SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2007

Commission file number 1-12672

AVALONBAY COMMUNITIES, INC.

(Exact name of registrant as specified in its charter)

Maryland		77-0404318
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2900 Eisenhower Avenue, Suite 300
Alexandria, Virginia 22314

(Address of principal executive office)

(703) 329-6300

(Registrant’s telephone number, including area code)

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

Common Stock, par value $.01 per share 8.70% Series H Cumulative Redeemable Preferred Stock, par value $.01 per share (Title of each class)		New York Stock Exchange New York Stock Exchange (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ý      No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o      No ý

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 twelve (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 ý      No o

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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o      No ý

The aggregate market value of the Registrant’s Common Stock, par value $.01 per share, held by nonaffiliates of the registrant, as of June 30, 2007 was $9,281,643,046.

The number of shares of the registrant’s Common Stock, par value $.01 per share, outstanding as of January 31, 2008 was 76,845,045.

Documents Incorporated by Reference

Portions of AvalonBay Communities, Inc.’s Proxy Statement for the 2008 annual meeting of stockholders, a definitive copy of which will be filed with the SEC within 120 days after the year end of the year covered by this Form 10-K, are incorporated by reference herein as portions of Part III of this Form 10-K.

 

 

TABLE OF CONTENTS

				PAGE
		PART I
ITEM 1.		BUSINESS			1
ITEM 1a.		RISK FACTORS			8
ITEM 1b.		UNRESOLVED STAFF COMMENTS			15
ITEM 2.		COMMUNITIES			16
ITEM 3.		LEGAL PROCEEDINGS			34
ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			34
		PART II
ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			35
ITEM 6.		SELECTED FINANCIAL DATA			37
ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			40
ITEM 7a.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			59
ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			61
ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			61
ITEM 9a.		CONTROLS AND PROCEDURES			61
ITEM 9b.		OTHER INFORMATION			61
		PART III
ITEM 10.		DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			62
ITEM 11.		EXECUTIVE COMPENSATION			62
ITEM 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			62
ITEM 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			63
ITEM 14.		PRINCIPAL ACCOUNTING FEES AND SERVICES			63
		PART IV
ITEM 15.		EXHIBITS, FINANCIAL STATEMENT SCHEDULE			64
SIGNATURES					70

PART I

This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our actual results could differ materially from those set forth in each forward-looking statement. Certain factors that might cause such a difference are discussed in this report, including in the section entitled “Forward-Looking Statements” on page 55 of this Form 10-K. You should also review Item 1a., “Risk Factors,” for a discussion of various risks that could adversely affect us.

ITEM 1. BUSINESS

General

AvalonBay Communities, Inc. (the “Company,” which term, unless the context otherwise requires, refers to AvalonBay Communities, Inc. together with its subsidiaries) is a Maryland corporation that has elected to be treated as a real estate investment trust, or REIT, for federal income tax purposes. We engage in the development, redevelopment, acquisition, ownership and operation of multifamily communities in high barrier-to-entry markets of the United States. These barriers-to-entry generally include a difficult and lengthy entitlement process with local jurisdictions and dense urban or suburban areas where zoned and entitled land is in limited supply. Our markets are located in the Northeast, Mid-Atlantic, Midwest, Pacific Northwest, and Northern and Southern California regions of the United States. We focus on these markets because we believe that over the long term, a limited new supply of apartment homes and lower housing affordability in these markets will result in larger increases in cash flows relative to other markets. In addition to increasing the rental revenues of our operating assets, we believe these market attributes will increase the value of our operating assets and enable us to create additional value through the development and selective acquisition of multifamily housing.

At January 31, 2008, we owned or held a direct or indirect ownership interest in:

	•		163 operating apartment communities containing 45,932 apartment homes in ten states and the District of Columbia, of which (i) 12 communities containing 4,006 apartment homes were redevelopment communities, discussed below and (ii) 20 communities containing 4,229 apartment homes were held by the Fund (as defined below) which we manage and in which we own a 15.2% equity interest;
	•		21 communities under construction that are expected to contain an aggregate of 6,816 apartment homes when completed; and
	•		rights to develop an additional 48 communities that, if developed in the manner expected, will contain an estimated 13,656 apartment homes.

We generally obtain ownership in an apartment community by developing a new community on vacant land or by acquiring an existing community. In selecting sites for development or acquisition, we favor locations that are near expanding employment centers and convenient to transportation, recreation areas, entertainment, shopping and dining.

Our real estate investments consist of the following reportable segments: Established Communities, Other Stabilized Communities and Development/Redevelopment Communities. Established Communities are generally operating communities that are consolidated for financial reporting purposes and that were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year. Other Stabilized Communities are generally all other operating communities that have stabilized occupancy and operating expenses during the current year, but that had not achieved stabilization as of the beginning of the prior year. Development/ Redevelopment Communities consist of communities that are under construction, communities where substantial redevelopment is in progress or is planned to begin during the current year and communities under lease-up. A more detailed description of these segments and other related information can be found in Note 9, “Segment Reporting,” of the Consolidated Financial Statements set forth in Item 8 of this report.

Our principal financial goal is to increase long-term stockholder value by successfully and cost-effectively developing, redeveloping, acquiring, owning and operating high-quality communities in our selected markets that contain features and amenities desired by residents, as well as by providing our residents with efficient and effective service. To help fulfill this goal, we regularly (i) monitor our investment allocation by geographic market and product type, (ii) develop, redevelop and acquire apartment communities in high barrier-to-entry markets with growing or high potential for demand and high for-sale housing costs, (iii) selectively sell apartment communities that no longer meet our long-term strategy or when opportunities are presented to realize a portion of the value created through our investment and redeploy the proceeds from those sales, and (iv) endeavor to maintain a capital structure that is aligned with our business risks such that we maintain continuous access to cost-effective capital. Our long-term strategy is to more deeply penetrate the high barrier-to-entry markets in our chosen regions with a broad range of products and services and an intense focus on our customer. A substantial majority of our current communities are upscale, which generally command among the highest rents in their markets. However, we also pursue the ownership and operation of apartment communities that target a variety of customer segments and price points, consistent with our goal of offering a broad range of products and services.

During the three years ended December 31, 2007, excluding acquisition for the Fund, we acquired two apartment communities and executed the buyout of our partner’s 75% interest in a joint venture that owns an apartment community. All three communities’ financial results are consolidated for financial reporting purposes. During the same three-year period, we disposed of 15 apartment communities, disposed of one investment in a real estate joint venture and completed the development of 21 apartment communities and the redevelopment of 10 apartment communities, including communities we redeveloped for the Fund (as defined below). In anticipation of favorable apartment fundamentals and to help position us for future growth, we increased our construction volume during 2007 (as measured by total projected capitalized cost at completion) and continued to secure new development opportunities, including the acquisition of land for future development. We also increased our investments in apartment communities through an institutional discretionary investment fund, AvalonBay Value Added Fund, L.P. (the “Fund”), which we manage and in which we own a 15% interest. To create value, the Fund acquired communities with the objective of either redeveloping or repositioning them, or taking advantage of market cycle timing and improved operating performance. Since its inception in March 2005, the Fund has acquired 20 communities. A more detailed description of the Fund and its investment activity can be found in the discussion under Item I. “Business – General – Financing Strategy” and Note 6, “Investments in Real Estate Entities” of the Consolidated Financial Statements in Item 8 of this report. As a result of strong capital flows to the industry, we also continued to dispose of assets at prices that provided significant realized gains.

In 2008, we expect additional new development starts to be in the range of $900,000,000 to $1,100,000,000, measured at total projected cost of completion, and anticipate an increase in our redevelopment activity for both wholly-owned assets and assets of the Fund. We also anticipate asset sales in the range of $700,000,000 to $1,000,000,000, dependent on strategic and value realization opportunities. The level of development, acquisition and disposition activity, however, is heavily influenced by capital market conditions, including prevailing interest rates. A further discussion of our development, redevelopment, disposition, acquisition, property management and related strategies follows.

Development Strategy. We select land for development and follow established procedures that we believe minimize both the cost and the risks of development. As one of the largest developers of multifamily apartment communities in high barrier-to-entry markets of the United States, we identify development opportunities through local market presence and access to local market information achieved through our regional offices. In addition to our principal executive office in Alexandria, Virginia, we also maintain regional offices and administrative or specialty offices in or near the following cities:

	•		Boston, Massachusetts;
	•		Chicago, Illinois;
	•		Long Island, New York;
	•		Los Angeles, California;
	•		New York, New York;
	•		Newport Beach, California;
	•		San Francisco, California;
	•		San Jose, California;
	•		Seattle, Washington;
	•		Shelton, Connecticut;
	•		Virginia Beach, Virginia; and
	•		Woodbridge, New Jersey.

After selecting a target site, we usually negotiate for the right to acquire the site either through an option or a long-term conditional contract. Options and long-term conditional contracts allow us to acquire the target site shortly before the start of construction, which reduces development-related risks and preserves capital. However, as a result of the recent competitive market conditions for land suitable for development, we recently have acquired and held land prior to construction for extended periods while entitlements are obtained, or acquired land zoned for uses other than residential with the potential for rezoning. We currently own land that is held for development with an aggregate carrying basis under U.S. generally accepted accounting principles (“GAAP”) of $288,423,000 on which we have not yet commenced construction.

