|                                                |  |                                  |  |  |  |  |  |  |
| Total assets                                   |  | 186,539                     |  | 507,935  |  | 12,158  |  | 706,632  |
|                                                |  |                                  |  |  |  |  |  |  |  |  |  |  |

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

|                                                |  | Three Months Ended June 30, 2007 |
|------------------------------------------------|--|----------------------------------|
|                                                |  |                                  |  |  |  | Management |  |  |
|                                                |  | Acquisition/                     |  | Same |  | and Service |  | Total |
| *(In thousands)*                               |  | Disposition                      |  | Community |  | Operations |  | Consolidated |
|                                                |  |                                  |  |  |  |  |  |  |
| Total segment revenue                          |  |  $                          | 242  |  |  $ | 28,041  |  |  $ | 5,572  |  |  $ | 33,855  |
| Elimination of intersegment  revenue           |  | -                           |  | (9) |  | (1,803) |  | (1,812) |
| Consolidated revenue                           |  | 242                         |  | 28,032  |  | 3,769  |  | 32,043  |
|                                                |  |                                  |  |  |  |  |  |  |
| Operating income from  discontinued operations |  | 2,517                       |  | -  |  | -  |  | 2,517  |
|                                                |  |                                  |  |  |  |  |  |  |
| *NOI                                           |  | 126                         |  | 14,985  |  | (423) |  | 14,688  |
|                                                |  |                                  |  |  |  |  |  |  |
| Total assets                                   |  | 165,216                     |  | 526,143  |  | 15,439  |  | 706,798  |
|                                                |  |                                  |  |  |  |  |  |  |  |  |  |  |

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

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|                                              |  | Six Months Ended June 30, 2008 |
|----------------------------------------------|--|--------------------------------|
|                                              |  |                                |  |  |  | Management |  |  |
|                                              |  | Acquisition/                   |  | Same |  | and Service |  | Total |
| *(In thousands)*                             |  | Disposition                    |  | Community |  | Operations |  | Consolidated |
|                                              |  |                                |  |  |  |  |  |  |
| Total segment revenue                        |  |  $                        | 7,542  |  |  $ | 57,330  |  |  $ | 4,365  |  |  $ | 69,237  |
| Elimination of intersegment revenue          |  | -                         |  | (6) |  | (3,090) |  | (3,096) |
| Consolidated revenue                         |  | 7,542                     |  | 57,324  |  | 1,275  |  | 66,141  |
|                                              |  |                                |  |  |  |  |  |  |
| Operating loss from  discontinued operations |  | (1,237)                        |  | -  |  | -  |  | (1,237) |
|                                              |  |                                |  |  |  |  |  |  |
| *NOI                                         |  | 4,846                     |  | 32,489  |  | (38) |  | 37,297  |
|                                              |  |                                |  |  |  |  |  |  |
| Total assets                                 |  | 186,539                   |  | 507,935  |  | 12,158  |  | 706,632  |
|                                              |  |                                |  |  |  |  |  |  |  |  |  |  |

*Intersegment revenue and expenses have been eliminated in the computation ofNOI for each of the segments.

|                                                |  | Six Months Ended June 30, 2007 |
|------------------------------------------------|--|--------------------------------|
|                                                |  |                                |  |  |  | Management |  |  |
|                                                |  |  Acquisition/             |  | Same |  | and Service |  |  Total  |
| *(In thousands)*                               |  |  Disposition              |  | Community |  | Operations |  |  Consolidated |
|                                                |  |                                |  |  |  |  |  |  |
| Total segment revenue                          |  |  $                        | 242  |  |  $ | 55,426  |  |  $ | 10,703  |  |  $ | 66,371  |
| Elimination of intersegment  revenue           |  | -                         |  | (18) |  | (3,624) |  | (3,642) |
| Consolidated revenue                           |  | 242                       |  | 55,408  |  | 7,079  |  | 62,729  |
|                                                |  |                                |  |  |  |  |  |  |
| Operating income from  discontinued operations |  | 3,595                     |  | -  |  | -  |  | 3,595  |
|                                                |  |                                |  |  |  |  |  |  |
| *NOI                                           |  | 125                       |  | 30,673  |  | (945) |  | 29,853  |
|                                                |  |                                |  |  |  |  |  |  |
| Total assets                                   |  | 165,216                   |  | 526,143  |  | 15,439  |  | 706,798  |
|                                                |  |                                |  |  |  |  |  |  |  |  |  |  |

*Intersegment revenue and expenses have been eliminatedin the computation of NOI for each of the segments.

