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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 September 30, 2007                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                          |
| OR                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                            |
| [ ] TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE                                                                                                                                                                                                                                                                                                                           |
| SECURITIES EXCHANGE  ACT OF 1934                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                             |
| For the transition  period from                        to                                                                                                                                            |
|                                                                                                                                                                                                                                                                                      |
| **Commission File  Number 1-12486**                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                         |
| **Associated Estates Realty Corporation**                                                                                                                                                                                                                                                                                                                                                |
| *(Exact name of registrant as specified in its  charter)*                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                              |
| **OHIO**                                                                                                                                                                                                                                                                                                                                                                                 |    | **34-1747603** |
| *(State or other  jurisdiction of*                                                                                                                                                                                                                                                                                                                                                       |    | *(I.R.S. Employer* |
| *incorporation or  organization)*                                                                                                                                                                                                                                                                                                                                                        |    | *Identification  Number)* |
|                                                                                                                                                                                                                                                                                                                              |  |
|                                                                                                                                                                                                                                                                                                                              |    |
| **1 AEC Parkway****,   Richmond****Hts., Ohio  44143-1467**                                                                                                                                                                                                                                                                                                                         |
| *(Address of principal executive offices)*                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                 |
| **(216) 261-5000**                                                                                                                                                                                                                                                                                                                                                                       |
| *(Registrant's telephone number, including area code)*                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                             |
| Indicate by check mark whether  the registrant (1) has filed all reports required to be filed by Section 13  or 15(d) of the Securities Exchange Act of 1934 during the preceding 12  months (or for such shorter period that the registrant was required to file  such reports), and (2) has been subject to such filing requirements for the  past 90 days.  Yes [x]  No [ ] |
|                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                              |
| Indicate by check mark whether  the registrant is a large accelerated filer, an accelerated filer, or a  non-accelerated filer.  See definition of "accelerated filer and large accelerated  filer" in rule 12b-2 of the Exchange Act.  (Check one):                                                                                                                 |
|                                                                                                                                                                                                                                                   |
| Large accelerated  filer [  ]   Accelerated filer [x ]    Non-accelerated filer [  ]                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                 |
| Indicate by check  mark whether the registrant is a shell company (as defined in Rule 12b-2 of  the Exchange Act).  Yes [  ]  No[ x ]                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                     |
| The number of  shares outstanding as of October 25, 2007 was 16,354,789 shares                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                          |  |  |  |

| 1 |
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**ASSOCIATED ESTATESREALTY CORPORATION**

** **

**INDEX**

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

** **

* *

* *

| 2 |
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----

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

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

| *(In thousands, except  share amounts)*                                                     | September 30, |               | December 31,  |
|---------------------------------------------------------------------------------------------|---------------|---------------|---------------|
| **ASSETS**                                                                                  | 2007          |               | 2006          |
| Real estate assets                                                                          |               |               |               |
| Land                                                                                        |  $       | 109,192  |               |  $ | 92,341  |
| Buildings  and improvements                                                                 | 830,914  |               | 751,393  |
| Furniture  and fixtures                                                                     | 29,600   |               | 28,126   |
|                                                                                             | 969,706  |               | 871,860  |
| Less:   accumulated depreciation                                                       | (299,632)     |               | (281,994)     |
|                                                                                             | 670,074  |               | 589,866  |
| Construction  in progress                                                                   | 1,448    |               | 1,323    |
| Real  estate associated with property held for sale, net                                    | -        |               | 331      |
| Real  estate, net                                                                           | 671,522  |               | 591,520  |
| Cash and cash equivalents                                                                   | 4,783    |               | 30,010   |
| Restricted cash                                                                             | 6,916    |               | 7,279    |
| Accounts and notes  receivable, net                                                         |               |               |               |
| Rents                                                                                       | 1,103    |               | 1,582    |
| Affiliates                                                                                  | 1,457    |               | 322      |
| Other                                                                                       | 2,080    |               | 1,955    |
| Investments in joint  ventures, net                                                         | -        |               | 5,247    |
| Goodwill                                                                                    | 1,725    |               | 1,725    |
| Other assets, net                                                                           | 16,531   |               | 9,155    |
| Other assets associated with  property held for sale, net                                   | -        |               | 34       |
| **Total assets**                                                                            |  $       | 706,117  |               |  $ | 648,829  |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**                                                    |               |               |               |
| Mortgage notes payable                                                                      |  $       | 511,693  |               |  $ | 472,854  |
| Unsecured revolving credit  facility                                                        | 24,990   |               | -        |
| Unsecured debt                                                                              | 25,780   |               | 25,780   |
| Total  debt                                                                                 | 562,463  |               | 498,634  |
| Accounts payable, accrued  expenses and other liabilities                                   | 26,590   |               | 24,568   |
| Dividends payable                                                                           | 2,905    |               | 2,934    |
| Resident security deposits                                                                  | 3,849    |               | 3,601    |
| Funds held on behalf of  managed properties - affiliates                                    | 313      |               | 200      |
| Funds held on behalf of  managed properties - other                                         | 4,600    |               | 1,978    |
| Accrued interest                                                                            | 3,136    |               | 2,992    |
| Accumulated losses in excess  of investments in joint ventures                              | 1,358    |               | -        |
| Other liabilities associated  with property held for sale                                   | -        |               | 20       |
| **Total liabilities**                                                                       | 605,214  |               | 534,927  |
| Operating partnership  minority interest                                                    | 1,829    |               | 1,851    |
| Shareholders' equity                                                                        |               |               |               |
| Preferred  shares, without par value; 9,000,000 shares authorized; 8.70% Class B Series  II |               |               |               |
| cumulative  redeemable, $250 per share liquidation preference, 232,000 issued and           |               |               |               |
| 220,850  and 232,000 outstanding at September 30, 2007 and December 31, 2006,  respectively | 55,213   |               | 58,000   |
| Common  shares, without par value, $.10 stated value; 41,000,000 authorized;  22,995,763    |               |               |               |
| issued  and 16,907,989 and 17,261,224 outstanding at September 30, 2007 and                 |               |               |               |
| December  31, 2006, respectively                                                            | 2,300    |               | 2,300    |
| Paid-in  capital                                                                            | 280,709  |               | 280,369  |
| Accumulated  distributions in excess of accumulated net income                              | (178,795)     |               | (173,962)     |
| Accumulated  other comprehensive loss                                                       | (226)         |               | (71)          |
| Less:   Treasury shares, at cost, 6,087,774 and 5,734,539 shares                       |               |               |               |
| at  September 30, 2007 and December 31, 2006, respectively                                  | (60,127)      |               | (54,585)      |
| **Total shareholders' equity**                                                              | 99,074   |               | 112,051  |
| **Total liabilities and shareholders' equity**                                              |  $       | 706,117  |               |  $ | 648,829  |
|                                                                                             |               |               |               |
| The accompanying notes are an integral part of these  consolidated financial statements     |

| 3 |
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**ASSOCIATED ESTATESREALTY CORPORATIONCONSOLIDATED STATEMENTS OFOPERATIONS(UNAUDITED)**

|                                                                                         | Three Months Ended  | Nine Months Ended |
|-----------------------------------------------------------------------------------------|---------------------|-------------------|
|                                                                                         | September 30,       | September 30,     |
| *(In thousands, except per  share amounts)*                                             | 2007                |                   | 2006 |  | 2007 |  | 2006 |
| **Revenue**                                                                             |                     |                   |  |  |  |  |  |
| Property  revenue                                                                       |  $             | 36,346       |  |  $ | 32,053  |  |  $ | 103,196  |  |  $ | 94,138  |
| Management  and service company revenue:                                                |                     |                   |  |  |  |  |  |
| Fees,  reimbursements and other                                                         | 2,462          |                   | 2,914  |  | 8,304  |  | 9,173  |
| Painting  services                                                                      | 560            |                   | 216  |  | 1,797  |  | 810  |
| Total  revenue                                                                          | 39,368         |                   | 35,183  |  | 113,297  |  | 104,121  |
| **Expenses**                                                                            |                     |                   |  |  |  |  |  |
| Property  operating and maintenance                                                     | 16,961         |                   | 14,717  |  | 46,865  |  | 43,993  |
| Depreciation  and amortization                                                          | 9,278          |                   | 7,513  |  | 24,258  |  | 22,690  |
| Direct  property management and service company expenses                                | 2,931          |                   | 3,188  |  | 9,802  |  | 9,911  |
| Painting  services                                                                      | 498            |                   | 272  |  | 1,651  |  | 1,021  |
| General  and administrative                                                             | 2,463          |                   | 2,679  |  | 7,873  |  | 7,672  |
| Total  expenses                                                                         | 32,131         |                   | 28,369  |  | 90,449  |  | 85,287  |
| Operating income                                                                        | 7,237          |                   | 6,814  |  | 22,848  |  | 18,834  |
| Interest  income                                                                        | 57             |                   | 96  |  | 401  |  | 585  |
| Interest  expense                                                                       | (10,071)            |                   | (16,855) |  | (31,873) |  | (41,492) |
| (Loss) income before equity  in net loss of joint ventures,                             |                     |                   |  |  |  |  |  |
| minority  interest and income from discontinued operations                              | (2,777)             |                   | (9,945) |  | (8,624) |  | (22,073) |
| Equity  in net loss of joint ventures                                                   | (31)                |                   | (139) |  | (247) |  | (387) |
| Minority  interest in operating partnership                                             | (13)                |                   | (15) |  | (40) |  | (47) |
| (Loss) income from  continuing operations                                               | (2,821)             |                   | (10,099) |  | (8,911) |  | (22,507) |
| Income  from discontinued operations:                                                   |                     |                   |  |  |  |  |  |
| Operating  income (loss)                                                                | -              |                   | 31  |  | (274) |  | (1,945) |
| Gain  on disposition of properties                                                      | -              |                   | 3,397  |  | 17,043  |  | 38,120  |
| Income  from discontinued operations                                                    | -              |                   | 3,428  |  | 16,769  |  | 36,175  |
| **Net (loss) income**                                                                   | (2,821)             |                   | (6,671) |  | 7,858  |  | 13,668  |
| Preferred share dividends                                                               | (1,201)             |                   | (1,262) |  | (3,724) |  | (3,785) |
| Preferred share repurchase  costs                                                       | -              |                   | -  |  | (172) |  | -  |
| **Net (loss) income  applicable to common shares**                                      |  $             | (4,022)           |  |  $ | (7,933) |  |  $ | 3,962  |  |  $ | 9,883  |
|                                                                                         |                     |                   |  |  |  |  |  |
| **Earnings per common share  - basic and diluted:**                                     |                     |                   |  |  |  |  |  |
| (Loss)  income from continuing operations applicable                                    |                     |                   |  |  |  |  |  |
| to  common shares                                                                       |  $             | (0.24)            |  |  $ | (0.67) |  |  $ | (0.75) |  |  $ | (1.55) |
| Income  from discontinued operations                                                    | -    |                   | 0.20  |  | 0.98  |  | 2.13  |
| Net  (loss) income applicable to common shares                                          |  $             | (0.24)            |  |  $ | (0.47) |  |  $ | 0.23  |  |  $ | 0.58  |
|                                                                                         |                     |                   |  |  |  |  |  |
| **Dividends declared per  common share**                                                |  $             | 0.17         |  |  $ | 0.17  |  |  $ | 0.51  |  |  $ | 0.51  |
|                                                                                         |                     |                   |  |  |  |  |  |
| **Weighted average number  of common shares**                                           |                     |                   |  |  |  |  |  |
| **outstanding - basic and diluted**                                                     | 17,069         |                   | 16,892  |  | 17,110  |  | 17,016  |
|                                                                                         |                     |                   |  |  |  |  |  |
|                                                                                    |
| The accompanying notes are an integral part of these  consolidated financial statements |