Except for certain mid-rise and high-rise apartment communities where we may elect to use third-party general contractors or construction managers, when we start construction we act as our own general contractor and construction manager. We generally perform these functions directly (although we may use a wholly-owned subsidiary) both for ourselves and for the joint ventures and partnerships of which we are a member or a partner. We believe this enables us to achieve higher construction quality, greater control over construction schedules and significant cost savings. Our development, property management and construction teams monitor construction progress to ensure high-quality workmanship and a smooth and timely transition into the leasing and operating phase.

When there is increased competition for desirable development opportunities, we will in some cases be engaged in more complicated development pursuits. For example, at times we have acquired and may in the future acquire existing commercial buildings with the intent to pursue rezoning, tenant terminations or expirations and demolition of the existing structures. During the period that we hold these buildings for future development, the net revenue from these operations, which we consider to be incidental, is accounted for as a reduction in our investment in the development pursuit and not as net income. We have also participated, and may in the future participate, in master planned or other large multi-use developments where we commit to build infrastructure (such as roads) to be used by other participants or commit to act as construction manager or general contractor in building structures or spaces for third parties (such as municipal garages or parks). Costs we incur in connection with these activities may be accounted for as additional invested capital in the community or we may earn fee income for providing these services. Particularly with large scale, urban in-fill developments, we may engage in significant environmental remediation efforts to prepare a site for construction.

Throughout this report, the term “development” is used to refer to the entire property development cycle, including pursuit of zoning approvals, procurement of architectural and engineering designs and the construction process. References to “construction” refer to the actual construction of the property, which is only one element of the development cycle.

Redevelopment Strategy. When we undertake the redevelopment of a community, our goal is to renovate and/or rebuild an existing community so that our total investment is generally below replacement cost and the community is well positioned in the market to achieve attractive returns on our capital. We have established procedures to reduce both the cost and risks of redevelopment. Our redevelopment teams, which include key redevelopment, construction and property management personnel, monitor redevelopment progress. We believe we achieve significant cost savings by acting as our own general contractor. More importantly, this helps to ensure high-quality design and workmanship and a smooth and timely transition into the lease-up and restabilization phase.

Throughout this report, the term “redevelopment” is used to refer to the entire redevelopment cycle, including planning and procurement of architectural and engineering designs, budgeting and actual renovation work. The actual renovation work is referred to as “reconstruction,” which is only one element of the redevelopment cycle.

Disposition Strategy. We sell assets that no longer meet our long-term strategy or when market conditions are favorable, and we redeploy the proceeds from those sales to develop, redevelop and acquire communities and to rebalance our portfolio across geographic regions. This also allows us to realize a portion of the value created through our investments, and provides additional liquidity. We are then able to redeploy the net proceeds from our dispositions in lieu of raising that amount of capital externally by issuing debt or equity securities. When we decide to sell a community, we solicit competing bids from unrelated parties for these individual assets and consider the sales price of each proposal.

Acquisition Strategy. Our core competencies in development and redevelopment discussed above allow us to be selective in the acquisitions we target. Acquisitions allow us to achieve rapid penetration into markets in which we desire an increased presence. Acquisitions (and dispositions) also help us achieve our desired product mix or rebalance our portfolio. In 2005 we formed the Fund, which since then has served as the exclusive vehicle through which we acquired additional investments in apartment communities, subject to limited exceptions. At December 31, 2007, the Fund had invested $777,568,000. We expect that the Fund will invest approximately $46,000,000 of additional funds to redevelop the assets acquired, at which time the Fund will become fully invested. We are exploring various potential sources and vehicles for funding future acquisitions after the Fund is fully invested.

Property Management Strategy. We expect to increase operating income through innovative, proactive property management that will result in higher revenue from communities while constraining operating expenses. Our principal strategies to maximize revenue include:

	•		strong focus on resident satisfaction;
	•		staggering lease terms such that lease expirations are better matched to traffic patterns;
	•		balancing high occupancy with premium pricing, and increasing rents as market conditions permit; and
	•		managing community occupancy for optimal rental revenue levels.

Constraining growth in operating expenses is another way in which we expect to increase earnings growth. Growth in our portfolio and the resulting increase in revenue allows for fixed operating costs to be spread over a larger volume of revenue, thereby increasing operating margins. We control operating expenses in a variety of ways, which include the following, among others:

	•		we use purchase order controls, acquiring goods and services from pre-approved vendors;
	•		we purchase supplies in bulk where possible;
	•		we bid third-party contracts on a volume basis;
	•		we strive to retain residents through high levels of service in order to eliminate the cost of preparing an apartment home for a new resident and to reduce marketing and vacant apartment utility costs;
	•		we perform turnover work in-house or hire third parties, generally depending upon the least costly alternative;
	•		we undertake preventive maintenance regularly to maximize resident satisfaction and property and equipment life; and
	•		we aggressively pursue real estate tax appeals.

On-site property management teams receive bonuses based largely upon the net operating income produced at their respective communities. We use and continuously seek ways to improve technology applications to help manage our communities, believing that the accurate collection of financial and resident data will enable us to maximize revenue and control costs through careful leasing decisions, maintenance decisions and financial management.

We generally manage the operation and leasing activity of our communities directly (although we may use a wholly- owned subsidiary) both for ourselves and the joint ventures and partnerships of which we are a member or a partner.

From time to time, we also pursue or arrange ancillary services for our residents to provide additional revenue sources or increase resident satisfaction. In general, as a REIT we cannot directly provide services to our tenants that are not customarily provided by a landlord, nor can we share in the income of a third party that provides such services. However, we can provide such non-customary services to residents or share in the revenue from such services if we do so through a “taxable REIT subsidiary,” which is a subsidiary that is treated as a “C corporation” and is therefore subject to federal income taxes.

Financing Strategy. We have consistently maintained, and intend to continue to maintain, a capital structure that provides us with flexibility in meeting the financial obligations and opportunities presented by our real estate development and ownership business. At December 31, 2007, our debt-to-total market capitalization was 30.3%, and our long-term floating rate debt, which includes amounts outstanding on our variable rate unsecured credit facility, was 10.2% of total market capitalization. Total market capitalization reflects the aggregate of the market value of our common stock, the market value of our operating partnership units outstanding (based on the market value of our common stock), the liquidation preference of our preferred stock and the outstanding principal amount of our debt. We believe that debt-to-total market capitalization can be one useful measure of a real estate operating company’s long-term liquidity and balance sheet strength, because it shows an approximate relationship between a company’s total debt and the current total market value of its assets based on the current price at which the company’s common stock trades. However, because debt-to-total market capitalization changes with fluctuations in our stock price, which occur regularly, our debt-to-total market capitalization may change even when our earnings and debt levels remain stable.

We estimate that a portion of our short-term liquidity needs will be met from retained operating cash, borrowings under our variable rate unsecured credit facility and sales of current operating communities. If required to meet the balance of our current or anticipated liquidity needs, we will borrow funds under our existing unsecured credit facility, sell existing communities or land and/or issue additional debt or equity securities. A determination to engage in an equity or debt offering depends on a variety of factors such as general market and economic conditions, including interest rates, our short and long term liquidity needs, the adequacy of our expected liquidity sources, the relative costs of debt and equity capital, and growth opportunities. A summary of debt and equity activity for the last three years is reflected on our Consolidated Statement of Cash Flows of the Consolidated Financial Statements set forth in Item 8 of this report.

We have entered into, and may continue in the future to enter into, joint ventures (including limited liability companies) or partnerships through which we would own an indirect economic interest of less than 100% of the community or communities owned directly by such joint venture or partnership. Our decision whether to hold an apartment community in fee simple or to have an indirect interest in the community through a joint venture or partnership is based on a variety of factors and considerations, including: (i) the economic and tax terms required by a seller of land or of a community, who may prefer that (or who may require less payment if) the land or community is contributed to a joint venture or partnership; (ii) our desire to diversify our portfolio of communities by market, submarket and product type; (iii) our desire at times to preserve our capital resources to maintain liquidity or balance sheet strength; and (iv) our projection, in some circumstances, that we will achieve higher returns on our invested capital or reduce our risk if a joint venture or partnership vehicle is used. Investments in joint ventures or partnerships are not limited to a specified percentage of our assets. Each joint venture or partnership agreement is individually negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture or partnership agreement.

Since its inception in 2005, the Fund has served as the principal vehicle through which we have invested in the acquisition of apartment communities, subject to certain exceptions. These exceptions included significant individual asset and portfolio acquisitions, properties acquired in tax-deferred transactions and acquisitions that are inadvisable or inappropriate for the Fund. The Fund does not restrict our development activities, and will terminate after a term of eight years, subject to two one-year extensions. The Fund has nine institutional investors, including us, with a combined equity capital commitment of $330,000,000. A significant portion of the investments made in the Fund by its investors are being made through AvalonBay Value Added Fund, Inc., a Maryland corporation that qualifies as a REIT under the Internal Revenue Code (the “Fund REIT”). A wholly-owned subsidiary of the Company is the general partner of the Fund and has committed $50,000,000 to the Fund and the Fund REIT (of which approximately $43,399,000 has been invested as of January 31, 2008) representing a 15.2% combined general partner and limited partner equity interest. As of January 31, 2008, the Fund had invested $779,318,000, with an additional expected net investment of $39,000,000 to redevelop the assets acquired. We are exploring various potential sources and vehicles for funding future acquisitions after the Fund is fully invested.

