| **UNITED STATES SECURITIES AND EXCHANGE COMMISSION**                                                                                                                                                                                                                                                                                                                                                                              |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Washington****,   D.C.****  20549**                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                  |
| **Form 10-Q**                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **                     **                                                                                                                                                                                                                                                                                                |
| **[x]  QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE**                                                                                                                                                                                                                                                                                                                                                           |
| **SECURITIES  EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                                                                                                              |
| **                         **                                                                                                                                                                                                                                                                        |
| **For the  quarterly period ended June 30, 2010**                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                   |
| **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 has submitted electronically and posted on its  corporate Web site, if any, every Interactive Data File required to be  submitted and posted pursuant to Rule 405 of Regulation S-T (subsection  232.405 of this chapter) during the preceding 12 months (or for such shorter  period that the registrant was required to submit and post such files).  Yes  [ ]  No [ ] |
|                                                                                                                                                                                                                                                                                       |
| Indicate  by check mark whether the registrant is a large accelerated filer, an  accelerated filer, a non-accelerated filer, or a smaller reporting company.   See the definitions of "large accelerated filer", "accelerated  filer" and "smaller reporting company" in Rule 12b-2 of the  Exchange Act.  (Check one):                                                                   |
|                                                                                                                                                                                                                                                                                            |
| Large accelerated filer [ ]  Accelerated filer [x]   Non-accelerated filer [ ]  (Do not check if a smaller reporting company)  Smaller  reporting company [ ]                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                          |
| Indicate by check mark whether the registrant is a  shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [ ]  No [x]                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                              |
| The number of  shares outstanding as of July 30, 2010 was 32,119,426 shares.                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |  |

 

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**ASSOCIATED ESTATESREALTY CORPORATION**

** **

**Index**

| **PART I – FINANCIAL INFORMATION** | **Page**                                                                                                                                                                                                                 |
|-----------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                    |                                                     |   |
| ITEM 1                                  | Consolidated Financial Statements (Unaudited)                                                                                                                                                                            |   |
|                                    |                                                                                                                      |   |
|                                    | Consolidated Balance  Sheets at June 30, 2010 and December 31, 2009                                                                                                                                                      | 3 |
|                                    |                                                                                                                      |   |
|                                    | Consolidated  Statements of Operations for the three and six month                                                                                                                                                       |   |
|                                    |     periods ended June 30, 2010 and 2009                                                                                                                                                                  | 4 |
|                                    |                                                                                                       |   |
|                                    | Consolidated  Statements of Cash Flows for the six month periods                                                                                                                                                         |   |
|                                    |     ended June 30, 2010 and 2009                                                                                                                                                                          | 5 |
|                                    |                                                                                        |   |
|                                    | Notes to  Consolidated Financial Statements                                                                                                                                                                              | 6 |
|                                    |                                                                                             |   |
| ITEM 2                                  | Management's  Discussion and Analysis of Financial                                                                                                                                                                       |   |
|                                    |     Condition and Results of Operations                                                                                                                                                                   | 18 |
|                                    |                                                                         |   |
| ITEM 3                                  | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                                              | 27 |
|                                    |                                                                                   |   |
| ITEM 4                                  | Controls and Procedures                                                                                                                                                                                                  | 27 |
|                                    |                                      |   |
| **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                                                                                                                                                             | 28 |
|                                    |                                                                                                                                                    |   |
| ITEM 6                                  | Exhibits                                                                                                                                                                                                                 | 29 |
|                                    |                                                                              |   |
| **SIGNATURES**                          | 32                                                                                                                                                                                                                       |

**

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**

 

 

 

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

**ASSOCIATED ESTATES REALTY CORPORATIONCONSOLIDATED BALANCE SHEETS(UNAUDITED)**
| *(In thousands, except  share amounts)*                                                  | June 30,      |          | December 31,  |
|------------------------------------------------------------------------------------------|---------------|---------------|---------------|
| **ASSETS**                                                                               | 2010          |          | 2009          |
| Real estate assets                                                                       |          |          |          |
| Land                                                                                     |  $       | 122,127  |          |  $ | 107,815  |
| Buildings  and improvements                                                              | 846,967  |          | 798,321  |
| Furniture  and fixtures                                                                  | 30,847   |          | 29,710   |
|                                                                                     | 999,941  |          | 935,846  |
| Less:   accumulated depreciation                                                    | (318,159)     |          | (302,108)     |
|                                                                                     | 681,782  |          | 633,738  |
| Construction  in progress                                                                | 661      |          | 4,797    |
| Real  estate, net                                                                        | 682,443  |          | 638,535  |
| Cash and cash equivalents                                                                | 6,127    |          | 3,600    |
| Restricted cash                                                                          | 7,868    |          | 7,093    |
| Accounts and notes  receivable, net                                                      |          |          |          |
| Rents                                                                                    | 1,164    |          | 1,115    |
| Affiliates                                                                               | 91       |          | 135      |
| Other                                                                                    | 2,349    |          | 1,910    |
| Goodwill                                                                                 | 1,725    |          | 1,725    |
| Other assets, net                                                                        | 7,621    |          | 8,392    |
| **Total  assets**                                                                        |  $       | 709,388  |          |  $ | 662,505  |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**                                                 |          |          |          |
| Mortgage notes payable                                                                   |  $       | 428,716  |          |  $ | 487,556  |
| Unsecured revolving credit  facility                                                     | 35,000   |          | 12,500   |
| Unsecured debt                                                                           | -        |          | 25,780   |
| Total  debt                                                                              | 463,716  |          | 525,836  |
| Accounts payable, accrued  expenses and other liabilities                                | 21,233   |          | 27,307   |
| Dividends payable                                                                        | 5,539    |          | 2,849    |
| Resident security deposits                                                               | 3,047    |          | 2,956    |
| Accrued interest                                                                         | 2,108    |          | 2,288    |
| **Total  liabilities**                                                                   | 495,643  |          | 561,236  |
| Noncontrolling redeemable  interest                                                      | 1,734    |          | 1,829    |
| Shareholders' equity                                                                     |          |          |          |
| Preferred  shares, without par value; 9,000,000 shares authorized;                       |          |          |          |
| 8.70%  Class B Series II cumulative redeemable, $250 per share                           |          |          |          |
| liquidation  preference, 232,000 issued and 193,050 outstanding                          |          |          |          |
| at  December 31, 2009                                                                    | -        |          | 48,263   |
| Common  shares, without par value, $.10 stated value; 91,000,000                         |          |          |          |
| authorized;  37,370,763 issued and 32,120,206 outstanding at                             |          |          |          |
| June  30, 2010 and 41,000,000 authorized; 22,995,763 issued                              |          |          |          |
| and  16,675,826 outstanding at December 31, 2009                                         | 3,737    |          | 2,300    |
| Paid-in  capital                                                                         | 455,104  |          | 283,090  |
| Accumulated  distributions in excess of accumulated net income                           | (187,633)     |          | (168,822)     |
| Accumulated  other comprehensive loss                                                    | (296)         |          | (1,420)       |
| Less:   Treasury shares, at cost, 5,250,557 and 6,319,937 shares                    |          |          |          |
| at  June 30, 2010 and December 31, 2009, respectively                                    | (58,901)      |          | (63,971)      |
| **Total  shareholders' equity**                                                          | 212,011  |          | 99,440   |
| **Total  liabilities and shareholders' equity**                                          |  $       | 709,388  |          |  $ | 662,505  |
|                                                                                     |          |          |          |
| The accompanying notes are an integral part of these  consolidated financial statements. |

 

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**ASSOCIATEDESTATES REALTY CORPORATIONCONSOLIDATED STATEMENTS OFOPERATIONS(UNAUDITED)**
|                                                                                     | Three Months Ended | Six Months Ended |
|------------------------------------------------------------------------------------------|--------------------|------------------|
|                                                                                     | June 30,           | June 30,         |
| *(In thousands, except per  share amounts)*                                              | 2010               |             | 2009 |   | 2010 |   | 2009 |
| **Revenue**                                                                              |               |             |   |   |   |   |   |
| Property  revenue                                                                        |  $            | 32,962      |   |  $ | 32,138  |   |  $ | 64,607  |   |  $ | 63,962  |
| Management  and service company revenue:                                                 |               |             |   |   |   |   |   |
| Fees,  reimbursements and other                                                          | 290           |             | 357  |   | 498  |   | 825  |
| Construction  and other services                                                         | 1,628         |             | 253  |   | 2,731  |   | 350  |
| Total  revenue                                                                           | 34,880        |             | 32,748  |   | 67,836  |   | 65,137  |
| **Expenses**                                                                             |               |             |   |   |   |   |   |
| Property  operating and maintenance                                                      | 14,262        |             | 13,812  |   | 28,186  |   | 27,566  |
| Depreciation  and amortization                                                           | 8,971         |             | 8,587  |   | 17,591  |   | 17,795  |
| Direct  property management and service company expense                                  | 277           |             | 348  |   | 409  |   | 708  |
| Construction  and other services                                                         | 1,885         |             | 322  |   | 3,301  |   | 535  |
| General  and administrative                                                              | 3,692         |             | 3,165  |   | 7,397  |   | 6,304  |
| Costs  associated with acquisitions                                                      | 61            |             | -  |   | 61  |   | -  |
| Total  expenses                                                                          | 29,148        |             | 26,234  |   | 56,945  |   | 52,908  |
| Operating income                                                                         | 5,732         |             | 6,514  |   | 10,891  |   | 12,229  |
| Interest income                                                                          | 11            |             | 18  |   | 20  |   | 33  |
| Interest expense                                                                         | (8,304)            |             | (8,736) |   | (16,365) |   | (16,919) |
| (Loss) income before gain on  insurance recoveries                                       |               |             |   |   |   |   |   |
| and  income from discontinued operations                                                 | (2,561)            |             | (2,204) |   | (5,454) |   | (4,657) |
| Gain  on insurance recoveries                                                            | -             |             | 544  |   | -  |   | 544  |
| (Loss) income from  continuing operations                                                | (2,561)            |             | (1,660) |   | (5,454) |   | (4,113) |
| Income from discontinued  operations:                                                    |               |             |   |   |   |   |   |
| Operating  income                                                                        | -             |             | 267  |   | -  |   | 569  |
| Gain  on disposition of properties                                                       | -             |             | 13,135  |   | -  |   | 15,413  |
| Income from discontinued  operations                                                     | -             |             | 13,402  |   | -  |   | 15,982  |
| **Net (loss) income**                                                                    | (2,561)            |             | 11,742  |   | (5,454) |   | 11,869  |
| Net  income attributable to noncontrolling redeemable interest                           | (13)               |             | (14) |   | (26) |   | (27) |
| **Net (loss) income  attributable to AERC**                                              | (2,574)            |             | 11,728  |   | (5,480) |   | 11,842  |
| Preferred share dividends                                                                | (980)              |             | (1,049) |   | (2,030) |   | (2,100) |
| Preferred share redemption  costs                                                        | (993)              |             | -  |   | (993) |   | -  |
| Allocation to participating  securities                                                  | -             |             | (429) |   | -  |   | (482) |
| **Net (loss) income  applicable to common shares**                                       |  $            | (4,547)          |   |  $ | 10,250  |   |  $ | (8,503) |   |  $ | 9,260  |
|                                                                                     |               |             |   |   |   |   |   |
| **Earnings per common share  - basic and diluted:**                                      |               |             |   |   |   |   |   |
| (Loss)  income from continuing operations applicable to common shares                    |  $            | (0.17)           |   |  $ | (0.16) |   |  $ | (0.35) |   |  $ | (0.38) |
| Income  from discontinued operations                                                     | -             |             | 0.78  |   | -    |   | 0.94  |
| Net  (loss) income applicable to common shares                                           |  $            | (0.17)           |   |  $ | 0.62  |   |  $ | (0.35) |   |  $ | 0.56  |
|                                                                                     |               |             |   |   |   |   |   |
| **Weighted average number  of common shares**                                            |               |             |   |   |   |   |   |
| **outstanding  - basic and diluted**                                                     | 27,433        |             | 16,528  |   | 24,316  |   | 16,481  |
|                                                                                     |               |             |   |   |   |   |   |
| The accompanying notes are an integral part of these  consolidated financial statements. |