| 17 |
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            A reconciliation oftotal NOI to total consolidated net (loss) income is as follows:           

|                                                       | Three Months Ended |              | Six Months Ended |
|-------------------------------------------------------|--------------------|--------------|------------------|
|                                                       | June 30,           |              | June 30,         |
| *(In thousands)*                                      | 2008               |              | 2007             |  | 2008 |  | 2007 |
|                                                       |                    |              |                  |  |  |  |  |
| Property NOI                                          |  $            | 19,143  |                  |  $ | 15,111  |  |  $ | 37,335  |  |  $ | 30,798  |
| Management and service  operations NOI                | (90)               |              | (423)            |  | (38) |  | (945) |
| Depreciation and  amortization                        | (9,463)            |              | (6,784)          |  | (18,011) |  | (13,400) |
| General and administrative  expense                   | (3,183)            |              | (2,699)          |  | (6,711) |  | (5,411) |
| Interest income                                       | 92            |              | 64          |  | 108  |  | 329  |
| Interest expense (1)                                  | (8,977)            |              | (9,882)          |  | (18,111) |  | (21,087) |
| Equity in net loss of joint  ventures                 | (23)               |              | (144)            |  | (45) |  | (216) |
| Minority interest in  operating partnership           | (13)               |              | (13)             |  | (27) |  | (27) |
| Income from discontinued  operations:                 |                    |              |                  |  |  |  |  |
|     Operating income (loss)            | 42            |              | 2,517       |  | (1,237) |  | 3,595  |
|     Gain on disposition of  properties | 2,293         |              | 12,482      |  | 45,203  |  | 17,043  |
| Income from discontinued  operations                  | 2,335         |              | 14,999      |  | 43,966  |  | 20,638  |
|                                                       |                    |              |                  |  |  |  |  |
| Consolidated net (loss)  income                       |  $            | (179)        |                  |  $ | 10,229  |  |  $ | 38,466  |  |  $ | 10,679  |
|                                                       |                    |              |                  |  |  |  |  |

| (1) | 2007 includes defeasance and  other prepayment costs of $1,520 and $4,183 for the three and six months  ended June 30, respectively. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------|

**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 Litigationmatter described in the following paragraph as of June 30, 2008, and no accrualhas been made for this matter.  We believe that other Litigation will not havea material adverse impact on us after final disposition.  However, because ofthe uncertainties of Litigation, one or more lawsuits could ultimately resultin a material 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 securitydeposit, which is otherwise required to be refundable in accordance with Ohio's Landlord-Tenant Act.  Plaintiffs further allege that certain pet deposits and othernonrefundable deposits required by us are similarly security deposits that mustbe refundable in accordance with Ohio's Landlord-Tenant Act.  On or aboutJanuary 15, 2004, the Plaintiffs filed a motion for class certification.  Wesubsequently filed a motion for summary judgment.  Both motions are pendingbefore the Court.  We intend to vigorously defend ourselves against theseclaims.

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**12.        SUBSEQUENT EVENTS**

            ***Dividends.***  On August 1, 2008, we paid a dividend of$0.17 per common share to shareholders of record on July 11, 2008, which hadbeen declared on June 18, 2008.

*** ***

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

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

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

*** ***

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***           *Overview.** We are engaged primarily in the ownership and operation of multifamilyresidential units.  We also provide asset and property management services tothird party owners of multifamily residential units for which we are paidfees.  Our primary source of cash and revenue from operations is rents from theleasing of owned apartment units, which represented 98.1% of our consolidatedrevenue for the six months ended June 30, 2008.

            The operating performance of our properties is affected by factorssuch as interest rates, unemployment rates, job growth, household formation andthe supply and demand of rental apartment communities and in certain marketsother housing alternatives, such as condominiums, single and multifamily rentalhomes and owner occupied single and multifamily homes.  Rental revenuecollections are a combination of rental rates, occupancy levels and rentconcessions.  We attempt to adjust these factors from time to time, based onmarket conditions, in order to maximize rental revenue.  Indicators that we usein measuring these factors include physical occupancy and net collected rent. These indicators are more fully described in the Results of Operationscomparison.  Additionally, we consider property net operating income ("NOI")to be an important indicator of our overall performance.  Property NOI(property operating revenue less property operating and maintenance expenses)is a measure of the profitability of our properties, which has the largestimpact of all of our sources of income and expense on our financial conditionand operating 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 (loss) income in accordancewith GAAP.

