0000711642-08-000592.txt : 20081114 0000711642-08-000592.hdr.sgml : 20081114 20081114155413 ACCESSION NUMBER: 0000711642-08-000592 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20080930 FILED AS OF DATE: 20081114 DATE AS OF CHANGE: 20081114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000750258 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 621207077 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14483 FILM NUMBER: 081191086 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: POST OFFICE BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 FORMER COMPANY: FORMER CONFORMED NAME: FREEMAN DIVERSIFIED REAL ESTATE II LP DATE OF NAME CHANGE: 19910501 10-Q 1 ddre2908a_10q.htm 10Q FORM 10-QSB—QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2008

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

For the transition period from _________to _________

Commission file number 0-14483

Davidson Diversified Real Estate II, L.P.

(Exact name of registrant as specified in its charter)

Delaware	62-1207077
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	(Identification No.)

55 Beattie Place, P.O. Box 1089

Greenville, South Carolina 29602

(Address of principal executive offices)

(864) 239-1000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [ ] No

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

Large accelerated filer [ ]

Accelerated filer [ ]

Non-accelerated filer [ ]

(Do not check if a smaller reporting company)

Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)

	September 30,	December 31,
	2008	2007
	(Unaudited)	(Note)
		(Restated)
Assets
Cash and cash equivalents	$ 2,602	$ 727
Receivables and deposits	239	272
Restricted escrow	613	- --
Other assets	237	341
Investment property:
Land	586	586
Buildings and related personal property	10,716	10,598
	11,302	11,184
Less accumulated depreciation	(8,818)	(8,400)
	2,484	2,784
Assets held for sale (Notes A, D and G)	4,841	18,867
	$ 11,016	$ 22,991
Liabilities and Partners' Deficit
Liabilities
Accounts payable	$ 1,075	$ 167
Tenant security deposit liabilities	49	43
Accrued property taxes	826	142
Other liabilities	206	303
Due to affiliates (Note B)	- --	6,822
Mortgage note payable	8,468	8,548
Liabilities related to assets held for sale
(Notes A, D and G)	5,326	17,079
	15,950	33,104
Partners' Deficit
General partners	- --	(320)
Limited partners (1,224.25 units issued and	(4,934)	(9,793)
outstanding)	(4,934)	(10,113)
	$ 11,016	$ 22,991

Note: The consolidated balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

See Accompanying Notes to Consolidated Financial Statements

Davidson Diversified Real Estate II, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per unit data)

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
Revenues:		(Restated)		(Restated)
Rental income	$ 499	$ 476	$ 1,476	$ 1,371
Other income	54	39	150	141
Total revenues	553	515	1,626	1,512

Expenses:
Operating	255	269	722	715
General and administrative	92	63	215	218
Depreciation	141	136	419	402
Interest	167	269	646	794
Property taxes	36	40	109	112
Total expenses	691	777	2,111	2,241

Loss from continuing operations	(138)	(262)	(485)	(729)
Loss from discontinued
operations (Notes A,C, E and F)	(226)	(145)	(664)	(304)
Gain from sale of discontinued
operations (Note F)	15,472	- --	15,472	- --
Net income (loss)	$ 15,108	$ (407)	$ 14,323	$ (1,033)

Net income (loss) allocated
to general partners	$ 342	$ (8)	$ 326	$ (21)
Net income (loss) allocated
to limited partners	14,766	(399)	13,997	(1,012)

	$ 15,108	$ (407)	$ 14,323	$ (1,033)

Per limited partnership unit:
Loss from continuing
operations	$ (110.27)	$(209.92)	$ (387.99)	$(583.22)
Loss from discontinued
operations	(181.34)	(115.99)	(531.75)	(243.41)
Gain from sale of discontinued
operations	12,352.87	- --	12,352.87	- --
Net income (loss)	$12,061.26	$(325.91)	$11,433.13	$(826.63)

Distribution per limited
partnership unit	$ 7,464.16	$ - --	$ 7,464.16	$ --

See Accompanying Notes to Consolidated Financial Statements

Davidson Diversified Real Estate II, L.P.

