UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C.  20549

                                      Form 10-K

              [x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended  December 31, 1998

                                          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)
<TABLE>

               <S>                                <C>
                            Ohio                        34-1747603       
              (State or other jurisdiction of        (I.R.S. Employer
               incorporation or organization)     Identification Number)

                5025 Swetland Court, Cleveland, Ohio       44143-1467   
              (Address of principal executive offices)     (Zip Code)
</TABLE>
          Registrant's telephone number, including area code (216) 261-5000

             Securities registered pursuant to Section 12(b) of the Act:

                                                 Name of Each Exchange
                  Title of Each Class             on Which Registered     

           Common Shares, without par value  New York Stock Exchange, Inc.
<TABLE>

                <S>                         <C>
                Depositary Shares, each      New York Stock Exchange, Inc.
            representing 1/10 of a Share of
               9-3/4% Class A Cumulative
             Redeemable Preferred Shares,
                   without par value
</TABLE>
          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 if disclosure of delinquent filers
          pursuant to Item 405 of Regulation S-K is not contained herein,
          and will not be contained, to the best of registrant's knowledge, 
          in definitive proxy or information statements incorporated by
          reference in Part III of this Form 10-K or any amendment to this
          Form 10-K. [ x ]

          The aggregate market value of the voting stock held by
          nonaffiliates of the Registrant, was $195,016,516 as of March 29,
          1999. 

          The number of Common Shares outstanding as of March 29, 1999 was
          22,617,958.

                         DOCUMENTS INCORPORATED BY REFERENCE
                           (To The Extent Indicated Herein)

          Portions of the Annual Performance Report to Shareholders for the
          fiscal year ended December 31, 1998 (in Parts II, III and IV).
          Notice  of  Annual  Meeting  and  Proxy  Statement for the Annual
          Meeting of Shareholders to be held on May 12, 1999 (in Part III).
                                                                           <PAGE>
                        ASSOCIATED ESTATES REALTY CORPORATION
                                  TABLE OF CONTENTS
                               FORM 10-K ANNUAL REPORT
                         FOR THE YEAR ENDED DECEMBER 31, 1998<PAGE>
<TABLE>
<CAPTION>
                                                                    Page  



   Item
                               PART I

    <S>                                                          <C>
    1.  Business                                                   1
       Strategy and Philosophy                                     2
       Management and Operations Strategy                          2
       Acquisitions, development and dispositions                  3
       Financing                                                   4
       Registration statements                                     6
       Competitive Conditions                                      6
       Inflation                                                   7
       Main Offices                                                7
       Employees                                                   7
    2.  Properties                                                 8
       Market-rate Properties                                      8
       Government-Assisted Properties                              8
       Congregate Care Facilities                                  9
       Undeveloped Land                                            9
       Indebtedness Encumbering the Properties                     9
       Government Programs                                         9
        Rental Assistance Program                                  9
        Mortgage Insurance Programs                               11
    3.  Legal Proceedings                                         11
    4.  Submission of Matters to a Vote of Security Holders       11

                               PART II

    5.  Market for the Registrant's Common Equity and 
         Related Stockholder Matters                              12
    6.  Selected Financial and Other Data                         12
    7.  Management's Discussion and Analysis of Financial 
        Condition and Results of Operations                       16
   7A.  Quantitative and Qualitative Disclosures about 
         Market Risk                                              33
    8.  Financial Statements and Supplementary Data               33
    9.  Changes and Disagreements with Accountants 
         on Accounting and Financial Disclosure                   33

                              PART III

   10.  Directors and Executive Officers of the Registrant        34
   11.  Executive Compensation                                    36
   12.  Security Ownership of Certain Beneficial
         Owners and Management                                    36
   13.  Certain Relationships and Related Transactions            36

      Glossary                                                    37

                               PART IV

   14.  Exhibits, Financial Statement Schedules 
         and Reports on Form 8-K                                  39
</TABLE>
<PAGE>1
        
          See "Glossary" for the definitions of certain capitalized terms
          used in this Form 10-K.


                                        PART I

          Item 1.  Business

               Associated Estates Realty Corporation (the "Company"), a
          fully integrated real estate company, was formed in July 1993 to
          continue the business of the Associated Estates Group ("AEG")
          which was developing, acquiring, owning and managing multifamily
          residential rental apartment facilities.  The Company's portfolio
          currently consists of 101 multifamily properties (the
          "Properties") including properties owned directly by the Company
          or by a subsidiary of the Company or properties in which the
          Company was a joint venture partner.  The Properties' 21,558
          units are located in Arizona, California, Florida, Georgia,
          Indiana, Maryland, Michigan, North Carolina, Ohio, Pennsylvania
          and Texas.

               On June 30, 1998, the Company consummated the merger of MIG
          Realty Advisors, Inc. ("MIGRA") into the Company and the related
          acquisition of eight multifamily properties from subsidiaries of
          MIG Residential REIT, Inc. (the "MIG REIT Properties") and one
          development property.  The aforementioned June 30, 1998
          transactions, together with the Company's purchase of the MRT
          properties and a newly developed  property are collectively
          referred to as the "MIGRA Related Transaction". In connection
          with the merger, the Company also acquired the property
          management businesses of several of MIGRA's affiliates and the
          right to receive certain asset management fees, including
          disposition and incentive fees, that would have otherwise been
          received by MIGRA upon the sale of certain of the properties
          owned by institutions advised by MIGRA.  MIGRA is a registered
          investment advisor and also functions as a mortgage banker and as
          a real estate advisor to pension  systems.   MIGRA recognizes
          revenue primarily from its client's real estate acquisitions and
          dispositions, loan origination and consultation, debt servicing,
          asset and property management and construction lending
          activities.  MIGRA earns the majority of its debt servicing fee
          revenue from two of its pension fund clients.  MIGRA's asset
          management, property management, investment advisory and mortgage
          servicing operations including those of the prior MIGRA
          affiliates are collectively referred to herein as the "MIGRA
          Operations".

               Of the Company's 21,558 units, 19,461 units are contained in
          conventional, market-rate properties (the "Market-rate
          Properties") and 1,927 units are contained in properties, the
          rents of which are subsidized by the United States Department of
          Housing and Urban Development (the "Government-Assisted
          Properties").  The remaining 170 units are contained in apartment
          communities for elderly persons that provide residents with a
          choice of receiving one daily meal, housekeeping, laundry and
          other services and recreational and educational activities
          ("Congregate Care Facilities").  Economic occupancy during 1998
          averaged 92.5%.  Additionally, the Company owns nine undeveloped
          land parcels containing an aggregate of 225 acres.

               The Company is a self-administered and self-managed Real
          Estate Investment Trust ("REIT") and accordingly, does not engage
          or pay for a REIT advisor.  The Company manages all of the
          Properties, and either AEG or the Company has managed all of the<PAGE>
          Properties continuously since their acquisition or development by
          AEG or the Company.  Of the Company's 101 Properties, 41 were
          developed and two were acquired by AEG prior to the IPO and 56
          properties were acquired in separate transactions by the Company
          or developed after the IPO.  Subsequent to the IPO, the Company
          also acquired the remaining 50% interest in two of the Properties
          included in the Company's Portfolio at the time of the IPO which
          were previously owned by joint ventures (together with the 59
          Properties referred to above, the "Acquired Properties"). 
          Thirty-two of the Acquired Properties are located in Ohio, 11 are
          located in Michigan, three are located in Indiana, three are
          located in Maryland, two are located in Florida, two are located
          in Georgia, one is located in Arizona, one is located in
          California, one is located in North Carolina, one is located in
          Pennsylvania, and one is located in Texas.  The 59 Acquired
          Properties contain  12,974 units, including 220 units that were
          added to these Properties after their acquisition.
<PAGE>2
               The Company also currently manages 12,426 residential units
          and seven commercial properties (containing an aggregate of
          approximately 782,000 square feet of gross leasable area), not
          owned by the Company.  In addition, the Company owns
          substantially all of the economic interests in four corporations
          which provide management and other services for the Company and
          third parties.  These corporations are referred to herein as
          "Service Companies".

               Strategy and Philosophy.  The Company, together with
          affiliated entities, has assembled, through development,
          acquisition and substantial rehabilitation, one of the largest
          portfolios of multifamily properties in the Midwest.  With the
          acquisition of MIGRA, the Company's focus has expanded beyond the
          Midwest to a portfolio that targets selected markets throughout
          the country.  The Company is committed to unequaled resident
          service and attentive, "hands-on" management necessary to
          maintain and enhance its position as a leading owner, developer
          and manager of multifamily properties.

               The Company understands the importance of increasing its
          cash flow and Funds From Operations (on an aggregate and per
          share basis) as well as the value of its portfolio of Properties. 
          The Company is also committed to continuing growth through the
          active management of the Properties, the selective acquisition
          and development of additional multifamily properties, and growing
          its advisory business through its coinvestment strategy.

               Management and Operations Strategy. The Company has employed
          a strategy of developing and acquiring a group of multifamily
          properties in various locations that has resulted in a
          strategically balanced portfolio allowing the Company to respond
          to changing lifestyles and demographics.  Presently,
          approximately 85% of the Company's units are located in Indiana,
          Ohio and Michigan.  The Company provides a variety of multifamily
          rental housing types with monthly rents ranging from $325 to
          $1,400 and a portfolio average of $666 per unit at December 31,
          1998.  During 1998, the Company began the transition from a
          centralized to a decentralized management system to facilitate
          the Company's multi-regional operations following the acquisition
          of MIGRA.  Regional and satellite offices are located in Walnut
          Creek, California; West Palm Beach, Florida; Detroit, Michigan;
          and Columbus, Ohio to further support the Company's regional
          operations.

               Management of the Properties is supervised by a team of 
          seven real estate professionals which consist of an executive
          officer and six Regional Vice Presidents who together possess
          nearly 150 years of experience in the property management
          industry.  The Company's management approach is to monitor its
          marketplace closely and to seek to provide superior services to
          its residents through hands on management.  The Company believes
          this concept simplifies the handling of management tasks and on-
          site situations and helps ensure that the site staff provides
          quality service to its residents.  Consistent with the Company's
          decentralization efforts, property managers have been given
          additional responsibility and authority for the performance of
          their properties, with an emphasis on increasing the information
          flow to allow them to manage their property's bottom line growth. 
          In support of these efforts, the Company is performing a major
          hardware upgrade at all properties in 1999, rolling out new
          processes to support the decentralized structure, and  installing
          new property management software. 
<PAGE>3
               Over the years, the Company has also applied its management
          approach to the management of properties for third parties.  The
          Company believes that third-party property management broadens
          the Company's knowledge of a market, creates opportunities for
          future acquisitions, enhances purchasing power, provides a
          network for new personnel and generates fee income.

               The Company intends to maximize all available sources of
          capital which may include the selective disposition of certain
          Properties and/or undeveloped land.  Notwithstanding the
          selective dispositions of assets, the Company plans to continue
          its annual program of improvements to its Properties and its
          ongoing practice of regular maintenance and periodic renovation,
          which are intended to yield long-term benefits.  The Company
          believes that these activities will enhance shareholder value.

               The long term goal for the Company is to reduce portfolio
          concentration in Ohio with dispositions within the state and
          acquisitions in other geographic regions.  Although current
          conditions, principally restricted access to capital, dictate a
          significant reduction in acquisitions for 1999, the Company's
          long term plan is to seek economic diversification through
          strategic acquisitions.

               It is expected that to meet the Company's long term
          strategic acquisition goal, individual acquisitions will be
          located in the select metro areas of Atlanta, Washington, D.C.,
          Orlando, south Florida and Tampa.  Management believes that these
          markets offer excellent diversification characteristics as well
          as operational efficiency.  As with all growth markets at this
          time, new development is active in these markets.  The Company's
          market research and operational experience in these areas will
          guide site selection and pricing.

               One facet of the Company's growth strategy is based on co-
          investment with institutional investors.  Two programs have been
          created for the implementation of the strategy.  The first is a
          co-investment development program that consists of individual
          development partnerships allowing the Company and its
          institutional partners to seek the high yields associated with
          development.  The projects in this program will be built for long
          term hold or a forward contracted sale.  The second program is a
          multifamily pooled fund which is designed to offer a favorable
          risk-return relationship for the Company.  This fund will acquire<PAGE>
          assets at stabilization or through forward contracts.  Both
          programs will employ moderate project specific debt.  The
          expected equity division is 25% from the Company and 75% from all
          institutional investors.  These two programs should allow the
          Company to increase operational efficiency in growth markets at a
          more rapid pace than direct individual investment because it
          requires less capital resources from the Company but allows the
          Company to apply its expertise in multifamily apartment
          management.  

               These programs described above are  currently being actively
          marketed and there can be no assurance that the Company will
          attract institutional capital to fund these programs.

               Acquisitions, development and dispositions.  Should the
          Company acquire any multifamily properties in 1999, it would
          finance such acquisitions and developments with the most
          appropriate sources of capital, which may include the assumption
          of mortgage indebtedness, bank and other institutional
          borrowings, through the exchange of properties, undistributed
          Funds From Operations, or secured debt financings.
<PAGE>4
               During 1998, the Company acquired 16 properties containing
          4,114 units and two parcels of land consisting of 90 acres,
          including 12 properties containing a total of 3,102 units
          acquired in connection with the acquisition of MIGRA located in
          Arizona, California, Florida, Georgia, Maryland, North Carolina,
          and Texas; a 316 unit property located in Toledo, Ohio, a 324
          unit property that was constructed in Columbus, Ohio; a 264 unit
          property located in Indianapolis, Indiana; and a 108 unit
          property that was constructed in Streetsboro, Ohio.  The
          aggregate purchase price of these acquisitions was $268.3 million
          and was financed with the issuance of common stock valued at
          $96.4 million, operating partnership units valued at $12.0
          million, the assumption of mortgage indebtedness of $31.5 million
          and borrowings under the Company's Line of Credit of
          approximately $128.4 million.  A 156 unit property located in St.
          Louis, Missouri, was sold.

               The following schedule details construction in progress at
          December 31, 1998:
<TABLE>
<CAPTION>
                                                                  
                                               Placed in
     (dollars in thousands)   Number   Costs    Service  December 31, 1998  Estimated
                                of   Incurred   through    Land  Building   Scheduled
            Property          Units   to Date   12/31/98   Cost    Cost    Completion

   <S>                        <C>     <C>       <C>        <C>     <C>      <C>
   ANN ARBOR, MICHIGAN
     Arbor Landings Apts. II    160  $   9,043 $ 4,268   $   276 $   4,499    1999

   ATLANTA, GEORGIA
     Boggs Road                 535      4,046      -      3,955        91     TBD
   BATTLE CREEK, MICHIGAN
     The Landings at the                                                       TBD
       Preserve                  90        314      -        266        48

   GRAND RAPIDS, MICHIGAN
     Aspen Lakes II             118        750      -        402       348     TBD

   WESTLAKE, OHIO
     Westlake                   300        704      -        523       181    2000

   ORLANDO, FLORIDA
     Windsor at Kirkman Apts.   460     35,252      -      3,222    32,030    1999

   AVON, OHIO
     Village at Avon            312      5,373      -      2,158     3,215    2000

   Other                          -      2,526      -        326     2,200
                              1,975  $  58,008 $4,268(1) $11,128 $  42,612
          <FN>
          (1) Including land of $368.
          </FN>
</TABLE>
               Financing.  Eighty-two of the Company's 94 wholly owned
          properties were unencumbered at December 31, 1998 with earnings
          before interest, depreciation and amortization ("EBITDA") of
          approximately $59.7 million and an historical cost basis of
          approximately $730.3 million.  The remaining twelve of the
          Company's wholly owned properties have an historical cost basis
          of $159.4 million and secured property specific debt of $80.0
          million at December 31, 1998. Unsecured debt, which totaled
          $423.9 million at December 31, 1998, consisted of $112.5 million
          in Medium-Term Notes; Senior Notes of $84.9 million; amounts
          drawn on the Company's Line of Credit of $226.0 million; and
          amounts drawn on the MIGRA Line of Credit Facilities of
          approximately $0.5 million.  The Company's proportionate share of
          the mortgage debt relating to the seven joint venture properties
          was $17.5 million at December 31, 1998.  The weighted average
          interest rate on the secured, unsecured and the Company's
          proportionate share of the joint venture debt was 7.28% at
          December 31, 1998.
<PAGE>5
               In June 1998, the Company completed a new unsecured $200
          million revolving credit facility (the "Line of Credit") which
          replaced a $100 million unsecured revolving credit facility. 
          During the third quarter of 1998, the Line of Credit was
          increased from $200 million to $250 million.  The new agreement
          provides for an extension of the term for an additional year
          through June 2001 with the Company having the option to extend
          the term through June 2002.  The Line of Credit includes certain
          restrictive covenants which, among others, requires the Company
          to (i) maintain a minimum level of net worth, (ii) limit
          dividends to less than 95%, and 90% of Distributable Cash Flow,
          as defined in the agreement, for 1999 and 2000, respectively, and
          (iii) maintain certain debt coverage ratios.  The Company's
          borrowings under this Line of Credit bear interest at variable
          rates based on the prime rate or LIBOR plus a specified spread,
          depending on the Company's long term senior unsecured debt rating
          from Standard and Poor's and Moody's Investors Service.  Based on
          the revised credit ratings that the Company received from Moody's
          and Standard and Poor's on March 16, 1999, the spread increased
          85 basis points to 225 basis points.  The Company believes that
          this could  have an adverse impact of up to $.05 on earnings  per
          share in 1999.  An annual commitment fee of 15 basis points on
          the maximum commitment, as defined in the agreement, payable
          annually in advance on each anniversary date.  The Line of Credit
          is used to finance the acquisition of properties, to provide
          working capital and for general corporate purposes.  At December
          31, 1998, $226.0 million was outstanding under this facility. 
          The weighted average interest rate on borrowings outstanding
          under the Line of Credit was 6.88% and 7.04% at December 31, 1998
          and 1997, respectively.

               At March 31, 1998, the Company was in violation of certain
          financial ratio covenants under the Line of Credit.  The Company
          received waivers of those violations through June 30, 1998. 
          Additionally, the Company advised its bank group that it was not
          in compliance with one of the financial covenants concerning the
          Company's net worth as of September 30, 1998.  The net worth
          covenant required that the Company maintain a minimum net worth
          of $400 million, based on a formula that incorporates the
          annualized multiple of the most recent quarter's EBITDA, as
          defined in the Agreement. The Company negotiated with its bank
          group for a waiver by the banks of the breach of the net worth
          covenant, along with an increase in borrowing costs under its
          Line of Credit from LIBOR plus 100 basis points to LIBOR plus 140<PAGE>
          basis points (based on the then-current credit rating). In
          addition, certain of the covenants, including the minimum net
          worth covenant, were modified to provide the Company a limited
          increase in flexibility.  The minimum net worth covenant was
          reduced from $400 million to $325 million.  The bank group
          continued to make advances under the Line of Credit following the
          Company's notification that it was not in compliance with the net
          worth covenant.  A $395,000 default waiver fee was paid in
          December 1998 and is reflected in the Consolidated Statements of
          Income.  The Company's ability to avoid future covenant
          violations requires stability in property operating performance
          and is dependent upon future LIBOR rate movements.  Because of
          the volatility of the Company's recent operating performance and
          the inability to predict interest rates with certainty, no
          assurances can be given that the Company will not have future
          covenant violations.  If such covenant violations should occur,
          the Company believes that it has sufficient financial resources
          available to manage any such eventuality.

               MIGRA maintains a $500,000 Line of Credit facility ("MIGRA
          Line of Credit Facility") which the Company assumed at the time
          of the merger.  MIGRA's borrowings under this facility bears
          interest at prime plus one percent.  At December 31, 1998, 
          $446,565 was outstanding under this facility.  The weighted
          average interest rate on borrowings outstanding under the MIGRA
          Line of Credit Facility was 9.85% at December 31, 1998. 
          Subsequent to December 31, 1998, the Company paid off the
          outstanding balance of $446,565 on this facility.  In connection
          with the merger, the Company assumed an additional $500,000 Line
          of Credit Facility that was paid off at maturity on October 31,
          1998.
<PAGE>6
               The Company had eleven Medium-Term Notes (the "MTN's")
          outstanding having an aggregate balance of $112.5 million and ten
          MTN's outstanding with an aggregate balance of $92.5 million at
          December 31, 1998 and 1997, respectively.  The principal amounts
          of these MTN's range from $2.5 million to $20 million and bear
          interest from 6.18% to 7.93% over terms ranging from two to 30
          years, with a stated weighted average maturity of 9.27 years at
          December 31, 1998.  The holders of two MTN's with stated terms of
          30 years each have a right to repayment of five and seven years
          from the issue date of the respective MTN.  If these holders
          exercised their right to prepayment, the weighted average
          maturity would be 4.91 years.  The weighted average interest rate
          of the 11 MTN's is 6.99% for the year ended December 31, 1998
          and 6.97% for the ten MTN's outstanding at December 31, 1997. 
          One and four of the MTN's in the aggregate amounts of $20.0
          million and $50.0 million were issued in 1998 and 1997,
          respectively, with the balance issued in 1996.

               The Company's current MTN Program provides for the issuance,
          from time-to-time, of up to $102.5 million of MTN's due nine
          months or more from the date of issue and may be subject to
          redemption at the option of the Company or repayment at the
          option of the holder prior to the stated maturity date.  These
          MTN's may bear interest at fixed rates or at floating rates and
          can be issued in minimum denominations of $1,000.  At December
          31, 1998, there are $62.5 million of additional MTN borrowings
          available under the program.  However, due to the  downgrade of
          the Company's credit rating to a non-investment grade rating in
          March 1999, the Company does not anticipate near to intermediate
          issuance of additional MTN's or similar unsecured debt
          instruments. 

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

               Competitive Conditions.  The following paragraphs contain
          forward-looking statements based on current judgments and current
          knowledge of management, which are subject to certain risks,
          trends and uncertainties that could cause actual results to vary
          from those projected.  Accordingly, readers are cautioned not to
          place undue reliance on forward-looking statements.   These
          forward-looking statements are intended to be covered by the safe
          harbor provisions of the Private Securities Litigation Reform Act
          of 1995.  Investors are cautioned that the Company's forward-
          looking statements involve risks and uncertainty including,
          without limitation, changes in economic conditions in the markets
          in which the Company owns properties, risks of a lessening of
          demand for the apartments owned by the Company, changes in
          government regulations affecting the Government-Assisted
          Properties, changes in contracts relating to third party
          management and advisory business, and expenditures that cannot be
          anticipated such as utility rate and usage increases,
          unanticipated repairs, additional staffing, insurance increases
          and real estate tax valuation reassessments.
<PAGE>7
               Given the Midwestern concentration of the Market-rate
          portfolio, management's performance expectations are consistent
          with the recent past.  Management projects that the market-rate
          rental growth will be a modest 2% over 1998.  This growth rate is
          expected to increase, both in magnitude and volatility, as the
          recently acquired  assets in more dynamic markets enter the
          Market-rate portfolio.  Management's market expectations for
          locations where the Company has significant concentrations are as
          follows:  Columbus is split between a strengthening northern half
          and a flattening southern half, Cleveland continues to exhibit
          stability, Michigan will continue to grow but at a slower rate,
          Indianapolis is improving from very competitive conditions,
          Washington, D.C., Atlanta, and Orlando are in equilibrium with
          significant additions to employment and apartment supply, and
          south Florida is tightening overall as significant development is
          being absorbed.

               Inflation.  Management's belief is that any effects of small
          inflation fluctuations would be negligible on the operational
          performance of this portfolio primarily due to the high
          correlation between inflation and housing costs combined with the
          short term nature, typically one year, of the leases.

               The Company expects that building and grounds repair and
          maintenance expenditures for the Market-rate Portfolio Properties
          will decrease substantially when compared to the prior year as a
          result of the reclassification of these costs due to the adoption
          of the Company's new capitalization policy effective January 1,<PAGE>
          1999.  Under the new policy, expenditures for replacements and
          individual unit improvements such as carpet, appliances and
          kitchen and bath upgrades and renovations that provide benefits
          over several accounting periods will be capitalized and
          depreciated over their estimated useful lives.  Under the
          Company's previous policy, these items would have been expensed. 
          Without giving effect to the new policy, property maintenance
          expenditures are expected to increase compared with the prior
          year as the Company continues to maintain its properties to
          maximize its earnings potential.  Utility expenditures will vary
          over prior periods as the effect of weather-related usage
          variances is factored into the level of utility expense.

               The market for the Government-Assisted Properties is unique
          in that the residents of these properties receive assistance
          under the Rental Assistance Program.  See "Item 2. The
          Properties-Government Programs."  At many of the Government-
          Assisted Properties, waiting lists of qualified applicants are
          maintained which minimize the need to advertise these units.  The
          average Economic Occupancy of these Properties consistently
          exceeds 98%.  However, changes in these government programs could
          potentially create decreased rental revenues, additional
          vacancies, require more marketing costs and in some cases, these
          properties may be converted to Market-rate properties.

               Main Offices.  The Company's headquarters office is located
          at 5025 Swetland Court in Richmond Heights, Ohio.  The
          headquarters is comprised of one office building of approximately
          41,000 square feet and a 3.7 acre parcel of adjacent land for
          further development or expansion, all of which are owned by the
          Company.

               Employees.  The Company has approximately 1,090 employees;
          approximately 160 of whom are located at the Company's
          headquarters.
<PAGE>8
          Item 2.  The Properties

               The Northeast Ohio Properties consist of (i) 48 owned
          Properties containing 9,793 units, seven of which are owned by
          joint ventures in which the Company owns interests ranging
          between 33-1/3% and 50%, (ii) one property that is currently
          under construction, the first phase of which will contain 164
          units and, when completed, will contain 312 units, and (iii) one
          undeveloped land parcel consisting of 39 acres. The joint
          ventures consist of five general partnerships and two limited
          partnerships in which the Company is a general partner.  The
          Company has the authority to manage the day-to-day operations of
          the Properties owned by the joint ventures.  With respect to
          seven of these joint ventures, the unanimous consent of the
          Company's joint venture partners is required for any sale of the
          Property owned by the joint venture or the refinancing of the
          indebtedness encumbering such Property.

               The Central Ohio Properties consist of (i) 24 Properties
          consisting of 4,135 units, and (ii) two undeveloped land parcels
          consisting of approximately 20 acres.

               The Central Region Properties consist of (i) 18 Properties
          consisting of 4,504 units primarily located in Indiana and
          Michigan, and (ii) undeveloped land parcels adjacent to three of
          the Michigan Properties consisting of approximately 43 acres.<PAGE>
               The Eastern Region Properties consist of (i) nine properties
          consisting of 2,786 units, located in Florida, Georgia, Maryland,
          North Carolina and Pennsylvania, and (ii) two undeveloped land
          parcels consisting of approximately 81 acres.

               The Western Region Properties consist of three properties
          consisting of 628 units located in Arizona, California and Texas.

               Market-rate Properties. Eighty-three of the Company's
          Properties are market-rate apartment properties in townhome,
          garden and high-rise buildings consisting of 19,461 units.

               Upon closing of the IPO, the Company acquired a noteholder
          interest in one property, in which one of the principals of the
          Company has a general partnership interest.  Since 1984, the
          property has been unable to generate sufficient cash flow to meet
          the scheduled interest payments under these notes.  The
          noteholder is entitled to substantially all cash flows from
          operations.  Because the cumulative unpaid debt service on the
          notes is greater than seven years of aggregate principal
          amortization and interest,  the Company currently has no
          intention to exercise its rights under a security agreement and
          foreclose on the property.

               Government-Assisted Properties.  Sixteen of the Company's
          Properties are Government-Assisted Properties consisting of 2,085
          units (of which 1,927 are Contract Units and 158 are Market-rate
          units).  Pursuant to the HUD rental subsidy program, these units
          must be held available to persons meeting the criteria for
          eligibility (either low-income elderly or family).  A portion of
          the rent for these units is paid directly to the Company by
          eligible residents and the balance is remitted to the Company by
          HUD.  Increases in rents are established by the provisions of the
          applicable HAP Contract.  See "Government Programs".
<PAGE>9
               Congregate Care Facilities.  The Company's two Congregate
          Care Facilities were developed to bridge a gap in the housing
          market for the elderly between traditional rental housing and
          skilled nursing homes.  The Congregate Care Facilities are
          designed for older persons who do not require on-site medical or
          custodial care but have special concerns that are not fulfilled
          by traditional apartment housing.  Residents of the Company's
          Congregate Care Facilities pay market rental rates that are
          unregulated and are not subsidized.

               Undeveloped Land.  The Company also owns nine tracts of
          undeveloped land as follows:  two 10 acre parcels in the Central
          Ohio region and two in the Northern Ohio region-consisting of
          approximately  10 and 39 acres,; undeveloped land parcels
          adjacent to three of the Michigan Properties consisting of
          approximately 18, 4.5, and 20.5 acres, respectively; one
          undeveloped land parcel in Georgia consisting of approximately 48
          acres; and one land parcel which is under construction in Florida
          consisting of approximately 33 acres, all of which are currently
          zoned for multifamily property development.

               Indebtedness Encumbering the Properties.  AEC financed and,
          in many cases, refinanced the acquisition, development and
          rehabilitation of its Properties with a variety of sources of
          mortgage indebtedness, including indebtedness insured by HUD
          under programs administered pursuant to Section 221(d)(4) of the
          National Housing Act.  See "Government Programs".  The mortgage
          indebtedness currently encumbering nine of the Properties,<PAGE>
          including four of the Government-Assisted Properties (one of
          which is a joint venture property) and one of the Congregate Care
          Facilities, is insured by HUD under this program.  Pursuant to
          this program, certain aspects of the Company's operation of the
          subject Properties are governed by the provisions of separate
          Regulatory Agreements.  See "Government Programs".  Other sources
          of financing have included tax-exempt and conventional mortgage
          financing.

               Government Programs.  Twenty of the Company's Properties
          (including one of its Congregate Care Facilities) benefit from,
          and certain aspects of their operations are governed by
          regulation pursuant to, the rental assistance and/or the mortgage
          insurance program described below.  Eighteen of these Properties
          are each owned by a wholly owned subsidiary of the Company, and
          the Company is a joint venture partner in two of these Properties
          with the Company's interest ranging from 50% to 66-2/3%.  The
          following summary of the programs is qualified in its entirety by
          reference to the applicable Federal statutes and the regulations
          promulgated thereunder.  There can be no assurance that the terms
          of such programs will not change or that any such changes will
          not be detrimental to the Company.

                    Rental Assistance Program.  The Company currently
               is entitled to receive rental assistance subsidies from
               HUD under Section 8 of the United States Housing Act of
               1937, as amended (the "Rental Assistance Program"), for
               1,927 of the 2,085 rental units in 16 multifamily
               properties (the "Government-Assisted Properties"). 
               Approximately 92.4% of the total rental units in the
               Government-Assisted Properties (the "Contract Units")
               are eligible to receive rental assistance (one
               Government-Assisted Property contains 39 Contract Units
               and 158 non-subsidized units).  The Company is a 50%
               joint venture partner in one Government-Assisted
               Property consisting of 108 units.

                    The Rental Assistance Program is a federal rent
               subsidy program designed to assist in making housing
               available to low and very low income persons and
<PAGE>10
               families.  Under the Rental Assistance Program, HUD
               will make monthly housing assistance payments ("HAP
               Payments") to or for the account of the Company with
               respect to Contract Units on behalf of persons and
               families meeting HUD eligibility requirements
               ("Eligible Residents").  The amount of each monthly HAP
               Payment with respect to each Contract Unit is equal to
               the rent (the "Contract Rent") agreed to by HUD
               pursuant to the terms of a Housing Assistance Payments
               Contract (a "HAP Contract"), less the rent payment
               payable by the Eligible Resident for such month.  An
               Eligible Resident is required to make rent payments
               (including a reasonable allowance for the cost of
               utilities paid by the resident) not exceeding 30% of
               the Eligible Resident's adjusted income.  Thus, the
               total rental income payable to, or for the account of,
               the Company with respect to each Government-Assisted
               Property is equal to the rent paid by Eligible
               Residents and the HAP Payments actually paid by HUD
               pursuant to the applicable HAP Contract.