****

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****

 

 

**ASSOCIATEDESTATES REALTY CORPORATIONCONSOLIDATED STATEMENTS OF CASHFLOWS(UNAUDITED)**
|                                                                                     | Six Months Ended |
|------------------------------------------------------------------------------------------|------------------|
|                                                                                     | June 30,         |
| *(In thousands)*                                                                         | 2010             |   | 2009 |
| **Cash flow from  operations:**                                                          |             |   |   |
| Net  (loss) income                                                                       |  $          | (5,454) |   |  $ | 11,869  |
| Adjustments  to reconcile net (loss) income to net cash provided by operations:          |             |   |   |
| Depreciation  and amortization (including discontinued operations)                       | 17,591      |   | 18,269  |
| Loss  on fixed asset replacements write-off                                              | 13          |   | 5  |
| Gain  on disposition of properties                                                       | -           |   | (15,413) |
| Gain  on insurance recoveries                                                            | -           |   | (544) |
| Amortization  of deferred financing costs and other                                      | 697         |   | 624  |
| Write-off  of unamortized debt procurement costs                                         | 727         |   | -  |
| Share-based  compensation                                                                | 1,502       |   | 1,049  |
| Net  change in assets and liabilities:                                                   |             |   |   |
| Accounts  and notes receivable                                                           | (476)            |   | 408  |
| Accounts  payable and accrued expenses                                                   | (3,183)          |   | (974) |
| Other  operating assets and liabilities                                                  | 622         |   | 1,011  |
| Restricted  cash                                                                         | (775)            |   | (989) |
| Total  adjustments                                                                       | 16,718      |   | 3,446  |
| Net  cash flow provided by operations                                                    | 11,264      |   | 15,315  |
| **Cash flow from investing  activities:**                                                |             |   |   |
| Recurring  fixed asset additions                                                         | (3,595)          |   | (3,872) |
| Revenue  enhancing/non-recurring fixed asset additions                                   | (2,930)          |   | (691) |
| Acquisition/development  fixed asset additions                                           | (56,769)         |   | (1,514) |
| Net  proceeds from disposition of operating properties                                   | -           |   | 32,714  |
| Other  investing activity                                                                | 33          |   | -  |
| Net  cash flow (used for) provided by investing activities                               | (63,261)         |   | 26,637  |
| **Cash flow from financing  activities:**                                                |             |   |   |
| Principal  amortization payments on mortgage notes payable                               | (1,572)          |   | (1,421) |
| Principal  repayments of mortgage notes payable                                          | (57,268)         |   | (72,096) |
| Payment  of debt procurement costs                                                       | -           |   | (686) |
| Proceeds  from mortgage notes obtained                                                   | -           |   | 52,450  |
| Revolving  credit facility borrowings                                                    | 73,500      |   | 95,400  |
| Revolving  credit facility repayments                                                    | (51,000)         |   | (106,900) |
| Principal  repayments of unsecured trust preferred securities                            | (25,780)         |   | -  |
| Common  share dividends paid                                                             | (6,523)          |   | (5,625) |
| Preferred  share dividends paid                                                          | (2,029)          |   | (2,100) |
| Operating  partnership distributions paid                                                | (26)             |   | (27) |
| Purchase  of operating partnership units                                                 | (59)             |   | -  |
| Exercise  of stock options                                                               | 4,570       |   | -  |
| Issuance  of common shares                                                               | 169,568     |   | -  |
| Purchase  of treasury shares                                                             | (594)            |   | (177) |
| Redemption  of preferred shares                                                          | (48,263)         |   | -  |
| Net  cash flow provided by (used for) financing activities                               | 54,524      |   | (41,182) |
| Increase in cash and cash  equivalents                                                   | 2,527       |   | 770  |
| Cash and cash equivalents,  beginning of period                                          | 3,600       |   | 3,551  |
| **Cash and cash  equivalents, end of period**                                            |  $          | 6,127  |   |  $ | 4,321  |
|                                                                                     |             |   |   |
| Supplemental disclosure of  cash flow information:                                       |             |   |   |
| Dividends  declared but not paid                                                         |  $          | 5,539  |   |  $ | 2,979  |
| Cash  paid for interest, net of capitalized interest                                     | 15,546      |   | 16,544  |
| Net  change in accounts payable related to fixed asset additions                         | (584)            |   | (287) |
| Reclassification  of deferred directors' compensation                                    | 2,233       |   | -  |
|                                                                                     |             |   |   |
| The accompanying notes are an integral part of these  consolidated financial statements. |

** **

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**ASSOCIATEDESTATES REALTY CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED**

**1.         BASIS OFPRESENTATION AND ACCOUNTING POLICIES**

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

**Business**

  We are a fully-integrated, self-administered and self-managed equityreal estate investment trust ("REIT") specializing in multifamilyownership, operation, acquisition, development, construction, disposition, propertymanagement and advisory activities.  Our primary source of income is rentalrevenue.  Additional income is derived primarily from construction and other services.

As of June 30, 2010, our property portfolio consisted of: (i) 49apartment communities containing 12,472 units in seven states that are wholly owned,either directly or indirectly through subsidiaries; (ii) one apartment communitythat we manage for a third party owner consisting of 258 units; and (iii) a 186-unitapartment community and a commercial property containing approximately 145,000square feet that we asset manage for a government sponsored pension fund.

**Basis of Presentation**

 The accompanying unaudited consolidated financial statements have beenprepared by management in accordance with accounting principles generallyaccepted in the United States of America ("GAAP") for interimfinancial information and applicable rules and regulations of the Securitiesand Exchange Commission.  Accordingly, they do not include all of theinformation and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal andrecurring adjustments considered necessary for a fair statement, have beenincluded.  The reported results of operations are not necessarily indicative ofthe results that may be expected for the full year.  These financial statementsshould be read in conjunction with the audited financial statements andaccompanying notes in our Annual Report on Form 10-K for the year endedDecember 31, 2009.

**SegmentReporting**

 All of our owned properties are multifamily communities that havesimilar economic characteristics.  Management evaluates the performance of our propertieson an individual basis.  Our multifamily properties provided approximately 95.2%of our consolidated revenue for the six months ended June 30, 2010; we haveonly one reportable segment, which is multifamily properties.

**Share-BasedCompensation**

 During the three and six months ended June 30, 2010, we recognized totalshare-based compensation cost of $624,000 and $1.5 million, respectively, in "Generaland administrative expense" in the Consolidated Statements of Operations. During the three and six months ended June 30, 2009, we recognized total sharebased compensation cost of $450,000 and $1.0 million, respectively, in “Generaland administrative expense.”  A portion of this increase is due to a change inthe Directors' Deferred Compensation Plan, which now will be paid with commonshares instead of cash (see Note 10 for additional information regarding theDirectors' Deferred Compensation Plan).

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*Stock Options.*  During the six months ended June 30, 2010, therewere no stock options awarded and 563,300 options exercised.  During the six monthsended June 30, 2009, there were 8,000 stock options awarded and no stockoptions were exercised.  We use the Black-Scholes option pricing model toestimate the fair value of share-based awards.  The weighted averageBlack-Scholes assumptions and fair value for options awarded during the sixmonths ended June 30, 2009, were as follows:
| Expected volatility                  |   | 36.5%  |
|--------------------------------------|--------|-------------|
| Risk-free interest rate              |   | 2.0%   |
| Expected life of options (in  years) |   | 7.2    |
| Dividend yield                       |   | 12.2%  |
| Grant-date fair value                |   |  $     | 0.44  |

 

 The expected volatility was based upon the historical volatility of ourweekly share closing prices over a period equal to the expected life of theoptions granted.  The risk-free interest rate used was the yield from U.S.Treasury bonds on the date of grant with a maturity approximating the expectedlife of the options.  The expected life of the options was derived using ourhistorical experience for similar awards.  The dividend yield was derived usingour annual dividend rate as a percentage of the price of our shares on the dateof grant.

*Restricted Shares*.  The following table represents restrictedshare activity for the six months ended June 30, 2010:
|                              |          |   | Weighted   |
|-----------------------------------|---------------|--------|------------|
|                              |          |   | Average    |
|                              | Number of     |   | Grant-Date |
|                              | Shares        |   | Fair Value |
|                              |          |   |       |
| Nonvested at beginning of  period | 184,339  |   |  $    | 7.15  |
| Granted                           | 557,975  |   |  $    | 7.53  |
| Vested                            | 146,383  |   |  $    | 8.01  |
| Forfeited                         | 3,050    |   |  $    | 8.60  |
| Nonvested at end of period        | 592,881  |   |  $    | 6.85  |

 

At June 30, 2010, therewas $3.4 million of unrecognized compensation cost related to non-vestedrestricted share awards that we expect to recognize over a weighted averageperiod of 2.3 years.

 A portion of therestricted shares granted during 2010 were awards in which the number of sharesthat will ultimately vest are subject to satisfaction of certain market conditions,which include total shareholder return on an absolute basis and on a relativebasis against a peer group consisting of other multifamily apartmentcompanies.  The total estimated grant-date fair value of these awards was $1.1million.  We used the Monte Carlo method to estimate the fair value of theseawards.  The Monte Carlo method, which is similar to the binomial analysis,evaluates the award for changing stock prices over the term of vesting and usesrandom situations that are averaged based on past stock characteristics.  Therewere one million simulation paths used to estimate the fair value of theseawards.  The risk-free interest rate used was based on a yield curve derivedfrom U.S. Treasury zero-coupon bonds on the date of grant with a maturity equalto the market condition performance periods.  The expected life used was themarket condition performance period.  The expected volatility used for AERC wasbased upon the historical volatility of our daily share closing prices over aperiod equal to the market condition performance periods.  The expectedvolatility used for the peer group was a 50%/50% blend of historical volatilityand implied volatility.  Implied volatility was calculated using each company'sstock call option contracts. 

 

| 7 |
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 The followingrepresents the assumption ranges used in the Monte Carlo method during 2010:
| Expected volatility - AERC          |   | 39.5% to 63.1% |
|-------------------------------------|--------|----------------|
| Expected volatility - peer  group   |   | 29.0% to 65.4% |
| Risk-free interest rate             |   | 0.1% to 1.5%   |
| Expected life (performance  period) |   | 3 years        |

** **

**DerivativeInstruments and Hedging Activities**

 We record all derivatives on the balance sheet at fair value.  Theaccounting for changes in the fair value of derivatives depends on the intendeduse of the derivative and the resulting designation.  Derivatives used to hedgethe exposure to changes in the fair value of an asset, liability or firmcommitment attributable to a particular risk, such as interest rate risk, areconsidered fair value hedges.  Derivatives used to hedge the exposure tovariability in expected future cash flows or other types of forecastedtransactions are considered cash flow hedges.