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

**            Updated 2008 Expectations. **

| • ** ** | ***Portfolio performance****-*We expect to increase our Same Community property NOI by approximately 4.5%  to 4.9% in 2008, driven by property revenue increases of 3.0% to 3.3% and  property expense increases of 1.1% to 1.6%.  However, these expectations may  be adversely impacted if the economy suffers a broad and prolonged  recessionary period. |
|-------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |                                                                                                                                                                                                                                                                                                                                                              |
| • ** ** | ***Property acquisitions and  sales*** – To the extent we can identify transactions that meet our  strategic objectives, we plan to acquire and dispose of approximately $100.0  million of properties in 2008.  As of the date of this report, we have  acquired and disposed of $75.0 million and $92.0 million of properties,  respectively.         |
|              |                                                                                                                                                                                                                                                                                                                                                              |
| • ** ** | ***Defeasance and other debt  prepayment costs*** – We have incurred $2.0 million in costs to defease/prepay  or refinance debt during 2008 and, as of the date of this report, we do not  expect to incur any additional defeasance/prepayment costs this year.                                                                                             |

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**LIQUIDITY AND CAPITAL RESOURCES**            **Cash Flows and Liquidity.**  Significant sources and uses ofcash in the six months ended June 30, 2008 and 2007 are summarized as follows:           

|                                                              |  Six Months Ended |
|--------------------------------------------------------------|------------------------|
|                                                              |  June 30,         |
| *(In thousands)*                                             | 2008                   |  | 2007 |
| Net cash provided by  operating activities                   |  $                | 11,084  |  |  $ | 11,915  |
| Fixed assets:                                                |                        |  |  |
| Property/land  acquisitions, net                             | (34,310)               |  | (70,547) |
| Property  disposition proceeds                               | 88,357            |  | 37,921  |
| Recurring  and non-recurring capital expenditures            | (4,116)                |  | (4,636) |
| Debt:                                                        |                        |  |  |
| Decrease  in mortgage notes                                  | (44,258)               |  | (62,940) |
| (Decrease)  increase in revolver borrowings                  | (6,900)                |  | 75,350  |
| Cash dividends and operating  partnership distributions paid | (7,963)                |  | (8,458) |
| Purchase of preferred and/or  treasury shares                | (217)                  |  | (3,254) |
|                                                              |                        |  |  |  |  |

            Our primary sourcesof liquidity are cash flow provided by operations, short-term borrowings on ourrevolver and proceeds from property sales.  Cash flow provided by operations decreasedduring 2008 primarily as a result of changes in accounts payable and accruedexpenses in 2008 when compared to 2007, which was primarily the result of thetiming of the payment of such expenses.  These decreases were partially offsetby an increase in cash flow from property operations in 2008 when compared with2007 and a decrease in cash paid for interest in 2008 when compared with 2007.

            During the six months ended June 30, 2008, we received $88.4million from the sale of 15 properties.  We placed $23.6 million of theseproceeds in a 1031 escrow, which were used to partially fund the acquisition oftwo properties located in the Richmond, Virginia metropolitan area.  Additionally,we used $5.2 million to acquire the ground lessor’s interest in ground leasesat six of the Affordable Housing properties that were sold.  The remainingproceeds were primarily used to prepay/defease $42.9 million of debt and for generalcorporate purposes.

            In March 2008, we increased the borrowing capacity on our unsecuredrevolving credit facility to $150.0 million from $100.0 million, extended thematurity date of this facility for an additional year to March 20, 2011 andmodified certain financial covenants.

            We anticipate funding approximately $9.7 million for recurring, revenueenhancing and nonrecurring capital expenditures for the remainder of 2008. These expenditures are expected to be funded from cash flow provided byoperating activities and the sale of properties.

            Any future multifamily property acquisitions or developments wouldbe financed with the most appropriate sources of capital, which may include borrowingson the revolver, the assumption of mortgage indebtedness, bank and other institutionalborrowings, the exchange of properties, undistributed earnings, secured orunsecured debt financings, or the issuance of shares or units exchangeable intocommon shares.

| 22 |
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            We anticipate that wewill meet our liquidity requirements for the remainder of 2008 generallythrough cash flow provided by operations.  We believe that this and othersources, such as the revolver, should be sufficient to meet operatingrequirements, capital additions, mortgage amortization payments and the paymentof dividends in accordance with REIT requirements.  We anticipate that we willcontinue paying quarterly dividends and sustain our current dividend rate of$0.17 per quarter.