In addition, we may, from time to time, offer shares of our equity securities, debt securities or options to purchase stock in exchange for property.

Other Strategies and Activities. While we emphasize equity real estate investments in rental apartment communities, we have the ability to invest in other types of real estate, mortgages (including participating or convertible mortgages), securities of other REITs or real estate operating companies, or securities of technology companies that relate to our real estate operations or of companies that provide services to us or our residents, in each case consistent with our qualification as a REIT. On occasion, we own and lease retail space at our communities when either (i) the highest and best use of the space is for retail (e.g., street level in an urban area) or (ii) we believe the retail space will enhance the attractiveness of the community to residents. As of December 31, 2007, we had a total of 405,122 square feet of rentable retail space that produced gross rental revenue in 2007 of $7,790,000 (1.0% of total revenue). If we secure a development right and believe that its best use, in whole or in part, is to develop the real estate with the intent to sell rather than hold the asset, we may, through a taxable REIT subsidiary, develop real estate for sale. At present, through a taxable REIT subsidiary that is a 50% partner in Aria at Hathorne, LLC, we have an economic interest in the development of 64 for-sale townhomes at a total projected capital cost of $23,636,000 on a site that is adjacent to our Avalon Danvers community and that is zoned for for-sale development. Any investment in securities of other entities, and any development of real estate for sale, is subject to the percentage of ownership limitations, gross income tests, and other limitations that must be observed for REIT qualification.

We have not engaged in trading, underwriting or agency distribution or sale of securities of other issuers and do not intend to do so. At all times we intend to make investments in a manner so as to qualify as a REIT unless, because of circumstances or changes to the Internal Revenue Code (or the Treasury Regulations), the Board of Directors determines that it is no longer in our best interest to qualify as a REIT.

Inflation and Deflation

Substantially all of our apartment leases are for a term of one year or less. In an inflationary environment, this may allow us to realize increased rents upon renewal of existing leases or the beginning of new leases. Short-term leases generally minimize our risk from the adverse effects of inflation, although these leases generally permit residents to leave at the end of the lease term and therefore expose us to the effect of a decline in market rents. In a deflationary rent environment, we may be exposed to declining rents more quickly under these shorter-term leases.

Tax Matters

We filed an election with our 1994 federal income tax return to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and intend to maintain our qualification as a REIT in the future. As a qualified REIT, with limited exceptions, we will not be taxed under federal and certain state income tax laws at the corporate level on our net income to the extent net income is distributed to our stockholders. We expect to make sufficient distributions to avoid income tax at the corporate level. While we believe that we are organized and qualified as a REIT and we intend to operate in a manner that will allow us to continue to qualify as a REIT, there can be no assurance that we will be successful in this regard. Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which there are limited judicial and administrative interpretations and involves the determination of a variety of factual matters and circumstances not entirely within our control.

Competition

We face competition from other real estate investors, including insurance companies, pension and investment funds, partnerships and investment companies and other REITs, to acquire and develop apartment communities and acquire land for future development. As an owner and operator of apartment communities, we also face competition for prospective residents from other operators whose communities may be perceived to offer a better location or better amenities or whose rent may be perceived as a better value proposition given the quality, location and amenities that the resident seeks. We also compete against condominiums and single-family homes that are for sale or rent. Although we often compete against large sophisticated developers and operators for development opportunities and for prospective residents, real estate developers and operators of any size can provide effective competition for both real estate assets and potential residents.

Environmental and Related Matters

As a current or prior owner, operator and developer of real estate, we are subject to various federal, state and local environmental laws, regulations and ordinances and also could be liable to third parties resulting from environmental contamination or noncompliance at our communities. For some development communities, we undertake extensive environmental remediation to prepare the site for construction, which could be a significant portion of our total construction cost. Environmental remediation efforts could expose us to possible liabilities for accidents or improper handling of contaminated materials during construction. These and other risks related to environmental matters are described in more detail in Item 1a., “Risk Factors”.

Other Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20002. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Our SEC filings are also available to the public from the SEC’s website at www.sec.gov. In addition, you may read our SEC fillings at the offices of the New York Stock Exchange (“NYSE”), which is located at 20 Board Street, New York, New York 10005. Our SEC filings are available at the NYSE because our common stock and an outstanding series of preferred stock are listed on the NYSE.

We maintain a website at www.avalonbay.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 are available free of charge in the “Investor Relations” section of our website as soon as reasonably practicable after the reports are filed with or furnished to the SEC. In addition, the charters of our Board’s Nominating and Corporate Governance Committee, Audit Committee and Compensation Committee, as well as our Corporate Governance Guidelines and Code of Conduct, are available free of charge in that section of our website or by writing to AvalonBay Communities, Inc., 2900 Eisenhower Avenue, Suite 300, Alexandria, Virginia 22314, Attention: Chief Financial Officer. To the extent required by the rules of the SEC and the New York Stock Exchange (“NYSE”), we will disclose amendments and waivers relating to these documents in the same place on our website.

We were incorporated under the laws of the State of California in 1978. In 1995, we reincorporated in the State of Maryland and have been focused on the ownership and operation of apartment communities since that time. As of December 31, 2007, we had 1,898 employees.

ITEM 1a. RISK FACTORS

Our operations involve various risks that could have adverse consequences, including those described below. This Item 1a includes forward-looking statements. You should refer to our discussion of the qualifications and limitations on forward-looking statements on page 55.

Development, redevelopment and construction risks could affect our profitability.

We intend to continue to develop and redevelop apartment home communities. These activities can include long planning and entitlement timelines and can involve complex and costly activities, including significant environmental remediation or construction work in high-density urban areas. These activities may be exposed to the following risks:

	•		we may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or the delay or abandonment of opportunities;
	•		we may abandon opportunities that we have already begun to explore for a number of reasons, including changes in local market conditions or increases in construction or financing costs, and, as a result, we may fail to recover expenses already incurred in exploring those opportunities;
	•		we may incur costs that exceed our original estimates due to increased material, labor or other costs;
	•		occupancy rates and rents at a community may fail to meet our expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing communities;
	•		we may be unable to complete construction and lease up of a community on schedule, resulting in increased construction and financing costs and a decrease in expected rental revenues;
	•		we may be unable to obtain financing with favorable terms, or at all, for the proposed development of a community, which may cause us to delay or abandon an opportunity;
	•		we may incur liabilities to third parties during the development process, for example, in connection with managing existing improvements on the site prior to tenant terminations and demolition (such as commercial space) or in connection with providing services to third parties, such as the construction of shared infrastructure or other improvements; and
	•		we may incur liability if our communities are not constructed and operated in compliance with the accessibility provisions of the Americans with Disabilities Acts, the Fair Housing Act or other federal, state or local requirements. Noncompliance could result in imposition of fines, an award of damages to private litigants, and a requirement that we undertake structural modifications to remedy the noncompliance. We are currently engaged in a lawsuit alleging noncompliance with these statutes. See “Legal Proceedings.”

We project construction costs based on market conditions at the time we prepare our budgets, and our projections include changes that we anticipate but cannot predict with certainty. Construction costs have been increasing, particularly for materials such as steel, concrete and lumber, and, for some of our Development Communities and Development Rights, the total construction costs may be higher than the original budget. Total capitalized cost includes all capitalized costs projected to be incurred to develop or redevelop a community, determined in accordance with United States Generally Accepted Accounting Principles (“GAAP”), including:

	•		land and/or property acquisition costs;
	•		fees paid to secure air rights and/or tax abatements;
	•		construction or reconstruction costs;
	•		costs of environmental remediation;
	•		real estate taxes;
	•		capitalized interest;
	•		loan fees;
	•		permits;
	•		professional fees;
	•		allocated development or redevelopment overhead; and
	•		other regulatory fees.

Costs to redevelop communities that have been acquired have, in some cases, exceeded our original estimates and similar increases in costs may be experienced in the future. We cannot assure you that market rents in effect at the time new development or redevelopment communities complete lease-up will be sufficient to fully offset the effects of any increased construction or reconstruction costs.

Unfavorable changes in market and economic conditions could hurt occupancy, rental rates or operating expenses.

Local conditions in our markets significantly affect occupancy or rental rates at our communities. The risks that may adversely affect conditions in those markets include the following:

	•		plant closings, industry slowdowns and other factors that adversely affect the local economy;
	•		an oversupply of, or a reduced demand for, apartment homes;
	•		a decline in household formation or employment or lack of employment growth;
	•		the inability or unwillingness of residents to pay rent increases;
	•		rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to offset increases in operating costs; and
	•		economic conditions that could cause an increase in our operating expenses, such as increases in property taxes, utilities, compensation of on-site associates and routine maintenance may adversely affect the operating performance of our communities.

Changes in applicable laws, or noncompliance with applicable laws, could adversely affect our operations or expose us to liability.

We must operate our communities in compliance with numerous federal, state and local laws and regulations, including landlord tenant laws and other laws generally applicable to business operations. Noncompliance with laws could expose us to liability.