 For derivatives designated as fair value hedges, changes in the fairvalue of the derivative and the hedged item related to the hedged risk arerecognized in earnings.  For derivatives designated as cash flow hedges, theeffective portion of changes in the fair value of the derivative is initiallyreported in other comprehensive income (outside of earnings) and subsequentlyreclassified to earnings when the hedged transaction affects earnings, and theineffective portion of changes in the fair value of the derivative isrecognized directly in earnings.  Hedge ineffectiveness is measured bycomparing the changes in fair value or cash flows of the derivative hedginginstrument with the changes in fair value or cash flows of the designatedhedged item or transaction.  For derivatives not designated as hedges, changesin fair value are recognized in earnings.

 We do not use derivatives for trading or speculative purposes.  Further,we have a policy of only entering into contracts with major financialinstitutions based upon their credit ratings and other factors.  When viewed inconjunction with the underlying and offsetting exposure that the derivativesare designed to hedge, we have not sustained a material loss from these hedges.

 We have utilized interest rate swaps and caps to add stability tointerest expense and to manage our exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt ofvariable-rate amounts in exchange for fixed-rate payments over the life of theagreements without exchange of the underlying principal amount.  Interest ratecaps designated as cash flow hedges involve the receipt of variable-rateamounts if interest rates rise above a certain level in exchange for an upfront premium.  

****Interest Rate Hedge Activity:  ****During 2007, we executedtwo interest rate swaps to hedge the cash flows of two existing variable rate loans. In January 2010, we prepaid one of these loans but we did not terminate thecorresponding interest rate swap and as a result reclassified the fair value ofthe related interest rate swap of $777,000 from other comprehensive income toearnings during the three months ended March 31, 2010.  The change in fairvalue of this derivative is recorded in earnings and the net effect of thereclassification and the change in fair value at March 31, 2010 resulted in anet reduction to earnings of $320,000.  No hedge ineffectiveness on theremaining cash flow hedge was recognized during the six months ended June 30,2010.  Amounts reported in "Accumulated other comprehensive loss"related to the cash flow hedge will be reclassified to "Interest expense"as interest payments are made on the related variable-rate loan.  During thenext twelve months, we estimate that approximately $296,000 will bereclassified from "Accumulated other comprehensive loss" as anincrease to "Interest expense."  The following table presents the notionalamounts of the swaps as of June 30, 2010:
| *(Dollar amount in  thousands)* |   | Number of   |   | Notional |
|---------------------------------|--------|-------------|--------|----------|
| Interest Rate Derivative        |   | Instruments |   | Amounts  |
| Interest rate swaps             |   | 1      |   |  $  | 21,000  |

 

| 8 |
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 The following tablepresents the fair value of our derivative financial instruments as well astheir classification on the Consolidated Balance Sheets (see Note 8 foradditional information regarding the fair value of these derivativeinstruments):
| Fair Value of Derivative Instruments |
|--------------------------------------|
|                                 |   |   |   |   |   |   |   |   |
|                                 |   | Liability Derivatives |
|                                 |   | As of June 30, 2010 |   | As of December 31, 2009 |
|                                 |   |   |   |   |   |   |   |   |
| *(In thousands)*                     |   | Balance Sheet Location |   | Fair Value |   | Balance Sheet Location |   | Fair Value |
| Derivatives designated as            |   |   |   |   |   |   |   |   |
| hedging instruments:                 |   |   |   |   |   |   |   |   |
|                                 |   |   |   |   |   |   |   |   |
| Interest rate swaps                  |   |  Accounts payable, accrued |   |   |   |  Accounts payable, accrued |   |   |
|                                 |   |  expenses  and other liabilities |   |  $ | 296  |   |  expenses  and other liabilities |   |  $ | 1,420  |

 

The following tables present the effect of ourderivative financial instruments on the Consolidated Statements of Operations (seeNote 5 for additional information regarding the effect of these derivativeinstruments on total comprehensive income):
| The Effect of Derivative Instruments on the  Consolidated Statements of Operations |
|------------------------------------------------------------------------------------|
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   | Amount of Gain or |
|                                                                               |   |   |   |   |   |   |   | Amount of Gain or |   |   |   | (Loss) Recognized in |
|                                                                               |   | Amount of Gain or |   |   |   | (Loss) Reclassified |   |   |   | Income on Derivative |
|                                                                               |   | (Loss) Recognized |   |   |   |  from Accumulated |   | Location of Gain or |   | (Ineffective Portion and |
|                                                                               |   | in OCI on Derivative |   |   |   | OCI into Income |   | (Loss) Recognized |   | Amount Excluded from |
|                                                                               |   | (Effective Portion) |   | Location of Gain |   | (Effective Portion) |   | in Income on |   | Effectiveness Testing |
| *(In thousands)*                                                                   |   | Three |   | Six |   | or (Loss) |   | Three |   | Six |   | Derivative (Ineffective |   | Three |   | Six |
|                                                                               |   | Months |   | Months |   | Reclassified from |   | Months |   | Months |   | Portion and |   | Months |   | Months |
| Derivatives in Cash                                                                |   | Ended |   | Ended |   | Accumulated OCI |   | Ended |   | Ended |   | Amount Excluded |   | Ended |   | Ended |
| Flow Hedging                                                                       |   | June 30, |   | June 30, |   | into Income |   | June 30, |   | June 30, |   | from Effectiveness |   | June 30, |   | June 30, |
| Relationships                                                                      |   | 2010 |   | 2010 |   | (Effective Portion) |   | 2010 |   | 2010 |   | Testing |   | 2010 |   | 2010 |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate swaps                                                                |   |  $ | (15) |   |  $ | (38) |   |  Interest expense |   |  $ | (191) |   |  $ | (384) |   |  Interest expense |   |  $ | -  |   |  $ | (777) |

 
| The Effect of Derivative Instruments on the  Consolidated Statements of Operations |
|------------------------------------------------------------------------------------|
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   | Amount of Gain or |
|                                                                               |   |   |   |   |   |   |   | Amount of Gain or |   |   |   | (Loss) Recognized in |
|                                                                               |   | Amount of Gain or |   |   |   | (Loss) Reclassified |   |   |   | Income on Derivative |
|                                                                               |   | (Loss) Recognized |   |   |   |  from Accumulated |   | Location of Gain or |   | (Ineffective Portion and |
|                                                                               |   | in OCI on Derivative |   |   |   | OCI into Income |   | (Loss) Recognized |   | Amount Excluded from |
|                                                                               |   | (Effective Portion) |   | Location of Gain |   | (Effective Portion) |   | in Income on |   | Effectiveness Testing |
| *(In thousands)*                                                                   |   | Three |   | Six |   | or (Loss) |   | Three |   | Six |   | Derivative (Ineffective |   | Three |   | Six |
|                                                                               |   | Months |   | Months |   | Reclassified from |   | Months |   | Months |   | Portion and |   | Months |   | Months |
| Derivatives in Cash                                                                |   | Ended |   | Ended |   | Accumulated OCI |   | Ended |   | Ended |   | Amount Excluded |   | Ended |   | Ended |
| Flow Hedging                                                                       |   | June 30, |   | June 30, |   | into Income |   | June 30, |   | June 30, |   | from Effectiveness |   | June 30, |   | June 30, |
| Relationships                                                                      |   | 2009 |   | 2009 |   | (Effective Portion) |   | 2009 |   | 2009 |   | Testing |   | 2009 |   | 2009 |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate swaps                                                                |   |  $ | (487) |   |  $ | (215) |   |  Interest expense |   |  $ | 546  |   |  $ | 964  |   |  Interest expense |   |  $ | -  |   |  $ | -  |

 

| 9 |
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Wehave an agreement with our derivative counterparty that contains a provisionwhere if we either default or are capable of being declared in default on anyof our indebtedness, then such counterparty can declare us to be in default on ourderivative obligations. 

Wehave an agreement with a derivative counterparty that incorporates the loancovenant provisions of our indebtedness with a lender affiliate of thederivative counterparty. Failure to comply with the loan covenant provisionswould result in our being in default on any derivative instrument obligations coveredby the agreement.

 Asof June 30, 2010, the fair value of derivatives in a net liability position,which includes accrued interest but excludes any adjustment for nonperformancerisk, related to these agreements was $357,000. As of June 30, 2010, we havenot posted any collateral related to these agreements. If we had breached anyof these provisions at June 30, 2010, we would have been required to settle ourobligations under the agreements at their termination value of $357,000.

**Classificationof Fixed Asset Additions**

 We define recurring fixed asset additions to a property to be capitalexpenditures made to replace worn out assets to maintain the property's value. Revenue enhancing/non-recurring fixed asset additions are defined as capitalexpenditures that increase the value of the property and/or enable us toincrease rents.  Acquisition/development fixed asset additions are defined as capitalexpenditures for the purchase or construction of new properties to be added toour portfolio, or fixed asset additions identified at the time of purchase thatare not made until subsequent periods.

**2.         ACQUISITION, DEVELOPMENTAND DISPOSITION ACTIVITY**

**AcquisitionActivity**

 On May 18, 2010, we acquired Riverside Station, a 304-unit apartmentcommunity located in Woodbridge, Virginia for a purchase price of $54.6 million. We paid cash for this acquisition, a portion of which was funded with proceedsfrom our May 12, 2010 equity offering.  We determined that the fair value ofthe property was the same as the purchase price.

Duringthe three months and six months ended June 30, 2010 we recorded $626,000 ofproperty revenue and reported net income of $64,000.  In connection with thisacquisition we incurred $61,000 of costs, which are included in theConsolidated Statements of Operation under expenses on its own line item titled“Costs associated with acquisitions.”

Thefollowing pro forma financial information is presented as if the 2010acquisition had occurred at the beginning of each period presented.  This informationis presented for informational purposes only and is not necessarily indicativeof what the Company’s actual results of operations would have been had theacquisition occurred at such times:
|                                                                        |     | Three Months Ended |         | Six Months Ended |
|-----------------------------------------------------------------------------|----------|--------------------|--------------|------------------|
|                                                                        |     | June 30,           |         | June 30,         |
| *(Unaudited; in thousands,  except per share data)*                         | * * | 2010               |         | 2009             |   | 2010 |   | 2009 |
|                                                                        |     |               |         |             |   |   |   |   |
| Pro forma revenue                                                           |     |  $            | 35,506  |             |  $ | 33,988  |   |  $ | 69,801  |   |  $ | 67,714  |
| Pro forma net (loss) income  applicable to common shares                    |     | (4,483)            |         | 9,966       |   | (8,315) |   | 9,129  |
|                                                                        |     |               |         |             |   |   |   |   |
| Earnings per common share -  basic and diluted:                             |     |               |         |             |   |   |   |   |
|     Proforma net  (loss) income  applicable to common shares |     |  $            | (0.16)       |             |  $ | 0.60  |   |  $ | (0.34) |   |  $ | 0.55  |

 

 

| 10 |
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 The purchase price allocation for the property acquired on May 18, 2010was as follows:
| *(In thousands)*                                             |        |         |
|--------------------------------------------------------------|-------------|--------------|
| Land                                                         |        |  $      | 13,680   |
| Buildings and improvements                                   |        | 38,695  |
| Furniture and fixtures                                       |        | 442     |
| Existing leases and tenant  relationships (Other assets) (1) | 1,733  |
|                                                         |        |         |
|                                                         |        |  $      | 54,550  |

 
| (1) | See Note 4 for additional  information related to intangible assets identified as existing leases and  tenant relationships. |
|-----|------------------------------------------------------------------------------------------------------------------------------|

 

**DevelopmentActivity**

 On June 30, 2010 we placed in service, a 60-unit expansion of theexisting 240-unit River Forest apartment community located in the Richmond,Virginia metropolitan market area.  Total cost of development was approximately$6.8 million, which included $311,000 of capitalized interest.