**  **

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**ASSOCIATED ESTATESREALTY CORPORATIONCONSOLIDATED STATEMENT OFSHAREHOLDERS' EQUITY(UNAUDITED)**

|                                                                                         |                         |               |  Class B    |         |  Common   |  | ** **    | ** **  |  Accumulated   |         |                     |  |                 |
|-----------------------------------------------------------------------------------------|-------------------------|---------------|------------------|---------|----------------|--|---------------|-------------|---------------------|---------|---------------------|--|-----------------|
|                                                                                         |                         |               |  Cumulative |         |  Shares   |  |               | ** **  |  Distributions |         |  Accumulated   |  |                 |
|                                                                                         |                         |               |  Redeemable |         |  (at $.10 |  |  Total   | ** **  |  In Excess of  |         |  Other         |  |  Treasury  |
|                                                                                         |                         |               |  Preferred  |         |  stated   |  |  Paid-In | ** **  |  Accumulated   |         |  Comprehensive |  |  Shares    |
| *(In thousands, except  share amounts)*                                                 |  Total   |               |  Shares     |         |  value)   |  |  Capital |             |  Net Income    |         |  Income        |  |  (at Cost) |
| * *                                                                                |                         |               |                  |         |                |  |               |             |                     |         |                     |  |                 |
| Balance, December 31, 2006                                                              |  $                 | 112,051  |                  |  $ | 58,000    |  |  $       | 2,300  |                     |  $ | 280,369        |  |  $         | (173,962) |  |  $ | (71) |  |  $ | (54,585) |
| Comprehensive income:                                                                   |                         |               |                  |         |                |  |               |             |                     |         |                     |  |                 |
| Net  income                                                                             | 7,858              |               | -           |         | -         |  | -        |             | 7,858          |         | -              |  | -          |
| Other  comprehensive income:                                                            |                         |               |                  |         |                |  |               |             |                     |         |                     |  |                 |
| Change  in fair value of hedge                                                          |                         |               |                  |         |                |  |               |             |                     |         |                     |  |                 |
| instruments                                                                             | (155)                   |               | -           |         | -         |  | -        |             | -              |         | (155)               |  | -          |
| Total  comprehensive income                                                             | 7,703              |               | -           |         | -         |  | -        |             | 7,858          |         | (155)               |  | -          |
|                                                                                         |                         |               |                  |         |                |  |               |             |                     |         |                     |  |                 |
| Share-based compensation                                                                | 1,221              |               | -           |         | -         |  | 330      |             | 8              |         | -              |  | 883        |
| Purchase of 469,669 common  shares                                                      | (6,645)                 |               | -           |         | -         |  | -        |             | -              |         | -              |  | (6,645)         |
| Issuance of 18,979 common  shares for stock                                             |                         |               |                  |         |                |  |               |             |                     |         |                     |  |                 |
| option  exercises from treasury shares                                                  | 173                |               | -           |         | -         |  | (47)          |             | -              |         | -              |  | 220        |
| Repurchase of Class B  Cumulative                                                       |                         |               |                  |         |                |  |               |             |                     |         |                     |  |                 |
| Redeemable  Preferred Shares                                                            | (2,902)                 |               | (2,787)          |         | -         |  | 57       |             | (172)               |         | -              |  | -          |
| Common share dividends                                                                  | (8,803)                 |               | -           |         | -         |  | -        |             | (8,803)             |         | -              |  | -          |
| Preferred share dividends                                                               | (3,724)                 |               | -           |         | -         |  | -        |             | (3,724)             |         | -              |  | -          |
| Balance, September 30, 2007                                                             |  $                 | 99,074   |                  |  $ | 55,213    |  |  $       | 2,300  |                     |  $ | 280,709        |  |  $         | (178,795) |  |  $ | (226) |  |  $ | (60,127) |
|                                                                                         |                         |               |                  |         |                |  |               |             |                     |         |                     |  |                 |
|                                                                                    |
| The accompanying notes are an integral part of these  consolidated financial statements |

** **

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

|                                                                                         | Nine Months Ended   |
|-----------------------------------------------------------------------------------------|---------------------|
|                                                                                         |  September 30, |
| *(In thousands)*                                                                        | 2007                |  | 2006 |
| **Cash flow from operating  activities:**                                               |                     |  |  |
| Net  income                                                                             |  $             | 7,858  |  |  $ | 13,668  |
| Adjustments  to reconcile net income to net cash provided by operating activities:      |                     |  |  |
| Depreciation  and amortization (including discontinued operations)                      | 24,841         |  | 25,225  |
| Loss  on fixed asset replacements write-off                                             | 87             |  | 143  |
| Gain  on disposition of properties                                                      | (17,043)            |  | (38,120) |
| Minority  interest in operating partnership                                             | 40             |  | 47  |
| Amortization  of deferred financing costs and other                                     | 1,251          |  | 668  |
| Amortization  of swap termination payments received                                     | (223)               |  | (431) |
| Share-based  compensation                                                               | 1,126          |  | 710  |
| Equity  in net loss of joint ventures                                                   | 247            |  | 387  |
| Distribution  from joint ventures                                                       | -              |  | 318  |
| Net  change in assets and liabilities:                                                  |                     |  |  |
| Accounts  and notes receivable                                                          | (781)               |  | 2,159  |
| Accounts  payable and accrued expenses                                                  | 1,279          |  | 3,218  |
| Other  operating assets and liabilities                                                 | (1,107)             |  | (2,270) |
| Restricted  cash                                                                        | 780            |  | 1,617  |
| Total  adjustments                                                                      | 10,497         |  | (6,329) |
| Net  cash flow provided by operations                                                   | 18,355         |  | 7,339  |
| **Cash flow from investing  activities:**                                               |                     |  |  |
| Recurring  fixed asset additions                                                        | (7,843)             |  | (8,787) |
| Revenue  enhancing/non-recurring fixed asset additions                                  | (1,267)             |  | (1,228) |
| Net  proceeds from disposition of operating properties                                  | 37,921         |  | 44,844  |
| Deposit  of sale proceeds to escrow account                                             | -              |  | (1,300) |
| Acquisition  fixed asset additions                                                      | (70,547)            |  | (256) |
| Other  investing activity                                                               | (68)                |  | (321) |
| Net  cash flow (used for) provided by investing activities                              | (41,804)            |  | 32,952  |
| **Cash flow from financing  activities:**                                               |                     |  |  |
| Principal  payments on mortgage notes payable                                           | (118,699)           |  | (197,689) |
| Payment  of debt procurement costs                                                      | (1,659)             |  | (1,425) |
| Proceeds  from mortgage notes obtained                                                  | 115,538        |  | 132,209  |
| Revolver  and/or line of credit borrowings                                              | 104,240        |  | 71,700  |
| Revolver  and/or line of credit repayments                                              | (79,250)            |  | (60,230) |
| Common  share dividends paid                                                            | (8,810)             |  | (8,851) |
| Preferred  share dividends paid                                                         | (3,724)             |  | (3,785) |
| Operating  partnership distributions paid                                               | (40)                |  | (50) |
| Exercise  of stock options                                                              | 173            |  | 745  |
| Purchase  of preferred and/or treasury shares                                           | (9,547)             |  | (10,256) |
| Net  cash flow used for financing activities                                            | (1,778)             |  | (77,632) |
| Decrease in cash and cash  equivalents                                                  | (25,227)            |  | (37,341) |
| Cash and cash equivalents,  beginning of period                                         | 30,010         |  | 39,733  |
| **Cash and cash  equivalents, end of period**                                           |  $             | 4,783  |  |  $ | 2,392  |
|                                                                                         |                     |  |  |
| Supplemental disclosure of  cash flow information:                                      |                     |  |  |
| Dividends  declared but not paid                                                        |  $             | 2,905  |  |  $ | 2,909  |
| Cash  paid for interest                                                                 | 30,919         |  | 45,478  |
| Fixed  asset replacement and other write-offs                                           | 2,002          |  | 2,338  |
| Net  change in accounts payable related to recurring fixed asset additions              | 479            |  | 624  |
| Final  adjustment to fixed assets related to 2002 non-monetary joint venture  exchange  | -              |  | 496  |
| Fixed  asset adjustment for purchase of operating partnership units                     | -              |  | 137  |
| Assumption  of debt in connection with property acquisition                             | 42,000         |  | -  |
|                                                                                         |                     |  |  |
| The accompanying notes are an integral part of these  consolidated financial statements |

| 6 |
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**ASSOCIATED ESTATESREALTY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED**

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

**           **            Ex*cept 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") specializing in multifamily propertymanagement, advisory, development, acquisition, disposition, operation andownership activities.  In addition to rental revenue, we receive certain property,asset management and disposition fees.