Compliance with changes in (i) laws increasing the potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions, (ii) rent control or rent stabilization laws or (iii) other governmental rules and regulations or enforcement policies affecting the use and operation of our communities, including changes to building codes and fire and life-safety codes, may result in lower revenue growth or significant unanticipated expenditures.

Short-term leases expose us to the effects of declining market rents.

Substantially all of our apartment leases are for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.

Competition could limit our ability to lease apartment homes or increase or maintain rents.

Our apartment communities compete with other housing alternatives to attract residents, including other rental apartments, condominiums and single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. Competitive residential housing in a particular area could adversely affect our ability to lease apartment homes and to increase or maintain rental rates.

Attractive investment opportunities may not be available, which could adversely affect our profitability.

We expect that other real estate investors, including insurance companies, pension funds, other REITs and other well-capitalized investors, will compete with us to acquire existing properties and to develop new properties. This competition could increase prices for properties of the type we would likely pursue and adversely affect our profitability.

Insufficient cash flow could affect our debt financing and create refinancing risk.

We are subject to the risks associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. In this regard, we note that we are required to annually distribute dividends generally equal to at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gain, in order for us to continue to qualify as a REIT, and this requirement limits the amount of our cash flow available to meet required principal and interest payments. The principal outstanding balance on a portion of our debt will not be fully amortized prior to its maturity. Although we may be able to repay our debt by using our cash flows, we cannot assure you that we will have sufficient cash flows available to make all required principal payments. Therefore, we may need to refinance at least a portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that a refinancing will not be done on as favorable terms, either of which could have a material adverse effect on our financial condition and results of operations.

Rising interest rates could increase interest costs and could affect the market price of our common stock.

We currently have, and may in the future incur, variable interest rate debt. In addition, we regularly seek access to both fixed and variable rate debt financing to repay maturing debt and to finance our development and redevelopment activity. Accordingly, if interest rates increase, our interest costs will also rise, unless we have made arrangements that hedge the risk of rising interest rates. In addition, an increase in market interest rates may lead purchasers of our common stock to demand a greater annual dividend yield, which could adversely affect the market price of our common stock.

Bond financing and zoning compliance requirements could limit our income, restrict the use of communities and cause favorable financing to become unavailable.

We have financed some of our apartment communities with obligations issued by local government agencies because the interest paid to the holders of this debt is generally exempt from federal income taxes and, therefore, the interest rate is generally more favorable to us. These obligations are commonly referred to as “tax-exempt bonds” and generally must be secured by communities. As a condition to obtaining tax-exempt financing, or on occasion as a condition to obtaining favorable zoning in some jurisdictions, we will commit to make some of the apartments in a community available to households whose income does not exceed certain thresholds (e.g., 50% or 80% of area median income), or who meet other qualifying tests. As of December 31, 2007, approximately 4.7% of our apartment homes at current operating communities were under income limitations such as these. These commitments, which may run without expiration or may expire after a period of time (such as 15 or 20 years) may limit our ability to raise rents aggressively and, in consequence, can also limit increases in the value of the communities subject to these restrictions.

In addition, some of our tax-exempt bond financing documents require us to obtain a guarantee from a financial institution of payment of the principal of, and interest on, the bonds. The guarantee may take the form of a letter of credit, surety bond, guarantee agreement or other additional collateral. If the financial institution defaults in its guarantee obligations, or if we are unable to renew the applicable guarantee or otherwise post satisfactory collateral, a default will occur under the applicable tax-exempt bonds and the community could be foreclosed upon.

Risks related to indebtedness.

We have a $1,000,000,000 revolving variable rate unsecured credit facility with JPMorgan Chase Bank, N.A., and Wachovia Bank, N.A., serving together as syndication agent and as banks, Bank of America, N.A., serving as administrative agent, swing lender, issuing bank and a bank, Morgan Stanley Bank, Wells Fargo Bank, N.A., and Deutsche Bank Trust Company Americas, serving collectively as documentation agent and as banks, and a syndicate of other financial institutions, serving as banks. Our organizational documents do not limit the amount or percentage of indebtedness that may be incurred. Accordingly, subject to compliance with outstanding debt covenants, we could incur more debt, resulting in an increased risk of default on our obligations and an increase in debt service requirements that could adversely affect our financial condition and results of operations.

The mortgages on those of our properties subject to secured debt, our unsecured credit facility and the indentures under which a substantial portion of our debt was issued contain customary restrictions, requirements and other limitations, as well as certain financial and operating covenants including maintenance of certain financial ratios. Maintaining compliance with these restrictions could limit our flexibility. A default in these requirements, if uncured, could result in a requirement that we repay indebtedness, which could severely affect our liquidity and increase our financing costs.

Failure to generate sufficient revenue could limit cash flow available for distributions to stockholders.

A decrease in rental revenue could have an adverse effect on our ability to pay distributions to our stockholders. Significant expenditures associated with each community such as debt service payments, if any, real estate taxes, insurance and maintenance costs are generally not reduced when circumstances cause a reduction in income from a community.

Debt financing may not be available and equity issuances could be dilutive to our stockholders.

Our ability to execute our business strategy depends on our access to an appropriate blend of debt and equity financing. Debt financing may not be available in sufficient amounts or on favorable terms. If we issue additional equity securities, the interests of existing stockholders could be diluted.

Difficulty of selling apartment communities could limit flexibility.

Federal tax laws may limit our ability to earn a gain on the sale of a community (unless we own it through a subsidiary which will incur a taxable gain upon sale) if we are found to have held, acquired or developed the community primarily with the intent to resell the community, and this limitation may affect our ability to sell communities without adversely affecting returns to our stockholders. In addition, real estate in our markets can at times be hard to sell. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the apartment communities in our portfolio promptly in response to changes in economic or other conditions.

Acquisitions may not yield anticipated results.

Subject to the requirements related to the Fund, we may in the future acquire apartment communities on a select basis. Our acquisition activities and their success may be exposed to the following risks:

	•		an acquired property may fail to perform as we expected in analyzing our investment; and
	•		our estimate of the costs of repositioning or redeveloping an acquired property may prove inaccurate.

Failure to succeed in new markets or in activities other than the development, ownership and operation of residential rental communities may have adverse consequences.

We may from time to time commence development activity or make acquisitions outside of our existing market areas if appropriate opportunities arise. As noted in the business description above, we also own and lease retail space when a retail component represents the best use of the space, as is often the case with large urban in-fill developments. Also as noted in the business description above, through a taxable REIT subsidiary that is a joint venture partner, we have a 50% economic interest in a 64 townhome for-sale development with a total estimated capital cost at completion of $23,636,000, on a site adjacent to one of our communities. We may engage or have an interest in for-sale activity in the future. Our historical experience in our existing markets in developing, owning and operating rental communities does not ensure that we will be able to operate successfully in new markets, should we choose to enter them, or that we will be successful in other activities. We may be exposed to a variety of risks if we choose to enter new markets, including an inability to evaluate accurately local apartment market conditions; an inability to obtain land for development or to identify appropriate acquisition opportunities; an inability to hire and retain key personnel; and lack of familiarity with local governmental and permitting procedures. We may be unsuccessful in owning and leasing retail space at our communities or in developing real estate with the intent to sell.

Risks involved in real estate activity through joint ventures.

Instead of acquiring or developing apartment communities directly, at times we invest as a partner or a co-venturer. Partnership or joint venture investments involve risks, including the possibility that our partner might become insolvent or otherwise refuse to make capital contributions when due; that we may be responsible to our partner for indemnifiable losses; that our partner might at any time have business goals which are inconsistent with ours; and that our partner may be in a position to take action or withhold consent contrary to our instructions or requests. Frequently, we and our partner may each have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partner’s interest, at a time when we otherwise would not have initiated such a transaction.

Risks associated with an investment in and management of a discretionary investment fund.

We have formed the Fund which, through a wholly-owned subsidiary, we manage as the general partner and to which we have committed $50,000,000, representing an equity interest of approximately 15%. This presents risks, including the following:

	•		investors in the Fund may fail to make their capital contributions when due and, as a result, the Fund may be unable to execute its investment objectives;
	•		our subsidiary that is the general partner of the Fund is generally liable, under partnership law, for the debts and obligations of the Fund, subject to certain exculpation and indemnification rights pursuant to the terms of the partnership agreement of the Fund;
	•		investors in the Fund holding a majority of the partnership interests may remove us as the general partner without cause, subject to our right to receive an additional nine months of management fees after such removal and our right to acquire one of the properties then held by the Fund;
	•		while we have broad discretion to manage the Fund and make investment decisions on behalf of the Fund, the investors or an advisory committee comprised of representatives of the investors must approve certain matters, and as a result we may be unable to cause the Fund to make certain investments or implement certain decisions that we consider beneficial;
	•		we can develop communities but have been generally prohibited from making acquisitions of apartment communities outside of the Fund, which is our exclusive investment vehicle until March 2008 or when 80% of the Fund’s capital is invested, subject to certain exceptions; and
	•		we may be liable if either the Fund, or the REIT through which a number of investors have invested in the Fund and which we manage, fails to comply with various tax or other regulatory matters.