**ConstructionActivity**

 Our subsidiary, Merit Enterprises, Inc., (“Merit”) is engaged as ageneral contractor and construction manager that acts as our in-houseconstruction division and also provides general contracting and constructionmanagement services to third parties.  Merit concentrates its efforts onrehabilitation and ground-up construction projects.  We account forconstruction contracts using the percentage-of-completion method.  We computethe percentage of completion for each project as the ratio of costs incurred(excluding costs that do not represent progress as of the end of the reportingperiod, such as certain material purchases) to total estimated costs based onthe most recent information.  This percentage is applied to the revenueexpected to be received by each project.  Any change in estimates are recognizedin the period in which they are known on a prospective basis.  We recognized $1.6million and $2.7 million in revenue and $1.5 million and $2.5 million in expenseunder this method during the three and six months ended June 30, 2010,respectively.  The remaining costs included in construction and other servicesexpenses include overhead costs, such as payroll and other fixed costs relatedto Merit. The total costs incurred in excess of amounts recognized as expense areincluded in "Other assets, net," and totaled $48,000 and $72,000 at June30, 2010 and December 31, 2009, respectively.  Funds received on uncompletedcontracts in excess of revenue recognized, if any, are included in"Accounts payable, accrued expenses and other liabilities," and wereimmaterial at June 30, 2010 and December 31, 2009.  

**DispositionActivity**

 We report the results of operations and gain/loss related to the sale ofreal estate assets as discontinued operations.  Real estate assets that areclassified as held for sale are also reported as discontinued operations.  Weclassify properties as held for sale when all significant contingenciessurrounding the closing have been resolved.  In most transactions, thesecontingencies are not satisfied until the actual closing of the transaction. Interest expense included in discontinued operations is limited to interest onmortgage debt specifically associated with properties sold or classified asheld for sale.  

| 11 |
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  "Income from discontinued operations" in the accompanyingConsolidated Statements of Operations for the three and six months ended June30, 2010 and 2009, includes the operating results for the properties sold in 2009,as well as the gains recognized on properties sold during each reportingperiod.  The following table summarizes "Income from discontinuedoperations:"
|                                     | Three Months Ended |    | Six Months Ended |
|------------------------------------------|--------------------|---------|------------------|
|                                     | June 30,           |    | June 30,         |
| *(In thousands)*                         | 2010               |    | 2009             |   | 2010 |   | 2009 |
| **REVENUE**                              |               |    |             |   |   |   |   |
| Property revenue                         |  $            | -  |             |  $ | 925  |   |  $ | -  |   |  $ | 2,021  |
|                                     |               |    |             |   |   |   |   |
| **EXPENSES**                             |               |    |             |   |   |   |   |
| Property operating and  maintenance      | -             |    | 442         |   | -  |   | 948  |
| Depreciation and amortization            | -             |    | 216         |   | -  |   | 474  |
| Total  expenses                          | -             |    | 658         |   | -  |   | 1,422  |
| Operating income                         | -             |    | 267         |   | -  |   | 599  |
| Interest expense                         | -             |    | -           |   | -  |   | (30) |
| Gain on disposition of  properties       | -             |    | 13,135      |   | -  |   | 15,413  |
| **Income from discontinued  operations** |  $            | -  |             |  $ | 13,402  |   |  $ | -  |   |  $ | 15,982  |

            

**3.         DEBT**

 The following table identifies ourtotal debt outstanding and weighted average interest rates:
|                                 | June 30, 2010 |          | December 31, 2009 |
|--------------------------------------|---------------|---------------|-------------------|
|                                 | Balance       |          | Weighted Average  |   | Balance |   | Weighted Average |
| *(Dollar amounts in thousands)*      | Outstanding   |          | Interest Rate     |   | Outstanding |   | Interest Rate |
| * *                             |          |          |              |   |   |   |   |
| **FIXED RATE DEBT**                  |          |          |              |   |   |   |   |
| Mortgages payable - CMBS             |  $       | 99,191   |              | 7.7% |   |  $ | 115,464  |   | 7.7% |
| Mortgages payable - other (1)        | 294,947  |          | 5.8%              |   | 337,241  |   | 5.8% |
| Unsecured borrowings                 | -        |          | -            |   | 25,780  |   | 7.9% |
| **Total  fixed rate debt**           | 394,138  |          | 6.3%              |   | 478,485  |   | 6.4% |
| ** **                           |          |          |              |   |   |   |   |
| **VARIABLE RATE DEBT**               |          |          |              |   |   |   |   |
| Mortgages payable                    | 34,578   |          | 4.8%              |   | 34,851  |   | 4.7% |
| Unsecured revolving credit  facility | 35,000   |          | 1.8%              |   | 12,500  |   | 2.6% |
| **Total  variable rate debt**        | 69,578   |          | 3.3%              |   | 47,351  |   | 4.1% |
| **Total  debt**                      |  $       | 463,716  |              | 5.8% |   |  $ | 525,836  |   | 6.2% |

 
| (1)    | Includes $21.0 million of  variable rate debt swapped to fixed as of June 30, 2010 and $63.0 million of  variable rate debt |
|--------|-----------------------------------------------------------------------------------------------------------------------------|
|   | swapped to fixed as of  December 31, 2009.                                                                                  |

** **

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**Mortgage Notes Payable**

 The following table provides information on mortgage loans repaid during2010:
| *(Dollar amounts in  thousands)* |   | Loans Repaid |
|----------------------------------|--------|--------------|
| Property                         |   | Amount       |   |  Interest Rate |
|                             |   |         |   |   |
| Idlewylde                        |   |  $      | 42,000  |   | 5.9% |
| Sterling Park                    |   | 2,910   |   | 7.9% |
| Kensington Grove                 |   | 3,172   |   | 7.9% |
| Spring Brook                     |   | 4,351   |   | 7.9% |
| Western Reserve                  |   | 4,835   |   | 7.9% |
| Total / weighted average  rate   |   |  $      | 57,268  |   | 6.4% |

 

 During 2008, 2007 and 2006, we defeased 21 CMBS loans.  These loans weredefeased pursuant to the terms of the underlying loan documents.  In accordancewith GAAP, we removed those financial assets and the mortgage loans from ourfinancial records.  All risk of loss associated with these defeasances havebeen transferred from us to the successor borrower and any ongoing relationshipbetween the successor borrower and us was deemed inconsequential at the time ofcompletion of the respective transfers.  However, we subsequently learned that forcertain defeasance transactions completed prior to June 2007, the successorborrower may be able to prepay the loans thus enabling us to receive a refundof a portion of the costs incurred in connection with the transaction.  Wereceived defeasance refunds of $553,000 and $563,000 for the six months ended June30, 2010 and 2009, respectively, which were included as a reduction to interestexpense.  It is possible that we may receive additional refunds in the future,however such amounts cannot be estimated due to the uncertainty of futurepayments, and we believe that any amounts we may receive would not be materialto our consolidated financial position, cash flow or results of operations.

Cash paid forinterest, excluding $192,000 of capitalized interest, was $15.5 million and $16.5million for the six months ended June 30, 2010 and 2009, respectively. Included in cash paid for interest are the defeasance refunds received of $553,000and $563,000 for the six months ended June 30, 2010 and 2009, respectively, asdiscussed above.  Additionally excluded in the cash paid for interest is a one-timenon cash charge to interest expense of $727,000 related to the redemption ofthe 7.92% Trust Preferred Securities for the six months ended June 30, 2010, asdiscussed below.

**Unsecured Debt**

 On June 30, 2010, the Company redeemed all of its 7.92% Trust PreferredSecurities at a cost of $26.3 million, which included accrued and unpaidinterest up to but excluding the redemption date.  In connection with theissuance of the 7.92% Trust Preferred Securities in March 2005, the Companyincurred issuance costs that were recorded as other assets and subsequentlycharged to interest expense each period over the life of the securities.  Inaccordance with GAAP, the Company recognized the remaining balance of $727,000of issuance costs as a one-time non cash charge to interest expense for thethree and six months ended June 30, 2010.** **

| 13 |
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**4.         GOODWILLAND OTHER INTANGIBLE ASSETS**

**Goodwill**

 In June 1998, we recorded goodwill in connection with the MIG RealtyAdvisors, Inc. merger.   We have a policy of completing our annual review ofgoodwill during the first quarter of each year and more frequently if events orchanges in circumstances indicate that the carrying value may not berecoverable.  The review that was completed during the three months ended March31, 2010 determined that goodwill was not impaired and no other events haveoccurred which would require that goodwill be reevaluated, as such there wereno changes to the carrying value of goodwill as of June 30, 2010.  Inperforming this analysis, we use a multiple of revenues to the range ofpotential alternatives and assign a probability of the various alternativesunder consideration by management.  Should the estimates used to determinealternatives or the probabilities of the occurrence thereof change, impairmentmay result which could materially impact our results of operations for theperiod in which it is recorded**.**

**IntangibleAssets**

 We allocate a portion of the total purchase price of a propertyacquisition to any intangible assets identified, such as existing leases andtenant relationships.  The intangible assets are amortized over the remaininglease terms or estimated life of the tenant relationship, which isapproximately 12 to 16 months.  Due to the short term nature of residentialleases, we believe that existing lease rates approximate market rates;therefore, no allocation is made for above/below market leases.

 In connection withour property acquisition completed on May 18, 2010, as discussed in Note 2, werecorded total intangible assets in the amount of $1.4 million related toexisting leases, which are being amortized over 12 months, and $300,000 relatedto tenant relationships, which are being amortized over 16 months.

**5.         SHAREHOLDERS' EQUITY**

 The following table provides a reconciliation of activity in Shareholders'equity accounts:
|                                                          |   | Six Months Ended June 30, 2010 |
|---------------------------------------------------------------|--------|--------------------------------|
|                                                          |   |                           |   | ** ** | ** ** |  Accumulated |   |   |   |   |
|                                                          |   |  Common                   |   |   | ** ** |  Distributions |   |  Accumulated |   |   |
|                                                          |   |  Shares                   |   |   | ** ** |  In Excess of |   |  Other |   |  Treasury |
|                                                          |   |  (at $.10                 |   |  Paid-In | ** ** |  Accumulated |   |  Comprehensive |   |  Shares |
| *(In thousands)*                                              |   |  stated value)            |   |  Capital |   |  Net Income |   |  Income |   |   (at Cost) |
| Balance, December 31, 2009                                    |   |  $                        | 2,300  |   |  $ | 283,090  |   |  $ | (168,822) |   |  $ | (1,420) |   |  $ | (63,971) |
| Total comprehensive (loss)  income                            |   | -                         |   | -  |   | (5,480) |   | 1,124  |   | -  |
| Share-based compensation                                      |   | -                         |   | 858  |   | 4  |   | -  |   | 1,095  |
| Reclassification of deferred  directors' compensation         |   | -                         |   | 2,233  |   | -  |   | -  |   | -  |
| Purchase of common shares                                     |   | -                         |   | -  |   | -  |   | -  |   | (594) |
| Issuance of common shares                                     |   | 1,437                     |   | 167,614  |   | -  |   | -  |   | -  |
| Option exercises from  treasury shares                        |   | -                         |   | 316  |   | -  |   | -  |   | 4,569  |
| Redemption of class B  cumulative redeemable preferred shares |   | -                         |   | 993  |   | (993) |   | -  |   | -  |
| Common share dividends  declared                              |   | -                         |   | -  |   | (10,312) |   | -  |   | -  |
| Preferred share dividends  declared                           |   | -                         |   | -  |   | (2,030) |   | -  |   | -  |
| Balance, June 30, 2010                                        |   |  $                        | 3,737  |   |  $ | 455,104  |   |  $ | (187,633) |   |  $ | (296) |   |  $ | (58,901) |

 

| 14 |
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 The following table identifies total comprehensive (loss) income:
| ** **                                                      | Six Months Ended |
|-----------------------------------------------------------------|------------------|
| ** **                                                      | June 30,         |
| *(In thousands)*                                                | 2010             |   | 2009 |
| Comprehensive (loss) income:                                    |             |   |   |
| Net (loss) income  attributable to AERC                         |  $          | (5,480) |   |  $ | 11,842  |
| Other comprehensive income:                                     |             |   |   |
| Change  in fair value and reclassification of hedge instruments | 1,124       |   | 749  |
| Total comprehensive (loss)  income                              |  $          | (4,356) |   |  $ | 12,591  |

 

**6.         COMMON AND PREFERREDSHARES**

**CommonShares**

 On January 15,2010, we sold 5,175,000 of our common shares in a public offering at a price of$11.10 per share, which resulted in total net proceeds of approximately $54.9million.