             As of September 30, 2007, our property portfolio consisted of: (i)65 owned apartment communities containing 14,554 units in nine states, 12 ofwhich are Affordable Housing communities including one joint venture property containing108 units; (ii) 33 apartment communities that we manage for third party owners consistingof 5,355 units; and (iii) a 186-unit apartment community and a commercialproperty containing approximately 145,000 square feet that we asset manage.

            During the third quarter of 2007, we announced our plan to exit theAffordable Housing business.  As of September 30, 2007, 30 of the 33 apartmentcommunities that we manage for third party owners were Affordable Housingcommunities.  The owner of 23 of these Affordable Housing communities will beself-managing those communities effective January 1, 2008.  The remaining thirdparty owned managed properties are expected to be transitioned during the firsthalf of 2008.  The 11 Affordable Housing communities that we own are beingmarketed for sale and the joint venture Affordable Housing community is undercontract to be sold.

**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 the informationand footnotes required by GAAP for complete financial statements.  In theopinion of management, all adjustments, consisting only of normal and recurringadjustments considered necessary for a fair presentation, have been included. The reported results of operations are not necessarily indicative of theresults that may be expected for the full year.  These financial statementsshould be read in conjunction with the audited financial statements andaccompanying notes in our Annual Report on Form 10-K for the year endedDecember 31, 2006. 

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**Share-Based Compensation**

            The Amended and Restated 2001 Equity-Based Award Plan (the"Plan") was the only share-based compensation plan in effect on September30, 2007.  The Plan provides for share-based awards to our officers, employeesand directors.  Share-based awards available under the Plan include stockoptions, share appreciation rights, restricted shares, deferred shares andother awards based on common shares.  We also have share-based awardsoutstanding that had been issued under two other plans that have since expiredand outstanding awards that were issued to our outside directors.  Foradditional information regarding these share-based compensation plans, see Note17 of the Notes to the Consolidated Financial Statements of our Annual Report onForm 10-K for the year ended December 31, 2006.

             Our share-based compensation awards, which consist primarily ofrestricted shares, contain service and/or performance conditions that mayaffect the number and timing of shares that ultimately vest.  In 2007, an awardconsisting solely of restricted shares was granted to management in which themajority of the shares are subject to market and service conditions, with theremaining shares being subject to performance and service conditions.  Compensationcost for awards with performance conditions is recognized based on our bestestimate of the number of awards that will vest and the period of time in whichthey will vest.  Compensation cost for the award with market conditions isbased on the estimated fair value of the award on the date granted, asdescribed below, and the vesting period.

            During the three months ended September 30, 2007 and 2006, werecognized total share-based compensation cost of $404,000 and $242,000,respectively, in "General and administrative expense" in theConsolidated Statements of Operations.  During the nine months ended September30, 2007 and 2006, we recognized total share-based compensation cost of $1.1million and $692,000, respectively, in "General and administrativeexpense".  Additionally, we allocated an immaterial amount of equitycompensation expense to individual properties, which is included in"Property operating and maintenance expense" in the ConsolidatedStatements of Operations.

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

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

|                                   |                                                                     |  | Weighted Average                |
|-----------------------------------|---------------------------------------------------------------------|--|---------------------------------|
|                                   | Number of                                                           |  | Grant-Date                      |
|                                   | Shares                                                              |  | Fair Value                      |
|                                   |                                                                     |  |                                 |
| Nonvested at beginning of  period |        171,509                        |  |  $   10.26            |
| Granted                           |        122,105                        |  |  $   11.77            |
| Vested                            |          76,090             |  |  $     7.14 |
| Forfeited                         |             2,355 |  |  $   12.74            |
| Nonvested at end of period        |        215,169                        |  |  $   11.41            |

            During June 2007, aportion of the restricted shares that had been granted during the first quarterof 2007 were deferred under the Associated Estates Realty Corporation ElectiveDeferred Compensation Program, which was implemented in June 2007.  See Note 9for additional information regarding this program.

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            A portion of therestricted shares granted during the nine months ended September 30, 2007, wereawards in which the number of shares that will ultimately vest are subject tomarket conditions.  The total estimated grant-date fair value of these awards,including the awards that were deferred, as noted above, was $1.4 million.  Weused the Monte Carlo method to estimate the fair value of these awards.  The Monte Carlo method, which is similar to the binomial analysis, evaluates the award forchanging stock prices over the term of vesting and uses random situations thatare averaged based on past stock characteristics.  There were one millionsimulation paths used to estimate the fair value of these awards.  The expectedvolatility was based upon the historical volatility of our daily share closingprices over a period equal to the market condition performance periods.  Therisk-free interest rate used was based on a yield curve derived from U.S.Treasury zero-coupon bonds on the date of grant with a maturity equal to themarket condition performance periods.  The expected life used was the marketcondition performance periods.

            The following table represents the assumption ranges used in the Monte Carlo method: 

|                                     | Nine Months Ended  |
|-------------------------------------|--------------------|
|                                     | September 30, 2007 |
|                                     |                    |
| Expected volatility                 | 25.7% to 27.7%     |
| Risk-free interest rate             | 4.5% to 5.1%       |
| Expected life (performance  period) | One to three years |

**Operating Partnership Minority Interest**

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

**Derivatives Instruments and Hedging Activities**

**               **During the nine months ended September 30, 2007**,**we enteredinto a pay-fixed, receive-floating interest rate swap ("swap") with a notionalamount of $42.0 million.  The swap has an effective date of September 1, 2007and a maturity date of June 1, 2010.  The swap has the economic effect offixing $42.0 million of our variable rate debt at 5.9%.  We designated thisswap as a cash flow hedge.  We expect the swap to be highly effective atoffsetting changes in cash flows on $42.0 million of our variable rate,LIBOR-based debt due to changes in the LIBOR swap rate.  Therefore, effective changesin the fair value of the swap will be recorded in "Other Comprehensive Income"("OCI").  Amounts in OCI will be reclassified into earnings over the term ofthe loan as interest payments are paid.  The ineffective portion of the changesin fair value of the swap will be recorded directly in earnings.  As ofSeptember 30, 2007, this swap was reported at fair value on the ConsolidatedBalance Sheets as "Accounts payable, accrued expenses and other liabilities" inthe amount of $226,000.  As of September 30, 2007 there has been no hedgeineffectiveness.

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**Classification of Fixed AssetAdditions**

            We consider recurring fixed asset additions to a property to becapital expenditures made to replace worn out assets to maintain the property'svalue.  We consider investment/revenue enhancing and/or non-recurring fixedasset additions to be capital expenditures if such improvements increase thevalue of the property and/or enable us to increase rents.  We consideracquisition and development fixed asset additions to be for the purchase orconstruction of new properties to be added to our portfolio, or fixed assetadditions identified at the time of purchase that are not made until subsequentperiods.

**Recent Accounting Pronouncements**

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

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

            In February 2007, the FASB issued SFAS No. 159, "The FairValue Option for Financial Assets and Financial Liabilities" ("SFAS159"), which permits the option to measure financial instruments andcertain other items at fair value, with changes in fair value recorded inearnings.  This Statement, which will be effective for us beginning January 1,2008, is not expected to have a material impact on our financial condition,results of operations and cash flows.

**Reclassifications**

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

**2.         PROPERTIES ACQUIRED**

            On June 29, 2007, we acquired our joint venture partner's 51.0%interest in Idlewylde Apartments, an 843-unit Market-Rate property located in Atlanta, Georgia.  We previously owned a 49.0% interest in this partnership and hadaccounted for this investment under the equity method of accounting.  We paidour partner $21.6 million in cash.  This acquisition was structured as a 1031reverse exchange and was funded with borrowings from our revolving creditfacility.  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 are included in our consolidated financial statements.

            On June 8, 2007, we acquired a 268-unit Market-Rate property locatedin Norfolk, Virginia for a purchase price of $48.3 million.  The purchase wasfunded primarily by 1031 proceeds from the disposition of a Market-Rateproperty which we sold on May 30, 2007, and with borrowings from our revolvingcredit facility.

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            On May 25, 2007, weacquired the land on which one of our Affordable Housing properties is locatedfor a purchase price of $897,000.  We had been leasing this land pursuant to aground lease which was scheduled to mature in 2021.

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

            We report the results of operations and gain/loss related to thesale of real estate assets as discontinued operations in accordance with SFAS144, "Accounting for the Impairment or Disposal of Long-Lived Assets"("SFAS 144").  Real estate assets that are classified as held forsale are also reported as discontinued operations.  We classify properties asheld for sale when all significant contingencies surrounding the closing havebeen resolved.  In many transactions, these contingencies are not satisfieduntil the actual closing of the transaction.  Interest expense included indiscontinued operations is limited to interest on mortgage debt specificallyassociated with properties sold or classified as held for sale.  During thethird quarter of 2007, as discussed in Note 1 above, we announced our plan toexit the Affordable Housing business and as a result, we are marketing for salethe 11 Affordable Housing communities that we own.  These properties were notclassified as held for sale at September 30, 2007 because of the existingunresolved contingencies in connection with the sale of these properties.  Asof September 30, 2007, there were no properties classified as held for sale.

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

             On February 20, 2007, we completed the sale of a congregate careMarket-Rate property located in Northeast Ohio.  The sales price was $5.2million and we recorded a gain of $4.6 million.  The proceeds of this sale areprimarily being used to fund revenue enhancing/non-recurring capitalexpenditures and general corporate purposes during 2007.

             On September 28, 2006, we completed the sale of an AffordableHousing property located in Northeast Ohio.  The sales price was a net $2.9million and we recorded a gain of $2.5 million.  The proceeds of this sale wereused for general corporate purposes.

             On August 28, 2006, we completed the sale of a congregate careMarket-Rate property located in Northeast Ohio.  The sales price was $2.0million and we recorded a gain of $865,000.  Proceeds of this sale in theamount of $1.3 million were placed in escrow and were used to repay debt inOctober 2006.  The remaining proceeds were used for other general corporate purposes.