                    Below is a table setting forth the final
               expiration dates of the HAP Contracts for the Company's<PAGE>
               Government-Assisted Properties:
<TABLE>
<CAPTION>
                                                       Final
                              Property            Expiration Date

                    <S>                           <C>  
                    Shaker Park Gardens II        August 2000
                    Statesman II                  November 2000
                    Tallmadge Acres               March 2001
                    Puritas Place                 September 2011
                    Jennings Commons              November 2001
                    West High Apartments          November 2001
                    Rainbow Terrace               January 2002
                    Somerset West: 39 units       March 2002
                    Lake Shore Village            October 2002
                    State Road Apartments         December 2016
                    St. James (Riverview)         November 2009
                    Twinsburg Apartments          June 2009
                    Village Towers                November 2009
                    Hillwood I                    July 2016
                    Ellet Development             December 2017
                    Sutliff Apartments II         November 2019
</TABLE>
                    Contract Rents are adjusted at least annually in
               accordance with one of two adjustment processes, the
               annual adjustment factor method or the budget method. 
               Contract Rents for all but one of the Government-
               Assisted Properties are adjusted pursuant to the
               "annual adjustment factor" method.  Annual adjustment
               factors are determined each year by HUD and applied
               to then current Contract Rents.  The annual
               adjustment factors are calculated by HUD for
               individual metropolitan areas based on either a local
               consumer price index survey or pursuant to a formula
               which includes components reflecting changes in
               market area rents and utility costs.

                    Additionally, HUD may permit special additional
               adjustments to reflect increases in actual and
               necessary expenses of owning and maintaining Contract
               Units which result from substantial general increases
               in real property taxes, utility rates, insurance or
               similar costs, upon demonstration that such general
               cost increases are not adequately compensated for by
               the annual adjustments.
<PAGE>11
                    The Contract Rents for one Government-Assisted
               Property are determined by the budget method, in
               which the Contract Rents are based on the total cost
               of operating the Government-Assisted Property, the
               amount necessary to fund required reserves and an
               amount which provides a reasonable return on the
               owner's equity.  Contract Rents are revised to
               reflect an annual operating budget submitted by the
               Company as approved by HUD.

                    Mortgage Insurance Programs.  The mortgage
               indebtedness encumbering seven of the Properties
               including three of the Government-Assisted Properties
               is insured by HUD pursuant to the mortgage insurance
               program administered under Section 221(d)(4) of the
               National Housing Act.

                    Owners of projects financed by loans insured by<PAGE>
               HUD under the HUD programs previously described are
               required to enter into Regulatory Agreements with HUD
               which remain in effect so long as the mortgage loan
               on the property is insured or held by HUD. Each
               wholly owned subsidiary of the Company that benefits
               from a government program has entered into a separate
               Regulatory Agreement in connection with the Property
               owned by it.  The Regulatory Agreements contain
               certain covenants that restrict the operation of the
               subject Properties.

          Item 3.  Legal Proceedings

               Other than routine litigation and administrative proceedings
          arising in the ordinary course of business, the Company is not
          presently involved in any litigation; nor, to the knowledge of
          the Company, is any litigation threatened against the Company or
          any of the Properties, which is reasonably likely to have a
          material adverse effect on the liquidity or results of operations
          of the Company.

          Item 4.  Submission of Matters to a Vote of Security Holders

               None
<PAGE>12

                                       PART II

          Item 5.  Market for Registrant's Common Equity and Related
          Stockholder Matters
           
               The following table shows the high and low closing sale
          prices of the Company's common shares on the New York Stock
          Exchange (the "NYSE") for each quarter in 1998 and 1997 and the
          dividends declared per common share with respect to each such
          quarter.

<TABLE>
<CAPTION>
                                                            Dividends Declared
                                 Price Range                     Per Share     
                           1998                 1997           1998      1997  
                      High       Low       High      Low  

   <S>             <C>        <C>        <C>       <C>      <C>       <C>
   First Quarter   $24-3/16   $20-1/4    $24-5/8   $22-3/8  $   .465   $ .465
   Second Quarter  $21-3/16   $18-1/2    $23-5/8   $21-3/4  $   .465   $ .465
   Third Quarter   $19-13/16  $15-15/16  $24       $22      $   .465   $ .465
   Fourth Quarter  $18-3/16   $11-11/16  $24-3/16  $22-1/2  $   .465   $ .465
                                                            $  1.860   $1.860<PAGE>
</TABLE>

               The number of holders of record of the Company's common
          shares at December 31, 1998 was 638.

               The Company anticipates that dividends will be paid
          quarterly using net cash provided by operations.  On December 10,
          1998, the Company declared a $0.465 per share dividend for
          shareholders of record on December 31, 1998, which was paid on
          January 15, 1999.  The Company's dividend policy is currently
          under review.

               The Company maintains a dividend reinvestment plan under
          which shareholders may elect to reinvest their dividends
          automatically in common shares.  Under the plan, the Plan Agent
          purchases common shares in the open market on behalf of
          participating shareholders.

          Item 6.  Selected Financial and Other Data

                The following tables set forth selected financial and other
          data for the Company on a consolidated basis.  The historical
          financial information contained in the tables has been derived
          from and should be read in conjunction with (i) the financial
          statements and notes thereto of the Company and (ii) Management's
          Discussion and Analysis of Financial Condition and Results of
          Operations of the Company both included elsewhere herein.<PAGE>
<PAGE>13
<TABLE>
<CAPTION>
        
   Associated Estates Realty Corporation
   (Dollars in thousands except per share 
   amounts and average monthly rental revenue)
                                                    1998     1997     1996      1995      1994   
   <S>                                           <C>       <C>      <C>      <C>       <C>
   Operating Data:
   Revenue:
    Rental                                       $132,514  $101,640 $87,975  $70,045   $48,859  
    Property and asset management, and
     disposition fees                               6,200     3,752   3,780    4,213     3,931  
    Painting services                               1,606     1,664   1,634    1,067     1,271  
    Interest                                        1,164       926     238      486       617  

    Other                                           1,524       828     828    1,266       587  
      Total revenue                               143,008   108,810  94,455   77,077    55,265  

   Expenses:
    Property operating and maintenance expenses
     (before depreciation and amortization)        58,653    43,230  37,056   29,279    21,084  
    Painting services                               1,617     1,492   1,436    1,001     1,257  
    Preliminary project costs                         298       310       -       46         -  
    General and administrative                     10,217     6,085   5,912    5,471     4,193  
    Write-off of software development costs           817         -       -        -         -  
    Depreciation and amortization                  24,899    19,266  15,536   12,657     8,122  
    Charge for unrecoverable funds advanced
     to non-owned properties and other                292     1,764       -        -         -  
    Default waiver fee                                395         -       -         -        -  

    Interest expense                               29,050    19,144  15,516   11,649     6,494  
      Total expenses                              126,238    91,291  75,456   60,103    41,150  

   Income from operations                          16,770    17,519  18,999   16,974    14,115  
   Equity in net income of joint ventures             445       561     305      297       134  
   Income before gain on sale of property,
    minority interest expense, and
    extraordinary item                             17,215    18,080  19,304   17,271    14,249  
   Gain on sale of property                           503     1,608       -       -         -   
   Minority interest expense                          (78)       -        -       -         -   
   Income before extraordinary item                17,640    19,688  19,304   17,271    14,249  
   Extraordinary item                                (125)    1,024       -   (1,097)     (727) 
   Net income                                    $ 17,515  $ 20,712 $19,304  $16,174   $13,522  
   Net income applicable to common shares        $ 12,030  $ 15,228 $13,820  $14,041   $13,522  


   Earnings per common share data - Basic:


    Income before extraordinary item             $    .61  $    .88 $   .99  $  1.09   $  1.19  
    Net income                                   $    .61  $    .94 $   .99  $  1.01   $  1.13  
    Weighted average common shares outstanding     19,865    16,198  13,932   13,869    11,942  
   Earnings per common share-Diluted:
    Income before extraordinary item             $    .60  $    .88 $   .99  $   1.09  $  1.19  
    Net income                                   $    .60  $    .94 $   .99  $   1.01  $  1.13  
    Weighted average common shares outstanding     20,060    16,216  13,932    13,869   11,942  
    Dividends declared per common share          $   1.86  $   1.86 $  1.80  $   1.72   $ 1.60  

   Other data:

   Cash flow provided by (used in):
    Operating activities                         $  41,663 $  29,936 $ 31,060 $  28,881  $  34,481 
    Investing activities                         $(151,638)$(131,908)$(75,771)$( 94,151) $(113,567)
    Financing activities                         $ 108,758 $ 102,936 $ 43,149 $  66,247  $  49,651 
   Funds From Operations (a)                     $  37,427 $  34,651 $ 28,915 $  27,253  $  22,316 
   Earnings before interest, depreciation
    and amortization (b)                         $ 72,911  $58,495   $  52,719 $ 41,270  $  30,667 
   Total properties (at end of period)                101       88          84       78         66 

   Total multifamily units (at end of period)      21,558   17,600      15,838    14,501    12,093 
   Core Portfolio:
   Average monthly rental revenue per
    multifamily unit                             $    593  $   587   $     581   $   564  $    529 
   Economic Occupancy (d)                           94.1%    94.0%       95.5%     95.7%     95.2% 
</TABLE>

<TABLE>
<CAPTION>
                                         1998       1997      1996       1995       1994   

   <S>                                <C>        <C>        <C>        <C>       <C>
   Balance Sheet Data at December 31:
   Real estate and other fixed assets
     before accumulated depreciation   $955,671  $ 646,499  $ 513,966  $ 433,965 $ 312,716
   Real estate and other fixed assets
     after accumulated depreciation     801,730    515,830    401,864    336,663   227,303
   Total assets                         840,785    553,910    424,711    355,456   242,761
   Total debt (c)                       503,905    318,170    217,813    171,234   105,113
   Total shareholders' equity           259,188    181,158    158,016    139,170    94,897<PAGE>
</TABLE>
          (a)   The Company considers Funds From Operations ("FFO"), as
                defined by the National Association of Real Estate
                Investment Trusts ("NAREIT"), to be one of the measures of
                the performance of an equity REIT.  FFO is defined by
                NAREIT as net income (loss) before depreciation and
                amortization of real estate assets, determined in
                accordance with generally accepted accounting principles
                ("GAAP"), excluding gains (or losses) from extraordinary
                items, unusual or non-recurring items and sales of
                depreciated property.  FFO of unconsolidated partnerships
                and joint ventures is determined on a similar basis. 
                Because the NAREIT definition does not define unusual or
                non-recurring items, differences between the Company's
                interpretation and other companies' interpretations may
                vary which could affect the comparability of the Company's
                FFO to that reported by other companies following the
                NAREIT definition.  Further, FFO presented herein is not
                necessarily comparable to FFO presented by other real
                estate companies due to the fact that not all real estate
                companies use the NAREIT definition. FFO should not be
                considered as an alternative to net income (as determined
                in accordance with GAAP) as an indicator of the Company's
                financial performance or to cash flows from operating
                activities (determined in accordance with GAAP) as a
                measure of the Company's liquidity, nor is it necessarily
                indicative of sufficient cash flow to fund all of the
                Company's needs.  The following lists the non-recurring
                items the Company has considered in its determination of
                FFO.
<TABLE>
<CAPTION>
                                                            1998     1997  
                 <S>                                      <C>      <C>
                 Non-recurring items:
                 Write-off of receivable                  $     92 $  1,764
                 Allowance for receivable                      200        -
                 Local tax accrual                             300        -
                 Severance benefit                             267        -
                 Preliminary project cost write-off            300      310
                 Write-off of software development costs       817        -
                 Default waiver fees                           395        -
                                                          $  2,371 $  2,074
</TABLE>
          (b)   Includes earnings before interest, depreciation and
                amortization.  Income from joint ventures was calculated
                on the same basis ("EBITDA").  Management uses EBITDA as a
                measurement tool for the Company since it believes EBITDA
                is the most analogous to Net Operating Income; Net
                Operating Income is the customary measurement used in
                valuing real property, which comprises the majority of the
                Company's asset base.  Income before interest,
                depreciation and amortization does not represent cash
                generated from operating activities in accordance with
                generally accepted accounting principles and is not
                necessarily indicative of cash available to fund cash
                needs and should not be considered an alternative to net
                income as an indicator of the Company's financial
                performance, cash flow from operating activities or as a
                measure of the Company's liquidity, nor is it necessarily
                indicative of sufficient cash flow to fund all of the
                Company's needs.

          (c)   Amount excludes the Company's share of mortgage
                indebtedness relating to the unconsolidated joint ventures<PAGE>
                of approximately $17,453, $17,752, $17,969, $18,164 and
                $18,342 at December 31, 1998, 1997, 1996, 1995 and 1994,
                respectively.
<PAGE>15
          (d)   Economic Occupancy is calculated as the actual rent
                revenue divided by the total rent expected to be earned
                based on the market rental rate for all units.<PAGE>
<PAGE>16

          Item 7. Management's Discussion and Analysis of Financial
                  Condition and Results of Operations

          Overview
               Associated Estates Realty Corporation (the "Company") is a
          Real Estate Investment Trust ("REIT") which, at December 31,
          1998, owned or was a joint venture partner in 101 multifamily
          properties containing 21,558 units located in Arizona,
          California, Florida, Georgia, Indiana, Maryland, Michigan, North
          Carolina, Ohio, Pennsylvania and Texas.

               The following Item 7 discussion should be read in
          conjunction with the financial statements and notes thereto
          appearing elsewhere in this report.  Historical results and
          percentage relationships set forth in the Consolidated Statements
          of Income contained in the financial statements, including trends
          which might appear, should not be taken as indicative of future
          operations.  This Item 7 discussion may also contain forward-
          looking statements based on current judgments and current
          knowledge of management, which are subject to certain risks,
          trends and uncertainties that could cause actual results to vary
          from those projected.  Accordingly, readers are cautioned not to
          place undue reliance on forward-looking statements.  These
          forward-looking statements are intended to be covered by the safe
          harbor provisions of the Private Securities Litigation Reform Act
          of 1995.  Investors are cautioned that the Company's forward-
          looking statements involve risks and uncertainty, including
          without limitation, changes in economic conditions in the markets
          in which the Company owns properties, risks of a lessening of
          demand for the apartments owned by the Company, changes in
          government regulations affecting the Government-Assisted
          Properties, changes in or termination of contracts relating to
          third party management and advisory business, and expenditures
          that cannot be anticipated such as utility rate and usage
          increases, unanticipated repairs, additional staffing, insurance
          increases and real estate tax valuation reassessments.

          Liquidity and Capital Resources
               The Company has elected to be taxed as a REIT under Sections
          856 through 860 of the Internal Revenue Code of 1986, as amended,
          commencing with its taxable year ending December 31, 1993.  REITs
          are subject to a number of organizational and operational
          requirements including a requirement that 95% of the income that
          would otherwise be considered as taxable income be distributed to
          shareholders.  Providing the Company continues to qualify as a
          REIT, it will generally not be subject to a Federal income tax on
          net income.

               The Company expects to meet its short-term liquidity
          requirements generally through its net cash provided by
          operations.  The Company believes that its net cash provided by
          operations will be sufficient to meet both operating requirements
          and the payment of dividends in accordance with REIT
          requirements.  During 1999 and 2000, approximately $22 million
          and $91 million, respectively, of the Company's debt will mature. 
          Although the Company may no longer be in a position to access
          public unsecured debt markets due to revised credit ratings, the
          Company believes it has adequate alternatives available to
          provide for its liquidity needs including (i) additional
          borrowings under the Company's Line of Credit, (ii) new secured
          borrowings, and (iii) property sales proceeds.<PAGE>
          Financing:

               In June 1998, the Company completed a new unsecured $200
          million revolving credit facility (the "Line of Credit") which
          replaced a $100 million unsecured revolving credit facility. 
          During the third quarter of 1998, the Line of Credit was
          increased from $200 million to $250 million.  The new agreement
<PAGE>17
          provides for an extension of the term for an additional year
          through June 2001 with the Company having the option to extend
          the term through June 2002.  The Line of Credit includes certain
          restrictive covenants which, among others, requires the Company
          to (i) maintain a minimum level of net worth, (ii) limit
          dividends to less than 95% and 90% of Distributable Cash Flow, as
          defined in the agreement, for 1999 and 2000, respectively, and
          (iii) maintain certain debt coverage ratios.  The Company's
          borrowings under this Line of Credit bear interest at variable
          rates based on the prime rate or LIBOR plus a specified spread,
          depending on the Company's long term senior unsecured debt rating
          from Standard and Poor's and Moody's Investors Service.  Based on
          the revised credit ratings the Company received from Moody's and
          Standard and Poor's on March 16, 1999, the spread increased 85
          basis points to 225 basis points.  The Company believes that this
          could have an adverse impact of up to $.05 on earnings per share
          in 1999.  An annual commitment fee of 15 basis points on the
          maximum commitment, as defined in the agreement, payable annually
          in advance on each anniversary date.  During 1998, the Company
          recognized a non-cash extraordinary charge of approximately
          $0.125 million ($0.0063 per share), relating to the write-off of
          unamortized deferred finance costs associated with the former
          revolving credit facility.  The Line of Credit is used to finance
          the acquisition of properties, to provide working capital and for
          general corporate purposes.  At December 31, 1998, $226.0 million
          was outstanding under this facility.

               At March 31, 1998, the Company was in violation of certain
          financial ratio covenants under the Line of Credit.  The Company
          received waivers of those violations through June 30, 1998. 
          Additionally, the Company advised its bank group that it was not
          in compliance with one of the financial covenants concerning the
          Company's net worth as of September 30, 1998.  The net worth
          covenant required that the Company maintain a minimum net worth
          of $400 million, based on a formula that incorporates the
          annualized multiple of the most recent quarter's earnings before
          interest, taxes, depreciation and amortization ("EBITDA"), as
          defined in the agreement.  The Company negotiated with its bank
          group for a waiver by the banks of the breach of the net worth
          covenant, along with an increase in borrowing costs under its
          Line of Credit from LIBOR plus 100 basis points to LIBOR plus 140
          basis points (based on the then-current credit rating).  In
          addition, certain of the covenants, including the minimum net
          worth covenant, were modified to provide the Company a limited
          increase in flexibility.  The minimum net worth covenant was
          reduced from $400 million to $325 million.  The bank group
          continued to make advances under the Line of Credit following the
          Company's notification that it was not in compliance with the net
          worth covenant.  A $395,000 default waiver fee was paid in
          December 1998 and is reflected in the Consolidated Statements of
          Income.  The Company's ability to avoid future Line of Credit
          covenant violations requires stability in property operating
          performance and is dependent upon future LIBOR rate movements. 
          Because of the volatility of the Company's recent operational
          performance and the inability to predict interest rates with
          certainty, no assurances can be given that the Company will not
          have future covenant violations.  If such covenant violations<PAGE>
          should occur, the Company believes that it has sufficient
          financial resources available to manage any such eventuality.

               MIGRA maintains a $500,000 Line of Credit facility ("MIGRA
          Line of Credit Facility") which the Company assumed at the time
          of the merger.  At December 31, 1998, $446,565 was outstanding
          under this facility.  The weighted average interest rate on
          borrowings outstanding under the MIGRA Line of Credit Facility was
          9.85% at December 31, 1998.  Subsequent to December 31, 1998, the
          Company paid off the MIGRA Line of Credit Facility of $446,565. 
          In connection with the merger, the Company assumed an additional
          $500,000 Line of Credit Facility that the Company subsequently
          paid off at maturity, on October 31, 1998.  
<PAGE>18
               Eighty-two of the Company's 94 wholly owned properties were
          unencumbered at December 31, 1998 with EBITDA of approximately
          $59.7 million and a historical cost basis of approximately $730.3
          million.  The remaining twelve of the Company's wholly owned
          properties, have an historical cost basis of $159.4 million and
          secured property specific debt of $80.0 million at December 31,
          1998.  Unsecured debt, which totaled $423.9 million at December
          31, 1998, consisted of $112.5 million in Medium-Term Notes,
          Senior Notes of $84.9 million, amounts drawn on the Company's
          Line of Credit of $226.0 million and amounts drawn on the MIGRA
          Line of Credit Facility of approximately $0.5 million.  The
          Company's proportionate share of the mortgage debt relating to
          the seven joint venture properties was $17.5 million at December
          31, 1998.  The weighted average interest rate on the secured,
          unsecured and the Company's proportionate share of the joint
          venture debt was 7.28% at December 31, 1998.

               On April 9, 1998, the Company issued a 10 year, $20 million
          Medium-Term Note (the "MTN") under its $102.5 million MTN
          Program.  The weighted average interest rate, including the
          effect of the settlement of a Treasury Lock agreement, is 7.2%. 
          The net proceeds to the Company with respect to this issuance
          were $19.4 million, which were applied to amounts outstanding
          under the Line of Credit.  At December 31, 1998 and 1997, the
          Company had eleven MTN's outstanding having an aggregate balance
          of $112.5 million and ten MTN's outstanding with an aggregate
          balance of $92.5 million, respectively.

               The Company's current MTN Program provides for the issuance,
          from time-to-time, of up to $102.5 million of MTN's due nine
          months or more from the date of issue and may be subject to
          redemption at the option of the Company or repayment at the
          option of the holder prior to the stated maturity date.  These
          MTN's may bear interest at fixed rates or at floating rates and
          can be issued in minimum denominations of $1,000.  At December
          31, 1998, there are $62.5 million of additional MTN borrowings
          available under the program. However, due to the downgrade of the
          Company's credit rating to a non-investment grade rating in March
          1999, the Company does not anticipate near to intermediate
          issuance of additional MTN's or similar unsecured debt
          instruments.

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

          The MIGRA Transaction:
               On June 30, 1998, the Company consummated the merger of MIG
          Realty Advisors, Inc. ("MIGRA") into the Company and the related
          acquisition of eight multifamily properties from subsidiaries of
          MIG Residential REIT, Inc. (the "MIG REIT Properties") and one
          development property (structured as a DownREIT partnership).  The
          aforementioned June 30, 1998 transactions, together with the
          Company's purchase of the MRT properties and a newly developed
          property, are collectively referred to as the "MIGRA Related
          Transaction".  In connection with the merger, the Company also
          acquired the property management businesses of several of MIGRA's
          affiliates and the right to receive certain asset management
          fees, including disposition and incentive fees, that would have
          otherwise been received by MIGRA upon the sale of certain of the
          properties owned by institutions advised by MIGRA.
<PAGE>19
               As consideration for their interest in MIGRA and the
          affiliated property management businesses, the shareholders of
          MIGRA received 408,314 of the Company's common shares.  The
          number of shares issued was determined based on the average
          closing price of the Company's common shares for the 20 trading
          days preceding the date of the merger agreement or $23.63 per
          share.  Subject to the achievement of certain performance
          criteria, the former shareholders of MIGRA have the opportunity
          to receive additional contingent consideration to be paid in the
          form of the Company's common shares.  After giving effect to
          certain price adjustments, contingent consideration payable on
          each of June 30, 1999 and 2000 is approximately $872,000 and $2.9
          million, respectively, subject to further adjustment.  On or
          about December 31, 1998, the conditions precedent to the payment
          of the first contingent consideration amount had been satisfied.

               The Company recorded approximately $4.2 million in
          intangible assets which represent the allocation of the purchase
          price to the acquired asset advisory, property management and
          loan servicing contracts as well as the client relationships and
          MIGRA management team.  

               The Company also acquired the MIG REIT Properties for $12.2
          million in cash, the issuance of 5,139,387 common shares of the
          Company and the assumption of approximately $0.7 million in
          liabilities.  The number of common shares was determined based on
          the average closing prices of the Company's common shares for the
          20 trading days preceding the purchase of the MIG REIT Properties
          or $18.76 per share.  The cash portion of the purchase price was 
          financed using borrowings made available through the Company's
          Line of Credit.

               In connection with the MIGRA Related Transaction, the
          Company also acquired the general and certain limited partnership
          interests in a partnership that owns a multifamily property in
          development.  In exchange for cash of $15.6 million, the Company
          received 661,663 operating partnership units ("OP units"),
          representing a 59% general partnership interest in AERC HP<PAGE>
          Advisors Limited Partnership ("HP Advisors"), an operating
          partnership, which owns a parcel of real property located in
          Orlando, Florida upon which a 460 unit multifamily apartment
          complex, Windsor at Kirkman Apartments, is being constructed. 
          Certain limited partners of HP Advisors received 459,719 OP
          units, representing four classes of limited partnership
          interests, in exchange for their interests in Windsor at Kirkman
          Apartments.  The number of OP units issued was determined with
          reference to the Company's common shares and is based on the
          average closing prices of the Company's common shares for the 20
          trading days preceding the date of the merger agreement or $23.63
          per share.  Commencing two years from the date of issuance, the
          holders of the Class A OP units can present such Class A OP units
          for redemption to the operating partnership for cash, subject to
          certain conditions.  The Company has the option to redeem the OP
          units for common shares, exchangeable on a one-for-one basis or
          the cash equivalent amount.  The Class B and C OP units and Class
          E OP units, become exchangeable at the option of the Company into
          Class A OP units upon the attainment of certain operating
          thresholds, one and two years from the date of the merger
          closing, respectively.  The cash paid by the Company in exchange
          for its OP units in HP Advisors was financed using borrowings
          made available through the Company's Line of Credit.

               In October 1998, the final MIGRA Related Transaction was
          completed by the Company acquiring the general and certain
          limited partnership interests in a partnership that owns a
          multifamily property located in Pembroke Pines, Florida,
          containing 368 units for a purchase price of approximately $34.2
          million.  In exchange for cash of $16.0 million and the
          assumption of mortgage indebtedness of $16.5 million, the Company
          received 1,887,345 OP units, representing a general partnership
          interest in HP Advisors.  Certain limited partners of HP Advisors
          received 62,313 Class D OP units in exchange for their interests
          in the property. The number of OP units issued was determined
          based on the average closing prices of the Company's common
          shares for the 20 trading days preceding the targeted closing
          date of the acquisition or $17.54 per share.  The Class D OP
          units are exchangeable into Class A OP units at the option of the
          Company, subject to certain conditions, two years from the date
          of merger closing and upon the attainment of certain operating
          thresholds.  The cash paid by the Company in exchange for its OP
          units in HP Advisors was financed using borrowings made available
          through the Company's Line of Credit.
<PAGE>20
               The Company's right to exchange Class B, Class C, Class D
          and Class E OP units into Class A OP units is conditioned upon
          obtaining certain certificates of occupancy, as set forth in the
          agreement, at the Windsor at Kirkman Apartments property.

          Acquisitions, development and dispositions:
               Should the Company acquire any multifamily properties in
          1999, it would finance such acquisitions and development with the
          most appropriate sources of capital, which may include the
          assumption of mortgage indebtedness, bank and other institutional
          borrowings, through the exchange of properties, undistributed
          Funds From Operations, or secured debt financings. 

               During the year ended December 31, 1998, without regard to
          the merger of MIGRA and the related acquisition of the eight MIG
          REIT Properties and the two  properties held in the DownREIT, the
          Company acquired five multifamily properties containing 1,584
          units and two parcels of land containing 90 acres for an<PAGE>
          aggregate purchase price of $99.1 million including $15.6 million
          of liabilities assumed; principally mortgage indebtedness of $15.0
          million.  The acquired properties are located in Coconut Creek,
          Florida; Duluth, Georgia; Columbia, Maryland; Indianapolis,
          Indiana; and Toledo, Ohio.  The land parcels are located in Avon,
          Ohio and Atlanta, Georgia.  The purchase price of the acquired
          properties was financed using borrowings under an unsecured 90
          day term loan of $44.5 million and borrowings under the Company's
          Line of Credit of approximately $39.0 million.  Three of the five
          properties were acquired from an entity managed by MIGRA in
          anticipation of the consummation of the other MIGRA Related
          Transaction.  The three properties were owned, in part, by MIG
          Residential Trust.  The aggregate purchase price of these
          properties was $59.5 million of which approximately $15.3 million
          represented assumed liabilities. 

               Bradford at Easton, a newly developed 324 unit property
          located in Columbus, Ohio, achieved stabilized occupancy during
          the second quarter and was 95.1% physically occupied at December
          31, 1998.  The Village of Western Reserve, a newly developed 108
          unit property located in Streetsboro, Ohio (a city located
          southeast of Cleveland) was completed and achieved stabilized
          occupancy in July 1998 and was 97.2% physically occupied at
          December 31, 1998.  The Residence at Barrington, a 288 unit
          property located in Aurora, Ohio (also located southeast of
          Cleveland) was completed and was 77% physically occupied at
          December 31, 1998.  The Company considers occupancy at a newly
          developed property to have stabilized once the property's
          physical occupancy reaches 93%.  During 1998, the Company
          completed the construction and leasing of 184 additional units at
          two of the Company's properties.

               The Company is in the process of constructing or planning
          the construction of an additional 1,975 units owned by the
          Company as follows:
<TABLE>
<CAPTION>
                                                   Additional   Anticipated
           Property                Location           Units      Completion  

   <S>                      <C>                    <C>         <C>       
   Arbor Landings Apts. II  Ann Arbor, Michigan        160     2nd Qtr. 1999
   Aspen Lakes II           Grand Rapids, Michigan     118          TBD
   Boggs Road               Atlanta, Georgia           535          TBD
   The Landings at the
     Preserve(a)            Battle Creek, Michigan      90          TBD
   Village at Avon          Avon, Ohio                 312     4th Qtr. 2000
   Windsor at Kirkman
     Apartments             Orlando, Florida           460     3rd Qtr. 1999
   Westlake                 Westlake, Ohio             300          TBD
</TABLE>
                                                     1,975
          (a) A clubhouse will also be added to The Landings at the
          Preserve.
          TBD - To be determined.

               The Company is exploring opportunities to dispose of some of
          its joint venture, Government-Assisted and congregate care
          multifamily properties.  The Company has retained a financial
          advisor to evaluate the alternatives relating to the disposition
          of its ownership of some of its Government-Assisted properties. 
          The Company is considering the sale of Desert Oasis, located in
          Palm Desert, California and certain older properties located in
          northeastern Ohio.  The sale of these assets may have  either an
          accretive or dilutive effect on earnings depending upon the
          application of proceeds derived from such sales, which will not
          be known until the time of sale.

          Management Contract Cancellation:
               On January 13, 1999, the Company terminated its management
          contract for Longwood Apartments, which will result in a loss of
          management fee income in 1999.  Approximately $297,008 of
          management fees was recognized with respect to this contract in
          1998.  Moreover, pursuant to the terms of the HUD Settlement
          Agreement discussed in Note 11 of the notes to the financial
          statements, in the second quarter of 1999, the Company may
          terminate its management contract for Park Village Apartments,
          which will result in a partial loss of management fee income in
          1999.  The annual management fees for Park Village Apartments in
          1998 were $26,735.

               In addition, pursuant to the terms of a separate settlement
          agreement with affiliates entered into in conjunction with the
          settlement agreement with the Corporation as discussed in Note 8,
          the Company has agreed to end its management of certain
          commercial properties owned by certain affiliated persons upon 60
          days prior written notice from the respective owners of those
          properties.  Such notice has not been received. The management
          fees generated from those commercial properties in 1998 were
          $126,451.

               The Company further anticipates the loss of management fees
          from Euclid Medical & Commercial Arts Building, a non-owned
          commercial property, because of the likelihood of foreclosure
          proceedings.  The annual management fees generated from this
          property in 1998 were $92,524.