 On May 12, 2010, we sold 9,200,000 common shares in a public offering ata price of $13.00 per share, which resulted in total net proceeds ofapproximately $114.3 million.

**PreferredShares**

On June 7, 2010, the Company redeemed all of its 8.70% Class B Series IICumulative Redeemable Preferred Shares at a cost of approximately $48.3million, plus accrued and unpaid dividends through the redemption date.  Inconnection with the issuance of the 8.70% Class B preferred shares in December2004, the Company incurred approximately $1.0 million in issuance costs andrecorded such costs as a reduction to shareholders’ equity.  In accordance withGAAP, the Company recognized the $1.0 million of issuance costs as a reduction innet earnings to arrive at net (loss) income applicable to common shares for thethree and six months ended June 30, 2010.

**7.         EARNINGS PER SHARE**

There were approximately800,000 and 1.4 million options to purchase common shares outstanding at June30, 2010 and 2009, respectively.  The dilutive effect of these options were notincluded in the calculation of diluted earnings per share for the periodspresented as their inclusion would be anti-dilutive to the net loss applicableto common shares from continuing operations.

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

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The following table presents a reconciliation of basic and dilutedearnings per common share:
| ** **                                                              | Three Months Ended |    | Six Months Ended |
|-------------------------------------------------------------------------|--------------------|---------|------------------|
| ** **                                                              | June 30,           |    | June 30,         |
| *(In thousands)*                                                        | 2010               |    | 2009             |   | 2010 |   | 2009 |
| **Numerator - basic and  diluted:**                                     |               |    |             |   |   |   |   |
| (Loss) income from  continuing operations                               |  $            | (2,561) |             |  $ | (1,660) |   |  $ | (5,454) |   |  $ | (4,113) |
| Net  income attributable to noncontrolling redeemable interest          | (13)               |    | (14)             |   | (26) |   | (27) |
| Preferred  share dividends                                              | (980)              |    | (1,049)          |   | (2,030) |   | (2,100) |
| Preferred  share redemption costs                                       | (993)              |    | -           |   | (993) |   | -  |
| (Loss) income from  continuing operations applicable to common shares   |  $            | (4,547) |             |  $ | (2,723) |   |  $ | (8,503) |   |  $ | (6,240) |
|                                                                    |               |    |             |   |   |   |   |
| Income from discontinued  operations                                    |  $            | -  |             |  $ | 13,402  |   |  $ | -  |   |  $ | 15,982  |
| Allocation to participating  securities                                 | -             |    | (429)            |   | -  |   | (482) |
| Income from discontinued  operations applicable to common shares        |  $            | -  |             |  $ | 12,973  |   |  $ | -  |   |  $ | 15,500  |
|                                                                    |               |    |             |   |   |   |   |
|                                                                    |               |    |             |   |   |   |   |
| **Denominator - basic and  diluted:**                                   | 27,433        |    | 16,528      |   | 24,316  |   | 16,481  |
|                                                                    |               |    |             |   |   |   |   |
| **Net (loss) income  applicable to common shares - basic and diluted:** |               |    |             |   |   |   |   |
| (Loss) income from  continuing operations applicable to common shares   |  $            | (0.17)  |             |  $ | (0.16) |   |  $ | (0.35) |   |  $ | (0.38) |
| Income from discontinued  operations                                    | -             |    | 0.78        |   | -    |   | 0.94  |
| Net (loss) income applicable  to common shares - basic and diluted      |  $            | (0.17)  |             |  $ | 0.62  |   |  $ | (0.35) |   |  $ | 0.56  |

 

**8.         FAIRVALUE**

Fair value determined   in accordance with GAAP should be based on theassumptions that market participants would use when pricing certain assets orliabilities.  Inputs used in determining fair value should be from the highestlevel available in the following hierarchy:
| • | Level 1 inputs utilize quoted  prices (unadjusted) in active markets for identical assets or liabilities  that we have the ability to access;                                                      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Level 2 inputs may include  quoted prices for similar assets and liabilities in active markets, as well  as interest rates and yield curves that are observable at commonly quoted  intervals; and |
| • | Level 3 inputs are unobservable  inputs for the asset or liability that are typically based on an entity’s own  assumptions as there is little, if any, related market activity.              |

 

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

 The following table presents the financial liabilities that we measuredat fair value on a recurring basis as of June 30, 2010:
| *(In thousands)*    |   | Level 1 |                | Level 2 |   | Level 3   |   | Total  |
|---------------------|--------|---------|---------------------|---------|--------|-----------|--------|--------|
| * *            |   |    |                |    |   |      |   |   |
| Interest rate swaps |   | $       | -    |    | $      | 296  |   | $      | -    |   | $ | 296  |
|                     |        |         |                     |         |        |           |        |        |  |  |  |  |

 

We incorporate creditvaluation adjustments to appropriately reflect both our own nonperformance riskand that of the respective counterparty in the fair value measurements.  Thecredit valuation adjustments utilize Level 3 inputs, such as estimates ofcurrent credit spreads, to evaluate the likelihood of default by either therespective counterparty or us.  However, we determined that as of June 30, 2010,the impact of the credit valuation adjustments were not significant to theoverall valuation of the swaps.  See "Derivative Instruments and Hedging Activities"in Note 1 for additional information regarding the swaps.

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 Rents, accounts and notes receivable, other assets, accounts payable,accrued expenses and other liabilities are carried at amounts that reasonablyapproximate corresponding fair values.

 Mortgage notes payable, revolving debt and other unsecured debt with anaggregate carrying value of $463.7 million and $525.8 million at June 30, 2010,and December 31, 2009, respectively, have an estimated aggregate fair value of $499.5million and $520.1 million, respectively.  Estimated fair value is based oninterest rates available to us as of the dates reported for issuance of debtwith similar terms and remaining maturities.  Considerable judgment isnecessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative ofthe amounts we could realize on disposition of the financial instruments.  Theuse of different market assumptions and/or estimation methodologies may have amaterial effect on the estimated fair value amounts.

**9.         CONTINGENCIES**

**LegalProceedings**

 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.  We believe any current 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.

**10.        DIRECTORCOMPENSATION**

**Directors' Deferred Compensation Plan**

 Effective January 1, 2010, the Directors' Deferred Compensation Plan wasmodified such that all future distributions from the plan will be in the formof our common shares instead of cash, except for the scheduled distributions whichwere to commence on or before December 31, 2010, which will be made in cash. As a result, deferred compensation totaling $2.2 million that will be paid inshares was reclassified from "Accounts payable, accrued expenses and otherliabilities" to "Paid-in Capital" in the Consolidated BalanceSheets during the six months ended June 30, 2010.  Prior to the modificationthe fair value of the directors' deferred compensation accounts was adjusted atthe end of each reporting period based on the closing price of our commonshares.  However, as a result of the modification, no further adjustment tofair value will be required.

**11.        SUBSEQUENTEVENTS**

**Dividends**  

On August 2, 2010, we paid a dividend of $0.17 per common share toshareholders of record on July 15, 2010, which was declared on June 15, 2010. ** **

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

 The followingdiscussion should be read in conjunction with the consolidated financialstatements and notes thereto included in Part I, Item 1 of this report on Form10-Q.  This discussion may contain forward-looking statements based on currentjudgments and current knowledge of management, which are subject to certainrisks, trends and uncertainties that could cause actual results to vary fromthose projected, including but not limited to, expectations regarding our 2010performance which are based on certain assumptions.  Accordingly, readers arecautioned not to place undue reliance on forward-looking statements that speakonly as of the date of the document.  These forward-looking statements areintended to be covered by the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995.  The words "expects," "projects,""believes," "plans," "anticipates" and similarexpressions are intended to identify forward-looking statements.  Investors arecautioned that these forward-looking statements involve risks and uncertaintythat could cause actual results to differ from estimates or projectionscontained in these forward-looking statements, including without limitation thefollowing:
| •     | changes in  the economic climate in the markets in which we own and manage properties,  including interest rates, the overall level of economic activity, the  availability of consumer credit and mortgage financing, unemployment rates  and other factors; |
|----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •     | our ability  to refinance debt on favorable terms at maturity;                                                                                                                                                                                                |
| •     | risks of a  lessening of demand for the multifamily units that we own or manage;                                                                                                                                                                              |
| •     | competition  from other available multifamily units and changes in market rental rates;                                                                                                                                                                       |
| •     | new  acquisitions and/or development projects may fail to perform in accordance  with our expectations;                                                                                                                                                       |
| •     | increases  in property and liability insurance costs;                                                                                                                                                                                                         |
| •     | unanticipated  increases in real estate taxes and other operating expenses;                                                                                                                                                                                   |
| •     | weather  conditions that adversely affect operating expenses;                                                                                                                                                                                                 |
| •     | expenditures  that cannot be anticipated such as utility rate and usage increases,  unanticipated repairs and real estate tax valuation reassessments or millage  rate increases;                                                                             |
| •     | our inability  to control operating expenses or achieve increases in revenue;                                                                                                                                                                                 |
| •     | shareholder  ownership limitations that may discourage a takeover otherwise considered  favorably by shareholders;                                                                                                                                            |
| •     | 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 that are  not covered by our insurance;                                                                                                                                           |
| •     | catastrophic  property damage losses that are not covered by our insurance;                                                                                                                                                                                   |
| •     | our ability  to acquire properties at prices consistent with our investment criteria;                                                                                                                                                                         |
| •     | risks  associated with property acquisitions such as failure to achieve expected  results or matters not discovered in due diligence, among others;                                                                                                           |
| •     | 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                                                              |
| •     | construction and construction  business risks.                                                                                                                                                                                                                |

***  ***

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**Overview.**

 We are engagedprimarily in the ownership and operation of multifamily residential units.  Wealso provide asset and property management services to third party owners ofmultifamily residential units for which we are paid fees.  Our primary sourceof cash and revenue from operations is rents from the leasing of ownedapartment units, which represented 95.2% of our consolidated revenue for the sixmonths ended June 30, 2010.

 The operating performance of our properties is affected by generaleconomic trends including, but not limited to, factors such as householdformation, job growth, unemployment rates, population growth, immigration, thesupply of new multifamily rental communities and in certain markets the supplyof other housing alternatives, such as condominiums, single and multifamilyrental homes and owner occupied single and multifamily homes.  Additionally,our performance may be affected by access to and cost of debt and equity.