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

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            On May 10, 2006, wecompleted the sale of a Market-Rate property located in Northeast Ohio.  Thesales price was a net $13.9 million and we recorded a gain of $11.3 million. The proceeds of this sale were used primarily to fund the defeasance of fixedrate mortgage loans.  See Note 4 for further information on the defeasance offixed rate mortgage loans.

            "Income from discontinued operations" in the accompanyingConsolidated Statements of Operations for the three and nine months ended September30, 2007 and 2006 includes the operating results for the two properties sold in2007 and eight properties sold in 2006 as well as gain recognized on theproperty sales referenced above.   The following chart summarizes "Incomefrom discontinued operations" for the three and nine months ended September30, 2007 and 2006: 

|                                          | Three Months Ended                                                                                                   |        | Nine Months Ended |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------|--------|-------------------|
|                                          | September 30,                                                                                                        |        | September 30,     |
| *(In thousands)*                         | 2007                                                                                                                 |        | 2006              |  | 2007 |  | 2006 |
| **REVENUE**                              |                                                                                                                      |        |                   |  |  |  |  |
| Property revenue                         | $                   -           |        |  $           | 3,730  |  |  $ | 2,943  |  |  $ | 13,911  |
|                                          |                                                                                                                      |        |                   |  |  |  |  |
| **EXPENSES**                             |                                                                                                                      |        |                   |  |  |  |  |
| Property operating and  maintenance      |                     - |        | 2,407        |  | 2,633  |  | 9,540  |
| Depreciation and  amortization           |                     - |        | 750          |  | 584  |  | 2,535  |
| Total  expenses                          |                     - |        | 3,157        |  | 3,217  |  | 12,075  |
| Operating income (loss)                  |                     - |        | 573          |  | (274) |  | 1,836  |
| Interest income                          |                     - |        | 4            |  | -  |  | 10  |
| Interest expense (1)                     |                     - |        | (546)             |  | -  |  | (3,791) |
| Gain on disposition of  properties       |                     - |        | 3,397        |  | 17,043  |  | 38,120  |
| **Income from discontinued  operations** | $                  -            |        |  $           | 3,428  |  |  $ | 16,769  |  |  $ | 36,175  |
|                                     |                                                                                                                 |   |              |   |   |   |   |
|                                          |                                                                                                                      |        |                   |  |  |  |  |

| (1) | Interest expense for the  three and nine months ended September 30, 2006, includes $71 and $1,936 of  defeasance costs, respectively. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------|

**4.         DEBT**

**Mortgage Notes Payable**

            During the nine months ended September 30, 2007, we defeased/prepaidfive fixed rate mortgage loans totaling $47.2 million.  In connection withthese defeasances, other prepayments and refinancings (see below) we recognized$4.2 million in defeasance and other prepayment costs which are included in"Interest expense" in the Consolidated Statements of Operations.  Duringthis period, we completed the refinancing of four fixed rate mortgage loansthat were to mature in 2007 totaling $53.3 million.  Two of the new loans totaling$35.0 million are variable rate mortgage loans that mature in February andApril of 2009.  The interest rate on these loans is LIBOR plus 1.3%, or 6.4% atSeptember 30, 2007.  The other two new loans, which total $20.0 million, are 5.4%fixed rate mortgage loans that mature in June 2014.  Additionally, we madethree new loans totaling $60.5 million.  Two of these loans totaling $36.0million mature in October 2012 and accrue interest at a fixed rate of 5.7%, andthe other loan in the amount of $24.5 million matures in October 2014 andaccrues interest at a fixed rate of 5.6%.  We also prepaid two variable ratemortgage loans totaling $15.7 million with funds borrowed on our unsecuredrevolving credit facility.

            On June 29, 2007, we acquired our joint venture partner's 51.0% interestin Idlewylde Apartments.  In connection with the acquisition, effective June29, 2007, we are including the results of operations, financial condition,including the existing $42.0 million non-recourse mortgage loan, and cash flowsin our consolidated financial statements.  During the third quarter of 2007, weexecuted an interest rate swap in connection with this loan that effectivelyfixed the interest rate at 5.9% through maturity.  This loan matures in June 2010. See Note 1 for additional information regarding the interest rate swap and Note2 for additional information regarding the acquisition.

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            During the ninemonths ended September 30, 2006, we defeased/prepaid 13 fixed rate mortgageloans totaling $138.9 million and incurred $14.3 million in defeasance andother prepayment costs, $12.4 million of which are included in "Interestexpense" and $1.9 million of which are included in "Income from discontinuedoperations" in the Consolidated Statements of Operations.  See Note 3 forfurther information on the categories that determine "Income fromdiscontinued operations."

            On September 14, 2006, we completed the $132.2 million mortgagerefinancing of five Market-Rate properties.  The existing mortgages on theseproperties were defeased with proceeds from the refinancing and are included inthe above referenced 13 defeased loans.  The new loans were structured as fiveseparate mortgage loans, however, each mortgage loan is cross-collateralizedand cross-defaulted with the other mortgage loans involved in the refinancingand each loan includes a collateral substitution feature.  These loans maturein October 2013 and accrue interest at a fixed rate of 6.1%.

            On September 15, 2006, we prepaid three variable rate, conventionalmortgages totaling $54.6 million with proceeds from the September 14, 2006refinancing discussed above, and recognized $300,000 of expense related to theprepayments.  These loans had been secured by three Market-Rate properties.

**Revolving Credit Facility/Lines of Credit**

            In April 2007, we obtained an unsecured revolving credit facility ("revolver")in the amount of $100.0 million to be used for the refinancing of existingdebt, general corporate purposes, and/or the acquisition of properties.  Thisrevolver matures in April 2010 and accrues interest at a variable rate of LIBORplus 1.6%.  The weighted average interest rate on borrowings outstanding at September30, 2007, was 7.1%.  In connection with obtaining the revolver, we terminated bothour secured $17.0 million and our secured $14.0 million lines of credit.  At September30, 2007, the revolver had outstanding borrowings of $25.0 million.  There wereno borrowings outstanding on the $17.0 million or $14.0 million secured linesof credit at December 31, 2006.

**5.         GOODWILL AND OTHER INTANGIBLE ASSETS**

**Goodwill**

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

            In addition to the annual review of goodwill completed during thethree months ended March 31, 2007, we reviewed goodwill during the three monthsended June 30, 2007, as a result of the loss of fee revenue associated with ouracquisition of our joint venture partner's 51.0% interest in IdlewyldeApartments (see Note 2 for details of this acquisition).  In performing thisanalysis, we use a multiple of revenues to the range of potential alternativesand assign a probability of the various alternatives under consideration bymanagement.  Based on this analysis, we determined that goodwill was notimpaired as of June 30, 2007.  As such, there were no changes to the carryingamount of goodwill during the nine months ended September 30, 2007.  Should theestimates used to determine alternatives or the probabilities of the occurrencethereof change, impairment may result which could materially impact our resultsof operations for the period in which it is recorded.

**Intangible Assets**

            In accordance with SFAS 141, "Business Combinations", weallocate a portion of the total purchase price of a property acquisition to anyintangible assets identified, such as existing leases and tenant relationships. The intangible assets are amortized over the remaining lease terms or estimatedlife of the tenant relationship, which is approximately twelve to sixteenmonths.  Due to the short term nature of residential leases, we believe thatexisting lease rates approximate market rates, and therefore, no allocation ismade for above/below market leases.

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            In connection withthe two property acquisitions completed during 2007, as discussed in Note 2, werecorded total intangible assets in the amount of $2.6 million related toexisting leases, which is being amortized over 12 months, and $589,000 relatedto tenant relationships, which is being amortized over 16 months.

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

**           **We provide management and other services (and are reimbursedfor certain expenses incurred on behalf of) to certain non-owned properties inwhich our Chief Executive Officer ("CEO") and/or other relatedparties have varying ownership interests.  The entities which own theseproperties, as well as other related parties, are referred to as"affiliates."  We also provide similar services to joint ventureproperties.  Property management fees and other service company revenuesrecognized for the three and nine months ended September 30, 2007, were $63,000and $313,000, respectively.  Property management fees and other service companyrevenues recognized for the three and nine months ended September 30, 2006,were $128,000 and $462,000, 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 $255,000 and $294,000 atSeptember 30, 2007 and December 31, 2006, respectively.

            Merit Enterprises, Inc., ("Merit"), a subsidiary of ours,has provided services to JAS Construction, Inc. ("JAS") related toproperty rehabilitation and other work from time to time.  JAS is owned by ason of our CEO.  Reported revenue related to work performed by Merit for JASfor the three and nine months ended September 30, 2007, was $328,000 and $1,216,000,respectively.  Reported revenue related to work performed by Merit for JAS forthe three and nine months ended September 30, 2006, was $2,000 and $273,000,respectively.  Accounts receivable related to JAS at September 30, 2007 andDecember 31, 2006, was $339,000 and $33,000, respectively.

            On June 29, 2007, we acquired our joint venture partner's 51.0% interestin Idlewylde Apartments, a Market-Rate property located in Atlanta, Georgia.  Accounts receivable from the joint venture partnership related to this acquisition was $779,000at September 30, 2007.  We received these funds in October 2007.

**7.         SHARES**

            Our Board of Directors authorized the repurchase of up to $50.0 millionof our common shares and Class B Series II Preferred Shares.  During the ninemonths ended September 30, 2007, we repurchased 111,500 preferred depository sharesat a cost of $2.9 million and 468,000 common shares at a cost of $6.3 millionleaving a total of $13.2 million remaining under the $50.0 millionauthorization.  See Note 14 for additional information related to therepurchase of shares.   

**8.         EARNINGS PER SHARE**

            Earnings per share ("EPS") has been computed pursuant tothe provisions of SFAS 128, "Earnings per Share."  There were 1.9million and 2.1 million options to purchase common shares outstanding at September30, 2007 and 2006, respectively.  None of the options were included in thecalculation of diluted earnings per share for the periods presented as theirinclusion would be antidilutive to the net loss applicable to common sharesfrom continuing operations.