If we were to employ a similar vehicle to fund acquisitions in the future, such vehicle could present similar risks to us, or similar requirements that our acquisition activity be conducted primarily through the vehicle.

Risk of earthquake damage.

As further described in Item 2., “Communities – Insurance and Risk of Uninsured Losses,” many of our West Coast communities are located in the general vicinity of active earthquake faults. We cannot assure you that an earthquake would not cause damage or losses greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. Any such loss could materially and adversely affect our business and our financial condition and results of operations.

Insurance coverage for earthquakes can be costly due to limited industry capacity. As a result, we may experience shortages in desired coverage levels if market conditions are such that insurance is not available.

A significant uninsured property or liability loss could have a material adverse effect on our financial condition and results of operations.

In addition to the earthquake insurance discussed above, we carry commercial general liability insurance, property insurance and terrorism insurance with respect to our communities on terms we consider commercially reasonable. There are, however, certain types of losses (such as losses arising from acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in management’s view, economically impractical. If an uninsured property loss or a property loss in excess of insured limits were to occur, we could lose our capital invested in a community, as well as the anticipated future revenues from such community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. If an uninsured liability to a third party were to occur, we would incur the cost of defense and settlement with, or court ordered damages to, that third party. A significant uninsured property or liability loss could materially and adversely affect our business and our financial condition and results of operations.

We may incur costs and increased expenses to repair property damage resulting from inclement weather.

Particularly in the Northeast and Midwest we are exposed to risks associated with inclement winter weather, including increased costs for the removal of snow and ice as well as from delays in construction. In addition, inclement weather could increase the need for maintenance and repair of our communities.

We may incur costs due to environmental contamination or non-compliance.

Under various federal, state and local environmental and public health laws, regulations and ordinances, we may be required, regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases natural substances such as methane and radon gas) and may be held liable under these laws or common law to a governmental entity or to third parties for property, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the contamination. These damages and costs may be substantial and may exceed any insurance coverage we have for such events. The presence of such substances, or the failure to properly remediate the contamination, may adversely affect our ability to borrow against, sell or rent the affected property.

In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs as a result of the contamination.

The development, construction and operation of our communities are subject to regulations and permitting under various federal, state and local laws, regulations and ordinances, which regulate matters including wetlands protection, storm water runoff and wastewater discharge. Noncompliance with such laws and regulations may subject us to fines and penalties. We do not currently anticipate that we will incur any material liabilities as a result of noncompliance with these laws.

Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos containing materials (“ACMs”) when such materials are in poor condition or in the event of renovation or demolition of a building. These laws and the common law may impose liability for release of ACMs and may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with exposure to ACMs. We are not aware that any ACMs were used in the construction of the communities we developed. ACMs were, however, used in the construction of several of the communities that we acquired. We implement an operations and maintenance program at each of the communities at which ACMs are detected. We do not currently anticipate that we will incur any material liabilities as a result of the presence of ACMs at our communities.

We are aware that some of our communities have lead paint and have implemented an operations and maintenance program at each of those communities. We do not currently anticipate that we will incur any material liabilities as a result of the presence of lead paint at our communities.

All of our stabilized operating communities, and all of the communities that we are currently developing or redeveloping, have been subjected to at least a Phase I or similar environmental assessment, which generally does not involve invasive techniques such as soil or ground water sampling. These assessments, together with subsurface assessments conducted on some properties, have not revealed, and we are not otherwise aware of, any environmental conditions that we believe would have a material adverse effect on our business, assets, financial condition or results of operation. In connection with our ownership, operation and development of communities, from time to time we undertake substantial remedial action in response to the presence of subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. In some cases, an indemnity exists upon which we may be able to rely if environmental liability arises from the contamination or remediation costs exceed estimates. There can be no assurance, however, that all necessary remediation actions have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that environmental liability arises.

Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Although the occurrence of mold at multifamily and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. To help limit mold growth, we educate residents about the importance of adequate ventilation and request or require that they notify us when they see mold or excessive moisture. We have established procedures for promptly addressing and remediating mold or excessive moisture from apartment homes when we become aware of its presence regardless of whether we or the resident believe a health risk is presented. However, we cannot provide assurance that mold or excessive moisture will be detected and remediated in a timely manner. If a significant mold problem arises at one of our communities, we could be required to undertake a costly remediation program to contain or remove the mold from the affected community and could be exposed to other liabilities that may exceed any applicable insurance coverage.

Additionally, we have occasionally been involved in developing, managing, leasing and operating various properties for third parties. Consequently, we may be considered to have been an operator of such properties and, therefore, potentially liable for removal or remediation costs or other potential costs which could relate to hazardous or toxic substances. We are not aware of any material environmental liabilities with respect to properties managed or developed by us or our predecessors for such third parties.

We cannot assure you that:

	•		the environmental assessments described above have identified all potential environmental liabilities;
	•		no prior owner created any material environmental condition not known to us or the consultants who prepared the assessments;
	•		no environmental liabilities have developed since the environmental assessments were prepared;
	•		the condition of land or operations in the vicinity of our communities, such as the presence of underground storage tanks, will not affect the environmental condition of our communities;
	•		future uses or conditions, including, without limitation, changes in applicable environmental laws and regulations, will not result in the imposition of environmental liability; and
	•		no environmental liabilities will arise at communities that we have sold for which we may have liability.

Failure to qualify as a REIT would cause us to be taxed as a corporation, which would significantly reduce funds available for distribution to stockholders.

If we fail to qualify as a REIT for federal income tax purposes, we will be subject to federal income tax on our taxable income at regular corporate rates (subject to any applicable alternative minimum tax). In addition, unless we are entitled to relief under applicable statutory provisions, we would be ineligible to make an election for treatment as a REIT for the four taxable years following the year in which we lose our qualification. The additional tax liability resulting from the failure to qualify as a REIT would significantly reduce or eliminate the amount of funds available for distribution to our stockholders. Furthermore, we would no longer be required to make distributions to our stockholders. Thus, our failure to qualify as a REIT could also impair our ability to expand our business and raise capital, and would adversely affect the value of our common stock.

We believe that we are organized and qualified as a REIT, and we intend to operate in a manner that will allow us to continue to qualify as a REIT. However, we cannot assure you that we are qualified as a REIT, or that we will remain qualified in the future. This is because qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial and administrative interpretations and involves the determination of a variety of factual matters and circumstances not entirely within our control. In addition, future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT for federal income tax purposes or the federal income tax consequences of this qualification.

Even if we qualify as a REIT, we will be subject to certain federal, state and local taxes on our income and property and on taxable income that we do not distribute to our shareholders. In addition, we may engage in activities through taxable subsidiaries and will be subject to federal income tax at regular corporate rates on the income of those subsidiaries.

The ability of our stockholders to control our policies and effect a change of control of our company is limited by certain provisions of our charter and bylaws and by Maryland law.

There are provisions in our charter and bylaws that may discourage a third party from making a proposal to acquire us, even if some of our stockholders might consider the proposal to be in their best interests. These provisions include the following:

Our charter authorizes our Board of Directors to issue up to 50,000,000 shares of preferred stock without stockholder approval and to establish the preferences and rights, including voting rights, of any series of preferred stock issued. The Board of Directors may issue preferred stock without stockholder approval, which could allow the Board to issue one or more classes or series of preferred stock that could discourage or delay a tender offer or a change in control.

To maintain our qualification as a REIT for federal income tax purposes, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by or for five or fewer individuals at any time during the last half of any taxable year. To maintain this qualification, and to otherwise address concerns about concentrations of ownership of our stock, our charter generally prohibits ownership (directly, indirectly by virtue of the attribution provisions of the Internal Revenue Code, or beneficially as defined in Section 13 of the Securities Exchange Act) by any single stockholder of more than 9.8% of the issued and outstanding shares of any class or series of our stock. In general, under our charter, pension plans and mutual funds may directly and beneficially own up to 15% of the outstanding shares of any class or series of stock. Under our charter, our Board of Directors may in its sole discretion waive or modify the ownership limit for one or more persons. These ownership limits may prevent or delay a change in control and, as a result, could adversely affect our stockholders’ ability to realize a premium for their shares of common stock.

Our bylaws provide that the affirmative vote of holders of a majority of all of the shares entitled to be cast in the election of directors is required to elect a director. In a contested election, if no nominee receives the vote of holders of a majority of all of the shares entitled to be cast, the incumbent directors would remain in office. This requirement may prevent or delay a change in control and, as a result, could adversely affect our stockholders’ ability to realize a premium for their shares of common stock.

As a Maryland corporation, we are subject to the provisions of the Maryland General Corporation Law. Maryland law imposes restrictions on some business combinations and requires compliance with statutory procedures before some mergers and acquisitions may occur, which may delay or prevent offers to acquire us or increase the difficulty of completing any offers, even if they are in our stockholders’ best interests. In addition, other provisions of the Maryland General Corporation Law permit the Board of Directors to make elections and to take actions without stockholder approval (such as classifying our Board such that the entire Board is not up for reelection annually) that, if made or taken, could have the effect of discouraging or delaying a change in control.

ITEM 1b. UNRESOLVED STAFF COMMENTS

None.