               In addition, if the Company proceeds with the proposed sale
          of its interests in the joint venture properties, the Company
          would no longer receive the management fees attributable to those
          properties and one other property.  The annual management fees
          generated for these properties in 1998 were $1.1 million. 
          Certain third party owners of properties currently managed by the
          Company have entered into contracts to sell those properties,
          subject to certain contingencies.  If all those third party owned
          properties were sold, the Company would similarly no longer
          receive the management fees generated from those properties.  The
          annual management fees generated for these properties in 1998
          were $.5 million.

               The impact of the loss of these management fee revenues<PAGE>
          would be partially offset by a reduction in operating expenses.
<PAGE>22
          Dividends:
               On December 10, 1998, the Company declared a dividend of
          $0.465 per common share for the quarter ending December 31, 1998
          which was paid on January 15, 1999 to shareholders of record on
          December 31, 1998.  The common share dividend policy is currently
          under review by the Board of Directors.   On November 23, 1998,
          the Company declared a dividend of $0.60938 per Depositary Share
          on its Class A Cumulative Preferred Shares (the "Perpetual
          Preferred Shares") which was paid on December 15, 1998 to
          shareholders of record on December 3, 1998.

          Cash flow sources and applications:
               Net cash provided by operating activities increased
          $11,726,400 from $29,936,400 to $41,662,800 for the year ended
          December 31, 1998 when compared with the year ended December 31,
          1997. This increase was primarily the result of decreases in
          accounts and notes receivable and restricted cash and increases
          in depreciation and amortization, offset by decreases in accounts
          payable and accrued expenses and funds held for non-owned managed
          properties of affiliates and joint ventures.

               Net cash flows used for investing activities of $151,638,400
          for the year ended December 31, 1998 were primarily used for the
          acquisition and development of multifamily real estate properties
          and undeveloped land parcels.

               Net cash flows provided by financing activities of
          $108,758,500 for the year ended December 31, 1998 were primarily
          comprised of borrowings on the Line of Credit and the issuance of
          MTN's.  Funds were also used to pay dividends on the Company's
          common and Perpetual Preferred Shares as well as repayments on
          the Line of Credit.

               During 1999 and 2000, approximately $113 million of the
          Company's debt will mature.  The Company intends to repay any
          such debt as it matures through a combination of (i) additional
          fundings under the Company's Line of Credit, (ii) new secured
          borrowings, and (iii) property sales proceeds.

          RESULTS OF OPERATIONS
          Comparison of the year ended December 31, 1998 to the year ended
          December 31, 1997

               In the following discussion of the comparison of the year
          ended December 31, 1998 to the year ended December 31, 1997,
          Market-rate Properties refers to the Core and Acquired Property
          portfolios.  Core Properties represents the 34 wholly owned
          multifamily properties acquired by the Company at the time of the
          IPO and the 33 properties acquired in separate transactions by
          the Company during 1994 through 1996 and the acquisition of the
          remaining 50% interest in two properties in which the Company was
          a joint venture partner at the time of the IPO.  Acquired
          Properties refers to the 26 properties acquired between January
          1, 1997 and December 31, 1998 as well as the newly constructed
          properties.<PAGE>

               Overall, total revenue increased $34,197,900 or 31.4% and
          total expenses increased $34,947,600 or 38.3% for the year.  Net
          income applicable to common shares after deduction for the
          dividends on the Company's Perpetual Preferred Shares decreased
          $3,197,600 or 21.0%.

               During the year ended December 31, 1998, the Market-rate
          Properties generated total revenues of $118,984,000 and property
          operating and maintenance expenses of $51,834,800. Of these
          amounts, the Acquired and Core Properties contributed total
          revenues of $45,650,700 and $73,333,300, respectively, while
          incurring property operating and maintenance expenses of
          $17,518,800 and $34,316,000, respectively.  The Government-
          Assisted Properties generated total revenues of $14,169,100 while
          incurring property operating and maintenance expenses of
          $6,817,700 for the year ended December 31, 1998.
<PAGE>23
          Rental Revenues:
               Rental revenues increased $30,874,800 or 30.4% for the year. 
          Rental revenues from the Acquired Properties increased
          $29,438,200 for the year.  Increases in occupancy and unit rents
          at the Core Properties and Government-Assisted Properties
          resulted in a $1,547,500 or 2.1% increase and $181,550 or 1.3%
          decrease, respectively, in rental revenue from these properties. 
          The balance of the increase resulted from increased rental
          revenues attributable to office space and other miscellaneous
          rental revenue items.

          Other Revenues:
               Other income increased $933,200 or 53.2% for the year.  The
          increase is  due primarily to real estate tax refunds received
          and an increase in the amount of interest income earned in the
          current year.

               The Company recognized property and asset management fee
          revenues of $4,704,800 and $1,248,400 for the year ended December
          31, 1998 as compared to $3,752,230 and $0, respectively, for the
          year ended December 31, 1997.  The increase in property and asset
          management fee revenues is primarily due to the  collection of 
          these fees by MIGRA relating to their institutional investor
          clients.  During the year, the Company recognized $247,000 of
          disposition fees relating to the sale of three properties owned
          by advisory clients.

          Property operating and maintenance expenses:
               Property operating and maintenance expenses increased
          $15,422,600 or 35.7% for the year.  Operating and maintenance
          expenses at the Acquired Properties increased $12,483,400 for the
          year due primarily to the operating and maintenance expenses
          incurred at the three properties acquired during 1997, the 14
          properties acquired in 1998, and the newly constructed properties
          of Bradford at Easton, The Village of Western Reserve and The
          Residence at Barrington.  Property operating and maintenance
          expenses at the Core Properties increased $3,037,600, or 9.7%
          when compared to the prior 12 month period primarily due to
          increases in personnel, real estate and local taxes and other
          operating expenses.  Building renovations and unit and common
          area refurbishment in the Core Properties that were not<PAGE>
          considered to be capital in nature averaged $494 per unit for the
          year ended December 31, 1998 as compared to $498 per unit for the
          year ended December 31, 1997.  Property operating and maintenance
          expenses at the Government-Assisted Properties decreased $98,400
          or 1.4% for the year due primarily to decreases in utilities and
          building and grounds repair and maintenance.

          Other expenses:
               Depreciation and amortization increased $5,633,100 or 29.2%
          for the year primarily due to the increased depreciation expense
          recognized on the Acquired Properties as well as the amortization
          expense of the intangible assets.  The amortization expense
          related to the intangible assets is reflected as a charge to the
          Management and Service Operations.

               Cost associated with abandoned projects of $298,400 and
          $309,800 were expensed during 1998 and 1997, respectively.  These
          costs consist primarily of certain pre-development costs, such as
          architectural, legal and accounting fees, that were incurred on
          projects that the Company determined it would no longer pursue. 
          These costs are reflected as a charge to the Management and
          Service Operations.
<PAGE>24               
               General and administrative expenses increased $4,131,600 or
          67.9% for the year.  This increase is primarily attributable to
          payroll and related expenses due to the expense of the MIGRA
          advisory operations.  General and administrative expenses are
          costs related to the Management and Service Operations.

               The Management and Service Operations recognized a charge
          for unrecoverable funds advanced to non-owned properties and
          other costs totaling $291,800 and $1,764,000 which was incurred
          during 1998 and 1997, respectively.  The 1998 charge primarily
          relates to a write-off of $91,800 and a reserve of $200,000
          relating to advances to two separate managed but non-owned
          properties.  The 1997 charge relates to the write-off of two
          advances to managed but non-owned properties.

               The Company wrote off $817,500 of expenditures which had
          been capitalized relating to the Company's LISA(R) system, a
          proprietary automated leasing information system.  This write-off
          relates to the Management and Service Operations and is reflected
          as a write-off of software development costs in the Consolidated
          Statements of Income.

               Interest expense increased $9,906,100 or 51.7% for the year
          primarily due to the interest incurred with respect to the
          additional borrowings under the Line of Credit used for the
          acquisition and construction of properties.

               The gain on sale of operating property of $503,500 for 1998
          resulted from the sale of an operating property.  In 1997, the
          Company recognized a gain on sale of land from the sale of a 90
          acre parcel zoned for office and industrial use.

          Extraordinary items:
               In 1998, deferred financing costs of $124,900 were written
          off due to the refinancing of the Line of Credit and were<PAGE>
          recognized as an extraordinary item in the Consolidated
          Statements of Income.

          Net income applicable to common shares:
               Net income applicable to common shares is equal to net
          income less dividends on the Perpetual Preferred Shares of
          $5,484,400.

          Comparison of the year ended December 31, 1997 to the year ended
          December 31, 1996

               In the following discussion of the comparison of the year
          ended December 31, 1997 to the year ended December 31, 1996,
          Market-rate Properties refers to the Core and Acquired Property
          portfolios.  Core Properties represent the 35 wholly owned
          multifamily properties acquired by the Company at the time of the
          IPO and the 32 properties acquired during 1994 and 1995 and the
          acquisition of the remaining 50% interest in two properties in
          which the Company was a joint venture partner at the time of the
          IPO.  Acquired Properties refers to the 14 properties acquired
          between January 1, 1996 and December 31, 1997.

               Overall, total revenue increased $14,354,800 or 15.2% and
          total expenses increased $15,833,700 or 21.0% for the year.  Net
          income applicable to common shares after deduction for the
          dividends on the Company's Perpetual Preferred Shares increased
          $1,408,400 or 10.2%.

               During the year ended December 31, 1997, the Market-rate
          Properties generated total revenues of $88,058,000 and property
          operating and maintenance expenses of $36,314,000.  Of these
          amounts, the Acquired and Core Properties generated total
          revenues of $18,768,700 and $69,289,300, respectively, while
          incurring property operating and maintenance expenses of
          $7,048,300 and $29,265,700, respectively.  The Government-
          Assisted Properties generated total revenues of $14,283,000 while
          incurring property operating and maintenance expenses of
          $6,916,200 for the year ended December 31, 1997.
<PAGE>25
          Rental Revenues:
               Rental revenues increased $13,664,500 or 15.5% during 1997
          when compared to 1996.  Rental revenues from the Acquired
          Properties increased $12,685,292 for the year.  Increases in
          occupancy and unit rents at the Core and Government-Assisted
          Properties resulted in a $1,020,365 or 1.2% increase and $41,065
          or 0.3% decrease, respectively, in rental revenue from these
          properties.  The balance of the increase resulted from increased
          rental revenues attributable to office space and other
          miscellaneous rental revenue items.

          Other Revenues:
               Other income increased $687,600 or 64.5% during 1997 when
          compared to 1996.  The increase was due primarily to an increase
          in the amount of real estate tax refunds received as well as an
          increase in the amount of interest income earned in comparison to
          the prior year.

          Property operating and maintenance expenses:
               Property operating and maintenance expenses increased
          $6,173,800 or 16.7% during 1997 when compared to 1996.  Operating
          and maintenance expenses at the Acquired Properties increased
          $4,730,300 for the year due primarily to the operating and
          maintenance expenses incurred at the eight properties acquired
          during 1997 and the recognition of a full year's operating<PAGE>
          expenses at the six properties acquired during 1996. Property
          operating and maintenance expenses at the Core Properties
          increased $811,200 or 2.9% when compared to the prior 12 month
          period primarily due to increases in personnel, utilities and
          building and grounds repair and maintenance expenses which were
          offset by a decrease in advertising expenses.  Building
          renovations and unit and common area refurbishment in the Core
          Properties that were not considered to be capital in nature
          averaged $565 per unit for the year ended December 31, 1997 as
          compared to $515 per unit for the year ended December 31, 1996. 
          Property operating and maintenance expenses at the Government-
          Assisted Properties increased $632,200 or 10.1% for the year due
          primarily to increases in building and grounds repair and
          maintenance, personnel and other operating expenses.

          Other expenses:
               Depreciation and amortization increased $3,730,200 or 24.0%
          for the year primarily due to the increased depreciation expense
          recognized on the Acquired Properties.

               Costs associated with abandoned projects of $309,800 were
          expensed during 1997; none in 1996.  These costs consist
          primarily of certain pre-development costs, such as
          architectural, legal and accounting fees, that were incurred on
          projects that the Company determined it would no longer pursue. 
          These costs are reflected as a charge to the Management and
          Service Operations.

               General and administrative expenses increased $172,500 or
          2.9% for the year.  This increase is primarily attributable to
          payroll and related expenses.  General and administrative
          expenses are costs related to the Management and Service
          Operations.
<PAGE>26
               The Management and Service Operations recognized a charge
          for unrecoverable funds advanced to non-owned properties and
          other costs totaling $1,764,000 during 1997.  This charge
          primarily relates to the write-off of two advances to managed but
          non-owned properties that were deemed to be uncollectible. 

               Interest expense increased $3,628,300 or 23.4% for the year
          primarily due to the interest incurred with respect to the
          additional borrowings under the Line of Credit that were used for
          the acquisition and construction of properties.

               The gain on sale of land resulted from the sale of a 90 acre
          parcel zoned for office and industrial use which was one of the
          assets acquired by the Company at the time of the Company's
          initial public offering.

          Extraordinary items:
               In 1997, unamortized debt premium was written off upon the
          early repayment of mortgage debt of $1,023,700 and was recognized
          as an extraordinary item in the Consolidated Statements of
          Income.

          Net income applicable to common shares:
               Net income applicable to common shares is equal to net
          income less dividends on the Perpetual Preferred Shares of
          $5,484,400.

          Equity in net income of joint ventures:
               The combined equity in net income of joint ventures<PAGE>
          decreased $116,200 or 20.7% for the year ended December 31,
          1998, and increased $255,700 or 83.8% for the year ended
          December 31, 1997.  The decrease from 1997 to 1998 is due
          primarily to increased costs of operating the properties
          resulting primarily from real estate taxes.  The increase from
          1996 to 1997 was primarily attributable to increased rents and
          occupancies.

               The following table presents the historical statements of
          operations of the Company's beneficial interest in the operations
          of the joint ventures for the years ended December 31, 1998, 1997
          and 1996. 
<TABLE>
<CAPTION>
                                   For the year ended December 31,    

                                   1998          1997         1996    

   <S>                         <C>           <C>          <C>
   Beneficial interests in
     joint venture operations
       Rental revenue          $  6,943,652  $ 6,744,700  $ 6,570,700 
       Cost of operations         4,388,299    3,943,400    3,968,800 
                                  2,555,353    2,801,300    2,601,900 
       Interest income               21,669       19,700       19,200 
       Interest expense          (1,656,652)  (1,763,200)  (1,782,700)
       Depreciation                (426,432)    (447,300)    (483,600)
       Amortization                 (49,246)     (49,600)     (49,600)
       Net income              $    444,692  $   560,900  $   305,200 
</TABLE>
          Capitalization Policy
               Effective January 1, 1999, the Company adopted a new
          capitalization policy.  The revised policy more closely aligns
          the Company's accounting treatment of unit make-ready costs with
          those of other multifamily real estate investment trusts (REITs). 
          Under the new policy, expenditures for  replacements and
          individual unit improvements such as carpet, appliances, and
          kitchen and bath upgrades and renovations that provide benefits
          over several accounting periods will be capitalized and
          depreciated over their estimated useful lives.  These items were
          previously expensed by the Company as they were incurred.
<PAGE>27
          Outlook

               The long term goal for the Company is to reduce portfolio
          concentration in Ohio with dispositions within the state and
          acquisitions in other geographic regions.  Although current
          conditions, principally restricted access to capital, dictate a
          significant reduction in acquisitions for 1999, the Company's
          long term plan is to seek economic diversification through
          strategic acquisitions.

               It is expected that to meet the Company's long term
          strategic acquisition goal, individual acquisitions will be
          located in the select metro areas of Atlanta, Washington, D.C.,
          Orlando, south Florida and Tampa.  Management believes that these
          markets offer excellent diversification characteristics as well
          as operational efficiency.  As with all growth markets at this
          time, new development is active in these markets.  The Company's
          market research and operational experience in these areas will
          guide site selection and pricing.

               One facet of the Company's growth strategy is based on co-
          investment with institutional investors.  Two programs have been
          created for the implementation of the strategy.  The first is a
          co-investment development program that consists of individual
          development partnerships allowing the Company and its
          institutional partners to seek the high yields associated with
          development.  The projects in this program will be built for long
          term hold or a forward contracted sale.  The second program is a
          multifamily pooled fund which is designed to offer a favorable
          risk-return relationship for the Company.  This fund will acquire
          assets at stabilization or through forward contracts.  Both
          programs will employ moderate project specific debt.  The
          expected equity division is 25% from the Company and 75% from all
          institutional investors.  These two programs should allow the
          Company to increase operational efficiency in growth markets at a
          more rapid pace than direct individual investment because it
          requires less capital resources from the Company but allows the
          Company to apply its expertise in multifamily apartment
          management.  

               The programs described above are currently being actively
          marketed, and there can be no assurance that the Company will be
          able to attract institutional capital to fund these programs.

               Given the Midwestern concentration of the Market-rate
          portfolio,  management's performance expectations are consistent<PAGE>
          with the recent past.  Management projects that the market-rate
          rental growth will be a modest 2% over 1998.  This growth rate is
          expected to increase, both in magnitude and volatility, as the
          recently acquired assets in more dynamic markets enter the
          Market-rate portfolio.  General market expectations for locations
          where the Company has significant concentrations are as follows: 
          Columbus is split between a strengthening northern half and a
          flattening southern half, Cleveland continues to exhibit
          stability, Michigan will continue to grow but at a slower rate,
          Indianapolis is improving from very competitive conditions,
          Washington, D.C., Atlanta, and Orlando are in equilibrium with
          significant additions to employment and apartment supply, and
          south Florida is tightening overall as significant development is
          being absorbed.

          Inflation
               Management's belief is that any effects of minor inflation
          fluctuations would be minimal on the operational performance of
          this portfolio primarily due to the high correlation between
          inflation and housing costs combined with the short term nature,
          typically one year, of the leases.
<PAGE>28
          Quantitative and Qualitative Disclosures About Market Risk

               The Company's primary market risk exposure is interest rate
          risk.  At December 31, 1998, the Company had $244.8 million of
          variable rate debt.  Additionally, the Company has interest rate
          risk associated with fixed rate debt at maturity.

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

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


                                                 Expected Maturity Date              

            Long term debt             1999        2000         2001         2002    
   <S>                             <C>         <C>         <C>          <C>
   Fixed:
    Fixed rate mortgage debt       $  1,205,649$ 15,830,155 $  12,163,458$  1,134,085
    Weighted average interest rate        8.23%       8.27%         8.11%       7.80%

    MTN's                            20,000,000           -    10,000,000  15,000,000
    Weighted average interest rate        6.95%       7.12%         7.12%       7.09%

    Senior notes                              -  74,915,903             -  10,000,000
    Weighted average interest rate        8.23%       8.23%         7.10%       7.10%
    Total fixed rate debt          $ 21,205,649$ 90,746,058 $  22,163,458$ 26,134,085

   Variable:
    LIBOR based credit facility    $          -$          - $ 226,000,000$          -
    Prime + 1% Credit Facility          446,565           -             -           -
    Variable rate mortgage debt          55,839      61,687    16,522,997      75,283
    Total variable rate debt       $    502,404$     61,687 $ 242,522,997$     75,283
                                                                                     
    Total long term debt           $ 21,708,053$ 90,807,745 $ 264,686,455$ 26,209,368
</TABLE>
<TABLE>
<CAPTION>
                                                                                
                                           Expected Maturity Date                 Fair Market
                   Long-term debt             2003      Thereafter     Total         Value    
          <S>                            <C>          <C>          <C>         <C>
          Fixed:
           Fixed rate mortgage debt       $  1,229,704 $ 30,182,912$  61,745,963 $  65,945,302
           Weighted average interest rate        7.79%        8.10%        8.22%             -

           MTN's fixed rate                 12,500,000   55,000,000  112,500,000   121,587,019
           Weighted average interest rate        7.20%        7.23%        6.95%             -

           Senior notes (fixed rate)                 -            -   84,915,903    89,320,995
           Weighted average interest rate        0.00%        0.00%        8.23%             -
           Total fixed rate debt          $ 13,729,704 $ 85,182,912$ 259,161,866 $ 276,853,316

          Variable:
           LIBOR Based Credit Facility    $          - $          -$ 226,000,000 $ 226,000,000
           Prime + 1% Credit Facility                -            -      446,565       446,565
           Variable rate mortgage debt          83,165    1,497,733   18,296,704    18,688,738
                                          $     83,165 $  1,497,733$ 244,743,269 $ 245,135,303
                                                                                              
                                          $ 13,812,869 $ 86,680,645$ 503,905,135 $ 521,988,619<PAGE>
</TABLE>


          Sensitivity Analysis
               The Company estimates that a 100 basis point decrease in
          market interest rates would have changed the fair value of fixed
          rate debt to a liability of $287.0 million.  The sensitivity to
          changes in interest rates of the Company's fixed rate debt was
          determined with a valuation model based upon changes that measure
          the net present value of such obligation which arise from the
          hypothetical estimate as discussed above. 
<PAGE>29

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

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

               The Company's plan to resolve the Year 2000 issue involves
          the following four phases:  assessment, remediation, testing and
          implementation.  The Company has conducted an assessment and/or
          survey of its core IT and non-IT systems at both its corporate
          offices and properties and believes it is 85% complete on such
          assessment which is currently under review by the Company's
          technical staff.

               Much of the mission critical operating systems, networking
          and accounting software that has been purchased over the past few
          years has been represented by vendors to already be Year 2000
          compliant.  The property management software currently being
          tested and used at the Company's corporate offices and which is
          to be rolled out to the properties during the second and third
          quarters of 1999 has been affirmed by the vendor to be tested and
          Year 2000 compliant.  Hardware upgrades at all of the properties
          are expected to be complete by June 1999 to ensure all hardware
          is compliant.  Testing by the Company of all such critical
          systems represented by the vendors to be compliant is expected to
          be complete by June 1999.

               The estimated costs of these upgrades and conversions should
          not exceed $500,000 and have been considered in the Company's
          cash flow requirements for 1999.

               The Company believes it has identified all non-IT systems at
          all properties and expects to have 70% of its remediation and/or
          testing complete on these systems by June of 1999.  While a
          complete technical assessment of all such systems is not final,
          the Company does not anticipate expenditures in excess of
          $500,000 to remediate non-IT systems at the properties since
          findings to date suggest a low incidence of non-compliance on
          critical systems.  The Company may engage an outside technical
          consultant to work with its internal technical staff to assist in
          finalizing such assessment, remediation and testing.

               In most cases, various third party vendors have been queried
          on their Year 2000 readiness.  While many responses have been
          received to such queries, (especially by banks and other large
          financial institutions), many have not yet responded.  The
          Company will continue to query its significant suppliers and
          vendors to determine the extent to which the Company's interface
          systems are vulnerable to those third parties' failure to
          remediate their own Year 2000 issues.  To date, the Company is
          not aware of any significant suppliers or vendors with a Year
          2000 issue that would materially impact the Company's results of
          operations, liquidity or capital resources.  However, there can
          be no assurances that the systems of other companies, on which
          the Company's systems rely, will be timely converted and would
          not have an adverse effect on the Company's systems.
<PAGE>30
               The Company believes it has an effective program in place
          that will resolve the Year 2000 issue in a timely manner.  In
          addition, the Company has commenced its contingency planning for
          critical operational areas that might be affected by the Year
          2000 issue if compliance by the Company is delayed.  The
          Company's contingency plans will involve training and increased
          awareness at the property management level, manual workarounds
          and adjustment of staffing strategies.  The Company intends to
          have its contingency planning complete in the third quarter of
          1999.

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

          CONTINGENCIES

          Environmental
               There are no recorded amounts resulting from environmental
          liabilities and there are no known contingencies with respect
          thereto.  Future claims for environmental liabilities are not
          measurable given the uncertainties surrounding whether there
          exists a basis for any such claims to be asserted and, if so,
          whether any claims will, in fact, be asserted.  Furthermore, no
          condition is known to exist that would give rise to a liability
          for site restoration, post closure and monitoring commitments, or
          other costs that may be incurred with respect to the sale or
          disposal of a property.  Phase I environmental audits have been
          completed on all of the Company's wholly owned and joint venture
          properties.  The Company has obtained environmental insurance
          covering (i) pre-existing contamination, (ii) on-going third
          party contamination, (iii) third party bodily injury and (iv)
          remediation.  The  policy is for a five year term and carries a
          limit of liability of $2 million per environmental contamination
          discovery (with a $50,000 deductible) and has a $10 million
          policy term aggregate.  Management has no plans to abandon any of
          the properties and is unaware of any other material loss
          contingencies.

          Rainbow Terrace
               On February 9, 1998, the U.S. Department of Housing and
          Urban Development ("HUD") notified the Company that Rainbow
          Terrace Apartments, Inc. ("RTA"), the Company's subsidiary
          corporation that owns Rainbow Terrace Apartments, was in default
          under the terms of the Regulatory Agreement and Housing
          Assistance Payments Contract ("HAP Contract") pertaining to this
          property.  Among other matters, HUD alleged that the property was
          poorly managed and that RTA had failed to complete certain
          physical improvements to the property.  Moreover, HUD claimed
          that the owner was not in compliance with numerous technical
          regulations concerning whether certain expenses were properly
          chargeable to the property.  As provided in the Regulatory
          Agreement and HAP Contract, in the event of a default, HUD has
          the right to exercise various remedies including terminating
          future payments under the HAP Contract and foreclosing the
          government-insured mortgage encumbering the property.
<PAGE>31
               This controversy arose out of a Comprehensive Management
          Review of the property initiated by HUD in the Spring of 1997,
          which included a complete physical inspection of the property.  
          In a series of written responses to HUD, the Company stated its
          belief that it had corrected the management deficiencies cited by
          HUD in the Comprehensive Management Review (other than the
          completion of certain physical improvements to the property) and
          justified the expenditures questioned by HUD as being properly
          chargeable to the property in accordance with HUD's regulations. 
          Moreover, the Company stated its belief that it had repaired any
          physical deficiencies noted by HUD in its Comprehensive
          Management Review that might pose a threat to the life and safety
          of its residents.

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

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

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

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

               Under the terms of the Settlement Agreement, HUD has agreed
          to pay RTA a retroactive rent increase totaling $1,784,467, which
          amount will be sufficient to discharge the outstanding receivable
          at December 31, 1998.  HUD has further agreed to release the
          Company, AEMC, RTA and the owners and principals of PVA, Longwood
          and Vanguard from all claims (other than tax or criminal fraud
          claims) regarding the ownership or operation of Rainbow Terrace
          Apartments, Park Village, Longwood and Vanguard.  Moreover, HUD
          has agreed not to issue a limited denial of participation,
          debarment or suspension, program fraud civil remedy action or
          civil money penalty, resulting from the ownership or management
          of any of these projects, or to deny eligibility to any of their
          owners, management agents or affiliates for participation in any
          HUD program on such basis.
<PAGE>32
               HUD's obligations under the Settlement Agreement are
          conditional upon the performance by the Company, RTA and PVA of
          certain obligations, the most  significant of which is the
          obligation to identify, on or before April 11, 1999, prospective
          purchasers for both Rainbow Terrace Apartments and Park Village
          who are acceptable to HUD, and upon HUD's approval, convey those
          projects to such purchasers.  Alternatively, if RTA and PVA are
          unable to identify prospective purchasers acceptable to HUD, then
          RTA and PVA have agreed to convey both projects to HUD pursuant
          to deeds in lieu of foreclosure.  In either case (conveyance to a
          HUD approved purchaser or deed in lieu of foreclosure), no
          remuneration will be received by either RTA or PVA in return,
          except for the $1.78 million retroactive rent increase payable to
          RTA mentioned above.  At December 31, 1998, the Company had
          receivables of $1.78 million related to the 1995 retroactive
          rental increase requests, which includes additional amounts of
          $430,737 relating to 1998 rental increase requests.  At December
          31, 1998, RTA had net assets of $1.8 million, including the
          retroactive rent receivable of $1.78 million due from HUD, and a
          remaining amount due under the mortgage of $1.9 million.  The
          transfer of RTA to a purchaser which is acceptable to HUD or the
          direct transfer of RTA to HUD is not expected to have a material
          impact on the results of operations or cash flow of the Company.

          Affiliate Transactions
               In the normal course of business, the Company had followed a
          practice of advancing funds on behalf of, or holding funds for
          the benefit of, affiliates which own real estate properties
          managed by the Company or one of the Service Companies. One of
          these affiliates, a corporation (the "Corporation") owned by a
          member of the Company's Board of Directors and his siblings
          (including the wife of the Company's Chairman and Chief Executive
          Officer), which serves as general partner of certain affiliated<PAGE>
          entities, had informed the Company that the Corporation had
          caused the commencement of a review of expenditures relating to
          approximately $2.9 million of capital calls from certain HUD
          subsidized affiliated entities, to determine the appropriateness
          of such expenditures and whether certain of such expenditures are
          properly the responsibility of the Company.  The Company
          previously stated its belief that all expenditures were
          appropriate and that the ultimate outcome of any disagreement
          would not have a material adverse effect on the Company's
          financial position, results of operations or cash flows.

               On March 11, 1999, the Company, the Corporation, certain
          shareholders of the Corporation and others entered into a
          settlement agreement which resolved all disputes concerning the
          aforementioned expenditures and other issues concerning the
          management by the Company or one of its Service Companies of
          various properties owned by entities in which the Corporation was
          a general partner.  Pursuant to that settlement agreement, the
          Corporation and other affiliates funded all outstanding advances
          made by the Company.  At December 31, 1998, amounts outstanding
          which were subsequently funded pursuant to the settlement
          agreement were $4.7 million.
<PAGE>33

          Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
          RISK

               For a discussion of the Quantitative and Qualitative
          Disclosure about Market Risk and the associated interest rate
          sensitivity, reference Management's Discussion and Analysis.

          Item 8.   Financial Statements and Supplementary Data

                 The response to this item is included in a separate
          section at the end of this report.

          Item 9.   Changes and Disagreements with Accountants on
                    Accounting and Financial Disclosure

                 None.

<PAGE>34
                                       PART III

          Item 10.  Directors and Executive Officers of the Registrant

               The information regarding the Company's Directors contained
          in the Notice of Annual Meeting and Proxy Statement for the
          Annual Meeting of Shareholders will be held on May 12,1999, is
          incorporated by reference in this Annual Report on Form 10-K.

               The Executive Officers of the Company as of March 1, 1999
          are:
<TABLE>
<CAPTION>

                Name              Age          Position with the Company        

   <S>                            <C>  <C>         
   Jeffrey I. Friedman             47  Chairman of the Board, President, Chief
                                         Executive Officer and Director

   James A. Cote'                  52  Vice President and President, MIG
                                         Realty Advisors
   Martin A. Fishman               57  Vice President, General Counsel and
                                         Secretary

   Kathleen L. Gutin               42  Treasurer, Vice President and Chief 
                                         Financial Officer

   Louis E. Vogt                   49  Senior Vice President, Operations

   Larry E. Wright                 51  Executive Vice President<PAGE>
</TABLE>

               Jeffrey I. Friedman has been Chairman of the Board,
          President and Chief Executive Officer of the Company since its
          organization.  Mr. Friedman joined AEG in 1974 and was the Chief
          Executive Officer and President of Associated Estates
          Corporation, a company in the AEG group, from 1979 to 1993.

               James A. Cote', Vice President and President, MIG Realty
          Advisors, joined the Company in 1998 through the acquisition of
          MIG Realty Advisors, Inc.  Mr. Cote' was with MIG Realty Advisors
          from 1992 until the acquisition.  He was previously employed by
          Grubb and Ellis Realty Advisors and Xerox Corporation.  Mr. Cote'
          has extensive experience in all aspects of property acquisition,
          asset management and dispositions.