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

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**9.         DIRECTOR/EXECUTIVE COMPENSATION**

**           **On June 18, 2007, we implemented The Associated Estates RealtyCorporation Elective Deferred Compensation Program (the "Plan").  ThePlan is an unfunded, non-qualified deferred compensation program that issubject to the provisions of Section 409A of the Internal Revenue code, whichstrictly regulates the timing of elections and payment.  This plan wasdeveloped in lieu of updating our Executive Deferred Compensation Plan, whichwas initially adopted by the Board of Directors on July 1, 1999.  Eligibilityunder the Plan shall be determined by the Executive Compensation Committee orits designee, and initially consists of each of our appointed and/or electedofficers.

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

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

            The Plan allows for in-service and separation sub-accounts topermit election of distribution at either a specified date or followingseparation.  Payment of each deferral under the Plan will be made in the formspecified in the participant's election, and may be in the form of a lump sumor annual installment payments over a period not to exceed four years.  Paymentof each deferral under the Plan will be made on account of separation fromservice, death, or disability, or at a time specified by the participant, withinthe parameters set forth in the Plan.  Redeferral elections are permittedwithin the parameters set forth in the Plan.  Accounts will be distributed upona change of control, and distribution due to unforeseen financial hardship isalso possible.

**10.        SEGMENT REPORTING**

            We have four reportable segments:  (1)  Acquisition/DispositionMultifamily Properties; (2) Same Community Market-Rate("Market-Rate") Multifamily Properties; (3) Affordable HousingMultifamily Properties; and (4) Management and Service Operations.  We haveidentified these segments based upon how management makes decisions regardingresource allocation and performance assessment.  The Acquisition/Dispositionproperties represent acquired or developed properties which have not yet reachedstabilization (we consider a property stabilized when its occupancy ratereaches 93.0% and we have owned the property for one year), and properties thathave been sold or are classified as held for sale in accordance with SFAS 144. The Market-Rate properties are same community (owned during the entirety of thecomparison periods) conventional multifamily residential apartments.  TheAffordable Housing properties are multifamily properties for which the rentsare subsidized and certain aspects of the operations are regulated by the UnitedStates Department of Housing and Urban Development ("HUD") pursuantto Section 8 of the National Housing Act of 1937.  The Management and ServiceOperations provide management and advisory services to the Acquisition/Disposition,Market-Rate and Affordable Housing properties that we own, as well as to thirdparty clients and properties, both affiliate and non-affiliates.  All of oursegments 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, 2006.  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), Market-Rate andAffordable Housing segments and deducting direct property management andservice company expenses and painting service expenses from Management andService Company revenue for the Management and Service Operations segment.  Weconsider NOI to be an appropriate supplemental measure of our performancebecause it reflects the operating performance of our real estate portfolio andmanagement and service companies at the property and management and servicecompany level and is used to assess regional property level performance.  NOIshould not be considered (i) as an alternative to net income (determined inaccordance with GAAP), (ii) as an indicator of financial performance, (iii) ascash flow from operating activities (determined in accordance with GAAP) or(iv) as a measure of liquidity; nor is it necessarily indicative of sufficientcash flow to fund all of our needs.  Certain other real estate companies maydefine NOI in a different manner.

            Segment informationfor the three and nine months ended September 30, 2007 and 2006 is as follows:

|                                       |  | Three Months Ended September 30, 2007 |
|---------------------------------------|--|---------------------------------------|
|                                       |  |                                  |   |  |  |  |  | Management |  |  |
|                                       |  | Acquisition/                          |  |  |  | Affordable |  | and Service |  | Total |
| (In thousands)                        |  | Disposition                           |  | Market Rate |  | Housing |  | Operations |  | Consolidated |
|                                       |  |                                       |  |  |  |  |  |  |  |  |
| Total segment revenue                 |  |  $                               | 3,112  |  |  $ | 30,849  |  |  $ | 2,408  |  |  $ | 4,868  |  |  $ | 41,237  |
| Elimination of intersegment  revenue  |  | -                                |  | (2) |  | (21) |  | (1,846) |  | (1,869) |
| Consolidated revenue                  |  | 3,112                            |  | 30,847  |  | 2,387  |  | 3,022  |  | 39,368  |
|                                       |  |                                       |  |  |  |  |  |  |  |  |
| Equity in net loss of joint  ventures |  | -                                |  | -  |  | (31) |  | -  |  | (31) |
|                                       |  |                                       |  |  |  |  |  |  |  |  |
| *NOI                                  |  | 1,929                            |  | 16,231  |  | 1,225  |  | (407) |  | 18,978  |
|                                       |  |                                       |  |  |  |  |  |  |  |  |
| Total assets                          |  | 118,317                          |  | 562,939  |  | 7,711  |  | 17,150  |  | 706,117  |
|                                       |  |                                       |  |  |  |  |  |  |  |  |  |  |  |  |  |

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

|                                              |       | Nine Months Ended September 30, 2007 |
|----------------------------------------------|-------|--------------------------------------|
|                                              |       |                                 |   |  |  |  |  | Management |  |  |
|                                              |       | Acquisition/                         |  |  |  | Affordable |  | and Service |  | Total |
| (In thousands)                               |       | Disposition                          |  | Market Rate |  | Housing |  | Operations |  | Consolidated |
|                                              |       |                                      |  |  |  |  |  |  |  |  |
| Total segment revenue                        |       |  $                              | 3,355  |  |  $ | 91,096  |  |  $ | 8,807  |  |  $ | 15,571  |  |  $ | 118,829  |
| Elimination of intersegment  revenue         |       | -                               |  | (20) |  | (42) |  | (5,470) |  | (5,532) |
| Consolidated revenue                         |       | 3,355                           |  | 91,076  |  | 8,765  |  | 10,101  |  | 113,297  |
|                                              |       |                                      |  |  |  |  |  |  |  |  |
| Equity in net loss of joint  ventures        |       | -                               |  | (148) |  | (99) |  | -  |  | (247) |
|                                              |       |                                      |  |  |  |  |  |  |  |  |
| Operating loss from  discontinued operations | (274) |                                      | -  |  | -  |  | -  |  | (274) |
|                                              |       |                                      |  |  |  |  |  |  |  |  |
| *NOI                                         |       | 2,056                           |  | 49,217  |  | 5,058  |  | (1,352) |  | 54,979  |
|                                              |       |                                      |  |  |  |  |  |  |  |  |
| Total assets                                 |       | 118,317                         |  | 562,939  |  | 7,711  |  | 17,150  |  | 706,117  |
|                                              |       |                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |

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

| 16 |
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|                                                |          | Three Months Ended September 30, 2006 |
|------------------------------------------------|----------|---------------------------------------|
|                                                |          |                                  |   |  |  |  |  | Management |  |  |
|                                                |          | Acquisition/                          |  |  |  | Affordable |  | and Service |  | Total |
| (In thousands)                                 |          | Disposition                           |  | Market Rate |  | Housing |  | Operations |  | Consolidated |
|                                                |          |                                       |  |  |  |  |  |  |  |  |
| Total segment revenue                          |          |  $                               | -  |  |  $ | 29,686  |  |  $ | 2,389  |  |  $ | 5,072  |  |  $ | 37,147  |
| Elimination of intersegment  revenue           |          | -                                |  | (7) |  | (15) |  | (1,942) |  | (1,964) |
| Consolidated revenue                           |          | -                                |  | 29,679  |  | 2,374  |  | 3,130  |  | 35,183  |
|                                                |          |                                       |  |  |  |  |  |  |  |  |
| Equity in net loss of joint  ventures          |          | -                                |  | (106) |  | (33) |  | -  |  | (139) |
|                                                |          |                                       |  |  |  |  |  |  |  |  |
| Operating income from  discontinued operations | 31  |                                       | -  |  | -  |  | -  |  | 31  |
|                                                |          |                                       |  |  |  |  |  |  |  |  |
| *NOI                                           |          | -                                |  | 16,152  |  | 1,184  |  | (330) |  | 17,006  |
|                                                |          |                                       |  |  |  |  |  |  |  |  |
| Total assets                                   |          | 52,848                           |  | 580,407  |  | 7,352  |  | 17,715  |  | 658,322  |
|                                                |          |                                       |  |  |  |  |  |  |  |  |  |  |  |  |  |

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

|                                              |         | Nine Months Ended September 30, 2006 |
|----------------------------------------------|---------|--------------------------------------|
|                                              |         |                                 |   |  |  |  |  | Management |  |  |
|                                              |         |  Acquisition/                   |  |  |  |  Affordable |  | and Service |  |  Total   |
| (In thousands)                               |         |  Disposition                    |  |  Market Rate |  |  Housing |  | Operations |  |  Consolidated |
|                                              |         |                                      |  |  |  |  |  |  |  |  |
| Total segment revenue                        |         |  $                              | -  |  |  $ | 87,169  |  |  $ | 7,031  |  |  $ | 15,855  |  |  $ | 110,055  |
| Elimination of intersegment  revenue         |         | -                               |  | (26) |  | (36) |  | (5,872) |  | (5,934) |
| Consolidated revenue                         |         | -                               |  | 87,143  |  | 6,995  |  | 9,983  |  | 104,121  |
|                                              |         |                                      |  |  |  |  |  |  |  |  |
| Equity in net loss of joint  ventures        |         | -                               |  | (271) |  | (116) |  | -  |  | (387) |
|                                              |         |                                      |  |  |  |  |  |  |  |  |
| Operating loss from  discontinued operations | (1,945) |                                      | -  |  | -  |  | -  |  | (1,945) |
|                                              |         |                                      |  |  |  |  |  |  |  |  |
| *NOI                                         |         | -                               |  | 46,927  |  | 3,218  |  | (949) |  | 49,196  |
|                                              |         |                                      |  |  |  |  |  |  |  |  |
| Total assets                                 |         | 52,848                          |  | 580,407  |  | 7,352  |  | 17,715  |  | 658,322  |
|                                              |         |                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |

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

| 17 |
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----

 