ITEM 2.     COMMUNITIES

Our real estate investments consist primarily of current operating apartment communities, communities in various stages of development (“Development Communities”) and Development Rights as defined below. Our current operating communities are further distinguished as Established Communities, Other Stabilized Communities, Lease-Up Communities and Redevelopment Communities. The following is a description of each category:

Current Communities are categorized as Established, Other Stabilized, Lease-Up, or Redevelopment according to the following attributes:

	•		Established Communities (also known as Same Store Communities) are consolidated communities where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year. For the year ended December 31, 2007, the Established Communities are communities that are consolidated for financial reporting purposes, had stabilized occupancy and operating expenses as of January 1, 2006, are not conducting or planning to conduct substantial redevelopment activities and are not held for sale or planned for disposition within the current year. A community is considered to have stabilized occupancy at the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment.
	•		Other Stabilized Communities includes all other completed communities that we own or have a direct or indirect ownership interest in, and that have stabilized occupancy, as defined above. Other Stabilized Communities do not include communities that are conducting or planning to conduct substantial redevelopment activities within the current year.
	•		Lease-Up Communities are communities where construction has been complete for less than one year and where physical occupancy has not reached 95%.
	•		Redevelopment Communities are communities where substantial redevelopment is in progress or is planned to begin during the current year. For communities that we wholly own, redevelopment is considered substantial when capital invested during the reconstruction effort is expected to exceed the lesser of $5,000,000 or 10% of the community’s acquisition cost. The definition of substantial redevelopment may differ for communities owned through a joint venture arrangement.

Development Communities are communities that are under construction and for which a certificate of occupancy has not been received. These communities may be partially complete and operating.

Development Rights are development opportunities in the early phase of the development process for which we either have an option to acquire land or enter into a leasehold interest, for which we are the buyer under a long-term conditional contract to purchase land or where we own land to develop a new community. We capitalize related pre-development costs incurred in pursuit of new developments for which we currently believe future development is probable.

In addition, we own approximately 60,000 square feet of office space in Alexandria, Virginia, for our corporate office, with all other regional and administrative offices leased under operating leases.

As of December 31, 2007, communities that we owned or held a direct or indirect interest in were classified as follows:

		Number of				Number of
		communities				apartment homes
Current Communities
Established Communities:
Northeast			42				11,226
Mid-Atlantic			17				5,757
Midwest			3				887
Pacific Northwest			9				2,278
Northern California			27				8,109
Southern California			10				3,172
Total Established			108				31,429
Other Stabilized Communities:
Northeast			18				5,359
Mid-Atlantic			6				1,485
Midwest			3				869
Pacific Northwest			2				611
Northern California			5				1,149
Southern California			10				2,123
Total Other Stabilized			44				11,596
Lease-Up Communities			3				676
Redevelopment Communities			8				2,231
Total Current Communities			163				45,932
Development Communities			21				6,816
Development Rights			48				13,656

Our holdings under each of the above categories are discussed on the following pages.

Current Communities

Our Current Communities are primarily garden-style apartment communities consisting of two and three-story buildings in landscaped settings. The Current Communities, as of January 31, 2008, include 123 garden-style (of which 14 are mixed communities and include townhomes), 21 high-rise and 19 mid-rise apartment communities. The Current Communities offer many attractive amenities including some or all of the following:

	•		vaulted ceilings;
	•		lofts;
	•		fireplaces;
	•		patios/decks; and
	•		modern appliances.

     Other features at various communities may include:

	•		swimming pools;
	•		fitness centers;
	•		tennis courts; and
	•		business centers.

We also have an extensive and ongoing maintenance program to keep all communities and apartment homes substantially free of deferred maintenance and, where vacant, available for immediate occupancy. We believe that the aesthetic appeal of our communities and a service oriented property management team, focused on the specific needs of residents, enhances market appeal to discriminating residents. We believe this will ultimately achieve higher rental rates and occupancy levels while minimizing resident turnover and operating expenses.

Our Current Communities are located in the following geographic markets:

		Number of								Number of apartment								Percentage of total
		communities at								homes at								apartment homes at
		1-31-07				1-31-08				1-31-07				1-31-08				1-31-07				1-31-08
Northeast			56				64				15,732				17,547				36.1	%			38.2	%
Boston, MA			18				22				4,490				5,788				10.3	%			12.6	%
Fairfield County, CT			14				14				3,812				3,812				8.8	%			8.3	%
Long Island, NY			6				7				1,621				1,732				3.7	%			3.8	%
Northern New Jersey			3				5				1,182				1,618				2.7	%			3.5	%
Central New Jersey			6				6				2,042				2,042				4.7	%			4.4	%
New York, NY			9				10				2,585				2,555				5.9	%			5.6	%
Mid-Atlantic			24				25				7,622				7,818				17.5	%			17.0	%
Baltimore, MD			9				9				1,987				1,987				4.6	%			4.3	%
Washington, DC			15				16				5,635				5,831				12.9	%			12.7	%
Midwest			7				7				1,952				1,952				4.5	%			4.2	%
Chicago, IL			7				7				1,952				1,952				4.5	%			4.2	%
Pacific Northwest			12				12				3,111				3,111				7.2	%			6.8	%
Seattle, WA			12				12				3,111				3,111				7.2	%			6.8	%
Northern California			33				34				9,366				9,546				21.5	%			20.8	%
Oakland-East Bay, CA			7				7				2,089				2,089				4.8	%			4.5	%
San Francisco, CA			11				11				2,489				2,489				5.7	%			5.4	%
San Jose, CA			15				16				4,788				4,968				11.0	%			10.8	%
Southern California			19				21				5,750				5,958				13.2	%			13.0	%
Los Angeles, CA			9				11				3,006				3,214				6.9	%			7.0	%
Orange County, CA			7				7				1,686				1,686				3.9	%			3.7	%
San Diego, CA			3				3				1,058				1,058				2.4	%			2.3	%
			151				163				43,533				45,932				100.0	%			100.0	%

We manage and operate substantially all of our Current Communities. During the year ended December 31, 2007, we completed construction of 1,749 apartment homes in eight communities, acquired one wholly-owned community containing 80 apartment homes and sold 982 apartment homes in four communities. In addition, the Fund acquired 1,491 apartment homes in seven communities. The average age of our Current Communities, on a weighted average basis according to number of apartment homes, is 15.3 years. When adjusted to reflect redevelopment activity, as if redevelopment were a new construction completion date, the average age of our Current Communities is 9.7 years.

Of the Current Communities, as of January 31, 2008, we own:

	•		a full fee simple, or absolute, ownership interest in 120 operating communities, 5 of which are on land subject to land leases expiring in November 2028, December 2061, April 2095, September 2105, and March 2142;
	•		a general partnership interest in 3 partnerships that each own a fee simple interest in an operating community;
	•		a general partnership interest and an indirect limited partnership interest in the Fund, which owns a fee simple interest in 20 operating communities;
	•		a general partnership interest in two partnerships structured as “DownREITs,” as described more fully below, that own an aggregate of 12 communities;

	•		a membership interest in 7 limited liability companies that each hold a fee simple interest in an operating community, three of which are on land subject to land leases expiring in February 2093, August 2100, and December 2103; and
	•		a residual profits interest (with no ownership interest) in a limited liability company to which an operating community was transferred upon completion of construction in the second quarter of 2006.

We also hold, directly or through wholly owned subsidiaries, the full fee simple ownership interest in 21 of the Development Communities, all of which are currently consolidated for financial reporting purposes.

In our two partnerships structured as DownREITs, either AvalonBay or one of our wholly-owned subsidiaries is the general partner, and there are one or more limited partners whose interest in the partnership is represented by units of limited partnership interest. For each DownREIT partnership, limited partners are entitled to receive an initial distribution before any distribution is made to the general partner. Although the partnership agreements for each of the DownREITs are different, generally the distributions per unit paid to the holders of units of limited partnership interests have approximated our current common stock dividend amount. The holders of units of limited partnership interest have the right to present all or some of their units for redemption for a cash amount as determined by the applicable partnership agreement and based on the fair value of our common stock. In lieu of a cash redemption by the partnership, we may elect to acquire any unit presented for redemption for one share of our common stock or for such cash amount. As of January 31, 2008, there were 64,019 DownREIT partnership units outstanding. The DownREIT partnerships are consolidated for financial reporting purposes.