               Martin A. Fishman has been Vice President - General Counsel
          of the Company since its organization.  Mr. Fishman joined AEG in
          1986 as Vice President - General Counsel of Associated Estates
          Corporation, a position he held until the formation of the
          Company.
<PAGE>35
               Kathleen L. Gutin, Treasurer, Vice President and Chief
          Financial Officer, joined the Company in 1998 through the
          acquisition of MIG Realty Advisors, Inc.  Ms. Gutin joined MIG
          Realty Advisors in 1985 and has over 15 years of real estate
          related accounting experience.  She is a member of the American
          Institute of Certified Public Accountants (AICPA) and a Chartered
          Financial Analyst (CFA).

               Louis E. Vogt, Senior Vice President, Operations, joined the
          Company in 1998 through the acquisition of MIG Realty Advisors,
          Inc.  Mr. Vogt joined MIG Realty Advisors in 1992 and has over 20
          years of experience in real estate operations.  He is responsible
          for acquisitions and asset and property management.

               Larry E. Wright, Executive Vice President, joined the
          Company in 1998 through the acquisition of MIG Realty Advisors,
          Inc.  Mr. Wright joined MIG Realty Advisors in 1982 and has over
          20 years of real estate experience.  He is a member of the
          National Multi-Housing Council, Urban Land Institute, National
          Association of Real Estate Investment Managers, and Pension Real
          Estate Association.

               In addition to the executive officers named in the table
          above, the following persons have been elected as officers of the
          Company by the Board of Directors and hold positions in senior
          management with the Company as indicated:

               Gregory L. Golz, Vice President, Finance, joined the Company
          in 1998.   Mr. Golz was previously employed by Kendal Financial
          Corporation as a founding Principal from 1994 to 1998. Prior to
          Kendal Financial Corporation, Mr. Golz was employed by Trammel
          Crow Residential and Bankers Trust Company.  He specializes in
          mergers, acquisitions, securities and other capital markets
          transactions.

               Barbara E. Hasenstab joined the Company in 1996 as Director
          of Investor Relations and was elected Vice President of Investor
          Relations in 1998.  Ms. Hasenstab has 20 years of experience in<PAGE>
          investor relations and is a member of the National Investor
          Relations Institute and is 45 years old.

               William T. Hughes, Jr., Ph. D., Vice President-Research,
          joined the Company in 1998 through the acquisition of MIG Realty
          Advisors, Inc.  Dr. Hughes joined MIG Realty Advisors in 1995. 
          Prior to his employment with MIGRA, Dr. Hughes was employed by
          Louisiana State University from 1990 until 1995 in positions of
          Director of Real Estate Research Institute and Assistant
          Professor of Finance and is widely published in leading real
          estate books, journals and periodicals, and a nationally
          recognized expert in real estate markets.  He is a Chartered
          Financial Analyst (CFA).

               Nan R. Zieleniec joined AEG in 1990 and was elected Vice
          President of Human Resources in 1998, having responsibility for
          all areas of human resource planning and administration.  Ms.
          Zieleniec is a member of the Society of Human Resource Management
          and American Compensation Association and she is 40 years old.

               The following persons have been appointed as officers of the
          Company by the directors and executive officers of the Company:

               JoAnn C. Hirsh joined the Company in 1997 as Director of
          Government Housing and is currently a Regional Vice President of
          Operations.  Ms. Hirsh has supervisory responsibility for the
          government-subsidized properties and is responsible for
          compliance with HUD regulations.  Ms. Hirsh has over 20 years of
          real estate experience and is a Certified Public Accountant, a
          member of the American Institute of Certified Public Accountants
          (AICPA), the Ohio Society of CPA's, the National Network of
          Commercial Real Estate Women and is 42 years old.

               Steven E. Lee joined the Company in 1997 and is currently a
          Regional Vice President of Operations.  He has been involved in
          multifamily property management for 16 years.  Mr. Lee has
          supervisory responsibility for properties in the Central Ohio
          region.  Mr. Lee is a Certified Property Manager and is 43 years
          old.
<PAGE>36
               Richard Q. Mansfield joined the Company in 1995 and is
          currently a  Regional Vice President of Operations.  He has been
          involved in multifamily property management for 21 years.  Mr.
          Mansfield has supervisory responsibility for properties in
          northeast Ohio and is 43 years old.

               Daniel L. Powers joined the Company in 1998 through the
          acquisition of MIG Realty Advisors, Inc.  He is currently a
          Regional Vice President of Operations for the Central Region,
          with supervisory responsibility for properties in Toledo, Ohio;
          Indiana, and Michigan.  Mr. Powers is a Certified Property
          Manager and is 45 years old.

               Charles J. Stone joined the Company in 1998 through the
          acquisition of MIG Realty Advisors, Inc.  He is currently a
          Regional Vice President of Operations for the Eastern Region with
          supervisory responsibility for properties in Florida, Georgia,
          Maryland, North Carolina and Pennsylvania.  Mr. Stone is 52 years<PAGE>
          old and has over 25 years of real estate experience.

               Steven C. Thrower joined the Company in 1998 through the
          acquisition of MIG Realty Advisors, Inc.  He is currently a
          Regional Vice President for the Western Region with supervisory
          responsibility for properties in Arizona, California an Texas. 
          Mr. Thrower is 43 years old and has more than 13 years of real
          estate experience.

          Item 11.  Executive Compensation

               The information on Executive Compensation contained in the
          Notice of Annual Meeting and Proxy Statement for the Annual
          Meeting of Shareholders will  be held on May 12, 1999 is
          incorporated by reference in this Annual Report on Form 10-K.

          Item 12.  Security Ownership of Certain Beneficial Owners and
          Management

               The information on Security Ownership of Certain Beneficial
          Owners and Management contained in the Notice of Annual Meeting
          and Proxy Statement for the Annual Meeting of Shareholders will
          be held on May 12, 1999 is incorporated by reference in this
          Annual Report on Form 10-K.

          Item 13.  Certain Relationships and Related Transactions

               The information on Certain Relationships and Related
          Transactions contained in the Notice of Annual Meeting and Proxy
          Statement for the Annual Meeting of Shareholders will be held on
          May 12, 1999 is incorporated by reference in this Annual Report
          on Form 10-K.
<PAGE>37

                                       GLOSSARY

               Unless the context otherwise requires, the following
          capitalized terms shall have the meanings set forth below for the
          purposes of this Form 10-K.

               "AEG" means the Associated Estates Group, which includes (i)
          various general partnerships, limited partnerships and
          corporations which sold interests in 45 multi-family properties
          to the Company, (ii) Associated Estates Corporation, (iii) A.E.C.
          Management Company, (iv) Estates Mortgage Company, (v) Associated
          Health Care Management, Inc., (vi) Merit Management Corporation,
          (vii) Merit Painting Services, Inc. and (viii) The Children's
          Computer Co.

               "Code" means the Internal Revenue Code of 1986, as amended
          from time to time.
               "Company" means Associated Estates Realty Corporation, an
          Ohio corporation, including, where the context requires, its
          subsidiaries and the Service Companies.

               "Congregate Care Facility" means a residential apartment
          community for elderly persons that provides services to its
          residents which may include prepared meals, housekeeping and
          laundry service and a variety of recreational and educational
          activities.

               "Contract Rent" means monthly rental amounts, as determined
          by HUD, for each Contract Unit payable pursuant to a HAP
          Contract.

               "Contract Unit" means a unit contained in a
          Government-Assisted Property for which the owner of such property
          receives rent subsidies from HUD pursuant to a HAP Contract.

               "Market-rate Properties" means multifamily Properties which
          are operated as conventional multifamily residential apartments,
          the operations of which are not subject to regulation by HUD.

               "Distributable Cash Flow" means Funds From Operations less
          scheduled mortgage debt amortization payments and provisions for
          ongoing capitalized improvements to the Properties.

               "Economic Occupancy" means the actual rent revenue divided
          by the total rent expected to be earned based on the market
          rental rate for all units.

               "Eligible Resident" means a family or individual whose
          income, as determined in accordance with HUD regulations, does
          not exceed income limits promulgated by HUD for the housing
          market area and which meets certain other conditions specified in
          the regulations.

               "Funds From Operations" or "FFO" means net income (computed
          in accordance with generally accepted accounting principles),
          excluding gains (or losses) from sales of property and
          extraordinary and nonrecurring items, plus depreciation and
          amortization, and after adjustments for unconsolidated<PAGE>
          partnerships and joint ventures.

               "Government-Assisted Properties" means multifamily
          Properties, the rents of which are subsidized and certain aspects
          of the operations of which are regulated by HUD pursuant to
          Section 8 of the National Housing Act of 1937.
<PAGE>38
               "HAP Contract" means the agreement between HUD and the owner
          of a Government-Assisted Property which provides for rent
          subsidies to be paid by HUD to such owner and obligates such
          owner to comply with certain HUD regulations governing certain
          aspects of its operations of such Government-Assisted Properties.

               "HAP Payment" means a housing assistance payment the owner
          of a Government-Assisted Property receives from HUD pursuant to a
          HAP Contract.

               "HUD" means the United States Department of Housing and
          Urban Development.

               "IPO" means initial public offering.  The Company completed
          an initial public offering of 7,250,000 common shares in November
          1993, the proceeds of which were used to acquire the various
          businesses from AEG.

               "National Housing Act" means the National Housing Act, as
          amended from time to time.

               "Physical Occupancy" means the total number of units less
          the number of unoccupied units divided by the total number of
          units expressed as a percentage.

               "Potential Unit Rent" means the rent at which a unit is
          expected to be leased based on its market value.

               "Regulatory Agreement" means an agreement between HUD and
          the owner of a property, the mortgage indebtedness of which is
          insured by HUD, pursuant to which certain aspects of the
          operations of such property are regulated.

               "Service Companies" means Associated Estates Management
          Company, Merit Management Corporation, Merit Painting Services,
          Inc., Estates Mortgage Company,  Children's Computer Company and
          MIG II Realty Advisors, Inc. These are Service Companies in which
          Associated Estates Realty Corporation owns substantially all of
          the economic interests in order to provide the Company with as
          much of the economic benefits of such corporations' operations as
          possible while furthering the Company's current intention of
          complying with the Code requirements for qualification as a REIT.
               
               "Unit" means an apartment unit in a multifamily Property.

               "Total Market Capitalization" means the aggregate market
          value of the Company's outstanding Common and Perpetual Preferred
          Shares and total long-term debt of the Company.<PAGE>
<PAGE>39

                                       PART IV 

          Item 14.  Exhibits, Financial Statement Schedules and Reports on
          Form 8-K

          (a)  The following documents are filed as part of this Report.

               1.   Financial Statements: The following documents are
                    filed as part of this report.

                        Report of Independent Accountants - Associated
                        Estates Realty Corporation.

                        Consolidated Balance Sheets at December 31, 1998
                        and 1997.

                        Consolidated Statements of Income for the
                        three years ended December 31, 1998, 1997
                        and 1996.

                        Consolidated Statements of Shareholders'
                        Equity for the three years ended December
                        31, 1998, 1997 and 1996.

                        Consolidated Statements of Cash Flows for
                        the three years ended December 31, 1998,
                        1997, and 1996.

                        Notes to Financial Statements.

               2.   Financial Statement Schedules:  The following
                    financial statement schedule of Associated Estates
                    Realty Corporation is filed as part of this Report
                    and should be read in conjunction with the
                    Consolidated Financial Statements of Associated
                    Estates Realty Corporation.

                       Schedule                                       Page 
                         III  Real Estate and Accumulated Depreciation. F-39

                       Schedules not listed above have been omitted
                       because they are not applicable or are not
                       required or the information required to be
                       set forth therein is included in the
                       Consolidated Financial Statements or Notes
                       thereto.

          (b)  A Current Report on Form 8-K dated February 3, 1998 was
               filed on February 17, 1998 as amended by Form 8-K/A-1 dated
               February 3, 1998 and filed on April 8, 1998. 

               A Current Report on Form 8-K dated February 19, 1998 was
               filed on March 31, 1998 as amended by Form 8-K/A-1 dated
               February 19, 1998 and filed on June 25, 1998.

               A Current Report on Form 8-K dated June 30, 1998 was filed<PAGE>
               on July 13, 1998 as amended by Form 8-K/A-1 dated June 30,
               1998 and filed on August 31, 1998.        
            
          (c)  Exhibits:  The Exhibits listed on the accompanying Index to
               Exhibits immediately following the financial statement
               schedules are filed as part of, or incorporated by reference
               into, this Report.
<PAGE>40

<TABLE>
<CAPTION>
       
                                                       Filed herewith or
                                                           incorporated
                                                            herein by
   Number                     Title                         reference    

    <S>                                                 <C>
    2.01   Second Amended and Restated Agreement and    Exhibit 2.01 to
           Plan of Merger by                            Form 8-K filed
           and among the Company, MIG Realty Advisors,  March 31, 1998.
           Inc.  ("MIGRA")
           and the MIGRA stockholders dated as of
           March __, 1998.

    3.1    Second Amended and Restated Articles of      Exhibit 3.1 to
           Incorporation of the Company.                Form S-11 filed
                                                        June 30, 1994
                                                        (File No. 33-
                                                        80950 as
                                                        amended).

    3.2    Code of Regulations of the Company           Exhibit 3.2 to
                                                        Form S-11 filed
                                                        June 30, 1994
                                                        (File No. 33-
                                                        80950 as
                                                        amended).

    4.1    Specimen Stock Certificate                   Exhibit 3.1 to
                                                        Form S-11 filed
                                                        September 2, 1993
                                                        (File No. 33-
                                                        68276 as
                                                        amended).

    4.2    Form of Indemnification Agreement            Exhibit 4.2 to
                                                        Form S-11 filed
                                                        September 2, 1993
                                                        (File No. 33-
                                                        68276 as
                                                        amended).


    4.3    Promissory Note dated October 23, 1991 from  Exhibit 4.3 to
           Triangle Properties Limited Partnership,     Form S-11 filed
           et. al., in favor of PFL Life Insurance      September 2, 1993
           Company; Open End Mortgage from Triangle     (File No. 33-
           Properties Limited Partnership I, et. al.,   68276 as
           in favor of PFL Life Insurance Company (The  amended).
           Registrant undertakes to provide additional
           long-term loan documents upon request).

    4.4    Promissory Note dated February 28, 1994 in   Exhibit 4.4 to
           the amount of $25 million.  Open-End         Form 10-K filed
           Mortgage Deed and Security Agreement from    March 31, 1993.
           AERC to National City Bank (Westchester
           Townhouse); Open-End Mortgage Deed and
           Security Agreement from AERC to National
           City Bank (Bay Club); Open-End Mortgage
           Deed and Security Agreement from Winchester
           II Apartments, Inc. to National City Bank
           (Winchester II Apartments); and Open-End
           Mortgage Deed and Security Agreement from
           Portage Towers Apartments, Inc. to 
           National City Bank (Portage Towers
           Apartments).

    4.6    Indenture dated as of March 31, 1995         Exhibit 4.6 to
           between Associated Estates Realty            Form 10-Q filed
           Corporation and National City Bank.          May 11, 1995.

    4.7    $75 Million 8-3/8% Senior Note due April     Exhibit 4.7 to
           15, 2000                                     Form 10-Q filed
                                                        May 11, 1995.

    4.8e   Credit Agreement dated June 30, 1998, by     Exhibit 4.8e to
           and among Associated Estates Realty          Form 10-Q filed
           Corporation, as Borrower; the banks and      August 14, 1998.
           lending institutions identified therein as
           Banks; National City Bank, as Agent and
           Bank of America National Trust and
           Savings Association, as Documentation
           Agent.<PAGE>


    4.8f   First Amendment to Credit Agreement by and   Exhibit 4.8f to
           among Associated Estates Realty              Form 10-Q filed
           Corporation, as Borrower; National City      November 16,
           Bank, as Managing Agent for itself and on    1998.
           behalf of the Existing Banks and First
           Merit Bank, N.A. and Southtrust Bank, N.A.
           as the New Banks.

    4.8g   Second Amendment to Credit Agreement by and  Exhibit 4.8g to
           among Associated Estates Realty              Form 10Q filed
           Corporation, as Borrower, National City      November 16,
           Bank, as Managing Agent for itself and on    1998.
           behalf of the Existing Banks and National
           City Bank, Bank of America National
           Commerzbank Aktiengesellschaft.

    4.8h   Third Amendment to Credit Agreement by and   Exhibit 4.8h 
           among Associated Estates Realty              filed herewith.
           Corporation, as Borrower, National City
           Bank, as Managing Agent, Bank of America
           National Trust & Savings Association, as
           Documentation Agent and the banks
           identified therein.

    4.9    Form of Medium-Term Note-Fixed Rate-Senior   Exhibit 4(i) to
           Security.                                    Form S- 3 filed
                                                        December 7, 1995
                                                        (File No.33-80169
                                                        as amended).

    4.10   Form of Preferred Share Certificate.         Exhibit 4.1 to
                                                        Form 8-K filed
                                                        July 12, 1995.

    4.11   Form of Deposit Agreement and Depositary     Exhibit 4.2 to
           Receipt.                                     Form 8-K filed
                                                        July 12, 1995.

    4.12   Ten Million Dollar 7.10% Senior Notes Due    Exhibit 4.12 to
           2002.                                        Form 10-K filed
                                                        March 28, 1996.<PAGE>


   10      Associated Estates Realty Corporation        Exhibit 10 to
           Directors  Deferred Compensation Plan.       Form 10-Q filed
                                                        November 14,
                                                        1996.

   10.1    Registration Rights Agreement among the      Exhibit 10.1 to
           Company and certain holders of the           Form S-11 filed
           Company's Common Shares.                     September 2, 1993
                                                        (File No. 33-
                                                        68276 as
                                                        amended).

   10.2    Stock Option Plan                            Exhibit 10.2 to
                                                        Form S-11 filed
                                                        September 2, 1993
                                                        (File No. 33-
                                                        68276 as
                                                        amended).

   10.3    Amended and Restated Employment Agreement    Exhibit 10.1 to
           between the Company and Jeffrey I.           Form 10-Q filed
           Friedman.                                    May 13, 1996.

   10.4    Equity-Based Incentive Compensation Plan     Exhibit 10.4 to
                                                        Form 10-K filed
                                                        March 29, 1995.

   10.5    Long-Term Incentive Compensation Plan        Exhibit 10.5 to
                                                        Form 10-K filed
                                                        March 29, 1995.

   10.6    Lease Agreement dated November 29, 1990      Exhibit 10.6 to
           between Royal American Management            Form 10-K filed
           Corporation and Airport Partners Limited     March 29, 1995.
           Partnership.

   10.7    Sublease dated February 28, 1994 between     Exhibit 10.7 to
           the Company as Sublessee, and Progressive    Form 10-K filed
           Casualty Insurance Company, as Sublessor.    March 29, 1995.<PAGE>


   10.8    Assignment  and  Assumption Agreement dated  Exhibit 10.8 to
           May   17,  1994  between  the  Company,  as  Form 10-K filed
           Assignee,   and  Airport  Partners  Limited  March 29, 1995.
           Partnership, as Assignor.

   10.9    Form of Restricted Share Agreement dated     Exhibit 10.9 to
           December 6, 1995 by and between the Company  Form 10-K filed
           and William A. Foley, Gerald C. McDonough,   March 28, 1996.
           Frank E. Mosier and Richard T. Schwarz.

   10.10   Pledge Agreement dated May 23, 1997 between  Exhibit 10.01 to
           Jeffrey I. Friedman and the Company.         Form 10-Q filed
                                                        August 8, 1997.

   10.11   Secured Promissory Note dated May 23, 1997   Exhibit 10.02 to
           in the amount of $1,671,000 executed by      Form 10-Q filed
           Jeffrey I. Friedman in favor of the          August 8, 1997.
           Company.

   10.12   Unsecured Promissory Note dated May 23,      Exhibit 10.03 to
           1997 in the amount of $1,671,000 executed    Form 10-Q filed
           by Jeffrey I. Friedman in favor of the       August 8, 1997.
           Company.

   10.14   Share Option Agreement dated November 18,    Exhibit 10.14 to
           1993 by and between the Company and William  Form 10-K filed
           A. Foley, Gerald C. McDonough, Frank E.      March 30, 1993.
           Mosier and Richard T. Schwarz.

   21.1    List of Subsidiaries                         Exhibit 21.1
                                                        filed herewith.

   23.1    Consent of Independent Accountants           Exhibit 23.1
                                                        filed herewith.

   27      Financial Data Schedule                      Exhibit 27 filed
                                                        herewith.
</TABLE>




                                      SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) of the
          Securities Exchange Act of 1934, the registrant has duly caused
          this report to be signed on its behalf by the undersigned,
          thereunto duly authorized, on the 29th day of March, 1999.

                                           ASSOCIATED ESTATES REALTY 
                                             CORPORATION

                                           By /s/ Jeffrey I. Friedman       
                                           Jeffrey I. Friedman, Chairman of
                                             the Board, President and
                                             Chief Executive Officer
                                            

          Pursuant to the requirements of the Securities Exchange Act of
          1934, this report has been signed below by the following persons
          on behalf of the registrant and in the capacities indicated on
          the 29th day of March, 1999.
<TABLE>
<CAPTION>



           Signature                          Title                      Date     



   <S>                        <C>                                   <C>
   /s/ Jeffrey I. Friedman    Chairman of the Board, President,     March 29, 1999 
   Jeffrey I. Friedman        Chief Executive Officer and Director
                              (Principal Executive Officer)


   /s/ Kathleen L. Gutin      Chief Financial Officer (Principal    March 29, 1999 
   Kathleen L. Gutin          Financial Officer and Principal
                              Accounting Officer)


   /s/ Albert T. Adams        Director                              March 29, 1999 
   Albert T. Adams


   /s/ Gerald C. McDonough    Director                              March 29, 1999 
   Gerald C. McDonough


   /s/ Mark L. Milstein       Director                              March 29, 1999 
   Mark L. Milstein


   /s/ Frank E. Mosier        Director                              March 29, 1999 
   Frank E. Mosier


   /s/ Richard T. Schwarz     Director                              March 29, 1999 
   Richard T. Schwarz


   /s/ Larry E. Wright        Director                              March 29, 1999
   Larry E. Wright<PAGE>
</TABLE>


<PAGE>F1

                            INDEX TO FINANCIAL STATEMENTS

                        ASSOCIATED ESTATES REALTY CORPORATION<PAGE>
<TABLE>
<CAPTION>



   Financial Statements:                                     Page  

     <S>                                                     <C>
     Report of Independent Accountants                        F-2  
     Consolidated Balance Sheets at December 31, 1998
      and 1997                                                F-3  
     Consolidated Statements of Income for the 
      three years ended December 31, 1998, 1997 and 1996      F-4  
     Consolidated Statements of Shareholders' Equity
      for the three years ended December 31, 1998,
      1997 and 1996                                           F-5  
     Consolidated Statements of Cash Flows for the three
      years ended December 31, 1998, 1997 and 1996            F-6  
     Notes to Financial Statements                            F-7  

     Financial Statement Schedules:

           III - Real Estate and Accumulated Depreciation
                 at December 31, 1998                        F-39  
</TABLE>




               All other schedules are omitted because they are not
          applicable or the required information is shown in the financial
          statements or notes thereto.

<PAGE>F2
                          REPORT OF INDEPENDENT ACCOUNTANTS                



          To the Board of Directors and Shareholders of
          Associated Estates Realty Corporation

               In our opinion, the consolidated financial statements listed
          in the accompanying index present fairly, in all material
          respects, the financial position of Associated Estates Realty
          Corporation and its subsidiaries ("the Company") at December 31,
          1998 and 1997, and the results of their operations and their cash
          flows for each of the three years in the period ended December
          31, 1998, in conformity with generally accepted accounting
          principles.  In addition, in our opinion, the financial
          statement schedule listed in the accompanying index, presents
          fairly, in all material respects, the information set forth
          therein when read in conjunction with the related consolidated
          financial statements.  These financial statements and financial
          statement schedule are the responsibility of the Company's
          management; our responsibility is to express an opinion on these
          financial statements and financial statement schedule based on
          our audits.  We conducted our audits of these statements in
          accordance with generally accepted auditing standards which
          require that we plan and perform the audit to obtain reasonable
          assurance about whether the financial statements are free of
          material misstatement.  An audit includes examining, on a test
          basis, evidence supporting the amounts and disclosures in the
          financial statements, assessing the accounting principles used
          and significant estimates made by management, and evaluating the
          overall financial statement presentation.  We believe that our
          audits provide a reasonable basis for the opinion expressed
          above.

          /s/ PricewaterhouseCoopers LLP
          PricewaterhouseCoopers LLP

          Cleveland, Ohio
          March 17, 1999

<PAGE>F3
                        ASSOCIATED ESTATES REALTY CORPORATION
                             CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                            December 31,
                                                         1998            1997     
                        ASSETS
   <S>                                             <C>             <C>
   Real estate assets
     Land                                           $  92,675,356   $ 54,906,050 
     Buildings and improvements                       778,450,807    550,156,521 
     Furniture and fixtures                            30,804,870     24,997,001 
                                                      901,931,033    630,059,572 
       Less:  accumulated depreciation               (153,941,702)  (130,668,538)
                                                      747,989,331    499,391,034 
     Construction in progress                          53,740,292     16,439,393 
       Real estate, net                               801,729,623    515,830,427 
   Cash and cash equivalents                            1,034,655      2,251,819 
   Restricted cash                                      6,718,863     10,125,513 
   Accounts and notes receivable
     Rents                                              2,801,835      2,256,158 
     Affiliates and joint ventures                     13,113,400     14,439,155 
     Other                                              2,293,007      2,385,829 
   Intangible and other assets, net                    13,093,972      6,621,404 
                                                    $ 840,785,355   $553,910,305 

        LIABILITIES AND SHAREHOLDERS' EQUITY 
   Secured debt                                     $  80,042,667   $ 57,817,981 
   Unsecured debt                                     423,862,468    260,352,307 
       Total indebtedness                             503,905,135    318,170,288 
   Accounts payable and accrued expenses               21,525,517     16,197,356 
   Dividends payable                                   10,507,586      7,938,692 
   Resident security deposits                           5,960,971      4,867,011 
   Funds held on behalf of managed properties                                    
     Affiliates and joint ventures                      5,353,394      7,124,217 
     Other                                              4,128,298      2,340,115 
   Accrued interest                                     5,501,634      3,776,884 
   Accumulated losses and distributions of joint
     ventures in excess of investment and advances     12,679,793     12,337,664 
       Total liabilities                              569,562,328    372,752,227 

   Operating partnership minority interest             12,034,880              - 

   Commitments and contingencies                                -              - 
   Shareholders' equity
     Preferred shares, Class A cumulative, without
       par value; 3,000,000 authorized; 225,000
       issued and outstanding                          56,250,000     56,250,000 
     Common shares, without par value, $.10 stated
       value; 50,000,000 authorized; 22,621,958
       and 17,073,773 issued and outstanding
       at December 31, 1998 and 1997, respectively      2,262,195      1,707,377 
     Paid-in capital                                  277,134,988    171,756,307 <PAGE>
     Accumulated dividends in excess of net income    (75,991,638)   (48,552,106)
     Accumulated other comprehensive income                  (875)        (3,500)
     Less:  Treasury shares, at cost, 25,000 shares
       at December 31, 1998                              (466,523)             - 
       Total shareholders' equity                     259,188,147    181,158,078 
                                                    $ 840,785,355   $553,910,305 
</TABLE>
                        The accompanying notes are an integral part
                              of these financial statements.
<PAGE>F4

                        ASSOCIATED ESTATES REALTY CORPORATION
                          CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                   For the year ended December 31,    
                                                    1998          1997         1996    
   <S>                                        <C>            <C>          <C>
   Revenues
    Rental                                     $ 132,514,374  $101,639,584 $ 87,975,036
    Property management fees                       4,704,837     3,752,230    3,779,676
    Asset management fees                          1,248,356             -            -
    Disposition fees                                 247,000             -            -
    Painting services                              1,605,923     1,663,927    1,633,842
    Other                                          2,687,377     1,754,207    1,066,594
                                                 143,007,867   108,809,948   94,455,148
   Expenses and charges
    Property operating and maintenance            58,652,542    43,229,949   37,056,123
    Depreciation and amortization                 24,898,978    19,265,827   15,535,587
    Painting services                              1,616,933     1,491,527    1,436,486
    Preliminary project costs                        298,360       309,794            -
    General and administrative                    10,216,222     6,084,654    5,912,197
    Write-off of software development costs          817,485             -            -
    Charge for unrecoverable funds advanced to
      non-owned properties and other                 291,827     1,764,044            -
    Default waiver fee                               395,000             -            -
    Interest expense                              29,050,346    19,144,260   15,515,956
      Total expenses and charges                 126,237,693    91,290,055   75,456,349
   Income before gain on sale of property, 
    equity in net income of joint
    ventures, minority interest and
    extraordinary items                           16,770,174    17,519,893   18,998,799
   Gain on sale of property                          503,497     1,607,829            -
   Equity in net income of joint ventures            444,692       560,934      305,189
   Minority interest in operating partnership        (78,706)            -            -
   Income before extraordinary items              17,639,657    19,688,656   19,303,988
   Extraordinary (loss) or gain-extinguishment
    of debt                                         (124,895)    1,023,713            -
   Net income                                  $  17,514,762  $ 20,712,369 $ 19,303,988

   Net income applicable to common shares      $  12,030,341  $ 15,227,948 $ 13,819,566

   Earnings Per Common Share - Basic:
    Net income before extraordinary items      $         .61  $        .88 $        .99
    Extraordinary items                        $           -  $        .06 $          -
    Net income                                 $         .61  $        .94 $        .99

   Earnings Per Common Share - Diluted:
    Net income before extraordinary items      $         .60  $        .88 $        .99
    Extraordinary items                        $           -  $        .06 $          -
    Net income                                 $         .60  $        .94 $        .99<PAGE>
   Dividends paid Per Common Share             $        1.86  $       1.86 $       1.80
   Weighted average number of common shares
      outstanding - Basic                         19,865,335    16,198,499   13,931,807
                   - Diluted                      20,059,873    16,215,513   13,931,807
</TABLE>

                               The accompanying notes are an integral part
                                      of these financial statements.
<PAGE>F5

          ASSOCIATED ESTATES REALTY CORPORATION
          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                        Class A    Common Shares
                                                                       Cumulative     (at $.10
                                                                       Preferred       stated
                                                            Total        Shares        value)    

   <S>                                                  <C>           <C>          <C>  
   Balance, December 31, 1995                           $139,169,679  $ 56,250,000 $    1,387,238
    Comprehensive income:
     Net income                                           19,303,988             -              -
     Other comprehensive income
      Unrealized losses on securities of $18,500, net
      of reclassification adjustment for gains
      included in net income of $0                           (18,500)            -                -
    Total comprehensive income                            19,285,488             -              -
     Issuance of 1,450,000 common shares, net of
       underwriters' discounts and offering expenses
        of $1,774,222                                     30,669,528             -        145,000
    Common share dividends declared                      (25,624,075)            -              -
    Preferred share dividends declared                    (5,484,422)            -              -
   Balance, December 31, 1996                            158,016,198    56,250,000      1,532,238
    Comprehensive income:
     Net income                                           20,712,369             -              -
     Other comprehensive income
      Unrealized gains on securities of $15,000, net
       of reclassification adjustment for gains
       included in net income of $0                           15,000             -                -
    Total comprehensive income                            20,727,369             -              -
    Issuance of 1,317 restricted common shares                     -             -            131
    Issuance of 1,750,000 common shares, net of                                   
     underwriters' discounts and offering expenses
     of $2,286,806                                        38,838,194             -        175,000
    Stock options exercised                                    1,717             -              8
    Common share dividends declared                      (30,940,979)            -              -
    Preferred share dividends declared                    (5,484,421)            -              -
   Balance, December 31, 1997                            181,158,078    56,250,000      1,707,377
    Comprehensive income:
     Net income                                           17,514,762             -              -
     Other comprehensive income
      Reclassification adjustment for gains
       included in net income of $2,625                        2,625             -              -
    Total comprehensive income                            17,517,387             -              -
    Issuance of 484 restricted common shares                       -             -             48
    Issuance of 5,547,701 common shares relating to
      the MIGRA merger and the acquisition of the
     MIG REIT properties                                 106,063,359             -        554,770
    Additional costs relating to common share offering      (129,860)            -              -<PAGE>
    Purchase of treasury shares                             (466,523)            -              -
    Common share dividends declared                      (39,469,873)            -              -
    Preferred share dividends declared                    (5,484,421)            -              -
   Balance, December 31, 1998                           $259,188,147  $ 56,250,000 $    2,262,195
</TABLE>
<TABLE>
<CAPTION>
                                                                    Accumulated   Accumulated
                                                                    Dividends in     Other      Treasury
                                                       Paid-In       Excess of   Comprehensive   Shares
                                                       Capital       Net Income      Income    (at cost)