            **Off-Balance Sheet Investments and Financing Commitments.**  AtJune 30, 2008, we had an investment in a joint venture that owns an AffordableHousing property.  Joint venture investments enable us to exercise influenceover the operations of such properties and share in their profits, whileearning additional fee income.  We account for our investment in the unconsolidatedjoint venture under the equity method of accounting as we exercise significantinfluence, but do not control this entity and are not required to consolidate itin accordance with FASB Interpretation No. 46R, "Consolidation of VariableInterest Entities" or under EITF 04-05, "Investor's Accounting for anInvestment in a Limited Partnership When the Investor Is the Sole GeneralPartner and the Limited Partners Have Certain Rights".  This investment wasinitially recorded at cost as investment in joint ventures and subsequentlyadjusted for equity in earnings/loss and cash contributions and distributions. This joint venture property had negative cash flow during 2007 and is expectedto have negative cash flow during 2008 as a result of operating expensesexceeding tenant rents and the housing assistance payments from HUD.  The jointventure partnership that owns this property has entered into a contract to sellit.  Our proportionate share of the debt on this property at June 30, 2008, was$2.1 million.

***RESULTS OF OPERATIONS***

***Comparison of the three and six months ended June 30, 2008 to the three and sixmonths ended June 30, 2007. ***

***           ***In the following discussion, Same Community propertiesrepresent 46 wholly owned properties that we have owned during the entirety ofthe comparison periods, and Acquired properties represent two properties acquiredin April 2008 and two properties acquired in June 2007.

            The net loss from continuing operations decreased $2.3 million and$4.5 million during the three and six month comparison periods, respectively.  Thisdecrease was primarily due to property NOI increases and reductions in interestexpense during 2008 in both comparison periods.  Property NOI for theacquisition properties increased $2.8 million and $4.7 million during the threeand six month comparison periods, respectively.  Property NOI for the SameCommunity properties increased $1.2 million and $1.8 million during the threeand six month comparison periods, respectively, primarily as a result ofincreased property revenues coupled with flat property operating expensesduring both comparison periods.  These reductions to net loss from continuingoperations were partially offset by increases in depreciation and amortizationexpense during 2008 in both comparison periods.

| 23 |
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            The following chartreflects the amount and percentage change in line items that are relevant tothe changes in overall operating performance when comparing the three and six monthsended June 30, 2008 to the three and six months ended June 30, 2007:

|                                                          |  | Increase (decrease) when   |             | Increase (decrease) when |
|----------------------------------------------------------|--|----------------------------|-------------|--------------------------|
|                                                          |  | comparing the three months |             | comparing the six months |
|                                                          |  | ended June 30, 2008        |             | ended June 30, 2008      |
| *(In thousands)*                                         |  | to June 30, 2007           |             | to June 30, 2007         |
|                                                          |  |                            |             |                          |  |  |
| Property revenue                                         |  |  $                    | 5,161  | 18.3%                    |  |  $ | 9,216  | 16.6% |
| Property operating and  maintenance                      |  | 1,129                 | 8.6%        |                          | 2,679  | 10.8% |
| Property NOI                                             |  | 4,032                 | 26.7%       |                          | 6,537  | 21.2% |
|                                                          |  |                            |             |                          |  |  |
| Fees, reimbursements and  other                          |  | (2,752)                    | (87.4)%     |                          | (4,893) | (83.7)% |
| Depreciation and amortization                            |  | 2,679                 | 39.5%       |                          | 4,611  | 34.4% |
| Direct property management  and service company expenses |  | (3,231)                    | (89.0)%     |                          | (6,078) | (88.5)% |
| General and administrative                               |  | 484                   | 17.9%       |                          | 1,300  | 24.0% |
| Interest expense                                         |  | (905)                      | (9.2)%      |                          | (2,976) | (14.1)% |
|                                                          |  |                            |             |                          |  |  |  |  |

*            Property revenue.* Property revenue is impacted by a combination of rental rates, rent concessionsand occupancy levels.  We measure these factors using indicators such asphysical occupancy (number of units occupied divided by total number of unitsat the end of the period) and average monthly net collected rent per unit(gross potential rents less vacancies and concessions divided by total numberof units).  This information is presented in the following tables for the threeand six months ended June 30, 2008 and 2007:               

|                            |        | Physical Occupancy |
|----------------------------|--------|--------------------|
|                            |        | June 30,           |
|                            |        | 2008               |  | 2007 |
| Same Community Properties: |        |                    |  |  |
| Midwest                    |        | 97.2%              |  | 97.1% |
| Mid-Atlantic/Southeast     |        | 95.3%              |  | 94.6% |
| Total Same Community       |        | 96.7%              |  | 96.4% |
| Acquired Properties        |        | 95.5%              |  | 93.9% |
|                       |   |               |   |   |