 Rental revenue collections are a combination of rental rates, occupancylevels and rent concessions.  We attempt to adjust these factors to adapt tochanging market conditions, thus allowing us to maximize rental revenue.  Indicatorsthat we use in measuring these factors include physical occupancy and net collectedrent per unit.  These indicators are more fully described in the Results ofOperations comparison.  Additionally, we consider property Net Operating Income("NOI") and Funds from Operations ("FFO") to be importantindicators of our overall performance.  Property NOI (property operatingrevenue less property operating and maintenance expenses) is a measure of theprofitability of our properties and has the largest impact on our financialcondition and operating results.  FFO is used in the real estate industry as asupplemental measure of the operating performance of real estate companiesbecause it excludes charges such as real estate depreciation that are generallyconsidered not to be reflective of the actual value of real estate assets overtime.  Additionally, gains and losses from the sale of most real estate assetsand certain other items are also excluded from FFO.

NOI is determinedby deducting property operating and maintenance expenses from property revenue(excluding amounts classified as discontinued operations) for our properties,deducting direct property management and service company expenses frommanagement and service company revenue for the management and serviceoperations and deducting construction and other services expenses fromconstruction and other services revenue.  We consider NOI to be an appropriatesupplemental measure of our performance because it reflects the operatingperformance of our real estate portfolio, management and service companies andconstruction services at the property, management and service company andconstruction services level and is used to assess regional property levelperformance.  NOI should not be considered (i) as an alternative to net income(determined in accordance with GAAP), (ii) as an indicator of financialperformance, (iii) as an alternative to cash flow from operating activities(determined in accordance with GAAP) or (iv) as a measure of liquidity; nor isit necessarily indicative of sufficient cash flow to fund all of our needs. Other real estate companies may define NOI in a different manner.  

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A reconciliation ofNOI to total consolidated net (loss) income attributable to AERC is as follows:
|                                                           | Three Months Ended |         | Six Months Ended |
|----------------------------------------------------------------|--------------------|--------------|------------------|
|                                                           | June 30,           |         | June 30,         |
| *(In thousands)*                                               | 2010               |         | 2009             |   | 2010 |   | 2009 |
|                                                           |               |         |             |   |   |   |   |
| Property NOI                                                   |  $            | 18,700  |             |  $ | 18,326  |   |  $ | 36,421  |   |  $ | 36,396  |
| Service company NOI                                            | 13            |         | 9           |   | 89  |   | 117  |
| Construction and other  services NOI                           | (257)              |         | (69)             |   | (570) |   | (185) |
| Depreciation and  amortization                                 | (8,971)            |         | (8,587)          |   | (17,591) |   | (17,795) |
| General and administrative  expense                            | (3,692)            |         | (3,165)          |   | (7,397) |   | (6,304) |
| Costs associated with  acquisitions                            | (61)               |         | -           |   | (61) |   | -  |
| Interest income                                                | 11            |         | 18          |   | 20  |   | 33  |
| Interest expense                                               | (8,304)            |         | (8,736)          |   | (16,365) |   | (16,919) |
| Gain on insurance recoveries                                   | -             |         | 544         |   | -  |   | 544  |
| Income from discontinued  operations:                          |               |         |             |   |   |   |   |
| Operating  income                                              | -             |         | 267         |   | -  |   | 569  |
| Gain  on disposition of properties                             | -             |         | 13,135      |   | -  |   | 15,413  |
| Income from discontinued  operations                           | -             |         | 13,402      |   | -  |   | 15,982  |
| Net (loss) income                                              | (2,561)            |         | 11,742      |   | (5,454) |   | 11,869  |
| Net income attributable to  noncontrolling redeemable interest | (13)               |         | (14)             |   | (26) |   | (27) |
| Consolidated net (loss)  income attributable to AERC           |  $            | (2,574)      |             |  $ | 11,728  |   |  $ | (5,480) |   |  $ | 11,842  |

 

We calculate Funds from Operations("FFO") in accordance with the definition adopted by the Board ofGovernors of the National Association of Real Estate Investment Trusts("NAREIT").  This definition includes all operating results, bothrecurring and non-recurring, except those results defined as"extraordinary items" under GAAP, adjusted for depreciation on realestate assets and amortization of intangible assets, gains on insurance recoveries,and gains and losses from the disposition of properties and land.  We calculateFFO per share using the weighted average shares outstanding amounts used in thecalculation of basic and diluted earnings per share in accordance with GAAP. FFO does not represent cash generated from operating activities in accordancewith GAAP and is not necessarily indicative of cash available to fund cashneeds and should not be considered an alternative to net income, as anindicator of our operating performance or as an alternative to cash flow as ameasure of liquidity.  FFO is used in the real estate industry as asupplemental measure of the operating performance of real estate companiesbecause it excludes charges such as real estate depreciation that are generallyconsidered not to be reflective of the actual value of real estate assets overtime.  Other real estate companies may define FFO in a different manner.  

We calculate FFO as adjusted as FFO, as defined above, plus the add backof refunds on previously defeased loans of $(553,000) and $(563,000) for the sixmonths ended June 30, 2010 and June 30, 2009, respectively.  In accordance withGAAP, these refunds on previously defeased loans are included as interestexpense in the Consolidated Statement of Operations.  Additionally, the threeand six months ended June 30, 2010, include add backs of non-cash charges of approximately$1.0 million and $700,000, respectively, associated with the redemption of ourSeries B Preferred Shares and Trust Preferred Securities.   We provide thiscalculation as an alternative FFO calculation as we consider it a moreappropriate measure of comparing the operating performance of a company's realestate between periods or as compared to different REITs.

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A reconciliation of net (loss) income attributable to AERC to FFO and FFOas adjusted is as follows:
| * *                                                                | * *   | Three Months Ended |        | Six Months Ended |
|-------------------------------------------------------------------------|------------|--------------------|-------------|------------------|
|                                                                    |       | June 30,           |        | June 30,         |
| *(In thousands, except per  share amounts)*                             |       | 2010               |        | 2009             |   | 2010 |   | 2009 |
| ** **                                                              | ** ** |               |        |             |   |   |   |   |
| Net (loss) income  attributable to AERC                                 |       |  $            | (2,574)     |             |  $ | 11,728  |   |  $ | (5,480) |   |  $ | 11,842  |
| Depreciation - real estate  assets                                      |       | 8,367         |        | 8,245       |   | 16,589  |   | 16,500  |
| Amortization of intangible  assets                                      |       | 192           |        | 173         |   | 192  |   | 1,011  |
| Preferred share dividends                                               |       | (980)              |        | (1,049)          |   | (2,030) |   | (2,100) |
| Preferred share redemption  costs                                       |       | (993)              |        | -           |   | (993) |   | -  |
| Gain on disposition of  properties/gain on insurance recoveries         |       | -             |        | (13,679)         |   | -  |   | (15,957) |
| Funds from Operations                                                   |       | 4,012         |        | 5,418       |   | 8,278  |   | 11,296  |
|                                                                    |       |               |        |             |   |   |   |   |
| Preferred share redemption  costs                                       |       | 993           |        | -           |   | 993  |   | -  |
| Trust preferred redemption  costs                                       |       | 727           |        | -           |   | 727  |   | -  |
| Refund of defeasance costs  for previously defeased loans               |       | -             |        | -           |   | (553) |   | (563) |
| Funds from Operations as  adjusted                                      |       |  $            | 5,732  |             |  $ | 5,418  |   |  $ | 9,445  |   |  $ | 10,733  |
|                                                                    |       |               |        |             |   |   |   |   |
| Funds from Operations per  common share - basic and diluted             |       |  $            | 0.15   |             |  $ | 0.33  |   |  $ | 0.34  |   |  $ | 0.69  |
| Funds from Operations as  adjusted per common share - basic and diluted |       |  $            | 0.21   |             |  $ | 0.33  |   |  $ | 0.39  |   |  $ | 0.65  |
|                                                                    |       |               |        |             |   |   |   |   |
| Weighted average shares  outstanding - basic and diluted                |       | 27,433        |        | 16,528      |   | 24,316  |   | 16,481  |

 

**Updated 2010 Expectations.**
| •  ** ** | ***Portfolio performance*****–**Our full-year 2010 updated guidance reflects Same Community  property NOI decreasing in the range of (2.0)% to (1.5)% as compared to 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **         | ***                        ***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| •  ** ** | ***Property acquisitions,  sales and development*** – We have completed the acquisition of a  304-unit multifamily property in Woodbridge, Virginia at a cost of  approximately $54.6 million.  Our updated guidance reflects additional  property acquisitions of $45.0 million to $95.0 million during the balance of  2010.  At June 30, 2010 we completed the construction of a 60-unit expansion  of our River Forest apartment community, which is located in the Richmond,  Virginia metropolitan area.  The cost of this expansion project was  approximately $6.8 million of which approximately $5.0 million in costs  related to this development were recorded during 2009, with the balance of  the costs being incurred in 2010. |
| ** **         | ***                                  ***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| •  ** ** | ***Debt repayment*** – We  have repaid five mortgage loans totaling $57.3 million that matured in 2010  and redeemed unsecured trust preferred debt of $25.8 million.  We have one  additional mortgage loan maturing in 2010 in the amount of $21.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

**Forecast Qualification.** The uncertainties caused by the current economic conditions and theunprecedented financial crisis complicate our ability to forecast futureperformance.  We believe that the apartment industry is better situated to weatherthe recession than other real estate sectors because people will normallychoose shelter over discretionary spending such as going to the mall or hotelstays and because government sponsored agencies such as Fannie Mae and FreddieMac continue to provide attractive apartment financing, which may be unavailableto other commercial real estate sectors.  Our 2010 expectations may beadversely impacted if recessionary forces accelerate or Congress curtailsFannie Mae or Freddie Mac financing support to the apartment industry.

 

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**LIQUIDITY AND CAPITALRESOURCES**

 Cash Flowsand Liquidity.  Significant sources and uses of cash during the six monthsended June 30, 2010 and 2009 are summarized as follows:
|                                                                 | Six Months Ended |
|----------------------------------------------------------------------|------------------|
|                                                                 | June 30,         |
| *(In thousands)*                                                     | 2010             |   | 2009 |
| Net cash provided by operations                                      |  $          | 11,264  |   |  $ | 15,315  |
| Fixed assets:                                                        |             |   |   |
| Acquisition  and development expenditures, net                       | (56,769)         |   | (1,514) |
| Net  property disposition proceeds                                   | -           |   | 32,714  |
| Recurring,  revenue enhancing and non-recurring capital expenditures | (6,525)          |   | (4,563) |
| Debt:                                                                |             |   |   |
| Decrease  in mortgage notes                                          | (58,840)         |   | (21,067) |
| Increase  in revolving credit facility borrowings                    | 22,500      |   | (11,500) |
| Redemption  of trust preferred securities                            | (25,780)         |   | -  |
| Common share issuance  proceeds                                      | 169,568     |   | -  |
| Preferred share redemption                                           | (48,263)         |   | -  |
| Cash dividends and operating  partnership distributions paid         | (8,578)          |   | (7,752) |
|                                                                      |                  |  |  |  |  |

 Our primarysources of liquidity are cash flow provided by operations, short-termborrowings on the unsecured revolver, our secured credit facility or projectspecific loans.  We believe that we are well positioned to weather the recentturmoil in the financial markets.  Six mortgage loans totaling approximately$78.3 million were scheduled to mature in 2010.  We have repaid five of thosedebt obligations totaling $57.3 million and expect to repay the remaining $21.0million obligation with proceeds from a project specific secured loan.