   <S>                                              <C>            <C>           <C>            <C>
   Balance, December 31, 1995                       $ 102,567,007  $(21,034,566) $          -  $       - 
    Comprehensive Income:                                                                      
     Net income                                                 -    19,303,988             -          - 
     Other Comprehensive Income
      Unrealized losses on securities of $18,500,
      net of reclassification adjustment for
      gains included in net income of $0                        -             -       (18,500)         - 
    Total comprehensive income                                  -    19,303,988       (18,500)         - 
    Issuance of 1,450,000 common shares, net of
      underwriters' discounts and offering
      expenses of $1,774,222                           30,524,528             -              -         - 
    Common share dividends declared                             -   (25,624,075)             -         - 
    Preferred share dividends declared                          -    (5,484,422)             -         - 
   Balance, December 31, 1996                         133,091,535   (32,839,075)      (18,500)         - 
    Comprehensive Income:
     Net income                                                 -    20,712,369             -          - 
     Other Comprehensive Income
      Unrealized gains on securities of $15,000,
       net of reclassification adjustment for
       gains included in net income of $0                       -              -       15,000          - 
    Total comprehensive income                                  -    20,712,369        15,000          - 
    Issuance of 1,317 restricted common shares               (131)            -             -          - 
    Issuance of 1,750,000 common shares, net
     of underwriters' discounts and offering
     expenses of $2,286,806                            38,663,194             -             -          - 
    Stock options exercised                                 1,709             -             -          - 
    Common share dividends declared                             -   (30,940,979)            -          - 
    Preferred share dividends declared                          -    (5,484,421)            -          - 
   Balance, December 31, 1997                         171,756,307   (48,552,106)       (3,500)         - 
    Comprehensive Income:
     Net income                                                 -    17,514,762             -          - 
     Other Comprehensive Income
      Reclassification adjustment for gains
       included in net income of $2,625                         -             -          2,625         - 
    Total comprehensive income                                  -    17,514,762          2,625         - 
    Issuance of 484 restricted common shares                  (48)            -              -         - 
    Issuance of 5,547,701 common shares relating
      to the MIGRA merger and the acquisition of
      the MIG REIT properties                         105,508,589             -              -         - 
    Additional costs relating to common share
     offering                                            (129,860)            -              -         - 
    Purchase of treasury shares                                 -             -              -    (466,523)
    Common share dividends declared                             -   (39,469,873)             -         - 
    Preferred share dividends declared                          -    (5,484,421)             -         - 
   Balance, December 31, 1998                       $ 277,134,988  $(75,991,638) $       (875)   $(466,523)
</TABLE>

          The accompanying notes are an integral part
          of these financial statements.
<PAGE>F6

          ASSOCIATED ESTATES REALTY CORPORATION
          CONSOLIDATED STATEMENTS OF CASH FLOWS<PAGE>
<TABLE>
<CAPTION>
                                                                 For the year ended December 31,       
                                                                1998           1997           1996     
   <S>                                                   <C>              <C>            <C>
   Cash flow from operating activities:
    Net income                                            $    17,514,762 $  20,712,369  $ 19,303,988 
    Adjustments to reconcile net income to net cash                                       
     provided by operating activities:
      Depreciation and amortization                            24,898,978    19,265,827    15,535,587 
      Minority interest in operating partnership                   78,706             -             - 
      Write-off of software development costs                     817,485             -             - 
      Loss (gain) on extinguishment of debt                       124,895    (1,023,713)            - 
      Gain on sale of property                                   (503,497)   (1,607,829)            - 
      Charge for unrecoverable funds advanced to
        non-owned properties and other                            291,827     1,764,044             - 
      Equity in net income of joint ventures                     (444,692)     (560,936)     (305,189)
      Earnings distributed from joint ventures                    534,474       502,891       423,959 
      Net change in assets and liabilities 
        net of effect of the MIGRA merger:
             - Accounts and notes receivable                      203,650    (2,825,370)   (1,052,793)
             - Accounts and notes receivable of
                 affiliates and joint ventures                  2,497,659    (4,358,520)   (3,387,067)
             - Accounts payable and accrued expenses           (2,654,278)      (37,248)    1,584,630 
             - Other operating assets and liabilities            (257,462)    1,677,352       131,711 
             - Restricted cash                                    988,242    (4,500,510)     (564,619)
             - Funds held for non-owned managed
                 properties                                      (657,169)      862,992       188,755 
             - Funds held for non-owned managed 
                 properties of affiliates and joint 
                 ventures                                      (1,770,823)       65,029      (798,481)
         Total adjustments                                     24,147,995     9,224,009    11,756,493 
      Net cash flow provided by operations                     41,662,757    29,936,378    31,060,481 
   Cash flow from investing activities:
    Real estate acquired or developed (net of liabilities
     assumed)                                                (160,575,973) (131,446,648)  (74,176,202)
    Fixed asset additions                                      (1,893,829)   (1,994,607)   (1,680,625)
    Net proceeds received from sale of property                10,664,750     4,892,668             - 
    Loans receivable - affiliate                                        -    (3,342,000)            - 
    Distributions from (contributions to) joint ventures          166,669       (17,378)       86,018 
      Net cash flow used for investing activities            (151,638,383) (131,907,965)  (75,770,809)
   Cash flow from financing activities:
    Principal payments on mortgage notes                       (9,243,936)  (19,306,272)   (2,921,236)
    Proceeds from mortgage notes                                        -     8,100,000             - 
    Proceeds from senior and medium-term notes                 20,000,000    50,000,000    42,500,000 
    Proceeds from the issuance of common shares, net
     of $2,187,500 and $1,609,500 of underwriting
     commissions and $99,306 and $164,722 of
     offering expenses paid in 1997 and 1996,                                           
     respectively                                                       -    38,838,432    30,669,528 
    Line of credit borrowings                               1,284,600,000   370,900,000   170,950,000 
    Line of credit repayments                              (1,141,600,000) (309,400,000) (167,050,000)
    Deferred financing and offering costs                      (2,145,679)     (815,651)     (822,030)
    Common share dividends paid                               (36,900,979)  (29,897,358)  (24,692,838)
    Preferred share dividends paid                             (5,484,421)   (5,484,421)   (5,484,422)
    Purchase of treasury shares                                  (466,523)            -             - 
    Stock options exercised                                             -         1,717             - 
      Net cash flow provided by financing activities          108,758,462   102,936,447    43,149,002 
   (Decrease) increase in cash and cash equivalents            (1,217,164)      964,860    (1,561,326)
   Cash and cash equivalents, beginning of year                 2,251,819     1,286,959     2,848,285 
   Cash and cash equivalents, end of year                 $     1,034,655 $   2,251,819  $  1,286,959 
</TABLE>

                        The accompanying notes are an integral part
                             of these financial statements.
<PAGE>F7

                        ASSOCIATED ESTATES REALTY CORPORATION
                            NOTES TO FINANCIAL STATEMENTS


          1.   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

          Business

               Associated Estates Realty Corporation (the "Company") is a
          self-administered and self-managed real estate investment trust
          ("REIT") which specializes in the acquisition, development,
          ownership and management of multifamily properties.  On June 30,
          1998, the Company consummated the merger of MIG Realty Advisors,
          Inc. ("MIGRA") into the Company and the related acquisition of
          eight multifamily properties from subsidiaries of MIG Residential
          REIT, Inc. (the "MIG REIT Properties") and one development
          property.  The aforementioned June 30, 1998 transactions,
          together with the Company's purchase of the MRT properties and a
          newly developed property (Note 2), are collectively referred to
          as the "MIGRA Related Transaction".  In connection with the
          merger, the Company also acquired the property management
          businesses of several of MIGRA's affiliates and the right to
          receive certain asset management fees, including disposition and
          incentive fees, that would have otherwise been received by MIGRA
          upon the sale of certain of the properties owned by institutions
          advised by MIGRA.  MIGRA is a registered investment advisor and
          also functions as a mortgage banker and as a real estate advisor
          to pension systems.  MIGRA recognizes revenue primarily from its
          client's real estate acquisitions and dispositions, loan
          origination and consultation, debt servicing, asset and property
          management and construction lending activities.  MIGRA earns the
          majority of its debt servicing fee revenue from two of its
          pension fund clients.  MIGRA's asset management, property
          management, investment advisory and mortgage servicing operations
          including those of the prior MIGRA affiliates are collectively
          referred to herein as the "MIGRA Operations".

               At December 31, 1998, the Company owned or was a joint
          venture partner in 101 multifamily properties containing 21,558
          units.  Of these properties, 75 were located in Ohio, 11 in
          Michigan, two in Florida, two in Georgia, three in Maryland, one
          in North Carolina, one in Texas, one in Arizona, three in
          Indiana, one in California and one in Pennsylvania. 
          Additionally, the Company managed 57 non-owned properties, 50 of
          which were multifamily properties consisting of 12,426 units (16
          of which are owned by various institutional investors consisting
          of 5,749 units) and seven of which were commercial properties
          containing an aggregate of approximately 782,000 square feet of
          gross leasable area.  Through special purpose entities,
          collectively referred to as the "Service Companies", the Company
          provides property and asset management, investment advisory,
          painting and computer services as well as mortgage origination
          and servicing to both owned and non-owned properties.

          Principles of Consolidation

               The accompanying consolidated financial statements include
          the accounts of the Company, all subsidiaries, the Service
          Companies and the operating partnership.  The Company holds a
          preferred share interest in the Service Companies which entitles
          it to receive 95% of the economic benefits from operations and
          which is convertible into a majority interest in the voting
          common shares.  The outstanding voting common shares of these<PAGE>
          Service Companies are held by an executive officer of the
          Company.  The Service Companies are consolidated because, from a
          financial reporting perspective, the Company is entitled to
          virtually all economic benefits and has operating control.  The
          preferred share interest is not an impermissible investment for
          purposes of the Company's REIT qualification test.
<PAGE>F8
               As further described in Note 2, the Company entered into an
          operating partnership structured as a DownREIT of which an
          aggregate 20% is owned by limited partners.  Interests held by
          limited partners in real estate partnerships controlled by the
          Company are reflected as "Operating partnership minority
          interest" in the Consolidated Balance Sheets.  Capital
          contributions, distributions and profits and losses are allocated
          to minority interests in accordance with the terms of the
          operating partnership agreement.

               One property included in the financial statements is 33-
          1/3% owned by third party investors.  As this property has an
          accumulated deficit, no recognition of the third party interest
          is reflected in the financial statements since it is the
          Company's policy to recognize minority interest only to the
          extent that the third party's investment and accumulated share of
          income exceeds distributions and its share of accumulated losses.
          Investments in joint ventures, that are 50% or less owned by the
          Company, are presented using the equity method of accounting. 
          Since the Company intends to fulfill its obligations as a partner
          in the joint ventures, the Company has recognized its share of
          losses and distributions in excess of its investment.

               All significant intercompany balances and transactions have
          been eliminated in consolidation.

          Use of Estimates

               The preparation of financial statements in accordance with
          generally accepted accounting principles requires management to
          make estimates and assumptions that affect the reported amounts
          of assets and liabilities, disclosure of contingent assets and
          liabilities at the date of the financial statements and reported
          amounts of revenues and expenses during the reporting periods. 
          Actual results could differ from these estimates.

          Cash Equivalents

               The Company considers highly liquid investments with an
          original maturity of three months or less when purchased to be
          cash equivalents.

          Real Estate and Depreciation

               Real estate assets are stated at the lower of cost or fair
          value, as appropriate, less accumulated depreciation. Included in
          construction in progress are parcels of undeveloped land held for
          future development.  Depreciation is provided on a straight-line
          basis over the estimated useful lives of the assets as follows:

               Buildings and improvements         10 - 30 years
               Furniture, fixtures and equipment   3 - 10 years

               The Company capitalizes interest costs on funds used in
          construction, real estate taxes and insurance from the
          commencement of development activity through the time the
          property is ready for leasing.  Expenditures that extend the life
          or improve an asset beyond its original condition are
          capitalized.  Expenditures for maintenance and repairs,  and
          costs incurred in connection with resident turnover such as unit
          cleaning, painting, carpet cleaning or replacement, appliance
          repair or replacement and other associated costs are charged to
          operations.
<PAGE>F9
          Impairment of Long-Lived Assets

               Management reviews the carrying value of real estate assets
          using estimated future cash flows, including estimated proceeds
          from disposition, whenever an event or change in circumstance
          indicates that the asset value may not be recoverable.

               The Company uses the undiscounted cash flow method to
          determine impairment in the carrying value of its long-lived
          assets.  Measurement of an impairment loss is determined by
          reducing the carrying value of the assets to fair value.  Assets
          that are being held for sale or abandonment are recorded at the
          lower of carrying value or fair value less cost to sell.

          Deferred Leasing and Financing Costs

               Costs incurred in obtaining long-term financing are deferred
          and amortized over the life of the associated instrument on a
          straight-line basis, which approximates the effective interest
          method.  Costs incurred with respect to shelf registrations are
          capitalized and allocated on a pro rata basis to subsequent
          offerings thereunder.  External costs incurred in the leasing of
          commercial and retail space are amortized on a straight-line
          basis over the terms of the related lease agreements.

          Intangible Assets

               The intangible assets primarily represents the allocated
          purchase price from the MIGRA Related Transaction associated with
          the acquired advisory, property management and loan servicing
          contracts obtained from the MIGRA merger, as well as the client
          relationships and the MIGRA management team.   The Company will
          review its intangible assets for impairment should any of the
          following events occur: (i) client terminates a contract that is
          not replaced with a new client contract within one year or (ii)
          employment services of certain of the six key employees retained
          by AERC is terminated.  Upon any such occurrence, the Company
          will assess the value of the contract or employment relationship
          terminated and will write-off the appropriate amount.  The
          Company is amortizing its intangible assets on a straight-line
          basis over a six year period.
               
          Revenue Recognition

               The Company's residential property leases are for terms of
          generally one year or less.  Rental income is recognized on the
          straight-line basis. Retroactive revenue increases related to
          budget based Government-Assisted Properties are generally
          recognized based on applications submitted to the U.S. Department
          of Housing and Urban Development ("HUD").  Provision is made for
          estimated amounts of revenue increases that may not be granted.

               Acquisition, management and disposition fees, interest
          income and other fees are recognized when the related services
          are performed and the earnings process is complete.  Servicing<PAGE>
          fee income, related to loans serviced on behalf of the pension
          systems, is recognized when earned and is included in other
          income in the Consolidated Statements of Income.

               Revenues earned by the Service Companies are recognized as
          the related services are performed.
<PAGE>F10

          Operating Partnership Minority Interest

               During 1998, the Company acquired, through a subsidiary
          partnership ("DownREIT"), a majority ownership interest in a
          development property and a newly developed property.  In
          conjunction with these acquisitions, the Company issued a total
          of 522,032 operating partnership units ("OP units") which consist
          of 84,630 Class A OP units, 36,530 Class B OP units, 115,124
          Class C OP units, 62,313 Class D OP units, and 223,435 Class E OP
          units.  These OP units may, under certain circumstances, become
          exchangeable into common shares of the Company on a one-for-one
          basis.  The Class A unitholders are entitled to receive
          distributions per OP unit equal to the per share distributions on
          the Company's common shares.  During 1998, the Company  charged
          $78,706 to minority interest in operating partnership in the
          Consolidated Statements of Income relating to the Class A
          unitholders  allocated share of net income.  For the year ended
          December 31, 1998, the Class B, Class C, Class D and Class E
          unitholders were not entitled to receive an allocation of net
          income and did not receive any cash distributions from the
          operating partnership.

          Income Taxes

               The Company has elected to be taxed as a REIT under the
          Internal Revenue Code of 1986 (the "Code"), as amended.  As a
          REIT, the Company is entitled to a tax deduction for dividends
          paid to its shareholders, thereby effectively subjecting the
          distributed net income of the Company to taxation at the
          shareholder level only, provided it distributes at least 95% of
          its taxable income and meets certain other qualifications.

               The Service Companies operate as taxable C-corporations
          under the Code and have accounted for income taxes in accordance
          with the provisions of Statement of Financial Accounting Standard
          ("SFAS") No. 109, Accounting for Income Taxes.  Taxes are
          provided for those  Service Companies having net profits for both
          financial statements and income tax purposes.  For those Service
          Companies with net operating loss carryforwards, no tax benefits
          have been recorded and the related deferred tax assets have been
          offset in full through a valuation allowance.  The 1998 and 1997
          net operating loss carryforwards for the Service Companies, in
          the aggregate, are approximately $5,361,000 and $4,387,000 and
          expire in the years 2009 to 2018.

               At December 31, 1998 and 1997, the Company's net tax basis
          of properties exceeds the amount set forth in the Company's
          Consolidated Balance Sheets by $54 million and $83 million,
          respectively.

          Derivative Financial Instruments

               The Company may, from time to time, enter into treasury lock
          arrangements or interest rate swap contracts as hedges against
          increasing interest rates.  The Company does not utilize these
          arrangements for trading or speculative purposes.  These<PAGE>
          arrangements, considered qualifying hedges, are not recorded in
          the financial statements until the debt transaction is
          consummated and the arrangement is settled.  The proceeds or
          payments resulting from the settlement of the arrangement are
          deferred and amortized over the life of the debt as an adjustment
          to interest expense.  At December 31, 1998, there were no
          treasury lock arrangements, interest rate swap contracts or other
          derivative instruments outstanding.

          Recent Accounting Pronouncements

               In June 1997, the Financial Accounting Standards Board
          ("FASB") issued SFAS No. 130, Reporting Comprehensive Income. 
          This statement establishes standards for reporting the components
          of comprehensive income and requires that all items that are
          required to be recognized under accounting standards as
          components of comprehensive income be included in a financial
          statement that is displayed with the same prominence as other
          financial statements.  Comprehensive income includes net income
          as well as certain items that are reported directly within a
          separate component of stockholders' equity and bypass net income. 
          The Company adopted the provisions of this statement in 1998. 
          These disclosure requirements had no impact on financial position
          or results of operations.
<PAGE>F11
               In June 1997, the FASB issued SFAS No. 131, Disclosures
          about Segments of an Enterprise and Related Information.  The
          provisions of this statement require disclosure of financial and
          descriptive information about an enterprise's operating segments
          in annual and interim financial reports issued to shareholders. 
          The statement defines an operating segment as a component of an
          enterprise that engages in business activities that generate
          revenue and incur expense, whose operating results are reviewed
          by the chief operating decision maker in the determination of
          resource allocation and performance, and for which discrete
          financial information is available.  The Company adopted the
          provisions of this statement for its 1998 annual reporting. 
          These disclosure requirements had no impact on financial position
          or results of operations.

               In June 1998, the FASB issued SFAS No. 133, Accounting for
          Derivative Instruments and Hedging Activities.  The provisions of
          this statement require that derivative instruments be carried at
          fair value on the balance sheet.  The statement continues to
          allow derivative instruments to be used to hedge various risks
          and sets forth specific criteria to be used to determine when
          hedge accounting can be used.  The statement also provides for
          offsetting changes in fair value or cash flows of both the
          derivative and the hedged asset or liability to be recognized in
          earnings in the same period; however, any changes in fair value
          or cash flow that represent the ineffective portion of a hedge
          are required to be recognized in earnings and cannot be deferred. 
          For derivative instruments not accounted for as hedges, changes
          in fair value are required to be recognized in earnings.  The
          provisions of this statement become effective for quarterly and
          annual reporting beginning January 1, 2000.  Although the
          statement allows for early adoption in any quarterly period after
          June 1998, the Company has no plans to adopt the provisions of<PAGE>
          SFAS No. 133 prior to the effective date.  The impact of adopting
          the provisions of this statement on the Company's financial
          position, results of operations and cash flow subsequent to the
          effective date is not currently estimable and will depend on the
          financial position of the Company and the nature and purpose of
          the derivative instruments in use by management at that time.

          2.   DEVELOPMENT, ACQUISITION AND DISPOSITION ACTIVITY

          Development Activity

               Construction in progress, including the cost of land, for
          the development of multifamily properties was $53,740,292 and
          $16,439,393 at December 31, 1998 and 1997, respectively.  The
          Company capitalizes interest costs on funds used in construction,
          real estate taxes and insurance from the commencement of
          development activity through the time the property is ready for
          leasing.  Capitalized interest, real estate taxes and insurance
          aggregated  approximately $2,704,434, $1,880,830 and $1,394,800
          during the years ended December 31, 1998, 1997 and 1996,
          respectively.  During 1998, two projects were completed, The
          Residence at Barrington, a 288 unit property located in Aurora,
          Ohio (a suburb of Cleveland) at a total cost of construction of
          $25.1 million and The Village of Western Reserve, a 108 unit
          property located in Streetsboro, Ohio (a city located southeast
          of Cleveland) at a total cost of construction of $7.8 million. 
          During 1998, the construction and leasing of 184 additional 
          units at two of the Company's properties were completed at a
          total cost of $11.9 million.  During 1997, one project was
          completed, Bradford at Easton, a 324 unit property located in
          Columbus, Ohio at a total cost of construction of $18.8 million. 
          During 1997, the construction and leasing of 175 additional units
          at three of the Company's properties were completed at a total
          cost of $14.2 million.  During 1996, the construction and leasing
          of 116 additional units at two of the Company's properties were
          completed at a total cost of $6.5 million.
<PAGE>F12

          Acquisition Activity

               During 1998, without regard to the merger of MIGRA and the
          related acquisition of the eight MIG REIT Properties and the two
          properties held in the DownREIT, the Company acquired five
          multifamily properties containing 1,584 units and two parcels of
          land containing 90 acres for an aggregate purchase price of $99.1
          million, including $15.6 million of liabilities assumed,
          principally mortgage indebtedness of $15.0 million.  The acquired
          properties are located in Coconut Creek, Florida; Duluth,
          Georgia; Columbia, Maryland; Indianapolis, Indiana; and Toledo,
          Ohio.  The land parcels are located in Avon, Ohio and Atlanta,
          Georgia. The purchase price of the acquired properties was
          financed using borrowings under an unsecured 90 day term loan of
          $44.5 million and borrowings under the Company's Line of Credit
          of approximately $39.0 million.  Three of the five properties
          were acquired from an entity managed by MIGRA in anticipation of
          the consummation of the other MIGRA Related Transaction.  The
          three properties were owned, in part, by MIG Residential Trust. 
          The aggregate purchase price of these properties was $59.5
          million of which approximately $15.3 million represented assumed<PAGE>
          liabilities.

               On June 30, 1998, the Company consummated the remaining
          MIGRA Related Transaction, except for the acquisition of the
          newly developed property.  As consideration for their interest in
          MIGRA and the affiliated property management businesses, the
          shareholders of MIGRA received 408,314 of the Company's common
          shares.  The number of shares issued was determined based on the
          average closing price of the Company's common shares for the 20
          trading days preceding the date of the merger agreement or $23.63
          per share.  Subject to the achievement of certain performance
          criteria, the former shareholders of MIGRA have the opportunity
          to receive additional contingent consideration to be paid in the
          form of the Company's common shares.  After giving effect to
          certain price adjustments, contingent consideration payable on
          each of June 30, 1999 and 2000 is approximately $872,000 and $2.9
          million, respectively, and is subject to further adjustment.  On
          or about December 31, 1998, the conditions precedent to the
          payment of the first contingent consideration amount of $872,000
          had been satisfied.

               The Company also acquired the MIG REIT Properties for $12.2
          million in cash, the issuance of 5,139,387 common shares of the
          Company and the assumption of approximately $0.7 million in
          liabilities.  The number of common shares was determined based on
          the average closing price of the Company's common shares for the
          20 trading days preceding the purchase of the MIG REIT Properties
          or $18.76 per share.  The cash portion of the purchase price was 
          financed using borrowings made available through the Company's
          Line of Credit.

               In connection with the MIGRA Related Transaction, the
          Company also acquired the general and certain limited partnership
          interests in a partnership that owned a multifamily property in
          development.  In exchange for cash of $15.6 million, the Company
          received 661,663 OP units, representing a 59% general partnership
          interest in AERC HP Advisors Limited Partnership ("HP Advisors"),
<PAGE>F13

          an operating partnership, which owns a parcel of real property
          located in Orlando, Florida upon which a 460 unit multifamily
          apartment complex, Windsor at Kirkman Apartments, is being
          constructed.  Certain limited partners of HP Advisors received
          459,719 OP units, representing four classes of limited
          partnership interests, in exchange for their interests in Windsor
          at Kirkman Apartments.  The number of OP units issued was
          determined with reference to the Company's common shares and is
          based on the average closing price of the Company's common shares
          for the 20 trading days preceding the date of the merger
          agreement or $23.63 per share.  Commencing two years from the
          date of issuance, the holders of the Class A OP units can present
          such Class A OP units for redemption to the operating partnership
          for cash, subject to certain conditions.  The Company has the
          option to redeem the OP units for  common shares, exchangeable on
          a one-for-one basis, or the cash equivalent amount.  The Class B
          and C OP units and Class E OP units, become exchangeable at the
          option of the Company into Class A OP units upon the attainment
          of certain operating thresholds, one and two years from the date
          of the merger closing, respectively.  The cash paid by the
          Company in exchange for its OP units in HP Advisors was financed<PAGE>
          using borrowings made available through the Company's Line of
          Credit.

               In October 1998, the final MIGRA Related Transaction was
          completed by the Company acquiring the general and certain
          limited partnership interests in a partnership that owns a
          multifamily property located in Pembroke Pines, Florida
          containing 368 units for a purchase price of approximately $34.2
          million.  In exchange for cash of $16.0 million and the
          assumption of mortgage indebtedness of $16.5 million, the Company
          received 1,887,345 OP units, representing a general partnership
          interest in HP Advisors.  Certain limited partners of HP Advisors
          received 62,313 Class D OP units in exchange for their interests
          in the property. The number of OP units issued was determined
          based on the average closing price of the Company's common shares
          for the 20 trading days preceding the targeted closing date of
          the acquisition or $17.54 per share.  The Class D OP units are
          exchangeable into Class A OP units at the option of the Company,
          subject to certain  conditions, two years from the date of merger
          closing and upon the attainment of certain operating thresholds. 
          The cash paid by the Company in exchange for its OP units in HP
          Advisors was financed using borrowings made available through the
          Company's Line of Credit.

               The Company's right to exchange Class B, Class C, Class D
          and Class E OP units into Class A OP units is conditioned upon
          obtaining certain certificates of occupancy, as set forth in the
          agreement, at the Windsor at Kirkman Apartments property.

               In connection with the MIGRA Related Transaction, the
          Company recorded the following amounts: (i) accounts receivables
          and miscellaneous prepaid expenses of $2.9 million, (ii)
          intangible assets of $4.2 million, (iii) real estate assets of
          $239.7 million, (iv) accounts payable and accrued expenses of
          $4.8 million, (v) accrued real estate taxes of $0.5 million, (vi)
          security deposits of $0.8 million, (vii) mortgage indebtedness of
          $31.5 million, (viii) borrowings on the MIGRA Line of Credit
          Facilities of $1.0 million, (ix) borrowings on the Company's Line
          of Credit of $90.1 million, (x) operating partnership units of
          $12.0 million and (xi) common stock and additional paid in
          capital of $106.1 million.

               During 1997, the Company acquired, in separate purchase
          transactions, eight multifamily properties containing an
          aggregate of 1,762 units and two parcels of land consisting of
          14.7 acres for an aggregate purchase price of $105.1 million, of
          which $4.5 million represented liabilities assumed.  The acquired
          properties are located in Clinton Township and Farmington Hills,
          Michigan; Indianapolis, Indiana; and Cincinnati, Columbus and
          Toledo, Ohio.  The purchase price of these acquired properties
          has been financed primarily with proceeds from borrowings on the
          Company's Line of Credit.
<PAGE>F14
               During 1996, the Company acquired, in separate purchase
          transactions, six multifamily properties containing an aggregate
          of 1,289 units and three parcels of undeveloped land consisting
          of 43 acres for an aggregate purchase price of $59.1 million,
          which were financed with (i) borrowings under the Company's Line
          of Credit of $46.1 million, (ii) net proceeds of $9.9 million
          from the issuance of a Medium-Term Note and (iii) the assumption
          of mortgage indebtedness of $3.1 million.

          Disposition Activity

               In December 1998, the Company sold an operating property for
          net cash proceeds of $10.7 million, resulting in a gain of
          $503,497.  The net cash proceeds were used to pay down the
          Company's Line of Credit. 

               In December 1997, the Company sold a 90 acre parcel of land
          zoned for office and industrial use.  Net cash proceeds from the
          sale of $4.9 million, resulting in a gain of $1.6 million, were
          placed in a trust which restricted the Company's use of these
          funds for the exclusive purchase of other property of like-kind
          and qualifying use (Note 3).  The like-kind exchange was
          consummated in 1998.

          3.   RESTRICTED CASH

               Restricted cash, some of which is required by HUD for
          certain government-subsidized properties, includes residents'
          security deposits, reserve funds for replacements, other escrows
          held for the future payment of real estate taxes and in 1997,
          funds held in trust for a pending like-kind exchange (Note 2). 
          The reserve funds for replacements are intended to provide cash
          to defray future costs that may be incurred to maintain the
          associated property.  In addition, certain escrows are maintained
          in connection with mortgage servicing operations.

               Restricted cash is comprised of the following:
<TABLE>
<CAPTION>
                                                 1998          1997    

               <S>                            <C>         <C>
               Like-kind exchange trust       $         -  $  4,863,760
               Resident security deposits         862,369       805,172
               Investor's escrow                2,445,352             -
               Escrow and reserve funds for              
                replacements required by
                mortgagees                      3,411,142     4,456,581
                                              $ 6,718,863  $ 10,125,513
</TABLE>

               Amounts held in the like-kind exchange trust were invested
          in money market funds at December 31, 1997.  These funds were
          used exclusively for the purchase of a multifamily property in a
          like-kind exchange (Note 2). Resident security deposits are held
          in separate bank accounts in the name of the properties for which
          the funds are being held.  Investor's escrow represent funds held
          by the Company primarily for the payment of operating expenses
          associated with properties managed by the Company on behalf of
          its pension fund clients.  These funds are held in short term
          investments.  Reserve funds for replacements are invested in a
          combination of money market funds, U.S. treasury bills with
          maturities less than 18 months, and collateralized mortgage
          obligations issued by the Federal Home Loan Mortgage Company
          ("FHLMC") maturing in 2023.