|                            |        | Average Monthly Net Collected Rent Per Unit |
|----------------------------|--------|---------------------------------------------|
|                            |        | Three Months Ended June 30,                 |  | Six Months Ended June 30, |
|                            |        | 2008                                        |  | 2007 |  | 2008 |  | 2007 |
| Same Community Properties: |        |                                             |  |  |  |  |  |  |
| Midwest                    |        |  $                                     | 773  |  |  $ | 738  |  |  $ | 763  |  |  $ | 731  |
| Mid-Atlantic/Southeast     |        |  $                                     | 1,060  |  |  $ | 1,065  |  |  $ | 1,060  |  |  $ | 1,056  |
| Total Same Community       |        |  $                                     | 846  |  |  $ | 821  |  |  $ | 839  |  |  $ | 814  |
| Acquired Properties        |        |  $                                     | 948  |  | N/A |  |  $ | 961  |  | N/A |
|                       |   |                                        |   |   |   |   |   |   |   |   |

| 24 |
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            Total propertyrevenue increased in 2008 during both comparison periods primarily as a resultof increases in revenue from the Acquired properties of $4.2 million and $7.3million during the three and six month comparison periods, respectively. Property revenue for the Same Community segment increased $900,000 and $1.9million during the three and six month comparison periods, respectively, primarilyas a result of stable occupancy combined with rental rate increases and anoverall reduction in concessions being offered.  The Midwest portfolio, whichcontains 75.0% of the Same Community units, was the primary contributor asaverage net collected rents increased 4.7% and 4.4% for that portfolio duringthe three and six month comparison periods, respectively, while theMid-Atlantic/Southeast portfolio fluctuated less than 0.5% during eachcomparison period.

            *Property operating and maintenance expenses.*  Propertyoperating and maintenance expenses increased during 2008 primarily as a resultof additional expenses relating to the Acquired properties.

            *Fees, reimbursements and other revenue. *The management andservice operations recognized a decrease of $559,000 and $1.1 million in feerevenue in 2008 for the three andsix month comparison periods, respectively, primarily as a result of theloss of management fee revenue associated with our exit from the AffordableHousing fee management business at the end of 2007 and the resulting reductionof properties managed for third party owners.  Reimbursement of expense frommanaged properties decreased $2.2 million and $4.0 million in 2008 for thethree and six month comparison periods, respectively, also as a result of thereduction of the number of properties managed.  This reduction had no impact tothe net loss from continuing operations as these reimbursements are alsoincluded in "Direct property management expenses".

            *Depreciation and amortization. *Depreciation andamortization expense increased in 2008 primarily due to the addition of the Acquiredproperties.  As a result of the June 2007 and April 2008 acquisitions, werecorded intangible assets totaling $3.2 million in 2007 and $2.5 million in2008 which are being amortized over 12 to 16 month periods.

            *Direct property management and service company expenses. *Directproperty management and service company expenses decreased in 2008 as a resultof the reduction in the number of properties managed for third party owners. The reimbursement of expenses from the managed properties decreased, as notedabove, in 2008 during both comparison periods.  However, this reduction had noimpact to the net loss from continuing operations as these reimbursements are alsoincluded in "Fees, reimbursements and other" revenue.  Servicecompany expenses, which represent the portion of general and administrative expensethat relates to the management of third party owned properties, also decreased$1.0 million and $2.1 million in 2008 for the three and six month comparisonperiods, respectively, due to the reduction in the number of propertiesmanaged.

            *General and administrative expense.*  General andadministrative expense increased in 2008 during both comparison periods primarilyas a result of the reduction in costs allocated to "Direct propertymanagement and service company expenses" in 2008 during both comparisonperiods.  These increases were partially offset by decreases in payroll relatedcosts in 2008 and a decrease in Directors' compensation resulting fromvaluation adjustments of their deferred compensation based upon the closingprice of our common shares at the end of each period.

            *Interest expense. *Interest expense decreased in 2008 duringboth comparison periods primarily due to defeasance/prepayment costs recognizedin 2007 of $1.5 million and $4.2 million during the three and six monthperiods, respectively.  After removing the effect of the 2007defeasance/prepayment costs, interest expense increased $575,000 and $1.1million in 2008 during the three and six month comparison periods,respectively.  These increases were primarily due to interest expense for loansassociated with the addition of the acquired properties.

| 25 |
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            *Income fromDiscontinued Operations.*  Discontinued operations include the operatingresults of 15 properties that were sold during 2008 and three properties thatwere sold during 2007 and the gains related to sales completed during each ofthe comparison periods.  Defeasance/prepayment costs recognized in 2008totaling $2.0 million were included in discontinued operations.  For furtherdetails on "Income from discontinued operations," see Note 2 of theNotes to Consolidated Financial Statements presented in Part I, Item 1 of thisreport 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.