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)
																										Average economic								Average
								Approx.								Year of		Average				Physical				occupancy								rental rate								Financial
				Number of				rentable area								completion/		size				occupancy at												$ per				$ per				reporting cost
		City and state		homes				(Sq. Ft.)				Acres				acquisition		(Sq. Ft.)				12/31/07				2007				2006				Apt (4)				Sq. Ft.				(5)
CURRENT COMMUNITIES
NORTHEAST
Boston, MA
Avalon at Lexington		Lexington, MA			198				230,280				16.1			1994			1,163				98.5	%			96.5	%			95.9	%			1,784				1.48				16,271
Avalon Summit		Quincy, MA			245				216,509				8.0			1986/1996			884				96.7	%			96.0	%			95.5	%			1,279				1.39				17,582
Avalon at Faxon Park		Quincy, MA			171				175,649				8.3			1998			1,027				95.9	%			95.9	%			96.3	%			1,604				1.50				15,675
Avalon at Prudential Center		Boston, MA			780				725,409				1.0			1968/1998			930				97.2	%			97.0	%			97.5	%			2,858				2.98				156,839
Avalon Ledges		Weymouth, MA			304				330,606				57.6			2002			1,088				96.7	%			95.0	%			95.3	%			1,452				1.27				36,408
Avalon Orchards		Marlborough, MA			156				176,477				23.0			2002			1,131				98.1	%			96.0	%			96.4	%			1,449				1.23				21,197
Avalon at Flanders Hill		Westborough, MA			280				299,425				62.0			2003			1,069				96.4	%			96.0	%			95.4	%			1,438				1.29				37,447
Avalon at Newton Highlands (8)		Newton, MA			294				339,537				7.0			2003			1,155				96.6	%			95.5	%			95.2	%			2,231				1.84				56,685
Avalon at The Pinehills I		Plymouth, MA			101				150,991				6.0			2004			1,495				91.1	%			95.8	%			93.4	%			1,786				1.14				19,984
Avalon at Crane Brook		Danvers & Peabody, MA			387				410,076				20.0			2004			1,060				97.9	%			95.7	%			95.5	%			1,347				1.22				54,807
Avalon at Center Place (11)		Providence, RI			225				222,834				1.2			1991/1997			990				91.6	%			92.8	%			93.8	%			2,245				2.10				29,182
Avalon Shrewsbury		Shrewsbury, MA			251				274,780				25.5			2007			1,095				97.2	%			84.3	%			N/A				1,312				1.01	(3)			35,705
Avalon Woburn		Woburn, MA			446				486,091				56.0			2007			1,090				98.0	%			61.4	%			N/A				1,471				0.83				81,410
Avalon Oaks		Wilmington, MA			204				229,452				22.5			1999			1,125				96.1	%			95.4	%			95.1	%			1,477				1.25				21,272
Avalon Essex		Peabody, MA			154				198,478				11.1			2000			1,289				97.4	%			96.5	%			97.3	%			1,577				1.18				21,864
Avalon Oaks West		Wilmington, MA			120				133,376				27.0			2002			1,111				94.2	%			95.0	%			93.7	%			1,374				1.18				16,844
Avalon at Bedford Center		Bedford, MA			139				159,704				38.0			2005			1,149				96.4	%			95.6	%			85.4	%(3)			1,756				1.46				24,805
Avalon Chestnut Hill		Chestnut Hill, MA			204				270,031				4.7			2007			1,324				97.1	%			78.8	%			7.9	%			2,045				1.22	(3)			60,274
Essex Place		Peabody, MA			286				250,322				18.0			2004			875				90.9	%			96.3	%(2)			97.8	%			1,089				1.20	(2)			27,155
Fairfield-New Haven, CT
Avalon Gates		Trumbull, CT			340				379,282				37.0			1997			1,116				97.4	%			94.9	%			98.1	%			1,627				1.38				37,170
Avalon Glen		Stamford, CT			238				221,843				4.1			1991			932				97.5	%			97.2	%			97.2	%			2,015				2.10				32,243
Avalon Springs		Wilton, CT			102				158,259				12.0			1996			1,552				99.0	%			96.5	%			92.7	%			2,983				1.85				17,213
Avalon Valley		Danbury, CT			268				295,303				17.1			1999			1,102				98.1	%			96.8	%			98.1	%			1,664				1.46				26,397
Avalon Haven		North Haven, CT			128				139,972				10.6			2000			1,094				94.5	%			96.8	%			97.4	%			1,594				1.41				14,014
Avalon Orange		Orange, CT			168				161,795				9.6			2005			963				94.6	%			95.1	%			97.9	%			1,499				1.48				22,096
Avalon on Stamford Harbor		Stamford, CT			323				323,587				12.1			2003			1,002				94.7	%			97.5	%			97.6	%			2,502				2.44				62,891
Avalon New Canaan		New Canaan, CT			104				131,468				9.1			2002			1,264				95.2	%			94.3	%			95.7	%			2,935				2.19				24,379
Avalon at Greyrock Place		Stamford, CT			306				314,600				3.0			2002			1,028				95.8	%			97.5	%			97.9	%			2,272				2.15				70,454
Avalon Darien		Darien, CT			189				242,533				32.0			2004			1,283				97.9	%			96.2	%			93.7	%			2,564				1.92				41,519
Avalon Milford I		Milford, CT			246				216,746				22.0			2004			881				97.2	%			96.1	%			98.1	%			1,443				1.57				31,460
Avalon Walk I & II		Hamden, CT			764				435,426				38.4			1992/1994			1,003				91.9	%			88.3	%(2)			91.7	%			1,308				2.03	(2)			69,537
Avalon Danbury		Danbury, CT			234				235,320				36.0			2005			1,006				95.3	%			95.5	%			94.5	%			1,666				1.58				35,515
Long Island, NY
Avalon Commons		Smithtown, NY			312				377,240				20.6			1997			1,209				95.5	%			95.4	%			97.1	%			2,087				1.65				33,786
Avalon Towers		Long Beach, NY			109				124,611				1.3			1990/1995			1,143				94.5	%			96.8	%			97.7	%			3,491				2.96				21,326
Avalon Court		Melville, NY			494				596,942				35.4			1997/2000			1,208				92.5	%			95.3	%			96.3	%			2,470				1.95				59,922
Avalon at Glen Cove South		Glen Cove, NY			256				261,462				4.0			2004			1,021				97.3	%			94.5	%			95.5	%			2,343				2.17				67,965
Avalon Pines I		Coram, NY			298				362,132				32.0			2005			1,215				96.0	%			95.7	%			95.9	%			1,912				1.51				46,877
Avalon at Glen Cove North (11)		Glen Cove, NY			111				100,851				1.3			2007			909				97.3	%			50.2	%(3)			N/A				2,530				1.40	(3)			39,710
Avalon Pines II		Coram, NY			152				183,857				42.0			2006			1,210				99.3	%			96.3	%			71.0	%			1,887				1.50				24,765