<PAGE>15
               Debt securities owned with a maturity at date of purchase of
          less than 18 months are classified as "held to maturity" and
          securities with a maturity at date of purchase greater than 18
          months are classified as "available for sale".  Securities
          classified as held to maturity are measured at amortized cost. 
          Securities classified as available for sale are measured at fair
          value.  Adjustments to fair value of the securities available for
          sale, in the form of unrealized holding gains and losses, is
          excluded from earnings and reported net of tax, where applicable,
          as a separate component of comprehensive income.  At December 31,<PAGE>
          1998 and 1997, held to maturity securities included: treasury
          bills with a cost of $848,917 and $1,873,088 and a fair value of
          $876,235 and $1,904,255, respectively, and certificates of
          deposits with a cost and estimated fair value of $488,000 at
          December 31, 1998.  Available for sale investments included FHLMC
          securities with a cost of $99,500 and $398,000 at December 31,
          1998 and 1997, respectively.

          4.   INTANGIBLE AND OTHER ASSETS

               Intangible assets, deferred charges and prepaid expenses
          consist of the following:
<TABLE>
<CAPTION>
                                                    1998           1997    

          <S>                                   <C>            <C> 
          Intangible assets                     $  4,159,236   $        - 
          Deferred financing and leasing costs     5,147,550    3,739,789 
          Less:  accumulated amortization         (1,547,429)    (886,000)
                                                   7,759,357    2,853,789 
          Prepaid expenses                         3,914,114    2,325,067 
          Other assets                             1,420,501    1,442,548 
                                                $ 13,093,972   $6,621,404 
</TABLE>


               Amortization expense was $1,325,251, $700,118, and $608,594
          for the years ended December 31, 1998, 1997 and 1996,
          respectively.

          5.   EXTRAORDINARY ITEMS AND OTHER CHARGES

               In 1998, upon the refinancing of the Line of Credit,
          unamortized deferred financing costs were written off.  In 1997,
          an unamortized debt premium was written off upon the early
          repayment of mortgage debt.  These transactions have been
          reflected as an extraordinary loss of $124,895 and an
          extraordinary gain of $1,023,713 in 1998 and 1997, respectively.

               During 1998, the Company abandoned its efforts to convert
          its proprietary automated leasing information system to a
          Windows(c) version.  Accordingly, the Company wrote off $817,485
          of costs which had been previously capitalized.  This write-off
          is reflected in the Consolidated Statements of Income.

               During 1998 and 1997, the Company wrote off $91,827 and
          $1,764,044, respectively, of receivables.  The 1998 receivable
          write-off was comprised of an advance to a former managed but
          non-owned, non-related party property.  The 1997 receivable
          write-off was principally comprised of two advances to managed
          but non-owned, non-related party properties.  Additionally, in
          1998, the Company reserved $200,000 with respect to a receivable
          from an investor in a managed but non-owned property.  This
          write-off and reserve is reflected as a charge for unrecoverable
          funds advanced to non-owned properties and other in the
          Consolidated Statements of Income.
<PAGE>F16

          6.   DEBT

               The Company's borrowings are evidenced by both secured and
          unsecured debt.  Secured debt consists of the following:
<TABLE>
<CAPTION>
                                                      1998         1997    

           <S>                                   <C>           <C>
           Conventional mortgage debt, maturing
             at various dates to 2007             $52,176,354  $29,396,477
           Federally insured mortgage debt,
             maturing at various dates to 2024     27,866,313   28,421,504
                                                  $80,042,667  $57,817,981
</TABLE>


          Conventional Mortgage Debt

               Conventional mortgages payable are comprised of seven and
          four loans at December 31, 1998 and 1997, respectively, each of
          which is collateralized by the associated real estate and
          resident leases.  All but one conventional mortgage with a
          principal amount of $16.5 million assumed in 1998 are
          nonrecourse, fixed rate, project specific loans.  The remaining
          loan has a variable interest rate.  Mortgages payable are
          generally due in monthly installments of principal and/or
          interest and mature at various dates through March 1, 2007.  On
          June 30, 1998, the Company paid off a variable rate $8.1 million
          mortgage.  The weighted average interest rate of the conventional
          fixed rate mortgages was 8.75% and 8.52% at December 31, 1998 and
          1997, respectively.  The weighted average interest rate of the
          conventional variable rate mortgages was 6.94% at December 31,
          1998.

          Federally Insured Mortgage Debt

               Federally insured mortgage debt which encumbered seven of
          the properties at December 31, 1998 and 1997 (including one
          property which is funded through Industrial Development Bonds),
          is insured by HUD pursuant to one of the mortgage insurance
          programs administered under the National Housing Act of 1934. 
          These government-insured loans are nonrecourse to the Company. 
          Payments of principal, interest and HUD mortgage insurance
          premiums are made in equal monthly installments and mature at
          various dates through March 1, 2024.  At December 31, 1998, six
          of the seven federally insured mortgages have a fixed rate and
          the remaining mortgage ($1,841,854) is variable rate.  Interest
          rates on the HUD-insured indebtedness range from 7.0% to 10.25%. 
          The weighted average interest rate of the federally insured
          mortgages was 7.63% at December 31, 1998 and 1997.

               Under certain of the mortgage agreements, the Company is
          required to make escrow deposits for taxes, insurance and
          replacement of project assets.  The variable rate mortgage is
          secured by a letter of credit which is renewed annually.

               Real estate assets pledged as collateral for all mortgage
          debt had a net book value of $116,367,505 and $50,030,137 at
          December 31, 1998 and 1997, respectively.

               Unsecured debt consists of the following:
<TABLE>
<CAPTION>
                                                1998          1997    
   <S>                                      <C>           <C>
   Senior Notes, due 2000 to 2002 with
     interest payable quarterly, net of
     unamortized discounts of $84,097 and
     $147,693                               $  84,915,903 $  84,852,307
   Medium-Term Notes, due 2001 to 2026
     with interest payable quarterly          112,500,000    92,500,000
   Line of Credit, due 2001                   226,446,565    83,000,000
                                            $ 423,862,468 $ 260,352,307<PAGE>
</TABLE>

<PAGE>F17

          Senior Notes

               The Senior Notes were issued during 1995 in the principal
          amounts of $75 million and $10 million and accrue interest at
          8.38% and 7.10%, respectively, and mature in 2000 and 2002,
          respectively.  The balance of the $75 million Senior Note, net of
          unamortized discounts, was $74.9 million at December 31, 1998 and
          1997.

          Medium-Term Notes Program

               The Company had 11 Medium-Term Notes (the "MTN's")
          outstanding having an aggregate balance of $112.5 million and ten
          MTN's outstanding with an aggregate balance of $92.5 million at
          December 31, 1998 and 1997, respectively.  The principal amounts
          of these MTN's range from $2.5 million to $20 million and bear
          interest from 6.18% to 7.93% over terms ranging from two to 30
          years, with a stated weighted average maturity of 9.27 years at
          December 31, 1998.  The holders of two MTN's with stated terms of
          30 years each have a right to repayment of five and seven years
          from the issue date of the respective MTN.  If these holders
          exercised their right to prepayment, the weighted average
          maturity would be 4.91 years.  The weighted average interest rate
          of the 11 MTN's is 6.99% for the year ended December 31, 1998 and
          6.97% for the ten MTN's for the year ended December 31, 1997. 
          One and four of the MTN's in the aggregate amounts of $20.0
          million and $50.0 million were issued in 1998 and 1997,
          respectively, with the balance issued in 1996.

               The Company's current MTN Program provides for the issuance,
          from time to time, of up to $102.5 million of MTN's due nine
          months or more from the date of issue and may be subject to
          redemption at the option of the Company or repayment at the
          option of the holder prior to the stated maturity date.  These
          MTN's may bear interest at fixed rates or at floating rates and
          can be issued in minimum denominations of $1,000.  At December
          31, 1998, there was $62.5 million of additional MTN borrowings
          available under the program.

               From time to time, the Company may enter into hedge
          agreements to minimize its exposure to interest rate risks. 
          There are no interest rate protection agreements outstanding as
          of December 31, 1998.

          Line of Credit

               In June 1998, the Company completed a new unsecured $200
          million revolving credit facility (the "Line of Credit") which
          replaced a $100 million unsecured revolving credit facility. 
          During the third quarter of 1998, the Line of Credit was
          increased from $200 million to $250 million.  The new agreement
          provides for an extension of the term for an additional year
          through June 2001 with the Company having the option to extend
          the term through June 2002.  The Line of Credit includes certain<PAGE>
          restrictive covenants which, among others, requires the Company
          to (i) maintain a minimum level of net worth, (ii) limit
          dividends to less than 95% and 90% of Distributable Cash Flow, as
          defined in the agreement, for 1999 and 2000, respectively, and
          (iii) maintain certain debt coverage ratios.  The Company's
          borrowings under this Line of Credit bear interest at variable
          rates based on the prime rate or LIBOR plus a specified spread,
          depending on the Company's long term senior unsecured debt rating
          from Standard and Poor's and Moody's Investors Service.  An
          annual commitment fee of 15 basis points on the maximum
          commitment, as defined in the agreement, payable annually in
          advance on each anniversary date.  The Line of Credit is used to
          finance the acquisition of properties, to provide working capital
          and for general corporate purposes.  At December 31, 1998 and
          1997, $226.0 million and $83.0 million, respectively, were
          outstanding under this facility.  The weighted average interest
          rate on borrowings outstanding under the Line of Credit was 6.88%
          and 7.04% at December 31, 1998 and 1997, respectively.
<PAGE>F18
               At March 31, 1998, the Company was in violation of certain
          financial ratio covenants under the Line of Credit.  The Company
          received waivers of those violations through June 30, 1998. 
          Additionally, the Company advised its bank group that it was not
          in compliance with one of the financial covenants concerning the
          Company's net worth as of September 30, 1998.  The net worth
          covenant required that the Company maintain a minimum net worth
          of $400 million, based on a formula that incorporates the
          annualized multiple of the most recent quarter's earnings before
          interest, taxes, depreciation and amortization ("EBITDA"), as
          defined in the agreement.  The Company negotiated with its bank
          group for a waiver by the banks of the breach of the net worth
          covenant, along with an increase in borrowing costs under its
          Line of Credit from LIBOR plus 100 basis points to LIBOR plus 140
          basis points.  In addition, certain of the covenants, including
          the minimum net worth covenant, were modified to provide the
          Company with a limited increase in flexibility.  The minimum net
          worth covenant was reduced from $400 million to $325 million. 
          The bank group continued to make advances under the Line of
          Credit following the Company's notification that it was not in
          compliance with the net worth covenant.  A $395,000 default
          waiver fee was paid in December 1998 and is reflected in the
          Consolidated Statements of Income.

               MIGRA maintains a $500,000 Line of Credit facility ("MIGRA
          Line of Credit Facility") which the Company assumed at the time
          of the merger.  MIGRA's borrowings under this facility bears
          interest at prime plus one percent.  The MIGRA Line of Credit
          Facility matures on May 1, 2000.  At December 31, 1998, $446,565
          was outstanding under this facility.  The weighted average
          interest rate on borrowings outstanding under the MIGRA Line of
          Credit Facility was 9.85% at December 31, 1998.  In connection
          with the merger, the Company assumed an additional $500,000 Line
          of Credit Facility that was paid off at maturity, on October 31,
          1998. 

               As of December 31, 1998, the scheduled maturities of secured
          and unsecured indebtedness for each of the next five years and
          thereafter, are as follows:
<TABLE>

                <S>                 <C>
                1999                $  21,708,053
                2000                   90,807,745
                2001                  264,686,455
                2002                   26,209,368
                2003                   13,812,869
                Thereafter             86,680,645
                                    $ 503,905,135
</TABLE>
          7.   INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

               At December 31, 1998, the Company's interests in the joint
          venture partnerships are as follows:
<TABLE>
<CAPTION>
                                     Ownership

                <S>                     <C>
                Americana               33-1/3%
                Euclid House            33-1/3%
                Gates Mills Towers      33-1/3%
                Watergate               33-1/3%
                College Towers           50%
                Highland House           50%
                Lakeshore Village        50%
</TABLE>
               Summarized financial information for these joint ventures is
          as follows:
<TABLE>
<CAPTION>

          Balance sheet data
                                      1998          1997    

   <S>                            <C>           <C>
   Real estate, net               $12,860,390   $13,812,528 
   Other assets                     4,196,368     4,171,028 
                                  $17,056,758   $17,983,556 

   Amounts payable to the Company $   159,872   $   147,349 
   Mortgages payable               50,374,723    51,132,057 
   Other liabilities                3,641,143     2,995,699 
   Accumulated deficit            (37,118,980)  (36,291,549)
                                  $17,056,758   $17,983,556 
</TABLE>

<TABLE>
<CAPTION>
          Operating data
                                                    1998          1997         1996    

          <S>                                   <C>           <C>          <C>
          Rental revenues                       $19,278,712   $18,775,127  $18,254,406
          Other revenues                            174,774       129,490      127,729
          Operating and maintenance expenses     12,316,421    11,020,783   11,093,688
          Depreciation and amortization           1,316,451     1,384,453    1,493,727
          Interest expense                        4,803,070     5,119,462    5,176,499
          Net income                            $ 1,017,544   $ 1,379,919  $   618,221

          Company's proportionate interest in:
             Depreciation and amortization      $   475,675   $   496,983  $   533,248
             Interest expense                     1,656,652     1,763,156    1,782,706
             Net income of joint ventures           444,692       560,934      305,189<PAGE>
</TABLE>

               The Company's proportionate share of net distributions was
          $701,143, $485,513 and $509,977 for the years ended December 31,
          1998, 1997 and 1996, respectively.  Revenues from property
          management fees charged to joint ventures aggregated $784,111,
          $764,338 and $746,514 for the years ended December 31, 1998, 1997
          and 1996, respectively.  The corresponding expenses are included
          in the operating and maintenance expenses of the joint ventures,
          as set forth above.

               Lakeshore Village is governed by regulations pursuant to the
          property's rent subsidy and mortgage insurance programs under
          HUD, which contain provisions governing certain aspects of the
          operations of the property (Note 10).  Rent subsidies of
          $739,278, $785,883 and $802,517 for the years ended December 31,
          1998, 1997 and 1996, respectively, were received by the property.

          8.   TRANSACTIONS WITH AFFILIATES AND JOINT VENTURES

          Management and Other Services
               The Company provides management and other services to (and
          is reimbursed for certain expenses incurred on behalf of) certain
          non-owned properties in which the Company's Chief Executive
          Officer and/or other related parties have varying ownership
          interests.  The entities which own these properties, as well as
          other related parties, are referred to as "affiliates".  The
          Company also provides similar services to joint venture
          properties.
<PAGE>F20

               Summarized affiliate and joint venture transaction activity
          follows:

<TABLE>
<CAPTION>

                                                 1998          1997         1996    

   <S>                                       <C>           <C>          <C>
   Property management fee and other
    miscellaneous service revenues
                       - affiliates          $ 2,283,066   $ 2,416,850  $ 2,530,165 
                       - joint ventures          939,813       921,701      903,593 
   Painting service revenues
                       - affiliates              350,014       460,218      944,769 
                       - joint ventures          322,831       165,956      155,763 
   Expenses incurred on behalf of and                                  
     reimbursed by (1) - affiliates            4,426,066     4,478,437    3,959,548 
                       - joint ventures        2,626,631     2,540,621    2,509,324 
   Interest income     - affiliates              695,367       697,990      201,238 
   Interest expense    - affiliates             (344,448)     (297,246)    (261,071)
                       - joint ventures          (24,324)      (24,091)     (21,865)
<FN>
              
          (1)  Primarily payroll and employee benefits, reimbursed at cost.<PAGE>
</FN>
</TABLE>

               Property management fees and other miscellaneous receivables
          due from affiliates and joint venture properties aggregated
          $6,677,611 and $4,542,798 at December 31, 1998 and 1997,
          respectively.  Other miscellaneous payables due to affiliates and
          joint venture properties aggregated $0 and $329,000 at December
          31, 1998 and 1997, respectively.

          Advances to Affiliates and Joint Ventures
               In the normal course of business, the Company advances funds
          on behalf of, or holds funds for the benefit of, affiliates and
          joint ventures.  Funds advanced to affiliates and joint ventures
          aggregated $5,555,732 and $880,057 at December 31, 1998,
          respectively, and $9,048,403 and $847,954 at December 31, 1997,
          respectively.  Except for insignificant amounts, advances to
          affiliates bear interest; the weighted average rate charged was
          8.3% during 1998 and 1997.  The Company held funds for the
          benefit of affiliates and joint ventures in the aggregate amount
          of $3,174,898 and $2,178,496 at December 31, 1998, respectively,
          and $4,989,674 and $1,805,543 at December 31, 1997, respectively.

               In February 1998, certain affiliated entities which owed the
          Company a substantial amount of the advances described above,
          made capital calls to their partners for the purpose of effecting
          repayment of such advances.  Thereafter, approximately $4.0
          million of advances were repaid pursuant to such capital calls. 
          However, a corporation (the "Corporation") owned by a member of
          the Company's Board of Directors, and his siblings (including the
          wife of the Company's Chairman and Chief Executive Officer) which
          serves as general partner of certain affiliated entities, had
          informed the Company that the Corporation has caused the
          commencement of a review giving rise to expenditures of
          approximately $2.9 million of capital calls relating to certain
          HUD subsidized properties.  The Company believed that all
          expenditures were appropriate and that the ultimate outcome of
          any disagreement would not have a material adverse effect on the
          Company's financial position, results of operations or cash
          flows.  
<PAGE>F21
               On March 11, 1999, the Company, the Corporation, certain
          shareholders of the Corporation and others entered into a
          settlement agreement which resolved all disputes concerning the
          aforementioned expenditures and other issues concerning the
          management by the Company or one of its Service Companies of
          various properties owned by entities in which the Corporation was
          a general partner.  Pursuant to that settlement agreement, the
          Corporation and other affiliates funded all outstanding advances
          made by the Company.  At December 31, 1998, amounts outstanding
          which were subsequently funded pursuant to the settlement
          agreement were $4.7 million.

          Notes receivable
               At December 31, 1998 and 1997, two notes of equal amounts
          were receivable from the Company's Chief Executive Officer
          aggregating $3,342,000 (included in "Accounts and notes
          receivables-affiliates and joint ventures").  The notes were
          entered into on May 23, 1997 and bear interest, payable quarterly
          at the 30-day LIBOR plus the LIBOR margin on the Company's Line
          of Credit, with principal due May 1, 2002.  The 30-day LIBOR
          averaged 5.57% during 1998.  One of the notes is collateralized
          by 150,000 of the Company's common shares; the other note is
          unsecured.  The Company recognized interest income of $227,833
          and $143,289 for the years ended December 31, 1998 and 1997,
          respectively, relating to these notes.

          9.   NOTEHOLDER INTEREST

               The Company has a noteholder interest in one multifamily
          property which, since 1984, has been unable to generate
          sufficient cash flow, as defined, to meet the scheduled interest
          payments under notes payable to the Company.  Accordingly, the
          Company is entitled to all cash flows from operations.  To the
          extent that the cumulative unpaid debt service on the notes is
          greater than seven years of aggregate principal and interest
          amortization (the cumulative amount of debt service), which
          occurred in 1995, the Company can exercise its rights under a
          security agreement and foreclose on the property.  Because, in
          substance, the Company will eventually own title to the property,
          most likely through foreclosure, the property is presented in the
          financial statements as if owned by the Company.  Summarized
          financial information for this property is as follows:
<TABLE>
<CAPTION>
                                             1998        1997    

                <S>                      <C>         <C>
                Real estate, net         $1,301,603  $1,441,646 
                Other assets                847,497     803,416 
                                         $2,149,100  $2,245,062 

                Mortgage notes payable   $4,125,834  $4,295,287 
                Other liabilities           360,745     399,677 
                Accumulated deficit      (2,337,479) (2,449,902)
                                         $2,149,100  $2,245,062 
</TABLE>

<TABLE>
<CAPTION>
                                            1998       1997       1996   

               <S>                       <C>        <C>        <C>
               Rental and other revenue  $2,309,937 $2,264,592 $2,270,750
               Property operating and
                  maintenance expenses    1,444,442  1,392,571  1,202,178
               Depreciation and             151,814    148,224    143,949
               amortization
               Interest expense             317,244    325,764    335,644
               Net income                $  396,437 $  398,033 $  588,979

</TABLE>

<PAGE>F22

          10.  COMMITMENTS AND CONTINGENCIES

          Leases
               The Company owns one property which derives part of its
          rental revenues from commercial tenants with noncancellable
          operating leases.  Future minimum lease payments to be received,
          assuming no new or renegotiated leases, or option extensions, for
          each of the next five years and thereafter, are as follows:

<TABLE>
                         <S>               <C> 
                         1999              $   949,778
                         2000                  643,140
                         2001                  327,036
                         2002                   80,057
                         2003                   70,686
                         Thereafter            353,433
                                           $ 2,424,130
</TABLE>
               The Company leases certain equipment under capital leases. 
          Such equipment is included in property, plant and equipment with
          a cost of $1,599,473 and accumulated depreciation of $702,929 at
          December 31, 1998.  The Company also leases certain equipment
          under operating leases.  Future minimum lease payments under all
          capital and noncancellable operating leases in which the Company
          is the lessee, principally for ground leases, for each of the<PAGE>
          next five years and thereafter, are as follows:

<TABLE>
<CAPTION>
                                            Capital     Operating 

                         <S>               <C>         <C>
                         1999              $  410,666  $  129,521
                         2000                 235,321     129,521
                         2001                 140,485     127,166
                         2002                  69,763     101,261
                         2003                   5,302     101,261
                         Thereafter                 -   5,175,418
                                              861,537  $5,764,148
                         Less interest         95,369
                                           $  766,168
</TABLE>
               Certain of the ground lease agreements contain provisions
          which, upon expiration of the lease, require reversion of the
          land and building to the lessor.  Such provisions exist for nine
          properties included in the financial statements and expire at
          various dates from 2021 to 2086.  Rental revenues derived from
          such properties were $9,558,571, $9,476,338 and $9,376,871 for
          the years ended December 31, 1998, 1997 and 1996, respectively. 
          Furthermore, at the end of the term of the lease, any remaining
          replacement reserves revert to the lessor.  Management believes
          that the replacement reserves will be utilized for their intended
          purpose prior to the end of the lease term.  Such cash reserves
          included in restricted cash were $1,257,605 and $1,564,010 at
          December 31, 1998 and 1997, respectively.  With respect to such
          leases, the Company incurred ground rent expense of $101,261 for
          each of the years ended December 31, 1998, 1997 and 1996.

               The Company owns one property which is subject to a warranty
          deed reversion provision.  This provision requires that the
          assignment of fee simple title shall expire in 2037.  At December
          31, 1998, the net book value of this property was $1,619,006.
<PAGE>F23
          Government Programs
               Certain of the Company's properties are governed by
          regulations pursuant to rent subsidies or mortgage insurance
          programs, which contain provisions governing certain aspects of
          the operations of the properties.  Among other things, such
          provisions may include the maintenance of a reserve fund for
          replacements, the renting of properties to qualifying residents,
          and the requirement to make distributions in accordance with
          certain regulations.  Certain approvals may be required to
          encumber properties having rental subsidies.

               The rent subsidy program provides that HUD will make monthly
          housing assistance payments to the Company on behalf of persons
          who reside in approved properties and who meet the eligibility
          criteria.  The amount of the total monthly rental and the subsidy
          is determined at least annually by HUD.  This arrangement is
          evidenced by a contract between HUD and the Company.  Such
          contracts have scheduled expiration dates between August 2000 and
          November 2019.  HUD may abate subsidy payments if the Company
          defaults on any obligations under such contracts and fails to
          cure each default after receiving notice thereof.  Rent subsidies
          of $10,403,845, $11,004,881 and $11,174,488 for the years ended
          December 31, 1998, 1997 and 1996, respectively, were recognized
          in income by the 15 wholly owned properties eligible for federal
          rent subsidies.  As discussed in Note 6, certain obligations are
          insured by federal mortgage insurance programs.  The Company
          believes that either the contracts will be renewed, the Company
          will enter into another government subsidized or mortgage<PAGE>
          restructuring program, or that the properties will be operated as
          conventional, market-rate apartments upon expiration of the
          contracts.

          11.  RAINBOW TERRACE APARTMENTS

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

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

               In June 1998, HUD notified the Company that all future
          Housing Assistance Payments ("HAP") for RTA were abated and
          instructed the lender to accelerate the balance due under the
          mortgage.  Subsequent to the notification of the HAP abatements
          and the acceleration of the mortgage, the lender advised the
          Company that the acceleration notification had been rescinded
          pursuant to HUD's instruction.  HUD then notified the Company
          that the HAP payments would be reinstated and that HUD was
          reviewing further information concerning RTA provided by the
          Company.  The Company has received the monthly HAP payments for
          RTA. 
<PAGE>F24
               In June 1998, the Company filed a lawsuit against HUD
          seeking to compel HUD to review certain budget based rent
          increases submitted to HUD by the Company in 1995. 

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

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

               Under the terms of the Settlement Agreement, HUD has agreed
          to pay RTA a retroactive rent increase totaling $1,784,467, which 
          represents the outstanding receivable at December 31, 1998.  HUD
          has further agreed to release the Company, AEMC, RTA and the
          owners and principals of PVA, Longwood and Vanguard from all
          claims (other than tax or criminal fraud claims) regarding the
          ownership or operation of Rainbow Terrace Apartments, Park
          Village, Longwood and Vanguard.  Moreover, HUD has agreed not to
          issue a limited denial of participation, debarment or suspension,
          program fraud civil remedy action or civil money penalty,
          resulting from the ownership or management of any of these
          projects, or to deny eligibility to any of their owners,
          management agents or affiliates for participation in any HUD
          program on such basis.

               HUD's obligations under the Settlement Agreement are
          conditional upon the performance by the Company, RTA and PVA of
          certain obligations, the most significant of which is the
          obligation to identify, on or before April 11, 1999, prospective
          purchasers for both Rainbow Terrace Apartments and Park Village
          who are acceptable to HUD, and upon HUD's approval, convey those
          projects to such purchasers.  Alternatively, if RTA and PVA are
          unable to identify prospective purchasers acceptable to HUD, then
          RTA and PVA have agreed to convey both projects to HUD pursuant
          to deeds in lieu of foreclosure.  In either case (conveyance to a
          HUD approved purchaser or deed in lieu of foreclosure), no
          remuneration will be received by either RTA or PVA in return,
          except for the $1.78 million retroactive rent increase payable to
          RTA mentioned above.  At December 31, 1998, the Company had
          receivables of $1.78 million related to the 1995 retroactive
          rental increase requests, which include additional amounts of
          $430,737 relating to 1998 rental increase requests.  At December
          31, 1998, RTA had net assets of $1.8 million, including the
          retroactive rental receivable of $1.78 million due from HUD, and
          a remaining amount due under the mortgage of $1.9 million. The
          transfer of RTA to a purchaser which is acceptable to HUD or the
          direct transfer of RTA to HUD is not expected to have a material
          impact on the results of operations or cash flows of the Company.

<PAGE>F25

          12.  DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

               The following disclosures of estimated fair value were
          determined by management using available market information and
          appropriate valuation methodologies.  Considerable judgment is
          necessary to interpret market data and develop estimated fair
          values.  Accordingly, the estimates presented herein are not
          necessarily indicative of the amounts the Company could realize
          on disposition of the financial instruments.  The use of
          different market assumptions and/or estimation methodologies may
          have a material effect on the estimated fair value amounts.

               Rents, accounts and notes receivable, accounts payable,
          accrued expenses and other liabilities are carried at amounts<PAGE>
          which reasonably approximate corresponding fair values.

               Mortgages and notes payable with an aggregate carrying value
          of $80,042,667 and $57,817,981 at December 31, 1998 and 1997,
          respectively, have an estimated aggregate fair value of
          approximately $84,634,040 and $60,958,924, respectively.  The
          Line of Credit is carried at an amount which approximates fair
          market value.  Estimated fair value is based on interest rates
          currently available to the Company for issuance of debt with
          similar terms and remaining maturities.

               Senior and Medium-Term Notes with an aggregate carrying
          value of $197,415,903 and $177,352,307 at December 31, 1998 and
          1997, respectively, have an estimated fair value of $210,908,014
          and $185,572,168, respectively.

               The Company may, from time to time, enter into interest rate
          agreements to manage interest costs and risks associated with
          changing rates.  The Company does not utilize these agreements
          for trading or speculative purposes.  These agreements,
          considered qualifying hedges, are not recorded in the financial
          statements until the debt transaction is consummated and the
          agreement is settled.  On December 12, 1997, the Company entered
          into a treasury lock rate agreement for a notional amount of
          $20,000,000 which has since been settled.  The carrying value of
          the agreement was zero and the fair market value was a liability
          of approximately $76,000 at December 31, 1997.  There were no
          such agreements at December 31, 1998.

               Disclosure about the fair value of financial instruments is
          based on pertinent information available to management as of
          December 31, 1998 and 1997.  Although management is not aware of
          any factors that would significantly affect the fair value
          amounts, such amounts have not been comprehensively revalued for
          purposes of these financial statements since these dates and
          current estimates of fair value may differ significantly from the
          amounts presented herein.

          13.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

               Cash paid for interest for the years ended December 31,
          1998, 1997 and 1996 was $29,867,753, $19,628,642 and $16,294,050,
          respectively, which includes capitalized interest.

<PAGE>F26
               The following summarizes the non-cash investing and
          financing activities of the Company which are not reflected in
          the Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>

                                            1998          1997        1996   
   <S>                                 <C>            <C>       <S>
   Issuance of common shares in
    connection with the acquisition
    of MIG REIT Properties and the
    MIGRA merger                        $106,063,359   $         - $        -
   Issuance of OP units in connection
    with the acquisition of partnership
    interests in two properties           11,956,174             -          -
   Assumption of mortgage debt in
    connection with the acquisition
    of properties                         31,468,622             -  3,036,251
   Assumption of liabilities in
    connection with the acquisition
    of properties                          6,225,251     4,448,956    923,691
   Dividends declared but not paid        10,507,586     7,938,692  6,895,071
   Capital lease obligations                 548,867       339,745    319,802
   Offering expenses accrued                  37,022        37,771     96,785<PAGE>
</TABLE>

          14.  COMMON, TREASURY AND PREFERRED SHARES

          Common Shares
               In  June and July 1998, the Company issued 408,314 and
          5,139,387 common shares relating to the Company's merger of MIGRA
          and the related acquisition of eight multifamily properties,
          respectively.

               On July 2, 1997, the Company completed an offering of
          1,750,000 common shares at $23.50 per share.  The net proceeds of
          approximately $38.8 million were applied to reduce debt.

               On December 17, 1996, the Company completed an offering of
          1,450,000 common shares at $22.375 per share.  The net proceeds
          of approximately $30.7 million were applied to reduce debt.

          Treasury Shares
               On June 29, 1998, the Company's Board of Directors
          authorized management to purchase, from time to time, up to
          1,000,000 common shares at market prices.  The timing of stock
          purchases are made at the discretion of management.  During the
          third quarter of 1998, 25,000 shares were repurchased at an
          aggregate cost of $466,523 which was funded primarily from
          operating cash flows.

          Preferred Shares
               At December 31, 1998, 2,250,000 Depositary Shares were
          outstanding, each representing 1/10 of a share of the Company's
          9.75% Class A Cumulative Redeemable Preferred Shares (the
          "Perpetual Preferred Shares").  Dividends on the Perpetual
          Preferred Shares are cumulative from the date of issue and are
          payable quarterly.  Except in certain circumstances relating to
          the preservation of the Company's status as a REIT, the Perpetual
          Preferred Shares are not redeemable prior to July 25, 2000.  On
          and after July 25, 2000, the Perpetual Preferred Shares will be
          redeemable for cash at the option of the Company.

               The Company is authorized to issue 3,000,000 Class B
          Cumulative Preferred Shares, without par value, and 3,000,000
          Noncumulative Preferred Shares, without par value.  There are no
          noncumulative preferred shares issued or outstanding at December
          31, 1998, 1997 or 1996.