**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, 2008 and 2007, an interest ratechange of 100 basis points would impact interest expense approximately $481,000and $1.7 million on an annual basis, respectively. We occasionally usederivative instruments to manage our exposure to interest rates.  See Note 1 ofthe Notes to Consolidated Financial Statements presented in Part I, Item 1 ofthis report on Form 10-Q for additional information regarding derivativeinstruments and "Item 7A Qualitative and Quantitative Disclosures AboutMarket Risk" of our Annual Report on Form 10-K for the year ended December31, 2007, for a more complete discussion of interest rate sensitive assets andliabilities.

**ITEM 4.  CONTROLS AND PROCEDURES**

            *Disclosure Controls and Procedures.*  We have evaluatedthe design and operations of our disclosure controls and procedures todetermine whether they are effective in ensuring that the disclosure ofrequired information is timely made in accordance with the Securities ExchangeAct of 1934 ("Exchange Act") and the rules and forms of theSecurities and Exchange Commission.  This evaluation was made under the supervisionand with the 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 timely decisionsregarding disclosure.

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

            We believe that because of its inherent limitations, internalcontrol over financial reporting may not always prevent or 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.

| 26 |
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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, 2007.

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

| Issuer Purchases of Equity Securities for the Six  Months Ended June 30, 2008 |
|-------------------------------------------------------------------------------|
|                                                                               |  |  |  |  |  |  |  |  |
|                                                                               |  |  |  |  |  |  |  | Approximate |
|                                                                               |  |  |  |  |  |  |  | Dollar Value of |
|                                                                               |  |  |  |  |  | Total Number of |  | Shares That May |
|                                                                               |  |  |  |  |  | Shares Purchased |  | Yet Be Purchased |
|                                                                               |  | Total Number |  | Average |  | As Part of |  | Under the Plans |
|                                                                               |  | of Shares |  | Price Paid |  | Publicly Announced |  | or Programs |
| Period                                                                        |  | Purchased |  | Per Share |  | Plans or Programs |  | (in thousands) |
| April 1 through                                                               |  |  |  |  |  |  |  |  |
| April  30                                                                     |  | 3  |  |  $ | 12.75  |  | -    |  |  $ | 5,949  |
| May 1 through                                                                 |  |  |  |  |  |  |  |  |
| May  31                                                                       |  | 221  |  | 11.71  |  | -    |  | 5,949  |
| June 1 through                                                                |  |  |  |  |  |  |  |  |
| June  30                                                                      |  | -  |  | -  |  | -    |  | 5,949  |
| Total                                                                         |  | 224  |  |  $ | 11.73  |  | -    |  |  |
|                                                 |  |  |  |  |  |  |  |  |

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

| 27 |
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**ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

                  On May 7, 2008, 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     |        |  10,012,050 |        |     3,919,342           |
| James M. Delaney    |        |  13,690,647 |        |       240,745 |
| Jeffrey I. Friedman |        |  13,231,184 |        |       700,208 |
| Michael E. Gibbons  |        |  13,787,447 |        |       143,945 |
| Mark L. Milstein    |        |  13,242,812 |        |       688,580 |
| James A. Schoff     |        |  13,754,413 |        |       176,979 |
| Richard T. Schwarz  |        |  13,690,185 |        |       241,207 |
|                |   |             |   |                                   |

| (2)    | Approval of the 2008 Equity  Based Award Plan. |
|--------|------------------------------------------------|
|   |                                           |

| For       |        | Against   |        | Abstain |
|-----------|--------|-----------|--------|---------|
| 7,754,254 |        | 3,233,761 |        | 42,854  |
|      |   |      |   |    |

| (3)    | Ratification of the selection  of PricewaterhouseCoopers LLP as the Company's Independent Registered Public  Accounting Firm. |
|--------|-------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                          |

| For        |  | Against |  | Abstain |
|------------|--|---------|--|---------|
| 13,778,804 |  | 54,897  |  | 97,690  |