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)
																										Average economic								Average
								Approx.								Year of		Average				Physical				occupancy								rental rate								Financial
				Number of				rentable area								completion/		size				occupancy at												$ per				$ per				reporting cost
		City and state		homes				(Sq. Ft.)				Acres				acquisition		(Sq. Ft.)				12/31/07				2007				2006				Apt (4)				Sq. Ft.				(5)
Northern New Jersey
Avalon Cove		Jersey City, NJ			504				575,334				11.0			1997			1,142				95.4	%			97.5	%			97.7	%			2,905				2.48				93,181
Avalon at Edgewater		Edgewater, NJ			408				422,269				7.6			2002			1,035				94.6	%			95.2	%			95.8	%			2,362				2.17				75,205
Avalon at Florham Park		Florham Park, NJ			270				330,410				41.9			2001			1,224				94.8	%			96.1	%			97.6	%			2,616				2.06				41,878
Avalon Lyndhurst		Lyndhurst, NJ			328				329,526				5.8			2006			1,005				95.4	%			57.0	%(3)			N/A				2,136				1.21	(3)			80,350
Central New Jersey
Avalon Run East (8)		Lawrenceville, NJ			206				265,733				27.1			1996			1,290				96.6	%			96.2	%			95.8	%			1,588				1.18				16,358
Avalon at Freehold		Freehold, NJ			296				317,416				40.3			2002			1,072				97.6	%			97.5	%			96.3	%			1,697				1.54				34,765
Avalon Run East II		Lawrenceville, NJ			312				341,292				70.5			2003			1,094				93.6	%			96.2	%			96.2	%			1,775				1.56				52,144
Avalon Watch		West Windsor, NJ			512				493,866				64.4			1988			965				97.1	%			95.6	%			96.4	%			1,384				1.37				30,197
Avalon Run (7)		Lawrenceville, NJ			426				443,168				9.0			1994			1,040				95.1	%			96.2	%			96.0	%			1,423				1.32				60,056
New York, NY
Avalon Gardens		Nanuet, NY			504				608,842				62.5			1998			1,208				96.2	%			96.9	%			97.0	%			2,108				1.69				55,425
Avalon Green		Elmsford, NY			105				113,538				16.9			1995			1,081				97.1	%			97.3	%			96.5	%			2,308				2.08				13,709
Avalon Willow		Mamaroneck, NY			227				199,834				4.0			2000			880				97.8	%			96.5	%			98.9	%			2,220				2.43				47,530
The Avalon		Bronxville, NY			110				119,410				1.5			1999			1,086				98.2	%			97.4	%			97.0	%			3,506				3.14				31,485
Avalon on the Sound (11)		New Rochelle, NY			412				367,969				2.4			2001			893				94.4	%			95.2	%			96.2	%			2,320				2.47				117,232
Avalon Riverview I (11)		Long Island City, NY			372				332,947				1.0			2002			895				98.1	%			97.6	%			96.7	%			3,087				3.37				94,561
Avalon Bowery Place I		New York, NY			206				162,000				1.1			2006			786				93.7	%			89.8	%			32.2	%(3)			3,780				4.31				93,008
Avalon Bowery Place II		New York, NY			90				73,624				1.1			2007			818				90.0	%			42.4	%(3)			N/A				3,669				1.90	(3)			52,356
MID-ATLANTIC
Baltimore, MD
Avalon at Fairway Hills		Columbia, MD			192				193,784				15.0			1987/1996			1,009				92.7	%			95.8	%			96.7	%			1,281				1.22				10,439
Avalon at Fairway Hills II (7)		Columbia, MD			192				192,560				29.0			1987/1996			1,003				93.8	%			95.9	%			97.2	%			1,294				1.24				12,486
Avalon Landing		Annapolis, MD			158				116,923				13.8			1984/1995			740				98.1	%			95.9	%			97.8	%			1,219				1.58				10,268
Avalon at Fairway Hills III (7)		Columbia, MD			336				337,683				15.0			1987/1996			1,005				90.5	%			95.5	%			95.1	%(2)			1,430				1.36				29,395
Avalon at Symphony Glen		Columbia, MD			176				179,880				10.0			1986			1,022				93.1	%			93.2	%			96.6	%			1,343				1.22				9,355
Southgate Crossing		Columbia, MD			215				214,670				12.7			1986/2006			998				90.7	%			93.5	%			93.8	%			1,222				1.14				36,359
Washington, DC
Avalon at Foxhall		Washington, DC			308				297,875				2.7			1982			967				95.8	%			96.2	%			96.6	%			2,215				2.20				44,671
Avalon at Gallery Place I		Washington, DC			203				184,157				0.5			2003			907				96.6	%			95.4	%			95.7	%			2,413				2.54				48,975
Avalon at Decoverly		Rockville, MD			368				368,732				24.0			1991/1995			1,002				96.7	%			96.2	%			97.0	%			1,455				1.40				32,537
Avalon Fields I		Gaithersburg, MD			192				191,280				5.0			1996			996				96.4	%			97.3	%			97.2	%			1,370				1.34				14,445
Avalon Fields II		Gaithersburg, MD			96				100,268				5.0			1998			1,044				96.9	%			95.9	%			96.8	%			1,549				1.42				8,333
Avalon Knoll		Germantown, MD			300				290,544				26.7			1985			968				95.3	%			96.0	%			97.2	%			1,188				1.18				9,518
Avalon at Rock Spring (9) (11)		North Bethesda, MD			386				387,884				10.2			2003			1,005				96.4	%			95.0	%			96.6	%			1,771				1.67				82,166
Avalon at Grosvenor Station		North Bethesda, MD			497				471,221				10.0			2004			948				98.6	%			95.8	%			97.3	%			1,769				1.79				82,181
Avalon at Traville (8)		North Potomac, MD			520				573,773				47.9			2004			1,103				98.8	%			96.2	%			97.7	%			1,720				1.50				69,963
Avalon at Ballston — Washington Towers		Arlington, VA			344				294,954				4.1			1990			857				97.4	%			96.2	%			97.8	%			1,728				1.94				38,587
Avalon at Cameron Court		Alexandria, VA			460				467,292				16.0			1998			1,016				94.3	%			95.6	%			97.3	%			1,862				1.75				43,609
Avalon at Providence Park		Fairfax, VA			141				148,282				9.3			1988/1997			1,052				96.5	%			97.0	%			96.9	%			1,500				1.38				11,854
Avalon Crescent		McLean, VA			558				613,426				19.1			1996			1,099				97.3	%			95.6	%			96.0	%			1,894				1.65				57,711
Avalon at Arlington Square		Arlington, VA			842				577,293				20.1			2001			686				96.4	%			96.6	%			96.5	%			1,865				2.63				112,827
Avalon at Decoverly II		Rockville, MD			196				182,560				10.8			2007			931				96.4	%			85.3	%(3)			N/A				1,494				1.37	(3)			30,433
AutumnWoods		Fairfax, VA			420				354,945				24.3			1989/1996			845				89.1	%			90.0	%(2)			94.6	%			1,318				1.40	(2)			36,808

Profile of Current, Development and Unconsolidated Communities (1)
(Dollars in thousands, except per apartment home data)
																										Average economic								Average
								Approx.								Year of		Average				Physical				occupancy								rental rate								Financial
				Number of				rentable area								completion/		size				occupancy at												$ per				$ per				reporting cost
		City and state		homes				(Sq. Ft.)				Acres				acquisition		(Sq. Ft.)				12/31/07				2007				2006				Apt (4)				Sq. Ft.				(5)
MIDWEST
Chicago, IL
Avalon at West Grove (8)		Westmont, IL			400				388,500				17.4			1967			971				96.0	%			95.4	%			95.0	%			912				0.90				31,492
Avalon at Danada Farms (8)		Wheaton, IL			295				351,326				19.2			1997			1,191				95.4	%			95.5	%			95.3	%			1,414				1.13				39,185
Avalon at Stratford Green (8)		Bloomingdale, IL			192				237,124				12.7			1997			1,235				96.9	%			96.1	%			95.9	%			1,404				1.09				22,202
Avalon Arlington Heights		Arlington Heights, IL			409				346,416				2.8			1987/2000			847				97.1	%			94.3	%(2)			92.9	%			1,456				1.62	(2)			56,680
PACIFIC NORTHWEST
Seattle, WA
Avalon at Bear Creek		Redmond, WA			264				288,250				22.2			1998			1,092				96.2	%			95.5	%			96.3	%			1,340				1.17				35,444
Avalon Bellevue		Bellevue, WA			202				167,070				1.7			2001			827				93.6	%			96.6	%			96.5	%			1,513				1.77				30,894
Avalon RockMeadow (8)		Bothell, WA			206				243,958				11.2			2000			1,184				95.6	%			96.6	%			96.1	%			1,264				1.03				24,807
Avalon WildReed (8)		Everett, WA			234				259,080				23.0			2000			1,107				97.0	%			96.7	%			96.7	%			1,077				0.94				23,096
Avalon HighGrove (8)		Everett, WA			391				422,482				19.0			2000			1,081				96.4	%			96.6	%			96.5	%			1,079				0.96				39,879
Avalon ParcSquare (8)		Redmond, WA			124				127,231				2.0			2000			1,026				92.7	%			96.5	%			96.4	%			1,507				1.42				19,256
Avalon Wynhaven (8)		Issaquah, WA			333				424,803				11.6			2001			1,276				94.0	%			96.4	%			95.4	%			1,376				1.04				52,844
Avalon Brandemoor (8)		Lynwood, WA			424				453,602				27.0			2001			1,070				96.0	%			96.1	%			96.8	%			1,164				1.05				45,645
Avalon Belltown		Seattle, WA			100				82,418				0.7			2001			824				95.0	%			97.2	%			96.4	%			1,724				2.03				18,443
Avalon Redmond Place		Redmond, WA			222				211,450				8.4			1991/1997			952				84.0	%			90.1	%(2)			96.7	%			1,238				1.17	(2)			28,400
NORTHERN CALIFORNIA
Oakland-East Bay, CA
Avalon Fremont I		Fremont, CA			308				311,121				14.3			1994			1,010				98.7	%			97.4	%			96.9	%			1,698				1.64				56,711
Avalon Dublin		Dublin, CA			204				179,004				13.0			1989/1997			877				97.1	%			97.3	%			97.2	%			1,507				1.67				28,206
Avalon Pleasanton		Pleasanton, CA			456				366,062				14.7			1988/1994			803				97.1	%			95.8	%			96.8	%			1,386				1.65				63,032
Avalon at Union Square		Union City, CA			208				150,320				8.5			1973/1996			723				98.6	%			97.6	%			96.7	%			1,211				1.64				22,622
Waterford		Hayward, CA			544				452,043				11.1			1985/1986			831				96.1	%			96.5	%			95.6	%			1,218				1.42				61,630
Avalon at Willow Creek		Fremont, CA			235				191,935				13.5			1985/1994			817				98.3	%			98.1	%			97.7	%			1,462				1.76				36,493
San Francisco, CA
Avalon at Cedar Ridge		Daly City, CA			195				141,411				7.0			1972/1997			725				97.9	%			98.1	%			96.8	%			1,506				2.04				27,007
Avalon at Nob Hill		San Francisco, CA			185				108,712				1.4			1990/1995			588				97.8	%			96.9	%			96.4	%			1,797				2.96				28,119
Avalon Foster City		Foster City, CA			288				222,364				11.0			1973/1994			772				97.9	%			97.1	%			97.1	%			1,505				1.89				43,952
Avalon Towers by the Bay		San Francisco, CA			227				245,033				1.0			1999			1,079				98.2	%			97.6	%			96.8	%			3,046				2.75				67,006
Avalon Pacifica		Pacifica, CA			220				186,800				21.9			1971/1995			849				97.7	%			96.9	%			96.7	%			1,592				1.82				32,259
Avalon Sunset Towers		San Francisco, CA			243				171,854				16.0			1961/1996			707				98.4	%			96.9	%			96.7	%			1,808				2.48				28,797
Avalon at Mission Bay North		San Francisco, CA			250				240,368				1.4			2003			961				96.0	%			94.5	%			95.2	%			3,213				3.16				92,881
Crowne Ridge		San Rafael, CA			254				221,635				21.9			1973/1996			873				94.5	%			97.8	%			96.3	%			1,430				1.60				33,100
Avalon at Diamond Heights		San Francisco, CA			154				123,047				3.0			1972/1994			799				96.6	%			97.7	%			97.4	%			1,733				2.12				25,327