            A reconciliation of total NOI to totalconsolidated net (loss) income is as follows:

|                                             |      | Three Months Ended |              | Nine Months Ended |
|---------------------------------------------|------|--------------------|--------------|-------------------|
|                                             |      | September 30,      |              | September 30,     |
| *(In thousands)*                            |      | 2007               |              | 2006              |  | 2007 |  | 2006 |
|                                             |      |                    |              |                   |  |  |  |  |
| Total NOI for reportable  segments          |      |  $            | 18,978  |                   |  $ | 17,006  |  |  $ | 54,979  |  |  $ | 49,196  |
| Depreciation and  amortization              |      | (9,278)            |              | (7,513)           |  | (24,258) |  | (22,690) |
| General and administrative  expense         |      | (2,463)            |              | (2,679)           |  | (7,873) |  | (7,672) |
| Interest income                             |      | 57            |              | 96           |  | 401  |  | 585  |
| Interest expense                            |      | (10,071)           |              | (16,855)          |  | (31,873) |  | (41,492) |
| Equity in net loss of joint  ventures       |      | (31)               |              | (139)             |  | (247) |  | (387) |
| Minority interest in  operating partnership | (13) |                    | (15)         |                   | (40) |  | (47) |
| Income from discontinued  operations:       |      |                    |              |                   |  |  |  |  |
| Operating  income (loss)                    |      | -             |              | 31           |  | (274) |  | (1,945) |
| Gain  on disposition of properties          |      | -             |              | 3,397        |  | 17,043  |  | 38,120  |
| Income from discontinued  operations        |      | -             |              | 3,428        |  | 16,769  |  | 36,175  |
| Consolidated net (loss)  income             |      |  $            | (2,821)      |                   |  $ | (6,671) |  |  $ | 7,858  |  |  $ | 13,668  |
|                                             |      |                    |              |                   |  |  |  |  |

**11.        CONTINGENCIES**

***Legal Proceedings***

            We are subject to legal proceedings, lawsuits and other claims,including proceedings by government authorities (collectively"Litigation").  Litigation is subject to uncertainties and outcomesare difficult to predict.  Consequently, we are unable to estimate ultimateaggregate monetary liability or financial impact with respect to the Litigationmatters described in the following paragraphs as of September 30, 2007, and noaccruals have been made for these matters other than those identified in thefollowing paragraphs.  We believe that other Litigation will not have amaterial adverse impact on us after final disposition.  However, because of theuncertainties of Litigation, one or more lawsuits could ultimately result in amaterial obligation.

***Pending Lawsuits***

            On or about April 14, 2002, Melanie and Kyle Kopp commenced anaction against us in the Franklin County, Ohio Court of Common Pleas seekingundetermined damages, injunctive relief and class action certification.  Thiscase arose out of our Suredeposit program.  This program allowed cash shortprospective residents to purchase a bond in lieu of paying a security deposit. The bond serves as a fund to pay those resident obligations that wouldotherwise have been funded by the security deposit.  Plaintiffs allege that thenonrefundable premium paid for the bond is a disguised form of 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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***Government Investigations***

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

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

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

**12.        GUARANTEES**

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

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

**            **During the second quarter of 2007, we recorded non-recurringrental revenue of $1.6 million as a result of a settlement of a lawsuit withHUD relating to rents at some of our Affordable Housing properties.

**14.        SUBSEQUENT EVENTS**

***Treasury Shares***

              On October 3, 2007, we completed the repurchase of 552,000 commonshares at a cost of $7.3 million which left a total of $5.9 million remainingunder the $50.0 million authorization.

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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 2007 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; |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •    | the ability of the Company to  refinance debt on favorable terms at maturity; the ability of the Company to  defease or prepay debt pursuant to its 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;                                                                                                                                                             |
| •    | 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;                                                                                                                                                                                                                                                                  |
| •    | risks associated with property  acquisitions such as environmental liabilities, among others;                                                                                                                                                                                                                                                |
| •    | changes in government  regulations affecting our properties, the rent of which are subsidized and  certain aspects of which are regulated by the United States Department of  Housing and Urban Development ("HUD") and other properties that we  manage;                                                                          |
| •    | inability to renew current  contracts with HUD for rent subsidized properties at existing rents                                                                                                                                                                                                                                              |
| •    | changes in or termination of  contracts relating to third party management and advisory business;                                                                                                                                                                                                                                            |
| •    | risks related to our joint  ventures;                                                                                                                                                                                                                                                                                                        |
| •    | 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;  and                                                                                                                                             |
| •    | our ability to acquire  properties at prices consistent with our investment criteria.                                                                                                                                                                                                                                                        |

*** ***

|   20 |
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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.  Rents from the owned units represented 91.0%of our consolidated revenue for the nine months ended September 30, 2007.  TheMarket-Rate properties represented 88.3% of the rental revenue generated by theseowned properties during the nine months ended September 30, 2007.

            The operating performance of the Market-Rate properties is affectedby factors such as interest rates, unemployment rates, and the supply and demandof rental housing in particular markets.  Rental revenue collections are acombination of rental rates, occupancy levels and rent concessions.  We attemptto adjust these factors from time to time, based on market conditions, in orderto maximize rental revenue.  Indicators that we use in measuring these factorsinclude physical occupancy and net collected rent.  These indicators are morefully described in the Results of Operations comparison.  Additionally, weconsider property net operating income ("NOI") to be an important indicator ofour overall performance.  Property NOI (property operating revenue lessproperty operating and maintenance expenses) is a measure of the profitabilityof our properties, which has the largest impact of all of our sources of incomeand expense on our financial condition and operating results.  See Note 10 ofthe Notes to Consolidated Financial Statements presented in Part I, Item 1 ofthis report on Form 10-Q for additional information regarding property NOI andtotal NOI, in addition to a reconciliation of total NOI to consolidated net (loss)income in accordance with GAAP.

**            Updated 2007 Expectations. **

| • ** ** | ***Portfolio performance****-*We expect to increase our Market-Rate property NOI by approximately 4.7%  to 5.0% in 2007, driven by property revenue increases of 3.9% to 4.2%.                |
|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • ** ** | ***Property acquisitions and  sales*** - We plan to acquire between $90.0 million and $150.0 million  of properties and sell between $40.0 million and $110.0 million of properties  in 2007. |
| • ** ** | ***Defeasance and other prepayment  costs*** - We expect to incur $4.2 million in costs to defease/prepay or  refinance debt during 2007.                                                     |

**LIQUIDITY AND CAPITAL RESOURCES**

            **Cash Flows and Liquidity.**  Significant sources and uses ofcash in the nine months ended September 30, 2007 and 2006 are summarized asfollows:

|                                                              |  Nine Months Ended |
|--------------------------------------------------------------|-------------------------|
|                                                              |  September 30,     |
| *(In thousands)*                                             | 2007                    |  | 2006 |
|                                                              |                         |  |  |
| Net cash provided by  operating activities                   |  $                 | 18,355  |  |  $ | 7,339  |
| Fixed assets:                                                |                         |  |  |
| Property  acquisitions, net                                  | (70,547)                |  | (256) |
| Property  disposition proceeds, net                          | 37,921             |  | 44,844  |
| Recurring  and non-recurring capital expenditures            | (9,110)                 |  | (10,015) |
| Debt:                                                        |                         |  |  |
| Decrease  in mortgage notes                                  | (3,161)                 |  | (65,480) |
| Increase  in revolver or line of credit borrowings           | 24,990             |  | 11,470  |
| Cash dividends and operating  partnership distributions paid | (12,574)                |  | (12,686) |
| Purchase of preferred and/or  treasury shares                | (9,547)                 |  | (10,256) |
|                                                              |                         |  |  |  |  |
|                                                         |                    |   |   |   |   |

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            Our primary sourcesof liquidity are cash flow provided by operations, short-term borrowings on ourrevolver and proceeds from property sales.  Cash flow provided by operations in2007 increased compared to 2006 primarily due to increased property revenue combinedwith a decrease in interest expense.  Additionally, changes in accounts payableand accounts receivable resulting from the timing of cash payments and cashreceipts partially offset the favorable variance.

            During the nine months ended September 30, 2007, we received $37.9million from the sale of two properties.  We also acquired two properties andpurchased land for a total cash outlay of $70.5 million funded primarily from thesale of properties and from borrowings on the revolver.  We paid dividends anddistributions of $12.6 million and paid a total of $9.1 million for recurringand non-recurring capital additions.  Additionally, we paid $9.2 million torepurchase 468,000 of our common shares and a portion of our outstanding ClassB preferred depository shares under our existing repurchase authorization, and $300,000for an additional 23,938 shares related to payroll taxes on the vesting ofrestricted shares.  During October 2007, we purchased an additional 553,200common shares at a cost of $7.3 million.

            During the nine months ended September 30, 2007, wedefeased/prepaid five fixed rate mortgage loans, prepaid two variable ratemortgage loans, and made three new fixed rate mortgage loans.  We refinancedfour fixed rate mortgage loans that were to mature in 2007 with two variablerate mortgage loans that mature in 2009 and two fixed rate mortgage loans thatmature in 2014.  Additionally, in connection with our June 29, 2007 acquisitionof our joint venture partner's 51.0% interest in Idlewylde Apartments, theexisting $42.0 million variable rate, non-recourse mortgage loan that maturesin 2010 is now included in our consolidated financial statements.

            In April 2007, we obtained a $100.0 million revolving creditfacility ("revolver") to be used for the refinancing of existing debt, generalcorporate purposes, and/or the acquisition of properties.  In connection withthe revolver, we terminated our $17.0 million and $14.0 million secured linesof credit.  At September 30, 2007, there were borrowings of $25.0 million outstandingon the revolver.

            We anticipate funding approximately $3.8 million for recurring,investment/revenue enhancing and nonrecurring capital expenditures for theremainder of 2007.  These expenditures are expected to be funded from cash flowprovided by operating activities and the sale of properties.

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

            We anticipate that we will meet our liquidity requirements for theremainder of 2007 generally through cash flow provided by operations.  Webelieve that this and other sources, such as the revolver, should be sufficientto meet operating requirements, capital additions, mortgage amortizationpayments and the payment of dividends in accordance with REIT requirements.  Weanticipate that we will continue paying quarterly dividends and that we willsustain our current dividend rate.