 In December 2009,we entered into a credit facility agreement with Wells Fargo MultifamilyCorporation on behalf of Freddie Mac.  Pursuant to the terms of the facility,we have the potential to borrow up to $100.0 million over a two-year periodending in December 2011 with obligations being secured by nonrecourse, noncross-collateralized fixed or variable rate mortgages having terms of five,seven or ten years.  Our $150.0 million unsecured revolver, which matures March20, 2011 and had $115.0 million available for borrowing as of June 30, 2010,provides us additional financial flexibility.

 Our ability to accessthe capital markets affords us additional liquidity as demonstrated by oursuccessful sale to the public markets of 5,175,000 of our common shares inJanuary 2010 and 9,200,000 of our common shares in May 2010.  The net proceedsfrom these two offerings, which totaled approximately $169.2 million, were usedto repay a $42.0 million mortgage loan, redeem all outstanding 8.70% Class BSeries II Preferred Shares for $48.3 million, redeem $25.8 million of our TrustPreferred Securities, contribute to the purchase of Riverside Station at a costof $54.6 million and for general corporate purposes.

 We anticipatethat cash flow provided by operations for the remainder of the year willcontinue to meet normal business operations and liquidity requirements for theupcoming year.  We believe that if net cash provided by operations is belowprojections, other sources such as the unsecured revolver, secured andunsecured borrowings are or can be made available and should be sufficient tomeet our normal business operations and liquidity requirements.  We anticipatethat we will continue paying our regular quarterly dividends in cash.  Funds tobe used for the repayment of debt, property acquisitions, development or othercapital expenditures are expected to be provided primarily by proceeds from therefinancing of debt borrowings, our unsecured revolver and possibly the sale ofcommon shares.  

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Cash flow providedby operations decreased during the six months ended June 30, 2010 compared to thesix months ended June 30, 2009, primarily due to an increase in the reductionin accounts payable and accrued expenses of approximately $2.0 million due tothe timing of payments.  Additionally, general and administrative expensesincreased approximately $1.0 million.  For a description of the reasons concerningthis increase see the discussion under “General and administrative expense”under Results of Operations.

During the remainder of 2010, we anticipate incurring approximately $10.0million in capital expenditures.  This includes replacement of worn carpet andappliances, parking lots and similar items in accordance with our currentproperty expenditure plan, as well as commitments for revenue enhancing andnon-recurring expenditures.  These commitments are expected to be funded withcash provided by operating activities and borrowings on our unsecured revolver.

**RESULTSOF OPERATIONS**

***Comparison of the three andsix months ended June 30, 2010 to the three and six months ended June 30, 2009:***

****** Our Same Community portfolio represents properties thatwe have owned for all of the comparison periods.  For the six months ended June30, 2010 and 2009, the Same Community portfolio consisted of 48 ownedproperties containing 12,108 units.  Acquired properties represent the oneproperty that we acquired in May 2010.  

The net loss from continuing operations increased $901,000 and $1.3million during the three and six month comparison periods, respectively.  Theincrease in the three month comparison period was primarily due to the net ofthe following:  an increase in general and administrative expenses, an increasein depreciation and amortization expense, a decrease in interest expense, anincrease in property NOI and a gain on insurance recoveries recognized in 2009,with no similar gain in 2010.   The increase in the six month comparison periodwas primarily due to an increase in general and administrative expense and again on insurance recoveries in 2009, with no like gain in 2010. 

The following table reflects the amount and percentage change in lineitems that are relevant to the changes in overall operating performance:
|                                        |   | Increase (decrease) when   |      | Increase (decrease) when |
|---------------------------------------------|--------|----------------------------|-----------|--------------------------|
|                                        |   | comparing the three months |      | comparing the six months |
|                                        |   | ended June 30, 2010        |      | ended June 30, 2010      |
| *(In thousands)*                            |   | to June 30, 2009           |      | to June 30, 2009         |
|                                        |   |                       |      |                     |   |   |
| Property revenue                            |   |  $                    | 824  | 2.6%                     |   |  $ | 645  | 1.0% |
| Property operating and  maintenance expense |   | 450                   | 3.3%      |                     | 620  | 2.2% |
| Depreciation and  amortization              |   | 384                   | 4.5%      |                     | (204) | (1.1)% |
| General and administrative                  |   | 527                   | 16.7%     |                     | 1,093  | 17.3% |
| Construction and other  services            |   |                       |      |                     |   |   |
| Revenue                                     |   | 1,375                 | 543.5%    |                     | 2,381  | 680.3% |
| Expenses                                    |   | 1,563                 | 485.4%    |                     | 2,766  | 517.0% |
| Income from discontinued  operations        |   | (13,402)                   | (100.0)%  |                     | (15,982) | (100.0)% |

 

PropertyNOI increased for both the three month and six month comparisonperiods primarily due to an increase in property revenue of $824,000 and$645,000, respectively, offset by an increase in property expenses of $450,000and $620,000, respectively.

| 23 |
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The following table presents property NOI results by region:
|                       |   | Three Months Ended June 30, |         |         |    | Six Months Ended June 30, |   |         |
|----------------------------|--------|-----------------------------|--------------|--------------|---------|---------------------------|--------|--------------|
|                       |   | 2010                        |         | 2009         |    |                      |   | 2010         |   | 2009 |   |   |
|                       |   | Property                    |         | Property     |    | Increase/                 |   | Property     |   | Property |   | Increase/ |
| *(In thousands)*           |   | NOI                         |         | NOI          |    | (Decrease)                |   | NOI          |   | NOI |   | (Decrease) |
| Same Community Properties: |   |                        |         |         |    |                      |   |         |   |   |   |   |
| Midwest                    |   |  $                     | 10,538  |         |  $ | 10,426               |   |  $      | 112  |   |  $ | 20,629  |   |  $ | 20,717  |   |  $ | (88) |
| Mid-Atlantic               |   | 3,386                  |         | 3,612   |    | (226)                     |   | 6,755   |   | 7,039  |   | (284) |
| Southeast                  |   | 4,371                  |         | 4,288   |    | 83                   |   | 8,633   |   | 8,640  |   | (7) |
| Total Same Community       |   | 18,295                 |         | 18,326  |    | (31)                      |   | 36,017  |   | 36,396  |   | (379) |
| Acquired Properties        |   | 405                    |         | -       |    | 405                  |   | 404     |   | -  |   | 404  |
| Total Property NOI         |   |  $                     | 18,700  |         |  $ | 18,326               |   |  $      | 374  |   |  $ | 36,421  |   |  $ | 36,396  |   |  $ | 25  |

 

*Property revenue.* Property revenue is impacted by a combination of rental rates, rent concessionsand occupancy levels, i.e., net collected rent per unit.  Physical occupancy atthe end of each period and net collected rent per unit are presented in thefollowing tables:
|                       |   | Physical Occupancy |
|----------------------------|--------|--------------------|
|                       |   | Six Months Ended   |
|                       |   | June 30,           |
|                       |   | 2010               |   | 2009 |
| Same Community Properties: |   |               |   |   |
| Midwest                    |   | 97.3%              |   | 97.1% |
| Mid-Atlantic               |   | 96.1%              |   | 96.3% |
| Southeast                  |   | 95.1%              |   | 90.4% |
| Total Same Community       |   | 96.6%              |   | 95.4% |
| Acquired Properties        |   | 90.8%              |   |  N/A |

 
|                       |   | Average Monthly Net Collected Rent Per Unit |
|----------------------------|--------|---------------------------------------------|
|                       |   | Three Months Ended                          |   | Six Months Ended |
|                       |   | June 30,                                    |   | June 30, |
| *(In thousands)*           |   | 2010                                        |   | 2009 |   | 2010 |   | 2009 |
| Same Community Properties: |   |                                        |   |   |   |   |   |   |
| Midwest                    |   |  $                                     | 785  |   |  $ | 788  |   |  $ | 778  |   |  $ | 783  |
| Mid-Atlantic               |   |  $                                     | 1,165  |   |  $ | 1,167  |   |  $ | 1,160  |   |  $ | 1,159  |
| Southeast                  |   |  $                                     | 900  |   |  $ | 874  |   |  $ | 889  |   |  $ | 874  |
| Total Same Community       |   |  $                                     | 859  |   |  $ | 855  |   |  $ | 852  |   |  $ | 851  |
| Acquired Properties        |   |  N/A                                   |   |  N/A |   |  N/A |   |  N/A  |

  The followingtable presents property revenue results:
|                       |   | Three Months Ended June 30, |         |         |    | Six Months Ended June 30, |   |         |
|----------------------------|--------|-----------------------------|--------------|--------------|---------|---------------------------|--------|--------------|
|                       |   | 2010                        |         | 2009         |    |                      |   | 2010         |   | 2009 |   |   |
|                       |   | Property                    |         | Property     |    | Increase/                 |   | Property     |   | Property |   | Increase/ |
| *(In thousands)*           |   | Revenue                     |         | Revenue      |    | (Decrease)                |   | Revenue      |   | Revenue |   | (Decrease) |
| Same Community Properties: |   |                        |         |         |    |                      |   |         |   |   |   |   |
| Midwest                    |   |  $                     | 18,810  |         |  $ | 18,785               |   |  $      | 25  |   |  $ | 37,156  |   |  $ | 37,321  |   |  $ | (165) |
| Mid-Atlantic               |   | 5,249                  |         | 5,304   |    | (55)                      |   | 10,462  |   | 10,552  |   | (90) |
| Southeast                  |   | 8,277                  |         | 8,049   |    | 228                  |   | 16,363  |   | 16,089  |   | 274  |
| Total Same Community       |   | 32,336                 |         | 32,138  |    | 198                  |   | 63,981  |   | 63,962  |   | 19  |
| Acquired Properties        |   | 626                    |         | -       |    | 626                  |   | 626     |   | -  |   | 626  |
| Total Property Revenue     |   |  $                     | 32,962  |         |  $ | 32,138               |   |  $      | 824  |   |  $ | 64,607  |   |  $ | 63,962  |   |  $ | 645  |

  

| 24 |
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 For the three month comparison period, the increase in property revenuewas primarily due to an increase in the revenue in the Southeast region and theacquisition property.  For the six month comparison period, the increase wasprimarily due to the acquisition property.

*Property operating and maintenance expenses.*  Property operatingand maintenance expenses increased in both the three month and six monthcomparison periods.  For both comparison periods, the increase was primarilydue to increased utility costs and the acquisition property.  

*Depreciation and amortization. *Depreciation and amortizationexpense increased for the three month comparison period primarily due to thecommencement of depreciation for the May 2010 acquisition and the amortizationof intangible assets recorded in connection with this acquisition.  For the sixmonth comparison period, depreciation and amortization expense decreasedprimarily due to the completion of the 12 month to 16 month amortizationperiods of intangible assets recorded in connection with properties acquired in2008.

*General and administrative expense. *General and administrativeexpenses for the three month comparison period increased primarily due toexpenses related to our due diligence investigations of possible acquisitionsthat were never consummated and adjustments to various payroll relatedaccruals.  For the six month comparison period, the increase was primarily due toan increase in expenses related to proposed acquisitions that were notconsummated, adjustments to various payroll related accruals and an increasethat was the result of valuation adjustments in 2009 that reduced directors'deferred compensation expense. Prior to January 1, 2010, the fair value of thedirectors' deferred compensation was adjusted based upon the closing price ofour common shares at the end of each period.  Effective January 1, 2010, this planwas modified to provide that all distributions under the plan will be in theform of our common shares instead of cash.  As a result, the fair value of thedeferred compensation is no longer adjusted based upon the closing price of ourcommon shares.

*Construction and other services*.  Effective October 2009, MeritEnterprises, Inc. (“Merit”), our wholly owned subsidiary, changed itsconcentration from a subcontractor and painting company to a general contractorthat acts as our in-house construction division and also provides generalcontracting and construction management services to third parties.  Merit’s2010 revenues and expenses recorded exceed Merit’s painting and subcontractingrevenues and expenses recorded during both periods in 2009.