<PAGE>F27

          15.  EARNINGS AND DIVIDENDS PER SHARE

          Earnings Per Share

               Earnings per share ("EPS") has been computed pursuant to the
          provisions  of SFAS No. 128.

               The following table provides a reconciliation of both income
          before extraordinary items and the number of common shares used
          in the computation of basic EPS, which utilizes the weighted
          average number of common shares outstanding without regard to
          dilutive potential common shares, and diluted EPS, which includes
          all such shares.
<TABLE>
<CAPTION>
                                                        For the year ended December 31,     
                                                       1998          1997          1996    

          <S>                                      <C>           <C>           <C>
          Basic Earnings Per Share:
          Income before extraordinary items        $17,639,657   $ 19,688,656  $ 19,303,988 
            Less: Preferred share dividends         (5,484,421)    (5,484,421)   (5,484,422)
          Income before extraordinary items
             applicable to common shares            12,155,236     14,204,235    13,819,566 
            Extraordinary items (loss) gain           (124,895)     1,023,713             - 
          Net income applicable to common
             shares                                $12,030,341   $ 15,227,948  $ 13,819,566 

          Diluted Earnings Per Share:
          Income before extraordinary items        $17,639,657   $ 19,688,656  $ 19,303,988 
            Add: Minority interest in
                  operating partnership                 39,353              -             - 
            Less:Preferred share dividends          (5,484,421)    (5,484,421)   (5,484,422)
                  Amortization expense
                   relating to contingent
                   merger consideration                (34,816)             -             - 
          Income before extraordinary items
             applicable to common shares            12,159,773     14,204,235    13,819,566 
            Extraordinary items gain (loss)           (124,895)     1,023,713             - 
          Net income applicable to common
            shares                                 $12,034,878   $ 15,227,948  $ 13,819,566 

          Number of Shares:                                                   
          Basic-average shares outstanding          19,865,335     16,198,499    13,931,807 
            Add: Dilutive effect of stock
                  options                               22,172         17,014             - 
                Operating partnership units            154,924              -             - 
                 Contingent merger
                  consideration                         17,442              -             - 
            Diluted shares                          20,059,873     16,215,513    13,931,807 

          Per Share Amount-Net Income
            Before Extraordinary Item:
              Basic                                $       .61   $        .88  $        .99 
              Diluted                              $       .60   $        .88  $        .99 

          Per Share Amount-Net Income:
              Basic                                $       .61   $        .94  $        .99 
              Diluted                              $       .60   $        .94  $        .99 <PAGE>
</TABLE>

<PAGE>F28

               Options to purchase 1,310,874, 988,674 and 334,474 common
          shares were outstanding at December 31, 1998, 1997 and 1996,
          respectively (Note 16), a portion of which has been reflected
          above using the treasury stock method.

               The exchange of operating partnership minority interests
          into common shares was not included in the computation of diluted
          EPS for certain periods subsequent to their issuance as the
          effect of assuming conversion for those periods was antidilutive
          (Note 1).  As of December 31, 1998, the Company plans to settle
          these OP units in cash.

          Dividends Per Share

               Total dividends declared per common share and the related
          components for the years ended December 31, 1998 and 1997, as
          reported for income tax purposes, were as follows:
<TABLE>
<CAPTION>

                              For the year ended December 31, 1998              

                                       Non-      
                                      Taxable   20% Rate  Unrecaptured
                            Ordinary Return of   Capital  Section 1250
                Date Paid    Income   Capital     Gain        Gain     Dividends

   <S>          <C>         <C>      <C>         <C>          <C>         <C>
   1st quarter  5/1/98      $.2253   $ .2213     $.0125       $.0059      $ .465
   2nd quarter  8/1/98       .2253     .2213      .0125        .0059        .465
   3rd quarter  10/31/98     .2253     .2213      .0125        .0059        .465
   4th quarter  1/15/99      .2253     .2213      .0125        .0059        .465
                            $.9012   $ .8852     $.0500       $.0236      $1.860
</TABLE>

<TABLE>
<CAPTION>
                               For the year ended December 31, 1997

                                        Non- 
                                       Taxable   20% Rate  Unrecaptured
                             Ordinary Return of   Capital  Section 1250
                 Date Paid    Income   Capital      Gain       Gain    Dividends

   <S>          <C>          <C>      <C>        <C>          <C>          <C>
   1st quarter   5/1/97       $.3250  $ .1400    $ .0000      $ .0000      $ .465
   2nd quarter   8/1/97        .3250    .1400      .0000        .0000        .465
   3rd quarter   10/31/97      .3250    .1400      .0000        .0000        .465
   4th quarter   1/15/98       .3250    .1400      .0000        .0000        .465
                             $1.3000  $ .5600    $ .0000      $ .0000      $1.860
</TABLE>

               Preferred dividends of $5,484,421 were paid for the years
          ended December 31, 1998 and 1997 of which $276,963 and $0 was
          designated as a capital gain dividend for the years ended
          December 31, 1998 and 1997, respectively.

          16.  EMPLOYEE BENEFIT PLANS

          401(k) Plan

               The Company sponsors a defined contribution retirement plan
          pursuant to Section 401(k) of the Internal Revenue Code, whereby
          eligible employees may elect to contribute between 1% and 12% of
          their gross wages.  The Company matches such contributions at a
          rate of 25% up to a maximum participant contribution of 4%.  The
          Company made contributions to this plan,  of approximately
          $76,000, $60,000 and $47,000 for the years ended December 31,
          1998, 1997 and 1996, respectively.  Effective February 1, 1999,
          employees may elect to contribute up to 15% of their gross wages
          with a Company matching contribution of 25% up to a maximum
          participant contribution of 6%. Additionally, the Company offers
          medical, dental and life insurance benefits to employees.

<PAGE>F29
          AERC Share Option Plan

               The Company provides an incentive and nonqualified stock
          option plan (the "AERC Share Option Plan") under which 543,093 of
          the Company's common shares are reserved for awards of share
          options to eligible key employees.  Options may be granted at per
          share prices not less than fair market value at the date of
          grant, and in the case of incentive options, must be exercisable
          within ten years thereof.  Option awards granted are vested in
          equal annual increments over no fewer than three years, beginning
          on the first anniversary of the date of grant.  Activity under
          the AERC Share Option Plan is summarized as follows:
<TABLE>
<CAPTION>
                                                  Granted and
                                      Authorized  Outstanding   Available  Exercisable

   <S>                                   <C>         <C>        <C>          <C>
   Balance at December 31, 1995           543,093     324,600    218,493      216,400 
     Granted (at $20.25 per share)              -      25,000    (25,000)           - 
     Forfeited (at $22.00 per share)            -      (4,001)     4,001            - 
     Exercisable                                -           -          -      104,199 
   Balance at December 31, 1996           543,093     345,599    197,494      320,599 
     Granted (at $24.06 per share)              -     167,494   (167,494)           - 
     Forfeited (at $22.00 per share)            -      (3,000)     3,000            - 
     Exercised (at $22.44 to
      $23.75 per share)                         -         (75)         -          (75)
     Exercisable                                -           -          -        8,333 
   Balance at December 31, 1997           543,093     510,018     33,000      328,857 
     Granted (at $12.50 per share)              -      72,200    (72,200)           - 
     Forfeited (at $20.25 to $24.06
       per share)                               -     (61,800)    61,800      (18,133)
     Exercisable                                -           -          -       27,499 
   Balance at December 31, 1998           543,093     520,418     22,600      338,223 <PAGE>
</TABLE>

               The weighted average exercise prices of options outstanding
          at December 31, 1998, 1997 and 1996 were $22.50, $22.67 and
          $21.87 per share, respectively.  The weighted average exercise
          prices of options exercisable at December 31, 1998, 1997 and 1996
          were $22.17, $21.96 and $22.00 per share, respectively.

          Long-Term Plan

               Participants in the Long-Term Plan, a long-term incentive
          compensation plan, will earn incentive compensation over a three
          year period (the "Plan Period") based on specific levels of Funds
          From Operations per share, as defined, that are established at
          the outset of the Plan Period.  Initial awards under the Long-
          Term Plan were based on the Plan Period beginning January 1, 1995
          and ending December 31, 1997.  There were no charges to earnings
          under this plan in 1997 or 1998.  Beginning with the calendar
          year 1998, a new three year Plan Period commenced.  Payment of
          the incentive compensation earned under the Long-Term Plan may be
          made in cash, restricted shares of the Company's common shares or
          a combination thereof as determined by the Board of Directors. 
          There were no payments made on the first payment eligibility date
          which occurred in 1998.  The second payment eligibility date is
          in 2001, and it is anticipated that participants will be eligible
          for payments each year thereafter until the Long-Term Plan
          terminates in 2005.

          Omnibus Equity Plan

               The Omnibus Equity Plan, an equity-based incentive
          compensation plan, provides for the grant to participants of
          options to purchase common shares, awards of common shares
          subject to restrictions on transfer, awards of common shares
          issuable in the future upon satisfaction of certain conditions,
          rights to purchase common shares and other awards based on common

<PAGE>F30
          shares.  The option price with respect to the grant of options to
          purchase common shares will be determined at the time of the
          grant but will not be less than 100% of the fair market value of
          the common shares at the date of the grant or 110% in the case of
          a participant who, at the date of grant, owns shares with more
          than 10% of the total combined voting power of all classes of
          stock of the Company.  The rights to purchase common shares will
          enable a participant to purchase common shares (i) at the fair
          market value of such shares on the date of such grant or (ii) at
          85% of such fair market value on such date if the grant is made
          in lieu of cash compensation.  Under the terms of the Omnibus
          Equity Plan, these grants and awards may not aggregate more than
          1,400,000 common shares and no participating employee may receive
          awards with respect to more than 250,000 common shares during any
          calendar year.

               Restricted shares and option awards granted are vested in
          equal annual increments over three and five years, respectively,
          beginning on the first anniversary of the date of grant. 
          Activity under the Omnibus Equity Plan is summarized as follows:
<TABLE>
<CAPTION>

                                                   Granted and
                                       Authorized  Outstanding   Available  Exercisable

   <S>                                 <C>         <C>          <C>        <C>
   Authorized                            1,400,000           -  1,400,000            - 
     Restricted shares granted                                                         
      (at $20.40 per share)                      -       3,000     (3,000)           - 
     Exercisable                                 -           -          -        1,000 
   Balance at December 31, 1995 and
    1996                                 1,400,000       3,000   1,397,000       1,000 
     Restricted shares granted
      (at $22.81 per share)                      -       1,317     (1,317)           - 
     Options granted (at $24.06
      per share)                                 -     513,506   (513,506)           - 
     Exercisable                                 -           -          -        1,000 
   Balance at December 31, 1997          1,400,000     517,823    882,177        2,000 
     Restricted shares granted
      (at $20.66 per share)                      -         484       (484)           - 
     Options granted
      (at $24.06 per share)                      -     250,000   (250,000)           - 
     Forfeited (at $22.8125 to
      $24.06 per share)                          -     (17,239)    17,239            - 
     Exercisable                                 -           -          -      125,795 
   Balance at December 31, 1998          1,400,000     751,068    648,932      127,795 
</TABLE>


               The weighted average exercise prices of options outstanding
          at December 31, 1998, 1997 and 1996 were $24.04, $22.67 and
          $22.00 per share, respectively.  The weighted average exercise
          prices of options exercisable at December 31, 1998, 1997 and 1996
          were $23.97, $21.96 and $22.00 per share, respectively.

               Deferred compensation of $34,000, $30,600 and $40,800 at
          December 31, 1998, 1997 and 1996, respectively, has been
          reflected as a reduction of paid-in capital in the accompanying
          financial statements relating to the issuance of 484 restricted
          shares in 1998, 1,317 restricted shares in 1997 and 3,000
          restricted shares in 1995.

          Options Granted to Outside Directors

               The Company has granted options to outside directors on a
          periodic basis since the initial public offering ("IPO").  The
          shares granted are determined by the Company's Executive
          Compensation Committee.  Option awards granted vest one year from
          the date of grant.  Activity is summarized as follows:
<PAGE>F31
<TABLE>
<CAPTION>
                                                  Granted   Exercisable

               <S>                                 <C>           <C>
               Balance at December 31, 1995        25,000        20,000 
                 Granted (at $22.00 per share)      5,000             - 
                 Forfeited (at $22.00 per share)   (6,250)       (6,250)
                 Exercisable                            -         5,000 
               Balance at December 31, 1996        23,750        18,750 
                 Granted (at $24.06 per share)     20,000             - 
                 Exercisable                            -         5,000 
               Balance at December 31, 1997        43,750        23,750 
                 Exercisable                            -        20,000 
               Balance at December 31, 1998        43,750        43,750 
</TABLE>

               The weighted average exercise prices of options outstanding
          at December 31, 1998 and 1997 were $22.94 per share, and at
          December 31, 1996 were $22.00  per share.  The weighted average
          exercise prices of options exercisable at December 31, 1998 were
          $22.94 per share and at December 31, 1997 and 1996 were $22.00
          per share.

          Executive Compensation

               The Company has an employment agreement with the President
          and Chief Executive Officer.  This agreement, dated January 1,
          1996, is automatically extended for an additional year at the end
          of each year of the agreement, subject to the right of either
          party to terminate by giving one year's prior written notice. 
          The Company entered into an employment agreement with the
          Executive Vice President (former Chairman, President and Chief
          Executive Officer of MIGRA) for a period of three years, and non-
          compete and severance agreements with certain other executive
          officers.

          SFAS No. 123

               The Company does not recognize compensation cost for stock
          options when the option exercise price equals or exceeds the
          market value on the date of the grant.  Had compensation cost for
          the Company's stock-based compensation plans been determined
          based on the fair values of the options granted at the grant<PAGE>
          dates, consistent with the method of SFAS No. 123, the Company's
          net income and earnings per share at December 31 would have been
          as follows:
<PAGE>F32
<TABLE>
<CAPTION>
                                           1998         1997         1996    
   <S>                                 <C>          <C>          <C>
   Net income applicable 
    to common shares
                           As reported $12,030,341  $15,227,948  $13,819,566
                           Pro forma   $11,760,348  $15,152,835  $13,812,182

   Income per common share
               As reported - Basic     $       .61  $       .94  $       .99
                           - Diluted   $       .60  $       .94  $       .99
               Pro forma   - Basic     $       .59  $       .94  $       .99
                           - Diluted   $       .59  $       .94  $       .99<PAGE>
</TABLE>


               The fair value of each option grant was estimated on the
          date of grant using the Black-Scholes options pricing model at
          December 31 using the following assumptions:
<TABLE>
<CAPTION>

                                         1998        1997        1996   

   <S>                                <C>         <C>         <C>
   Risk free interest rate or range   4.7%-6.9%   5.8%-6.2%   6.5%-6.9%
   Dividend yield or range            7.8%-10.6%  7.8%        7.9%
   Expected life or range             7-8 years   7-8 years   7-8 years
   Expected volatility or range       16.1%-      16.3%       17.4%-
                                      21.6%                   17.6%
   Weighted average per share fair
    value of an option granted 
    during the year                   $.29        $1.85       $1.91
</TABLE>


               The pro forma effect on net income as set forth above is not
          representative of the pro forma effect on net income in future
          years because it does not take into consideration pro forma
          compensation expense related to grants made prior to 1996.

<PAGE>F33
          17.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                          1998                      
                                       First       Second       Third       Fourth
                                      Quarter      Quarter     Quarter     Quarter  
                                                                  As
                                                             Restated(a)

   <S>                              <C>         <C>          <C>         <C>
   Revenues                         $30,708,805 $ 32,846,237 $39,233,362 $40,219,463
   Income before extraordinary
    item                              4,524,746    5,084,498   4,551,430   3,478,983
   Net income                         4,524,746    4,959,603   4,551,430   3,478,983
   Net income applicable
    to common shares                  3,153,641    3,588,498   3,180,325   2,107,877

   Earnings Per Common Share-
    Basic:
     Income before extraordinary
      item per common share         $       .18 $        .22 $       .14 $       .09
     Net income per common share    $       .18 $        .21 $       .14 $       .09
   Weighted average number of
    shares outstanding
    (in thousands)                       17,072       17,133      22,598      22,597

   Earnings Per Common Share-
    Diluted:
     Income before extraordinary
      item per common share         $       .18 $        .22 $       .14 $       .09
     Net income per common share    $       .18 $        .21 $       .14 $       .09
   Weighted average number 
    of shares outstanding 
    (in thousands)                       17,075       17,133      23,058      22,671
</TABLE>

<TABLE>
<CAPTION>
                                                        1997                      
                                     First       Second       Third       Fourth
                                    Quarter      Quarter     Quarter     Quarter  

   <S>                            <C>         <C>          <C>         <C>
   Revenues                       $24,798,341 $26,823,699  $28,127,471 $29,060,437
   Income before 
     extraordinary item             5,225,527   5,356,942    5,776,024   3,330,163
   Extraordinary item                       -  (1,043,446)      19,733           -
   Net income                       5,225,527   6,400,388    5,756,291   3,330,163
   Net income applicable
    to common shares                3,854,421   5,029,284    4,385,186   1,959,057

   Earnings Per Common Share-
    Basic:
     Income before extraordinary
      item per common share       $       .25 $       .26   $      .26  $      .11
     Net income per common share  $       .25 $       .32   $      .26  $      .11
   Weighted average number 
    of shares outstanding 
    (in thousands)                     15,322      15,322       17,053      17,073

   Earnings Per Common Share-
    Diluted:
     Income before extraordinary
      item per common share       $       .25 $        .26 $       .26 $       .11
     Net income per common share  $       .25 $        .32 $       .26 $       .11
   Weighted average number 
    of shares outstanding 
    (in thousands)                     15,351       15,335      17,074      17,097

<FN>

               (a)  The restated amounts reflect adjustments to the
                    originally reported net income as follows:
</FN>
</TABLE>

<TABLE>


   <S>                                            <C>
   Real estate tax accrual adjustments            $ 356,550 
   Operating expenses improperly capitalized        240,150 
   Write-off of stale checks and miscellaneous
    accrual errors                                 (136,122)
                                                  $ 460,578 
</TABLE>
              
             The amounts as originally reported for the third
             quarter ended September 30, 1998 were as follows:


                     
              Net income                              $ 5,012,008
              Net income applicable to common shares  $ 3,640,903
              Net income per share   - Basic          $       .16
                                     - Diluted        $       .16


               During the fourth quarter ended December 31, 1998, the
          Company recorded the following significant adjustments:

                
                 Allowance for receivable                  $   200,000 
                 Write-off of receivable                        91,827 
                 Local tax accrual                             330,000 
                 Write-off of software development costs       817,485 
                 Retroactive rental receivable                (431,000)
                 Real estate tax accrual adjustments           630,054 
                 Severance benefit                             268,303 
                                                           $ 1,906,669 


          18.  SEGMENT REPORTING

               In 1998, the Company adopted SFAS No. 131, Disclosures about
          Segments of an Enterprise and Related Information.  The Company
          has three reportable segments: (1) Market-rate multifamily
          properties, (2) Government-Assisted multifamily properties, and
          (3) Management and Service Operations.  The Company has
          identified these segments because the discrete information is the
          basis upon which management makes decisions regarding resource
          allocation and performance assessment.  The Market-rate
          multifamily properties are conventional multifamily residential
          apartments (the operations are not subject to regulation by HUD). 
          The Government-Assisted properties are multifamily properties for
          which the rents are subsidized and certain aspects of the
          operations are regulated by HUD pursuant to Section 8 of the
          National Housing Act of 1937.  The Management and Service
          Operations provide management and advisory services to the
          Market-rate and Government-Assisted properties which are owned by
          the Company, as well as to clients and properties that are not
          owned, but managed.  All of the Company's properties and
          Management and Service Operations are located in the United
          States.

               The accounting policies of the segments are the same as
          those described in the "Basis of Presentation and Significant
          Accounting Policies".  The Company evaluates the performance of
          its segments and allocates resources to them based on EBITDA. 
          EBITDA should not be considered as an alternative to net income
          (determined in accordance with generally accepted accounting
          principles - "GAAP"), as an indicator of the Company's financial
          performance, cash flow from operating activities (determined in
          accordance with GAAP) or as a measure of the Company's liquidity,
          nor is it necessarily indicative of sufficient cash flow to fund
          all of the Company's needs.

               All of the Company's general and administrative costs which
          were $10,216,222, $6,084,654 and $5,912,197 for the years ended
          December 31, 1998, 1997 and 1996, respectively, are included in
          the Management and Service Operations tier as the Company
          considers these costs directly attributable to the management<PAGE>
          business, regardless of whether these costs relate to the
          management of non-owned or owned properties.

<PAGE>F35

               Information on the Company's segments for the years ended
          December 31, 1998, 1997 and 1996 is as follows:<PAGE>
<TABLE>
<CAPTION>
                                                 For the year ended December 31, 1998         
                                                                     Management          
                                                        Government-  and Service      Total
                                         Market-Rate     Assisted    Operations    Consolidated

   <S>                                  <C>            <C>          <C>           <C>
   Total segment revenues               $119,178,073   $14,169,113  $17,755,428   $151,102,614 
   Elimination of intersegment revenues     (193,690)            -   (7,901,057)    (8,094,747)
   Consolidated revenues                $118,984,383   $14,169,113  $ 9,854,371   $143,007,867 
   Equity in net income of joint
     ventures                           $    433,303   $    11,389  $         -   $    444,692 

   *EBITDA-including the proportionate
     share of joint ventures            $ 69,830,973   $ 7,872,637  $(4,792,532)  $ 72,911,078 

   Total assets                         $794,149,514   $17,410,752  $29,225,089   $840,785,355 
   Capital expenditures, gross          $316,976,705   $   961,402  $ 2,385,132   $320,323,239 
</TABLE>

<TABLE>
<CAPTION>

                                                 For the year ended December 31, 1997         
                                                                      Management         
                                                         Government- and Service      Total
                                         Market-Rate      Assisted    Operations   Consolidated

   <S>                                  <C>             <C>          <C>          <C>
   Total segment revenues               $  88,248,024   $14,282,950  $14,135,867  $ 116,666,841 
   Elimination of intersegment revenues      (190,050)            -   (7,666,843)    (7,856,893)
   Consolidated revenues                $  88,057,974   $14,282,950  $ 6,469,024  $ 108,809,948 
   Equity in net income of joint
     ventures                            $    537,828   $    23,106  $         -  $     560,934 

   *EBITDA-including the proportionate
     share of joint ventures            $  53,256,918   $ 7,503,626  $(2,265,538) $  58,495,006 

   Total assets                         $ 500,957,587   $21,882,821  $31,069,897  $ 553,910,305 
   Capital expenditures, gross          $ 132,707,065   $   778,597  $ 2,331,667  $ 135,817,329 
</TABLE>

<TABLE>
<CAPTION>
                                                 For the year ended December 31, 1996         
                                                                       Management        
                                                        Government-   and Service     Total
                                         Market-Rate     Assisted      Operations   Consolidated

   <S>                                  <C>            <C>           <C>          <C>
   Total segment revenues               $ 74,363,956   $14,268,195   $ 12,408,715 $101,040,866 
   Elimination of intersegment revenues     (190,000)            -     (6,395,718)  (6,585,718)
   Consolidated revenues                $ 74,173,956   $14,268,195   $  6,012,997 $ 94,455,148 
   Equity in net income of joint
     ventures                           $    290,702   $    14,487   $          - $    305,189 <PAGE>

   *EBITDA-including the proportionate
     share of joint ventures            $ 45,978,993   $ 8,123,356   $ (1,383,354)$ 52,718,995 

   Total assets                         $381,341,306   $26,299,649   $ 17,070,343 $424,711,298 
   Capital expenditures, gross          $ 77,455,556   $   680,588   $  1,996,697 $ 80,132,841 <PAGE>
          <FN>
          * Intersegment revenues and expenses have been eliminated in the
          computation of EBITDA for each of the segments.
          </FN>
</TABLE>

<PAGE>F36

               A reconciliation of total segment EBITDA to total
          consolidated net income for the years ended December 31, 1998,
          1997 and 1996 is as follows:
<TABLE>
<CAPTION>
                                                       1998           1997          1996    

   <S>                                            <C>            <C>            <C>
   Total EBITDA for reportable segments           $ 72,911,078   $ 58,495,006   $52,718,995 
   EBITDA-proportionate share of joint ventures     (2,555,349)    (2,801,345)   (2,601,877)
   Depreciation and amortization                   (24,898,978)   (19,265,827)  (15,535,587)
   Interest expense                                (29,050,346)   (19,144,260)  (15,515,956)
   Interest income                                   1,164,189        925,979       238,413 
   Income taxes                                       (434,434)      (128,726)            - 
   Gain on sale of property                            503,497      1,607,829             - 
   Extraordinary (loss) gain                          (124,895)     1,023,713             - 
   Consolidated net income                        $ 17,514,762   $ 20,712,369   $19,303,988 <PAGE>

</TABLE>

          19.  PRO FORMA CONDENSED FINANCIAL INFORMATION (UNAUDITED)

               As more fully described in Note 2, during the years ended
          December 31, 1998 and 1997, the Company completed the acquisition
          of 14 and eight multifamily properties (the "Acquired
          Properties") with total units of 3,682  and 1,762, during 1998
          and 1997, respectively, for an aggregate purchase price of $268.3
          million and $104.6 million, respectively.  The multifamily
          property acquisitions are summarized as follows:
<TABLE>
<CAPTION>
                                                                                Month
                                                                             Acquired by
             Multifamily Property                  Location           Units  the Company

   <S>                                     <C>                        <C>     <C>
   1998 Acquisitions:

     Cypress Shores Apartments             Coconut Creek, Florida      300   February
     Reflections Apartments                Columbia, Maryland          184   February
     The Falls Apartments                  Atlanta, Georgia            520   February
     Country Club Apartments               Toledo, Ohio                316   February
     20th and Campbell Apartments          Phoenix, Arizona            204   June
     Annen Woods Apartments                Pikesville, Maryland        132   June
     Desert Oasis Apartments               Palm Desert, California     320   June
     Fleetwood Apartments                  Houston, Texas              104   June
     Hampton Point Apartments              Silver Springs, Maryland    352   June
     Morgan Place Apartments               Atlanta, Georgia            186   June
     Peachtree Apartments                  St. Louis, Missouri         156   June
     Windsor Falls Apartments              Raleigh, North Carolina     276   June
     Steeplechase at Shiloh Crossing Apts. Indianapolis, Indiana       264   August
     Windsor Pines                         Pembroke Pines, Florida     368   October
                                                                     3,682
   1997 Acquisitions:

     The Gables at White River             Indianapolis, Indiana       228   February
     Remington Place Apartments            Cincinnati, Ohio            234   April
     Saw Mill Village Apartments           Columbus, Ohio              340   April
     Hawthorne Hills Apartments            Toledo, Ohio                 88   May
     Oak Bend Commons                      Columbus, Ohio              102   May
     Clinton Place Apartments              Clinton Twp., Michigan      202   August
     Waterstone Apartments                 Indianapolis, Indiana       344   August
     Spring Valley                         Detroit, Michigan           224   October
                                                                     1,762 
                                                                     5,444 
</TABLE>

          The operating results of the Acquired Properties are included in the
     results of operations of the Company from the dates of acquisition.

          The following unaudited supplemental pro forma operating data for 1998
     is presented to reflect, as of January 1, 1998, the effects of: (i) the 12
     property acquisitions completed in 1998, and (ii) the merger of MIGRA.  The
     following unaudited supplemental pro forma operating data for 1997 is
     presented to reflect, as of January 1, 1997, the effects of: (i) the six
     property acquisitions completed in 1997, (ii) the 12 property acquisitions
     completed in 1998, (iii) the merger of MIGRA, and (iv) the offering of
     1,750,000 common shares.
<PAGE>F37
<TABLE>
<CAPTION>
                                                        December 31,   
           (In thousands, except per share amounts)    1998     1997  

           <S>                                       <C>      <C>
           Revenues                                  $154,147 $146,195
           *Net income                                 15,278   18,751
           Net income applicable to common shares       9,793   13,266
           Earnings per common share:
             - Basic                                 $   0.43 $   0.59
             - Diluted                               $   0.43 $   0.58
           Weighted average number of common shares
            outstanding:
             - Basic                                   22,597   22,597
             - Diluted                                 22,823   22,823
<FN>
     *Before extraordinary item
</FN>
</TABLE>

          The 1998 and 1997 pro forma financial information does not include the
     revenue and expenses for the period January 1 through the date the
     properties were acquired by the Company for Oak Bend Apartments and
     Waterstone Apartments, properties that were acquired in 1997, nor does it
     include Windsor at Kirkman Apartments, Windsor Pines and Steeplechase at
     Shiloh Crossing Apartments, properties that were acquired in 1998.  The
     revenue and expenses of the aforementioned properties were excluded from
     the pro forma financial information for 1998 and 1997 as they were under
     construction during substantially all of the periods prior to their
     acquisition.

          The unaudited pro forma condensed statement of operations is not
     necessarily indicative of what the actual results of operations of the
     Company would have been assuming the transactions had been completed as set
     forth, nor does it purport to represent the results of operations of future
     periods of the Company.

     20.  SUBSEQUENT EVENTS

     HUD Settlement
          As more fully described in Note 11, on March 12, 1999, the Company
     entered into a Settlement Agreement with HUD resolving all outstanding
     disputes arising out of a Comprehensive Management Review completed by HUD
     in  1997.  This Settlement Agreement also provides for the payment by HUD
     of the Rainbow Terrace Apartments retroactive rental increase receivable as
     of December 31, 1998.

     Shareholder Rights Plan

          Subsequent to December 31, 1998, the Company adopted a Shareholder
     Rights Plan in order to protect the interests of the Company and its
     shareholders if any hostile takeover activity should occur.  

          To implement the Plan, the Board of Directors declared a distribution<PAGE>
     of one Right for each of the Company's outstanding common shares.  Each
     Right entitles the holder to purchase from the Company 1/1,000th of a Class
     B Series I Cumulative Preferred Share (a "Preferred Share") at a purchase
     price of $40 per Right, subject to adjustment.  One one-thousandth of a
     Preferred Share is intended to be approximately the economic equivalent of
     one common share.  The Rights will expire on January 6, 2009, unless
     redeemed by the Company as described below.

          The Rights are not currently exercisable and trade with the Company's
     common shares.  The Rights will become exercisable if a person or group
     becomes the beneficial owner of 15% or more of the then outstanding common
     shares of the Company or announces an offer to acquire 15% or more of the
     Company's then outstanding common shares.

<PAGE>F38

          If a person or group acquires 15% or more of the Company's outstanding
     common shares, then each Right not owned by the acquiring person or its
     affiliates will entitle its holder to purchase, at the Right's then-current
     exercise price, fractional preferred shares that are approximately the
     economic equivalent of common shares (or, in certain circumstances, common
     shares, cash, property or other securities of the Company) having a market
     value equal to twice the then-current exercise price.  In addition, if,
     after the Rights become exercisable, the Company is acquired in a merger or
     other business combination transaction with an acquiring person or its
     affiliates or sells 50% or more of its assets or earnings power to an
     acquiring person or its affiliates, each Right will entitle its holder to
     purchase, at the Right's then-current exercise price, a number of the
     acquiring Company's common shares having a market value of twice the
     Right's exercise price.  The Board of Directors may redeem the Rights, in
     whole, but not in part, at a price of $.01 per Right.

          The distribution was made on January 29, 1999 to shareholders of
     record on that date.  The initial distribution of Rights is not taxable to
     shareholders.