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            **Off-Balance SheetInvestments and Financing Commitments.**  At September 30, 2007, we had an investmentin one joint venture that owns an Affordable Housing multifamily apartment community. The operation of this property is similar to the operations of our wholly ownedportfolio.  Joint venture investments enable us to exercise influence over theoperations of such properties and share in their profits, while earningadditional fee income.  We account for our investment in the unconsolidatedjoint venture under the equity method of accounting as we exercise significantinfluence, but do not control this entity and are not required to consolidate itin accordance with FASB Interpretation No. 46, "Consolidation of VariableInterest Entities" or under EITF 04-05, "Investor's Accounting for anInvestment in a Limited Partnership When the Investor Is the Sole GeneralPartner and the Limited Partners Have Certain Rights".  This investment wasinitially recorded at cost as investment in joint ventures and subsequentlyadjusted for equity in earnings and cash contributions and distributions.  Thisjoint venture property had negative cash flow during 2006 and is expected tohave negative cash flow during 2007 as a result of operating expenses exceedingtenant rents and the housing assistance payments from HUD.  We are pursuing arequest to HUD for an increase in housing assistance payments in order toaddress the deficit.  The joint venture partnership that owns this property hasentered into a contract to sell it.  It is anticipated that additional cashcontributions may be required of the joint venture partners to fund deficits. Our proportionate share of the debt on this property at September 30, 2007, was$2.1 million.

            **Managementand Service Operations.**  At September 30, 2007, we managed 30 affordablehousing properties for third party owners.  During the third quarter of 2007,we announced our plan to exit the Affordable Housing business.  The owner of 23of the 30 managed properties notified us that it intends to self-manage thoseproperties effective January 1, 2008.  Additionally, we expect to transitionmanagement of the remaining third party owned affordable housing properties by June2008.  The impact on net income related to the third party owned affordablehousing properties is approximately $500,000 annually.  We expect to incurapproximately $125,000 in severance costs associated with the elimination ofcertain corporate positions during the fourth quarter of 2007.  For 2008, weexpect to identify cost savings to offset the impact on net income related tothe third party owned affordable housing contracts.

***RESULTS OF OPERATIONS***

***Comparison of the three and nine months ended September 30, 2007 to the threeand nine months ended September 30, 2006. ***

***           ***In the following discussion, Market-Rate propertiesrepresent 51 wholly owned Same Community Market-Rate properties that we haveowned during the entirety of the comparison periods.  Affordable Housingproperties represent 11 properties subject to HUD regulations. Acquired/Disposed properties represent two recently acquired properties, twoproperties sold during 2007 and eight properties sold during 2006.

            Overall, the net loss from continuing operations for 2007 decreasedin both comparison periods primarily due to an increase in property revenue anda decrease in interest expense during 2007, which were partially offset by increasesin property operating and maintenance expenses and depreciation andamortization charges during 2007.

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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 ninemonths ended September 30, 2007 to the three and nine months ended September30, 2006:

|                                                    |                                  |                            | Increase (decrease) in     |                            | Increase (decrease) in     |
|----------------------------------------------------|----------------------------------|----------------------------|----------------------------|----------------------------|----------------------------|
|                                                    |                                  |                            | three month comparison     |                            | nine month comparison      |
|                                                    |                                  |                            | period ended September 30, |                            | period ended September 30, |
| *(In thousands)*                                   |                                  | 2007 to September 30, 2006 |                            | 2007 to September 30, 2006 |
|                                                    |                                  |                            |                            |                            |                            |  |  |
| Property revenue                                   |                                  |  $                    | 4,293                 | 13.4%                      |                            |  $ | 9,058  | 9.6% |
| Property operating and  maintenance expense items: |                                  |                            |                            |                            |                            |  |
|                                                    | Personnel                        |                            | 739                   | 19.6%                      |                            | 1,161  | 10.1% |
|                                                    | Real estate taxes and  insurance |                            | 957                   | 20.7%                      |                            | 892  | 6.5% |
|                                                    | Other operating expenses         |                            | 321                   | 29.3%                      |                            | 827  | 26.5% |
| Depreciation and  amortization                     |                                  | 1,765                 | 23.5%                      |                            | 1,568                 | 6.9% |
| Interest expense                                   |                                  | (6,784)                    | (40.2)%                    |                            | (9,619)                    | (23.2)% |
|                                                    |                                  |                            |                            |                            |                            |  |  |  |  |

*            Property Revenue.*  Property revenue is impacted by acombination of rental rates, rent concessions and occupancy levels.  We measurethese factors using indicators such as physical occupancy (number of unitsoccupied divided by total number of units at the end of the period) and averagemonthly net collected rent per unit (gross potential rents less vacancies andconcessions divided by total number of units).  This information is presentedin the following table for the three and nine months ended September 30, 2007and 2006 (information for the three and nine months ended September 30, 2006reflect results based upon the operating properties and their respectivesegments as of September 30, 2007):

|                         |        | Three Months Ended |
|-------------------------|--------|--------------------|
|                         |        | September 30, 2007 |  | September 30, 2006 |
|                         |        |                    |  | Average Monthly |  |  |  | Average Monthly |
|                         |        | Physical           |  | Net Collected |  | Physical |  | Net Collected |
|                         |        | Occupancy          |  | Rent Per Unit |  | Occupancy |  | Rent Per Unit |
| Market-Rate Properties: |        |                    |  |  |  |  |  |  |
| Midwest                 |        | 95.9%              |  |  $ | 739  |  | 96.0% |  |  $ | 710  |
| Mid-Atlantic/Southeast  |        | 95.1%              |  |  $ | 1,062  |  | 95.1% |  |  $ | 1,041  |
| Total Market-Rate       |        | 95.7%              |  |  $ | 817  |  | 95.8% |  |  $ | 789  |
| Affordable Housing      |        | 98.9%              |  |  $ | 655  |  | 99.5% |  |  $ | 649  |
|                    |   |               |   |   |   |   |   |   |   |   |
|                    |   |               |   |   |   |   |   |   |   |   |

|                         |        | Nine Months Ended  |
|-------------------------|--------|--------------------|
|                         |        | September 30, 2007 |  | September 30, 2006 |
|                         |        |                    |  | Average Monthly |  |  |  | Average Monthly |
|                         |        | Physical           |  | Net Collected |  | Physical |  | Net Collected |
|                         |        | Occupancy          |  | Rent Per Unit |  | Occupancy |  | Rent Per Unit |
| Market-Rate Properties: |        |                    |  |  |  |  |  |  |
| Midwest                 |        | 95.9%              |  |  $ | 726  |  | 96.0% |  |  $ | 694  |
| Mid-Atlantic/Southeast  |        | 95.1%              |  |  $ | 1,055  |  | 95.1% |  |  $ | 1,019  |
| Total Market-Rate       |        | 95.7%              |  |  $ | 805  |  | 95.8% |  |  $ | 772  |
| Affordable Housing      |        | 98.9%              |  |  $ | 656  |  | 99.5% |  |  $ | 646  |
|                    |   |               |   |   |   |   |   |   |   |   |

 

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            Property revenueincreased in 2007 during both comparison periods primarily as a result of stableoccupancy combined with rental rate increases and an overall reduction inconcessions being offered in the Market-Rate segment.  Additionally, the ninemonths ended September 30, 2007 includes non-recurring rental revenue of $1.6million received as a result of a settlement of a lawsuit with HUD relating torents at some of our Affordable Housing properties.

            *Property Operating and Maintenance Expenses.*  Propertyoperating and maintenance expenses increased during both comparison periodsprimarily as a result of increases in personnel expense, real estate taxexpense and other operating expenses.  Personnel expense increased in bothcomparison periods primarily due to increased salary and benefit costs.  Realestate taxes increased in both comparison periods primarily due to estimatedincreases in assessed property values and millage rates in 2007.  Otheroperating expenses increased primarily as a result of increases in the writeoff of uncollectible tenant rent receivables and associated collection costs. These increases were partially offset by a credit recorded during 2007 relatedto our self-insurance property plan resulting from favorable loss experiences.

            During the fourth quarter of 2007, we will recognize a reduction ininsurance expense of approximately $435,000 as a result of a reduction of theself-insured component of the property plan resulting from year to datefavorable loss experiences.  

            *Depreciation and Amortization. *Depreciation andamortization expense increased in 2007 during both comparison periods primarilyas a result of the acquisition of two properties during the second quarter of2007.  As a result of these acquisitions, we recorded intangible assetstotaling $3.2 million which are being amortized over a twelve to sixteen monthperiod. 

            *Interest Expense. *Interest expense decreased in 2007 duringboth comparison periods primarily due to defeasance/prepayment costs which declined$7.4 million and $8.5 million during the three and nine month comparisonperiods, respectively.

            *Income from Discontinued Operations.*  Discontinuedoperations include the operating results of the properties that were soldduring 2007 and 2006 and the gains related to sales completed during each ofthe comparison periods.  For further details on "Income from discontinuedoperations," see Note 3 of the Notes to Consolidated Financial Statementspresented in Part I, Item 1 of this report on Form 10-Q.

**CONTINGENCIES**

            For a discussion of contingencies, see Note 11 of the Notes toConsolidated Financial Statements presented in Part I, Item 1 of this report onForm 10-Q.

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**ITEM 3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES 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 September 30, 2007, an interest rate changeof 100 basis points would impact interest expense approximately $810,000 on anannual basis. We occasionally use derivative instruments to manage our exposureto interest rates.  See Note 1 of the Notes to Consolidated FinancialStatements presented in Part I, Item 1 of this report on Form 10-Q foradditional information regarding derivative instruments and "Item 7AQualitative and Quantitative Disclosures About Market Risk" of our AnnualReport on Form 10-K for the year ended December 31, 2006, for a more completediscussion of interest rate sensitive assets and liabilities.

**ITEM 4.  CONTROLS AND PROCEDURES**

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

            *Changes in Internal Control over Financial Reporting.*  Therewere no changes in our internal control over financial reporting during the thirdquarter of 2007 that materially affected, or are reasonably likely tomaterially affect, internal control over financial reporting.

            We believe that because of its inherent limitations, internalcontrol over financial reporting may not always prevent or detectmisstatements.  Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

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**PART II.     OTHER INFORMATION**

**ITEM 1.       LEGAL PROCEEDINGS**

                  For information related to legal proceedings, see Note 11of the Notes to Consolidated Financial Statements presented in Part I, Item 1of this report on Form 10-Q.

**ITEM 1A.    RISK FACTORS**

                  See "Risk Factors" in Part I, Item 1A of our AnnualReport on Form 10-K for the year ended December 31, 2006.