*Income from Discontinued Operations.*  Discontinued operationsinclude the operating results of two properties sold in 2009 and the gainrelated to those sales .  For further details on "Income from discontinuedoperations," see Note 2 of the Notes to Consolidated Financial Statementspresented in Part I, Item 1 of this report on Form 10-Q.

**Critical AccountingEstimates**

 The preparationof the consolidated financial statements in conformity with GAAP requires us tomake estimates and assumptions in certain circumstances that affect amountsreported in the consolidated financial statements and related notes.  Inpreparing these consolidated financial statements, we have utilized informationavailable including industry practice and our own past history in forming estimatesand judgments of certain amounts included in the consolidated financialstatements, giving due consideration to materiality.  It is possible that theultimate outcome that we anticipated in formulating the estimates inherent inthese consolidated financial statements may not materialize.  However,application of the accounting policies below involves the exercise of judgmentand use of assumptions as to future uncertainties and, as a result, actualresults could differ from these estimates.  In addition, other companies mayutilize different estimates that may impact comparability of our results ofoperations to those of companies in similar businesses.  Our criticalaccounting estimates are discussed in detail in Part II, Item 7 of our AnnualReport on Form 10-K for the year ended December 31, 2009.  In addition to thesecritical accounting estimates, we believe that our contracting and constructionmanagement services required us to make estimates that could have a materialimpact on our results of operations and financial statements.

 

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 We account forgeneral contracting and construction management services that we provide tothird parties using the percentage completion method.  Under this method, theamount of revenue and expense to be recognized for each project that we areengaged in at the end of each reporting period is estimated based on thepercentage of work completed on that date.  The use of judgment and/orestimates is required in determining the percentage of work completed, theexpected total cost of a project in process, and in certain circumstances thetotal amount of revenue for a project in process.  If we had used differentestimates, different amounts would have been recognized in revenue and expensewhich may have resulted in a material impact to our results of operations.  Ifactual costs or revenue differ from estimates, it may require us to make amaterial adjustment to our results of operations.

**CONTINGENCIES**

 For a discussion of contingencies, see Note 9 of the Notes to ConsolidatedFinancial Statements presented in Part I, Item 1 of this report on Form 10-Q.

** **

| 26 |
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**ITEM 3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 We are exposed tointerest rate changes associated with variable rate debt and the refinancingrisk on our fixed-rate debt.  Based on our variable rate debt outstanding at June30, 2010 and 2009, an interest rate change of 100 basis points would impactinterest expense approximately $696,000 and $450,000 on an annual basis,respectively. 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, 2009, for a more completediscussion of interest rate sensitive assets and liabilities.

**ITEM 4.  CONTROLS AND PROCEDURES**

*DisclosureControls and Procedures.*  We have evaluated the design and operations ofour disclosure controls and procedures to determine whether they are effectivein ensuring that the disclosure of required information is timely made inaccordance with the Securities Exchange Act of 1934 ("Exchange Act")and the rules and forms of the Securities and Exchange Commission.  Thisevaluation was made under the supervision and with the participation ofmanagement, including our Chief Executive Officer ("CEO") and Chief FinancialOfficer ("CFO"), as of the end of the period covered by this reporton Form 10-Q.  The CEO and CFO have concluded, based on their review, that ourdisclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e)and 15d-15(e), are effective to ensure that information required to bedisclosed in reports that we file under the Exchange Act is (i) recorded,processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms, and (ii) accumulated andcommunicated to management, including the principal executive and principalfinancial officers, as appropriate, to allow timely decisions regardingdisclosure.

*Changes in Internal Control over Financial Reporting.*  There wereno changes in our internal control over financial reporting during the second quarterof 2010 that materially affected, or are reasonably likely to materiallyaffect, internal control over financial reporting.

 We believe thatbecause of its inherent limitations, internal control over financial reportingmay not always prevent or detect misstatements.  Also, projections of anyevaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.

**PART II.     OTHER INFORMATION**

**ITEM 1.       LEGAL PROCEEDINGS**

For informationrelated to legal proceedings, see Note 9 of the Notes to Consolidated FinancialStatements presented in Part I, Item 1 of this report on Form 10-Q.

**ITEM 1A.    RISKFACTORS**

See "RiskFactors" in Part I, Item 1A of our Annual Report on Form 10-K for the yearended December 31, 2009.

| 27 |
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**ITEM 2.       UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**
| Issuer Purchases of Equity Securities for the Three  Months Ended June 30, 2010 |
|---------------------------------------------------------------------------------|
|                                                                            |   |   |   |   |   |   |   |   |
|                                                                            |   |   |   |   |   |   |   | Approximate Dollar |
|                                                                            |   |   |   |   |   | Total Number of |   | Value of Shares |
|                                                                            |   |   |   |   |   | Shares Purchased |   | That May Yet Be |
|                                                                            |   | Total Number |   | Average |   | As Part of |   | Purchased Under the |
|                                                                            |   | of Shares |   | Price Paid |   | Publicly Announced |   | Plans or Programs |
| Period                                                                          |   | Purchased |   | Per Share |   | Plans or Programs |   | (in thousands) |
| April 1 through                                                                 |   |   |   |   |   |   |   |   |
| April  30                                                                       |   | -    |   |  $ | -    |   | -    |   |  $ | 26,288  |
| May 1 through                                                                   |   |   |   |   |   |   |   |   |
| May  31                                                                         |   | 53  |   | 13.33  |   | -    |   | 26,288  |
| June 1 through                                                                  |   |   |   |   |   |   |   |   |
| June  30                                                                        |   | -  |   | -  |   | -    |   | 26,288  |
| Total                                                                           |   | 53  |   |  $ | 13.33  |   | -    |   |   |

 

There is a total of $26.3million remaining on our Board of Director authorizations to repurchase ourcommon shares.  Additionally, we have a policy which allows employees to paytheir portion of the income taxes related to restricted share vesting bysurrendering a number of shares to us equal in value on the day of vesting tothe amount of taxes due up to the minimum statutory withholding amount.  

 

| 28 |
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**ITEM 6.     EXHIBITS**

** **
| ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **Filed herewith or**                               |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------|
| ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **incorporated herein**                             |
| **Number** | **                                                       Title                                                          ** | **by reference**                                    |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                |
| 3.1        | Second Amended and Restated  Articles of Incorporation, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Exhibit 3.1 to Form 10-Q  filed herewith.           |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                |
| 3.2        | 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 4.1 to Form 10-Q  filed November 3, 2009.   |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                |
| 4.1a       | Amended and Restated  Shareholders Rights Agreement dated December 30, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Exhibit 4.1 to Form 8-K  filed December 30, 2008.   |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                |
| 4.2        | Specimen 8.70% Class B  Series II Cumulative Redeemable Preferred Shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Exhibit 4.2 to Form 10-Q  filed November 3, 2009.   |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                |
| 4.2a       | Specimen Depositary Share  representing 1/10 of one share of 8.70% Class B Series II Cumulative  Redeemable Preferred Shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Exhibit 4.2a to Form 10-Q  filed November 3, 2009.  |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                |
| 4.3        | Deposit Agreement by and  among Associated Estates Realty Corporation and National City Bank and  Depositary Receipts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Exhibit 4.5 to Form 8-A  filed December 8, 2004.    |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                |
| 4.5        | Form  of Promissory Note and Form of Mortgage and Security Agreement dated May 10,  1999 from AERC to The Chase Manhattan Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Exhibit 4.5 to Form 10-Q  filed August 13, 1999.    |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                |
| 4.5a       | Form  of Promissory Note and Form of Mortgage and Security Agreement dated  September 10, 1999 from AERC to The Chase Manhattan Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Exhibit 4.5a to Form 10-Q  filed November 12, 1999. |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                |
| 4.5b       | Form  of Promissory Note and Form of Mortgage and Security Agreement dated November  18, 1999 from AERC to The Chase Manhattan Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Exhibit 4.5b to Form 10-K  filed March 15, 2000.    |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                |
| 4.13       | Credit  Agreement Dated April 24, 2007 among Associated Estates Realty Corporation,  as Borrower and National City Bank as Administrative Agent, Lead Arranger,  and Book Manager and The Several Lenders From Time To Time Parties Hereto, as  Lenders.                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Exhibit 4.13 to Form 10-Q  filed July 31, 2007.     |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                |
| 4.15       | First  Amendment to Credit Agreement dated March 20, 2008, by and among Associated  Estates Realty Corporation (the Borrower), National City Bank and other banks  and financial institutions (the Lenders) and National City Bank (the  Administrative Agent).                                                                                                                                                                                                                                                                                                                                                                                                                                            | Exhibit 4.15 to Form 10-Q  filed May 6, 2008.       |

 

| 29 |
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| ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **Filed herewith or**                                                              |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **incorporated herein**                                                            |
| **Number** | **                                                       Title                                                          ** | **by reference**                                                                   |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                               |
| 4.16       | Joinder  to Subsidiary Guaranty dated March 20, 2008, for the benefit of National City  Bank, as Agent for itself and certain other lenders, with respect to a loan  from the Lenders to Associated Estates Realty Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Exhibit 4.16 to Form 10-Q  filed May 6, 2008.                                      |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                               |
| 4.17       | Agreement  regarding Master Financing Agreement dated December 22, 2009 by and between  Wells Fargo Bank, National Association and Associated Estates Realty  Corporation and Master Financing Agreement dated December 22, 2009 by and  between Wells Fargo Bank, National Association and Federal Home Loan Mortgage  Corporation.                                                                                                                                                                                                                                                                                                                                                                       | Exhibit 4.17 to Form 10-Q  filed May 4, 2010.                                      |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                               |
|       | 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-K  filed February 25, 2010.                                  |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                               |
| 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 Stock Agreement dated by and among the Company and its  Non-Management Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Exhibit 10.9 to Form 10-K  filed March 28, 1996.                                   |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                               |
| 10.5       | Form  of Indemnification Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Exhibit 4.2 to Form S-11  filed September 2, 1993 (File No. 33-68276 as amended).  |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                               |
| 10.6       | Amended  2008 Equity-Based Award Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Exhibit 10.1 to Form 8-K  filed May 13, 2008.                                      |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                               |
| 10.7       | Amendment  to Associated Estates Realty Corporation 2008 Equity-Based Award                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Exhibit 10.7 to Form 10-K                                                          |
|       | Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | filed February 25, 2009.                                                           |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                               |
| 10.7a      | Amendment  to Associated Estates Realty Corporation Amended and Restated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Exhibit 10.7a to Form 10-K                                                         |
|       | Equity-Based  Award Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | filed February 25, 2009.                                                           |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                               |
| 10.7b      | Associated  Estates Realty Corporation Supplemental Executive Retirement Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Exhibit 10.7b to Form 10-K                                                         |
|       | (Restated).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | filed February 25, 2009.                                                           |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                               |
| 10.8       | Form  of Share Option Agreement by and among the Company and its Non-Management  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.                                     |

 

 

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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.            |

 

| 31 |
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**SIGNATURES**

Pursuant tothe requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                                                                                             |   | ASSOCIATED ESTATES REALTY  CORPORATION                                   |
|--------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|
|                  |   |                        |
|                                      |   |              |
| August 3, 2010                                                                                   |   | /s/ Lou Fatica                                                           |
| (Date)                                                                                           |   | Lou Fatica, Vice President                                               |
|                                                                                             |   | Chief Financial Officer and  Treasurer                                   |

 

 

| 32 |
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