**  **

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**ITEM 6.     EXHIBITS**

| ** **                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **Filed herewith or**                                                             |
|--------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|
| ** **                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **incorporated herein**                                                           |
| **Number**                     | ** ** | **Title**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | **by reference**                                                                  |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                                               |            |                                                                                   |
| 3.1                            |            | Amendment to Second Amended  and Restated Articles of Incorporation.                                                                                                                                                                                                                                                                                                                                                                                                                               |            | Exhibit 3.1 to Form 8-K  filed December 8, 2004.                                  |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                                               |            |                                                                                   |
| 3.2                            |            | Second Amended and Restated  Articles of Incorporation.                                                                                                                                                                                                                                                                                                                                                                                                                                            |            | Exhibit 3.2 to Form 10-Q  filed July 31, 2007.                                    |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                           |            |                                                                                   |
| 3.3                            |            | Amended and Restated Code of  Regulations of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                          |            | Exhibit 3.3 to Form 10-Q  filed August 1, 2006.                                   |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                                |            |                                                                                   |
| 4.1                            |            | Specimen Common Share  Certificate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |            | Exhibit 3.1 to Form S-11  filed September 2, 1993 (File No. 33-68276 as amended). |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                  |            |                                                                                   |
| 4.2                            |            | Specimen 8.70% Class B  Series II Cumulative Redeemable Preferred Shares.                                                                                                                                                                                                                                                                                                                                                                                                                          |            | Exhibit 4.3 to Form 8-A  filed December 8, 2004.                                  |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                           |            |                                                                                   |
| 4.3                            |            | Deposit Agreement by and  among Associated Estates Realty Corporation and National City Bank and  Depositary Receipts.                                                                                                                                                                                                                                                                                                                                                                             |            | Exhibit 4.5 to Form 8-A  filed December 8, 2004.                                  |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                                               |            |                                                                                   |
| 4.5                            |            | Form of Promissory Note and  Form of Mortgage and Security Agreement dated May 10, 1999 from AERC to The  Chase Manhattan Bank.                                                                                                                                                                                                                                                                                                                                                                    |            | Exhibit 4.5 to Form 10-Q  filed August 13, 1999.                                  |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                                               |            |                                                                                   |
| 4.5a                           |            | Form of Promissory Note and  Form of Mortgage and Security Agreement dated September 10, 1999 from AERC to  The Chase Manhattan Bank.                                                                                                                                                                                                                                                                                                                                                              |            | Exhibit 4.5a to Form 10-Q  filed November 12, 1999.                               |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                                     |            |                                                                                   |
| 4.5b                           |            | Form of Promissory Note and  Form of Mortgage and Security Agreement dated November 18, 1999 from AERC to  The Chase Manhattan Bank.                                                                                                                                                                                                                                                                                                                                                               |            | Exhibit 4.5b to Form 10-K  filed March 15, 2000.                                  |
|                                |            |                                                                                                                                                                                                                                                                                                                                                                                                                         |            |                                                                                   |
| 4.13                           |            | Credit Agreement Dated As of  April 24, 2007 among Associated Estates Realty Corporation, as Borrower and  National City Bank as Administrative Agent, Lead Arranger, and Book Manager  and The Several Lenders From Time to Time Parties Hereto, as Lenders.                                                                                                                                                                                                                                      |            | Exhibit 4.13 to Form 10-Q  filed July 31, 2007.                                   |
|       |            |                                                                                                                                                                                                                                                                                                                                                                                                               |            |                                                                                   |
| 4.14                           |            | Shareholder Rights Agreement  dated January 6, 1999 between Associated Estates Realty Corporation, an Ohio  corporation (the "Company") and National City Bank, a national  banking association (the "Rights Agent").                                                                                                                                                                                                                                                          |            | Exhibit 1 to Form 8-A filed  January 26, 1999.                                    |
|                                |            |                                                                                                                                                                                                                                                                                                                                    |            |                                                                                   |
| 4.15                           |            | First Amendment to Credit Agreement  dated March 20, 2008 by and among Associated Estates Realty Corporation (the  Borrower), National City Bank and other banks and financial institutions (the  Lenders) and National City Bank (the Administrative Agent).                                                                                                                                                                                                                                      |            | Exhibit 4.15 to Form 10-Q  filed May 6, 2008.                                     |
|                                |            | **                                       **                                                                                                                                                                                                                                                     |            |                                                                                   |
| 4.16                           |            | Joinder to Subsidiary  Guaranty dated March 20, 2008 for the benefit of National City Bank, as agent  for itself and certain other lenders, with respect to a loan from the Lenders  to Associated Estates Realty Corporation.                                                                                                                                                                                                                                                                     |            | Exhibit 4.16 to Form 10-Q  filed May 6, 2008.                                     |
|                 |            | **                **                                                                                                                                                                                                                                                                                                                                                                                               |            |                                                                                   |
|                                |            | 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. |            |                                                                                   |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |            |                                                                                   |