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

|                          |  |                                                                     |  |            |  |                                                                           |  | Approximate        |
|--------------------------|--|---------------------------------------------------------------------|--|------------|--|---------------------------------------------------------------------------|--|--------------------|
|                          |  |                                                                     |  |            |  |                                                                           |  | Dollar Value of    |
|                          |  |                                                                     |  |            |  | Total Number of                                                           |  | Shares That May    |
|                          |  |                                                                     |  |            |  | Shares Purchased                                                          |  | Yet Be Purchased   |
|                          |  |                                                                     |  | Average    |  | As Part of Publicly                                                       |  | Under the Plans or |
|                          |  | Total Number of                                                     |  | Price Paid |  | Announced                                                                 |  | Programs           |
| Period                   |  | Shares Purchased                                                    |  | Per Share  |  | Plans or Programs                                                         |  | (in thousands)     |
|                          |  |                                                                     |  |            |  |                                                                           |  |                    |
| July 1 through           |  |                                                                     |  |            |  |                                                                           |  |                    |
|   July 31      |  | 10                |  | $13.74     |  | -             |  | $19,530            |
| August 1 through         |  |                                                                     |  |            |  |                                                                           |  |                    |
|   August 31    |  | 86,456            |  | $13.70     |  | 84,800                  |  | $18,369            |
| September 1 through      |  |                                                                     |  |            |  |                                                                           |  |                    |
|   September 30 |  | 383,203           |  | $13.33     |  | 383,200                 |  | $13,261            |
|                          |  |                                                                     |  |            |  |                                                                           |  |                    |
| Total                    |  | 469,669           |  | $13.40     |  | 468,000                 |  |                    |

            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 shares equal in value on the day of vesting to theamount of taxes due.

            On October 3, 2007, we completed the repurchase of 552,000 commonshares at a cost of $7.3 million which left a total of $5.9 million remainingunder the $50.0 million authorization.

| 27 |
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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.                                  |
|            |            |                                                                                        |            |                                                                                   |
| 4.4        |            | Form of Indemnification  Agreement.                                                                                                                          |            | Exhibit 4.2 to Form S-11  filed September 2, 1993 (File No. 33-68276 as amended). |
|            |            |                                                                         |            |                                                                                   |
| 4.5        |            | Form of Promissory Note and  Form of Mortgage and Security Agreement dated May 10, 1999 from AERC to The  Chase Manhattan Bank.                              |            | Exhibit 4.5 to Form 10-Q  filed August 13, 1999.                                  |
|            |            |                                                                         |            |                                                                                   |
| 4.5a       |            | Form of Promissory Note and  Form of Mortgage and Security Agreement dated September 10, 1999 from AERC to  The Chase Manhattan Bank.                        |            | Exhibit 4.5a to Form 10-Q  filed November 12, 1999.                               |
|            |            |                                                               |            |                                                                                   |
| 4.5b       |            | Form of Promissory Note and  Form of Mortgage and Security Agreement dated November 18, 1999 from AERC to  The Chase Manhattan Bank.                         |            | Exhibit 4.5b to Form 10-K  filed March 15, 2000.                                  |
|            |            |                                                                                   |            |                                                                                   |
| 4.9        |            | Second Amended and Restated  Loan Agreement dated April 19, 2002 between Associated Estates Realty Corporation  and National City Bank.                      |            | Exhibit 4.13a to Form 10-Q  filed August 13, 2002.                                |
|            |            |                                                                         |            |                                                                                   |
| 4.9a       |            | Third Amended and Restated  Loan Agreement dated November 1, 2005 between Associated Estates Realty  Corporation and National City Bank.                     |            | Exhibit 4.9a to From 10-K  filed March 1, 2006.                                   |
|            |            |                                                                                                  |            |                                                                                   |
| 4.9a(i)    |            | Amendment No. 1 to Third  Amended and Restated Loan Agreement dated May 15, 2006 between Associated  Estates Realty Corporation and National City Bank.      |            | Exhibit 4.9a(i) to Form 10-Q  filed August 1, 2006.                               |
|            |            |                                                                    |            |                                                                                   |
| 4.9b       |            | First Amendment to Second  Amended and Restated Loan Agreement dated May 14, 2002 between Associated  Estates Realty Corporation and National City Bank.     |            | Exhibit 4.13b to Form 10Q  filed August 13, 2002.                                 |
|            |            |                                           |            |                                                                                   |
| 4.9c       |            | Second Amendment to Second  Amended and Restated Loan Agreement dated April 17, 2003 between Associated  Estates Realty Corporation and National City Bank.  |            | Exhibit 4.13c to Form 10-Q  filed August 1, 2003.                                 |
|       |       |                                                                                                                                                         |       |                                                                              |

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| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **Filed herewith or**                                                              |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **incorporated herein**                                                            |
| **Number** | ** ** | **Title**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | **by reference**                                                                   |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                                                               |
| 4.11       |            | Loan Agreement dated July  22, 2003 between The Huntington National Bank and MIG/Orlando Development,  Ltd.                                                                                                                                                                                                                                                                                                                                                                                        |            | Exhibit 4.15 to Form 10-Q  filed November 20, 2003.                                |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                               |            |                                                                                    |
| 4.12       |            | Amended and Restated Loan  Agreement dated February 20, 2006 between The Huntington National Bank and  MIG/Orlando Development Ltd.                                                                                                                                                                                                                                                                                                                                                                |            | Exhibit 4.12 to Form 10-Q  filed May 2, 2006.                                      |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                     |            |                                                                                    |
| 4.13       |            | Credit Agreement Dated As of  April 24, 2007 among Associated Estates Realty Corporation, as Borrower and  National City Bank as Administrative Agent, Lead Arranger, and Book Manager  and The Several Lenders From Time to Time Parties Hereto, as Lenders.                                                                                                                                                                                                                                      |            | Exhibit 4.13  to Form 10-Q  filed herewith.                                   |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                     |            |                                                                                    |
|            |            | Certain of the Registrant's  assets are subject to mortgage obligations each of which individually relates  to indebtedness totaling less than 10.0% of the total assets of the  Registrant.  The Registrant hereby agrees to furnish a copy of such  agreements to the Commission upon its request.                                                                                                                                                                                          |            |                                                                                    |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                           |            |                                                                                    |
|            |            | The Registrant issued  unsecured debt in the form of Trust Preferred Securities on March 15, 2005 in  a private placement in an amount less than 10.0% of the total assets of the  Registrant.  The Registrant hereby agrees to furnish a copy of the Purchase  Agreement dated March 15, 2005 between Associated Estates Realty Corporation,  AERC Delaware Trust and Taberna Preferred Funding 1, Ltd. and a specimen Preferred  Securities Certificate to the Commission upon its request. |            |                                                                                    |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                |            |                                                                                    |
| 10         |            | Associated Estates Realty  Corporation Directors' Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                      |            | Exhibit 10 to Form 10-Q  filed November 14, 1996.                                  |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                 |            |                                                                                    |
| 10.1       |            | Stock Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |            | Exhibit 10.2 to Form S-11  filed September 2, 1993 (File No. 33-68276 as amended). |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                           |            |                                                                                    |
| 10.2       |            | Amended and Restated  Employment Agreement between the Company and Jeffrey I. Friedman.                                                                                                                                                                                                                                                                                                                                                                                                            |            | Exhibit 10.1 to Form 10-Q  filed May 13, 1996.                                     |
|            |            |                                                                                                                                                                                                                                                                                                                                                                       |            |                                                                                    |
| 10.3       |            | Equity-Based Incentive  Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                         |            | Exhibit 10.4 to Form 10-K  filed March 29, 1995.                                   |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                          |            |                                                                                    |
| 10.4       |            | Form of Restricted Agreement  dated by and among the Company and its Independent Directors.                                                                                                                                                                                                                                                                                                                                                                                                        |            | Exhibit 10.9 to Form 10-K  filed March 28, 1996.                                   |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                 |            |                                                                                    |
| 10.8       |            | Form of Share Option  Agreement by and among the Company and its Independent Directors.                                                                                                                                                                                                                                                                                                                                                                                                            |            | Exhibit 10.14 to Form 10-K  filed March 30, 1993.                                  |
|            |            |                                                                                                                                                                                                                                                                                                                                                                                                |            |                                                                                    |
| 10.10      |            | 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.                                     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                                                               |

| 29 |
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| ** ** | ** ** | ** **                                                                                                                                  | ** ** | **Filed herewith or**                               |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                  | ** ** | **incorporated herein**                             |
| **Number** | ** ** | **Title**                                                                                                                                   | ** ** | **by reference**                                    |
|       |       |                                                                       |       |                                                |
| 10.11      |            | Form of Equity Award  Agreement.                                                                                                            |            | Exhibit 10.11 to Form 10-Q  filed August 2, 2005.   |
|            |            |                                                             |            |                                                     |
| 10.12      |            | Long Term Incentive  Compensation Plan.                                                                                                     |            | Exhibit 10.12 to Form 10-Q  filed November 1, 2005. |
|            |            |                                         |            |                                                     |
| 10.13      |            | Associated Estates Realty  Corporation Elective Deferred Compensation Plan                                                                  |            | Exhibit 10.13 to Form 10-Q  filed July 31, 2007.    |
|            |            |                          |            |                                                     |
| 31         |            | Certification of Chief  Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act.                                                |            | Exhibit 31 to Form 10-Q  filed herewith.            |
|            |            |                               |            |                                                     |
| 31.1       |            | Certification of Chief  Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act.                                                |            | Exhibit 31.1 to Form 10-Q  filed herewith.          |
|            |            |                                         |            |                                                     |
| 32         |            | Certification of Chief  Executive Officer and Chief Financial Officer Pursuant to Section 906 of the  Sarbanes Oxley Act.                   |            | Exhibit 32 to Form 10-Q  filed herewith.            |

** **

** **

** **

** **

** **

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**SIGNATURES**

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

 

|                                                                                                                                                                                                                                                      | ASSOCIATED ESTATES REALTY  CORPORATION                                                                                                                                                                                                                                                                                                                                                             |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                    |
| October 30, 2007                                       | /s/ Lou Fatica                                                               |
| (Date)                                                                                                                                                                                                                                               | Lou Fatica, Vice President                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                      | Chief Financial Officer and  Treasurer                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                               |

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