     Management Contract Cancellation

          On January 13, 1999, the Company terminated its management contract
     for Longwood Apartments, which will result in a loss of management fee
     income in 1999.  Approximately $297,008 of management fees was recognized
     with respect to this contract in 1998.  Moreover, pursuant to the terms of
     the HUD Settlement Agreement discussed in Note 11, in the second quarter of
     1999, the Company may terminate its management contract for Park Village
     Apartments, which may result in a partial loss of management fee income in
     1999.  The annual management fees for Park Village Apartments in 1998 were
     $26,735.

          In addition, pursuant to the terms of a separate settlement agreement
     with affiliates  entered into in conjunction with the settlement agreement
     with the Corporation as discussed in Note 8, the Company has agreed to end
     its management of certain commercial properties owned by certain affiliated
     persons upon 60 days prior written notice from the respective owners of
     those properties.  Such notice has not been received.  The  management fees
     generated from those commercial properties in 1998 were $126,451.

          The Company further anticipates the loss of management fees from
     Euclid Medical & Commercial Arts Building, a non-owned commercial property,
     because of the likelihood of foreclosure proceedings.  The annual
     management fees generated from this property in 1998 were $92,524.

     Payoff of MIGRA Line of Credit Facility

          On February 10, 1999, the Company paid off the $446,565 MIGRA Line of
     Credit Facility.

     Dividends Declared

          On February 16, 1999, the Company declared a dividend of $0.60938 per
     Depositary Share on its Class A Cumulative Preferred Shares which was paid
     on March 15, 1999 to shareholders of record on March 1, 1999.<PAGE>

<PAGE>F39


                           ASSOCIATED ESTATES REALTY CORPORATION -  SCHEDULE III
                           REAL ESTATE AND ACCUMULATED DEPRECIATION
                                             December 31, 1998
<TABLE>
<CAPTION>

                                           Initial Cost                         Historical Cost         
                                           ----------------------------------   ---------------------

                             Encumbrances              Buildings & Improvements             Buildings &
            Property              (1)         Land    Improvements      (2)        Land    Improvements

   <S>                       <C>              <C>     <C>           <C>            <C>     <C>
   RESIDENTIAL MULTIFAMILY PROPERTIES
      NORTHERN OHIO
   Barrington                $     -       $2,357,168 $ 22,143,462 $     -      $ 2,357,168$ 22,143,462
   Bay Club                        -          129,295    3,621,553       47,201     129,295   3,668,754
   Colonnade West                  -          180,264    1,114,901      681,816     277,146   1,699,835
   Country Club Apartments         -        2,772,168   12,318,828       -        2,772,168  12,318,828
   Cultural Gardens                -           84,377    1,417,195      127,837      84,377   1,545,032
   Edgewater Landing               -          417,639    4,518,082      237,363     417,639   4,755,445
   Ellet                           -           -         2,174,674      244,808      -        2,419,482
   Gates Mills Club                -           65,441    3,110,746      323,277      66,845   3,432,619
   Gates Mills III               6,619,520    277,898    7,387,584      574,330     277,898   7,961,914
   Hawthorne Hills Apartments      -          370,282    2,719,463       -          370,282   2,719,463
   Hillwood I                      -           -         1,449,483      148,019      -        1,597,502
   Holly Park                      -          497,500    6,947,935       49,608     497,500   6,997,543
   Huntington Hills                -          360,799    3,181,028       22,299     360,799   3,203,327
   Jennings                        -          205,100    1,665,155       11,893     205,100   1,677,048
   KTC Properties (3)              -        2,724,005   17,522,183       57,488   2,724,005  17,579,671
   Mallard's Crossing            4,092,304    941,070    8,499,249      544,567     941,070   9,043,816
   Memphis Manor                   -          128,948      852,270      100,701     128,948     952,971
   Park Place                      -          145,000    1,447,097      373,854     161,077   1,804,874
   Pinecrest                       -          302,150    2,156,000       -          302,150   2,156,000
   Portage Towers                  -          388,353    5,609,249    2,172,767     524,150   7,646,219
   Puritas Place                   -          194,441    2,697,720      444,407     194,441   3,142,127
   Rainbow Terrace               1,935,123    256,000    8,194,477    1,567,187     256,000   9,761,664
   Riverview Towers                -           -         2,300,004      249,958      -        2,549,962
   Shaker Park Gardens           2,895,367    276,787    3,012,464       46,744     276,787   3,059,208
   The Woodlands of North
     Royalton                    7,521,883    389,527    9,004,652        5,200     389,527   9,009,852
   State Road                      -           -         1,184,542       90,874      -        1,275,416
   Statesman II                    -          222,657    1,632,507      106,041     222,657   1,738,548
   Sutliff II                      -           -         3,276,512      222,172      -        3,498,684
   Tallmadge Acres                 -          235,559    4,643,644      789,071     269,869   5,398,405<PAGE>
   The Oaks                      1,841,854    170,000    2,241,624       25,047     170,000   2,266,671
   The Triangle                 16,754,148     -        20,578,668    1,344,995      -       21,923,663
   Timbers (3)                     -          400,111    4,056,547       84,978     400,111   4,141,525
   Twinsburg                       -           -         2,833,574      310,484      -        3,144,058
   Vantage Villa                   -          565,952    4,598,362        6,531     565,952   4,604,893
   Villa Moderne                   -           96,584      746,332       65,436     102,564     805,788
   Village Towers                  -           -         2,442,343      204,763      -        2,647,106
   Washington Manor                -          289,388    1,489,494          849     289,388   1,490,343
   West High                       -           -         2,714,785      322,465      -        3,037,250
   West Park Plaza                 -          127,890      820,402       36,018     127,890     856,420
   Westchester Townhouses          -          693,300    5,685,526       26,625     693,300   5,712,151
   Western Reserve Village         -          691,059    6,931,426       -          691,059   6,931,426
   Westlake Investment             -           35,685      323,834      739,102      35,685   1,062,936
   Williamsburg at Greenwood
    Village                        -          843,642   12,929,692       32,604     843,642  12,962,296<PAGE>
</TABLE>

<TABLE>
<CAPTION>

                               ASSOCIATED ESTATES REALTY CORPORATION          SCHEDULE III
                             REAL ESTATE AND ACCUMULATED DEPRECIATION
                                         December 31, 1998

                                         Historical Cost           
                                                        Total Cost,
                                                          Net of    Depreciable     Date of
                                          Accumulated   Accumulated    Lives     Construction/
            Property             Total   Depreciation  Depreciation    Years      Acquisition  

   <S>                        <C>          <C>        <C>             <C>      <C>        
   RESIDENTIAL MULTIFAMILY PROPERTIES
      NORTHERN OHIO
   Barrington                 $24,500,630$    628,624  $  23,872,006   5-30     September, 1995
   Bay Club                     3,798,049   1,235,766      2,562,283  10-30     December, 1990
   Colonnade West               1,976,981   1,306,182        670,799  10-30     July, 1964
   Country Club Apartments     15,090,996     345,570     14,745,426   5-30     February, 1998
   Cultural Gardens             1,629,409   1,456,596        172,813  10-30     April, 1966
   Edgewater Landing            5,173,084     758,962      4,414,122   5-30     April, 1994
   Ellet                        2,419,482   1,563,944        855,538     30     January, 1978
   Gates Mills Club             3,499,464   2,688,789       810,675    5-30     December, 1980
   Gates Mills III              8,239,812   6,255,967      1,983,845   6-40     December, 1978
   Hawthorne Hills Apartments   3,089,745     151,258      2,938,487   5-30     May, 1997
   Hillwood I                   1,597,502   1,339,105        258,397  14-30     June, 1976
   Holly Park                   7,495,043   2,200,364      5,294,679  10-30     September, 1990
   Huntington Hills             3,564,126   2,226,964      1,337,162     30     October, 1982
   Jennings                     1,882,148     956,631        925,517  10-30     November, 1981
   KTC Properties (3)          20,303,676   1,936,161     18,367,515   5-30     September, 1995
   Mallard's Crossing           9,984,886   1,134,116      8,850,770   5-30     February, 1995
   Memphis Manor                1,081,919     898,853        183,066   5-30     December, 1966
   Park Place                   1,965,951   1,529,464        436,487   5-30     October, 1966
   Pinecrest                    2,458,150     808,502      1,649,648   7-30     September, 1987
   Portage Towers               8,170,369   5,452,394      2,717,975   6-40     May, 1973
   Puritas Place                3,336,568   1,717,562      1,619,006   5-30     October, 1981
   Rainbow Terrace             10,017,664   8,867,969      1,149,695   3-30     September, 1981
   Riverview Towers             2,549,962   1,601,985        947,977     30     October, 1979
   Shaker Park Gardens          3,335,995   3,016,408        319,587  15-17     May, 1964
   The Woodlands of North
    Royalton                    9,399,379   5,295,486      4,103,893   5-30     March, 1982
   State Road                   1,275,416     981,757        293,659  14-30     September, 1977
   Statesman II                 1,961,205   1,642,906        318,299     13     May, 1987
   Sutliff II                   3,498,684   2,833,264        665,420   5-30     December, 1979
   Tallmadge Acres              5,668,274   3,972,650      1,695,624   6-40     June, 1981
   The Oaks                     2,436,671   1,022,805      1,413,866   7-30     June, 1985<PAGE>
   The Triangle                21,923,663   7,580,085     14,343,578   5-30     March, 1989
   Timbers (3)                  4,541,636   1,557,350      2,984,286   7-30     September, 1987
   Twinsburg                    3,144,058   1,974,076      1,169,982  10-30     July, 1979
   Vantage Villa                5,170,845     485,198      4,685,647   5-30     October, 1995
   Villa Moderne                  908,352     762,674        145,678  15-30     October, 1963
   Village Towers               2,647,106   1,699,576        947,530     30     October, 1979
   Washington Manor             1,779,731     945,801        833,930  10-30     July, 1994
   West High                    3,037,250   2,747,071        290,179   5-15     December, 1981
   West Park Plaza                984,310     838,810        145,500   5-30     April, 1964
   Westchester Townhouses       6,405,451   2,444,751      3,960,700   7-30     November, 1989
   Western Reserve Village      7,622,485     205,558      7,416,927  10-30     August, 1996
   Westlake Investment          1,098,621     931,526        167,095  15-30     October, 1985
   Williamsburg at Greenwood
    Village                    13,805,938   2,106,266     11,699,672   5-30     February, 1994

    </TABLE>

<PAGE>F40



                        ASSOCIATED ESTATES REALTY CORPORATION   SCHEDULE III -
                      REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
                                              December 31, 1998


                                             Initial Cost                         Historical Cost        


                                Encumbrances             Buildings & Improvements            Buildings &
             Property                (1)        Land    Improvements      (2)        Land   Improvements

   <S>                              <C>         <C>        <C>          <C>          <C>       <C>
   Winchester (4)                   4,125,835   299,660    5,133,088    1,126,823    344,355   6,215,216
   Winchester II                      -         352,200    8,295,653      399,187    372,877   8,674,163

   CENTRAL OHIO
   Arrowhead Station                  -         477,838    4,216,425       82,634    477,838   4,299,059
   Bedford Commons                    -         928,921    5,963,753        3,014    928,921   5,966,767
   Bolton Estates                     -         707,601    5,124,052       14,595    707,601   5,138,647
   Bradford at Easton                 -       2,033,450   16,302,694       19,925  2,033,450  16,322,619
   Residence at Christopher
    Wren                              -       1,560,355   13,753,580       16,720  1,560,355  13,770,300
   Colony Bay East                    -         714,150    4,952,909       25,363    714,150   4,978,272
   Heathermoor                        -       1,796,346    9,087,316        3,578  1,796,346   9,090,894
   Kensington Grove                   -         533,117    4,600,057        1,588    533,117   4,601,645
   Lake Forest                        -         840,155    6,134,704       69,053    840,155   6,203,757
   Muirwood Village at
    Bennell                           -         789,836    4,656,965        1,726    789,836   4,658,691
   Muirwood Village at
    London                            -         205,097    3,728,615        2,710    205,097   3,731,325
   Muirwood Village at
    Mt. Sterling                      -         152,812    1,475,391          439    152,812   1,475,830
   Muirwood Village at
    Zanesville                        -         368,530    4,820,330    2,830,964    368,530   7,651,294
   Oak Bend Commons
    Apartments                        -         732,803    5,030,076       -         732,803   5,030,076
   Pendleton Lakes East               -       1,313,824    8,026,991       74,503  1,313,824   8,101,494
   Perimeter Lakes                    -       1,268,762    8,778,081      122,843  1,268,762   8,900,924
   The Residence at Newark            -         323,159    2,807,885    1,331,872    323,159   4,139,757
   Saw Mill Village                   -       2,548,488   17,261,445       -       2,548,488  17,261,445
   Sheffield at Sylvan                -         347,590    3,102,488    1,774,059    526,332   4,697,805
   Sterling Park                      -         645,538    3,919,325        1,171    645,538   3,920,496
   Residence at Turnberry             -         868,868   11,567,161      257,305    868,868  11,824,466
   Wyndemere                          -         602,128    2,782,217    1,502,476    602,128   4,284,693<PAGE>
   The Residence at
    Washington                        -         289,960    2,579,835       -         289,960   2,579,835

   SOUTHERN OHIO
   Remington Place                    -       1,644,583   10,123,827       -       1,644,583  10,123,827

   MICHIGAN
   Arbor Landings                     -       1,032,000   10,403,123    1,191,349  1,259,327  11,367,145
   Aspen Lakes Apartments           2,926,732   339,596    5,507,707       18,481    339,596   5,526,188
   Central Park Place                 -       1,013,474    7,362,973       37,696  1,013,474   7,400,669
   Country Place Apartments(3)        -         767,864    4,180,887       12,455    767,864   4,193,342
   Clinton Place Apartments           -       1,219,248    9,506,062       -       1,219,248   9,506,062
   Georgetown Park
    Apartments                        -       1,778,286   12,141,126   11,466,923  2,128,286  23,258,049
   Oaks and Woods at Hampton          -       3,025,954   27,204,231       38,276  3,025,954  27,242,507
   The Landings at the
    Preserve                          -         814,961    7,189,546        7,491    814,961   7,197,037
   Spring Brook Apartments            -         609,742    5,307,960       -         609,742   5,307,960
   Spring Valley Apartments           -       1,432,830   13,461,588       -       1,432,830  13,461,588
   Summer Ridge                       -       1,250,919   11,193,520       -       1,250,919  11,193,520<PAGE>
</TABLE>




                             ASSOCIATED ESTATES REALTY CORPORATION- SCHEDULE III
                           REAL ESTATE AND ACCUMULATED DEPRECIATION
                                          December 31, 1998
<TABLE>
<CAPTION>

                                           Historical Cost           
                                                          Total Cost,
                                                            Net of    Depreciable     Date of
                                            Accumulated   Accumulated    Lives     Construction/
             Property              Total   Depreciation  Depreciation    Years      Acquisition  

   <S>                            <C>         <C>            <C>         <C>      <C>    
   Winchester (4)                 6,559,571   5,268,114      1,291,457   5-30     March, 1972
   Winchester II                  9,047,040   6,833,176      2,213,864   6-40     March, 1979

   CENTRAL OHIO
   Arrowhead Station              4,776,897     554,692      4,222,205   5-30     March, 1995
   Bedford Commons                6,895,688     795,709      6,099,979   5-30     December, 1994
   Bolton Estates                 5,846,248     795,465      5,086,783   5-30     July, 1994
   Bradford at Easton            18,356,069     882,012     17,474,057   5-30     October, 1995
   Residence at
    Christopher Wren             15,330,655   2,201,249     13,129,406   5-30     March, 1994
   Colony Bay East                5,692,422     612,283      5,080,139   5-30     February, 1995
   Heathermoor                   10,887,240   1,324,494      9,562,746   5-30     August, 1994
   Kensington Grove               5,134,762     529,849      4,604,913   5-30     July, 1995
   Lake Forest                    7,043,912     911,860      6,132,052   5-30     July, 1994
   Muirwood Village at
    Bennell                       5,448,527     752,719      4,695,808   5-30     March, 1994
   Muirwood Village at
    London                        3,936,422     600,610      3,335,812   5-30     March, 1994
   Muirwood Village at
    Mt. Sterling                  1,628,642     239,092      1,389,550   5-30     March, 1994
   Muirwood Village at
    Zanesville                    8,019,824   1,109,606      6,910,218   5-30     March, 1994
   Oak Bend Commons
    Apartments                    5,762,879     264,397      5,498,482   5-30     May, 1997
   Pendleton Lakes East           9,415,318   1,174,176      8,241,142   5-30     March, 1994
   Perimeter Lakes               10,169,686     678,128      9,491,558   5-30     Sept, 1996
   The Residence at Newark        4,462,916     647,839      3,815,077   5-30     March, 1994
   Saw Mill Village              19,809,933     976,010     18,833,923   5-30     April, 1997
   Sheffield at Sylvan            5,224,137     682,241      4,541,896   5-30     March, 1994
   Sterling Park                  4,566,034     570,107      3,995,927   5-30     August, 1994
   Residence at Turnberry        12,693,334   1,867,027     10,826,307   5-30     March, 1994
   Wyndemere                      4,886,821     564,187      4,322,634   5-30     September, 1994<PAGE>
   The Residence at
    Washington                    2,869,795     252,546      2,617,249  10-30     February, 1996

   SOUTHERN OHIO
   Remington Place               11,768,410     584,336     11,184,074   5-30     April, 1997

   MICHIGAN
   Arbor Landings                12,626,472   1,018,033     11,608,439   5-30     January, 1995
   Aspen Lakes Apartments         5,865,784     423,887      5,441,897   5-30     September, 1996
   Central Park Place             8,414,143     988,655      7,425,488   5-30     December, 1994
   Country Place Apartments (3)   4,961,206     495,554      4,465,652   5-30     June, 1995
   Clinton Place Apartments      10,725,310     425,692     10,299,618   5-30     August, 1997
   Georgetown Park
    Apartments                   25,386,335   2,005,212     23,381,123  10-30     December, 1994
   Oaks and Woods at
    Hampton                      30,268,461   3,086,692     27,181,769   5-30     August, 1995
   The Landings at the
    Preserve                      8,011,998     785,963      7,226,035   5-30     September, 1995
   Spring Brook Apartments        5,917,702     443,725      5,473,977   5-30     June, 1996
   Spring Valley Apartments      14,894,418     521,617     14,372,801   5-30     October, 1997
   Summer Ridge                  12,444,439   1,032,159     11,412,280   5-30     April, 1996
    </TABLE>

<PAGE>F41

                          ASSOCIATED ESTATES REALTY CORPORATION  SCHEDULE III
                        REAL ESTATE AND ACCUMULATED DEPRECIATION
                                            December 31, 1998
<TABLE>
<CAPTION>

                                          Initial Cost                         Historical Cost        


                             Encumbrances             Buildings & Improvements            Buildings &
            Property              (1)        Land    Improvements      (2)        Land   Improvements

   <S>                        <C>         <C>         <C>          <C>            <C>     <C> 
   FLORIDA
   Cypress Shores                  -       2,768,847   16,570,875       -       2,768,847  16,570,875
   Windsor Pines                16,454,851 4,833,541   28,845,451       -       4,833,541  28,845,451

   GEORGIA
   The Falls                     9,379,144 5,403,009   23,772,694       -       5,403,009  23,772,694
   Morgan Place                    -       3,292,205    9,194,451       -       3,292,205   9,194,451

   MARYLAND
   Reflections                   5,500,000 1,807,172   12,509,968       -       1,807,172  12,509,968
   Annen Woods                     -       1,389,231    9,632,734       -       1,389,231   9,632,734
   Hampton Pointe                  -       3,394,350   22,263,146       -       3,394,350  22,263,146

   NORTH CAROLINA
   Windsor Falls                   -       1,551,232   16,495,390       -       1,551,232  16,495,390

   TEXAS
   Fleetwood                       -         996,810    5,747,188       -         996,810   5,747,188

   ARIZONA
   20th and Campbell               -       3,192,091   10,385,766       -       3,192,091  10,385,766

   INDIANA
   The Gables at White River       -       1,064,131   11,680,107       -       1,064,131  11,680,107
   Waterstone Apartments           -       1,508,469   22,861,129       -       1,508,469  22,861,129
   Steeplechase                    -       2,260,704   16,312,178       -       2,260,704  16,312,178

   CALIFORNIA
   Desert Oasis                    -       1,600,803   14,219,922       -       1,600,803  14,212,922

   PENNSYLVANIA
   Chestnut Ridge                  -       2,145,735  19,159,234        -       2,145,735  19,159,234<PAGE>


   LAND HELD FOR DEVELOPMENT
      NORTHERN OHIO
   Barrington                      -          -            -            -          -           -
   Village at Avon                 -       2,157,511       -            -       2,145,011      -
   Westlake Investment             -         523,314       -            -         523,314      -
   Western Reserve Village         -          -            -            -          -           -

   CENTRAL OHIO
   Muirwood Village at Mt.
    Sterling                       -         125,926       -            -         125,926      -
   Wyndemere                       -         200,140       -            -         200,140      -<PAGE>

</TABLE>



                       ASSOCIATED ESTATES REALTY CORPORATION    SCHEDULE III
                     REAL ESTATE AND ACCUMULATED DEPRECIATION
                                         December 31, 1998
<TABLE>
<CAPTION>

                                 Historical Cost           
                                                        Total Cost,
                                                          Net of    Depreciable     Date of
                                          Accumulated   Accumulated    Lives     Construction/
            Property             Total   Depreciation  Depreciation    Years      Acquisition

   <S>                         <C>       <C>           <C>          <C>           <C>       
   FLORIDA
   Cypress Shores              19,339,722     310,815     19,028,907   5-30     February, 1998
   Windsor Pines               33,678,992     181,334     33,497,658   5-30     October, 1998

   GEORGIA
   The Falls                   29,175,703     442,904     28,732,799   5-30     February, 1998
   Morgan Place                12,486,656     153,311     12,333,345   5-30     July, 1998

   MARYLAND
   Reflections                 14,317,140     231,754     14,085,386   5-30     February, 1998
   Annen Woods                 11,021,965     150,369     10,871,596   5-30     July, 1998
   Hampton Pointe              25,657,496     363,133     25,294,363   5-30     July, 1998

   NORTH CAROLINA
   Windsor Falls               18,046,622     274,518     17,772,104   5-30     July, 1998

   TEXAS
   Fleetwood                    6,743,998      95,683      6,648,315   5-30     July, 1998

   ARIZONA
   20th and Campbell           13,577,857     169,092     13,408,765   5-30     July, 1998

   INDIANA
   The Gables at White River   12,744,238     740,684     12,003,554   5-30     February, 1997
   Waterstone Apartments       24,369,598   1,017,895     23,351,703   5-30     August, 1997
   Steeplechase                18,572,882     209,274     18,363,608   5-30     July, 1998

   CALIFORNIA
   Desert Oasis                15,813,725     236,961     15,576,764   5-30     July, 1998

   PENNSYLVANIA
   Chestnut Ridge              21,304,969   1,811,199     19,493,770   5-30     March, 1996<PAGE>

   LAND HELD FOR DEVELOPMENT
      NORTHERN OHIO
   Barrington                      -           -             -           -      September, 1995
   Village at Avon              2,145,011      -           2,145,011     -      June, 1998
   Westlake Investment            523,314      -             523,314     -      October, 1985
   Western Reserve Village         -           -             -           -      August, 1996

   CENTRAL OHIO
   Muirwood Village at Mt.
    Sterling                      125,926      -             125,926     -      December, 1996
   Wyndemere                      200,140      -             200,140     -      March, 1997
    </TABLE>

<PAGE>F42

                         ASSOCIATED ESTATES REALTY CORPORATION    SCHEDULE III 
                        REAL ESTATE AND ACCUMULATED DEPRECIATION

                                              December 31, 1998
<TABLE>
<CAPTION>
                                        Initial Cost                           Historical Cost           


                           Encumbrances               Buildings & Improvements               Buildings &
           Property             (1)         Land     Improvements      (2)         Land     Improvements

   <S>                     <C>             <C>        <C>          <C>             <C>      <C>  
   FLORIDA
   Kirkman                       -         3,222,345       -            -          3,222,345      -

   GEORGIA
   Boggs Road                    -         3,954,771       -            -          3,954,771      -

   MICHIGAN
   Arbor Landings-Phase II       -           422,180       -            -            422,180      -
   Aspen Lakes Apts.             -           402,100       -            -            402,100      -
   Georgetown Park
    Apartments                   -           -             -            -            -            -
   The Landings at the
    Preserve                     -           266,020       -            -            266,020      -      
                           $  80,046,761$101,949,321 $741,522,087   34,874,598   103,048,712 775,284,794

   Management Service Companies                                      3,920,657       754,643   3,166,014
   Land, Building & Improvements                                  $ 38,795,255 $ 103,803,355$778,450,808
</TABLE>




                          ASSOCIATED ESTATES REALTY CORPORATION- SCHEDULE III
                        REAL ESTATE AND ACCUMULATED DEPRECIATION
                                           December 31, 1998
<TABLE>
<CAPTION>

                                              Historical Cost            
                                                             Total Cost,
                                                               Net of    Depreciable     Date of
                                               Accumulated   Accumulated    Lives     Construction/
              Property               Total    Depreciation  Depreciation    Years      Acquisition

   <S>                               <C>      <C>           <C>           <C>          <C>  
   FLORIDA
   Kirkman                           3,222,345      -           3,222,345    5-30    July, 1998

   GEORGIA
   Boggs Road                        3,954,771      -           3,954,771     -

   MICHIGAN
   Arbor Landings - Phase II           422,180      -             422,180     -      August, 1995
   Aspen Lakes Apts.                   402,100      -             402,100     -      September, 1996
   Georgetown Park Apartments          -            -             -           -      December, 1994
   The Landings at the Preserve        266,020      -             266,020     -      September, 1995
                                   878,333,506 139,357,785    738,975,721

   Management Service Companies      3,920,657     667,212      3,253,445  10-30     November, 1993
   Land, Building & Improvements   882,254,163 140,024,997    742,229,166
   FURNITURE, FIXTURE & EQUIPMENT   30,804,870  13,916,705     16,888,165
   Construction in progress         42,612,292      -          42,612,292
                                  $955,671,325$153,941,702  $ 801,729,623
    <FN>
    (1)  Encumbrances include mortgage debt, deferred liability and other 
         obligations secured by the real estate assets.
    (2)  Improvements include the purchase price adjustment for certain 
         properties in which cash was paid to unrelated third parties to 
         acquire their interests.
    (3)  In 1998, properties were combined for operating, marketing 
         and reporting purposes.
    (4)  Refer to Note 9 to the December 31, 1998 financial statements
         of Associated Estates Realty Corporation.
    </FN>
    </TABLE>

<PAGE>F43

                           ASSOCIATED ESTATES REALTY CORPORATION  SCHEDULE III 
                          REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
                                             December 31, 1998
<CAPTION>


                                           Initial Cost                         Historical Cost         


                              Encumbrances             Buildings &  Improvements             Buildings &
            Property               (1)        Land    Improvements       (2)        Land     Improvements

   JOINT VENTURE PROPERTIES
   INVESTMENTS IN WHICH 
     AERC HAS A 50% INTEREST 
     RESIDENTIAL MULTIFAMILY PROPERTIES
     NORTHERN OHIO

   <S>                        <C>         <C>        <C>           <C>          <C>         <C> 
   College Towers             $     -      $  340,000 $  3,351,247  $    223,653$   340,000 $  3,574,900
   Highland House                   -          54,053      209,903        -          54,053      209,903
   Lakeshore Village              4,095,680   482,217    3,861,676        -         482,217    3,861,676
                                  4,095,680   876,270    7,422,826       223,653    876,270    7,646,479

   INVESTMENTS IN WHICH
      AERC HAS A 33% INTEREST
      RESIDENTIAL MULTIFAMILY PROPERTIES
      NORTHERN OHIO
   Americana                     11,823,211   504,207    7,127,922       585,230    504,207    7,713,152
   Euclid House                   1,608,465   105,000    1,218,156         7,371    105,000    1,225,527
   Gates Mills Towers            18,694,683     -       10,358,694     9,458,596  1,351,214   18,466,076
   Watergate                     14,088,783   499,849   13,538,629       603,761    499,849   14,142,390
                                 46,215,142 1,109,056   32,243,401    10,654,958  2,460,270   41,547,145

   Land, Building and
    Improvements              $  50,310,822$1,985,326 $ 39,666,227  $ 10,878,611$ 3,336,540 $ 49,193,624<PAGE>
</TABLE>




                      ASSOCIATED ESTATES REALTY CORPORATION -  SCHEDULE III
                     REAL ESTATE AND ACCUMULATED DEPRECIATION
                                            December 31, 1998
<TABLE>
<CAPTION>
                                                 Historical Cost            
                                                                Total Cost,
                                                                  Net of    Depreciable     Date of
                                                  Accumulated   Accumulated    Lives     Construction/
                Property                Total    Depreciation  Depreciation    Years      Acquisition

   JOINT VENTURE PROPERTIES
   INVESTMENTS IN WHICH 
     AERC HAS A 50% INTEREST 
     RESIDENTIAL MULTIFAMILY PROPERTIES
     NORTHERN OHIO
   <S>                               <C>         <C>           <C>              <C>     <C>     
   
   College Towers                    $ 3,914,900 $   3,394,653 $     520,247    7-30    January, 1969
   Highland House                        263,956       209,903        54,053    5-30    June, 1964
   Lakeshore Village                   4,343,893     2,091,743     2,252,150    3-30    October, 1982
                                       8,522,749     5,696,299     2,826,450

   INVESTMENTS IN WHICH
      AERC HAS A 33% INTEREST
      RESIDENTIAL MULTIFAMILY PROPERTIES
      NORTHERN OHIO
   Americana                           8,217,359     7,283,864       933,495    5-30    June, 1968
   Euclid House                        1,330,527     1,201,635       128,892    7-30    August, 1969
   Gates Mills Towers                 19,817,290    12,543,303     7,273,987   10-30    December, 1969
   Watergate                          14,642,239    13,050,123     1,592,116    5-30    July, 1971
                                      44,007,415    34,078,925     9,928,490

   Land, Building and Improvements    52,530,164    39,775,224    12,754,940
   Furniture, Fixtures and Equipment   2,855,770     2,790,767        65,003
   Construction in Progress               40,447             -        40,447
                                     $55,426,381 $  42,565,991 $  12,860,390

    <FN>
    (1)  Encumbrances include mortgage debt and other obligations secured 
         by the real estate assets.
    (2)  Improvements include the purchase price adjustment for certain 
         properties in which cash was paid to unrelated third parties to 
         acquire their interests.
    </FN>
    </TABLE>

<PAGE>F44
                                      SCHEDULE III (continued)

                        ASSOCIATED ESTATES REALTY CORPORATION
                       REAL ESTATE AND ACCUMULATED DEPRECIATION
                                  DECEMBER 31, 1998


               The Aggregate Cost for Federal Income Tax purposes was
          approximately $800 million and $600 million at December 31, 1998
          and 1997, respectively.

               The changes in Total Real Estate Assets for the years ended
          December 31, are as follows:
<TABLE>
<CAPTION>

                                      1998            1997     

   <S>                           <C>             <C>
   Balance, beginning of period  $ 646,498,966   $ 513,966,475 
   Disposal of fixed assets        (11,150,879)     (3,284,839)
   New acquisition properties      246,384,308     105,681,282 
   Improvements                     73,938,930      30,136,048 
   Balance, end of period        $ 955,671,325   $ 646,498,966

</TABLE>

               The changes in Accumulated Depreciation and Amortization for
          the years ended December 31, are as follows:

<TABLE>
<CAPTION>
                                     1998           1997    

   <S>                           <C>            <C>        
   Balance, beginning of period  $130,668,538   $112,102,829 
   Disposal of fixed assets          (570,806)             - 
   Depreciation for period         23,843,970     18,565,709 
   Balance, end of period        $153,941,702   $130,668,538
</TABLE>