| 29 |
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| ** **               | ** ** | ** **                                                                                                                                                                                                              | ** ** | **Filed herewith or**                                                              |
|--------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|
| ** **               | ** ** | ** **                                                                                                                                                                                                              | ** ** | **incorporated herein**                                                            |
| **Number**               | ** ** | **Title**                                                                                                                                                                                                               | ** ** | **by reference**                                                                   |
|                          |            |                                                                                                                                                        |            |                                                                                    |
|                          |            |                                                                                                                     |            |                                                                                    |
| 10                       |            | Associated Estates Realty  Corporation Directors' Deferred Compensation Plan.                                                                                                                                           |            | Exhibit 10 to Form 10-Q  filed November 14, 1996.                                  |
|                          |            |                                                                                                      |            |                                                                                    |
| 10.1                     |            | Stock Option Plan.                                                                                                                                                                                                      |            | Exhibit 10.2 to Form S-11  filed September 2, 1993 (File No. 33-68276 as amended). |
|                          |            |                                                                                                                |            |                                                                                    |
| 10.2                     |            | Amended and Restated  Employment Agreement between the Company and Jeffrey I. Friedman.                                                                                                                                 |            | Exhibit 10.1 to Form 10-Q  filed May 13, 1996.                                     |
|                          |            |                                                                                            |            |                                                                                    |
| 10.3                     |            | Equity-Based Incentive  Compensation Plan.                                                                                                                                                                              |            | Exhibit 10.4 to Form 10-K  filed March 29, 1995.                                   |
|                          |            |                                                                                                                               |            |                                                                                    |
| 10.4                     |            | Form of Restricted Agreement  dated by and among the Company and its Independent Directors.                                                                                                                             |            | Exhibit 10.9 to Form 10-K  filed March 28, 1996.                                   |
|                          |            |                                                                                                                                                                                                                         |            |                                                                                    |
| 10.5                     |            | Form of Indemnification  Agreement.                                                                                                                                                                                     |            | Exhibit 4.2 to Form S-11  filed September 2, 1993 (File No. 33-68276 as amended).  |
|                          |            |                                                                                                                                                                                                                         |            |                                                                                    |
| 10.6                     |            | Amended 2008 Equity-Based  Award Plan.                                                                                                                                                                                  |            | Exhibit 10.1 to Form 8-K  filed May 13, 2008.                                      |
|                          |            |                                                                                                      |            |                                                                                    |
| 10.8                     |            | Form of Share Option  Agreement by and among the Company and its Independent Directors.                                                                                                                                 |            | Exhibit 10.14 to Form 10-K  filed March 30, 1993.                                  |
|                          |            |                                                                                                                     |            |                                                                                    |
| 10.10                    |            | Associated Estates Realty  Corporation Amended and Restated 2001 Equity-Based Plan (as amended on May 4,  2005).  Incorporated by reference to Appendix 1 to the Definitive Proxy  Statement filed March 28, 2005. |            | Exhibit 99.01 to Form S-8  filed May 26, 2005.                                     |
|      |            |                                                                                                                                                   |            |                                                                                    |
| 10.11                    |            | Form of Equity Award  Agreement.                                                                                                                                                                                        |            | Exhibit 10.11 to Form 10-Q  filed August 2, 2005.                                  |
|                          |            |                                                                                                                                         |            |                                                                                    |
| 10.12                    |            | Long Term Incentive  Compensation Plan.                                                                                                                                                                                 |            | Exhibit 10.12 to Form 10-Q  filed November 1, 2005.                                |
|                          |            |                                                                                                                     |            |                                                                                    |
| 10.13                    |            | Associated Estates Realty  Corporation Elective Deferred Compensation Plan.                                                                                                                                             |            | Exhibit 10.13 to Form 10-Q  filed July 31, 2007.                                   |
|                          |            |                                                                                                                                                                                                                         |            |                                                                                    |
| 10.14                    |            | Agreement of Purchase and  Sale dated August 31, 2007 between River Forest Properties, LLC, and  Associated Estates Realty Corporation.                                                                                 |            | Exhibit 10.14 to Form 10-Q  filed herewith.                                        |
|                          |            |                                                                                                                                                                                                                         |            |                                                                                    |
| 10.15                    |            | Agreement of Purchase and  Sale dated August 31, 2007 between Belvedere Properties, LLC, and Associated  Estates Realty Corporation.                                                                                    |            | Exhibit 10.15 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.                                           |
|      |            |                                                                                                                                                                                                                         |            |                                                                                    |

| 30 |
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** SIGNATURES**

         Pursuant tothe requirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

|                                                                                                  |        | ASSOCIATED ESTATES REALTY  CORPORATION                                    |
|--------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|
|                  |        |                         |
|                                      |        |               |
| August 5, 2008                                                                                   |        | /s/ Lou Fatica                                                            |
| (Date)                                                                                           |        | Lou Fatica, Vice President                                                |
|                                                                                                  |        | Chief Financial Officer and  Treasurer                                    |
|                                                                                             |   |                                                                      |

| 31 |
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