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT

(Unaudited)

(in thousands, except unit data)

	Limited
	Partnership	General	Limited
	Units	Partners	Partners	Total

Original capital contributions	1,224.25	$ 1	$24,485	$ 24,486

Partners' deficit at
December 31, 2007	1,224.25	$ (320)	$(9,793)	$(10,113)

Distribution to partners	- --	(6)	(9,138)	(9,144)

Net income for the nine months
ended September 30, 2008	- --	326	13,997	14,323

Partners' deficit at
September 30, 2008	1,224.25	$ --	$(4,934)	$ (4,934)

See Accompanying Notes to Consolidated Financial Statements

Davidson Diversified Real Estate II, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Nine Months Ended
	September 30,
	2008	2007

Cash flows from operating activities:
Net income (loss)	$ 14,323	$(1,033)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation	1,699	2,185
Amortization of loan costs	47	57
Gain from sale of discontinued operations	(15,472)	- --
Loss on early extinguishment of debt	137	- --
Casualty gains	- --	(139)
Change in accounts:
Receivables and deposits	143	12
Restricted escrow	(613)	- --
Other assets	90	(78)
Accounts payable	(59)	(10)
Tenant security deposit liabilities	(94)	23
Accrued property taxes	448	(50)
Other liabilities	(150)	(3)
Due to affiliate	(490)	186
Net cash provided by operating activities	9	1,150

Cash flows from investing activities:
Property improvements and replacements	(1,044)	(1,203)
Deposit to restricted escrow	(830)	- --
Insurance proceeds received	- --	179
Deferred revenue	830	- --
Net proceeds from sale of discontinued operations	30,782	- --
Net cash provided by (used in) investing activities	29,738	(1,024)

Cash flows from financing activities:
Payments on mortgage notes payable	(293)	(440)
Repayment of mortgage note payable	(11,981)	(5,053)
Proceeds from mortgage note payable	- --	4,300
Prepayment penalty paid	(122)	- --
Loan costs paid	- --	(60)
Advances from affiliate	- --	818
Payments on advances from affiliate	(6,332)	- --
Distribution to partners	(9,144)	- --
Net cash used in financing activities	(27,872)	(435)

Net increase (decrease) in cash and cash equivalents	1,875	(309)
Cash and cash equivalents at beginning of period	727	603
Cash and cash equivalents at end of period	$ 2,602	$ 294

Supplemental disclosure of cash flow information:
Cash paid for interest	$ 1,573	$ 1,198
Supplemental disclosure of non-cash activity:
Property improvements and replacements in accounts payable	$ 398	$ 75

At December 31, 2007 and 2006, approximately $98,000 and $176,000 of property improvements and replacements were included in accounts payable and are included in property improvements and replacements at September 30, 2008 and 2007, respectively.

See Accompanying Notes to Consolidated Financial Statements

Davidson Diversified Real Estate II, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A - Basis of Presentation

The accompanying unaudited consolidated financial statements of Davidson Diversified Real Estate II, L.P. (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Davidson Diversified Properties, Inc. (the "Managing General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2008. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007. The Managing General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the accompanying consolidated statements of operations for the three and nine months ended September 30, 2008 reflect the operations of Reflections Apartments as income (loss) from discontinued operations due to its sale on July 31, 2008 (see Note F) and reflect the operations of Big Walnut Apartments as income (loss) from discontinued operations due to the Partnership entering into a sale contract on September 29, 2008 to sell Big Walnut Apartments to a third party with an expected closing date of October 22, 2008 (see Note G – Subsequent Event). The three and nine months ended September 30, 2007 have been restated as of January 1, 2007 to reflect the operations of Reflections Apartments as loss from discontinued operations. In connection with the sale contract, the Partnership received a deposit of approximately $830,000. The deposit was recorded as a restricted escrow and deferred revenue, which is included in assets and liabilities held for sale. Included in the loss from discontinued operations is income for Reflections Apartments of approximately $15,000 for the three months ended September 30, 2008 and loss of approximately $276,000 for the nine months ended September 30, 2008, excluding the loss on the early extinguishment of debt of approximately $137,000 and income of approximately $8,000 and $129,000, respectively, for the three and nine months ended September 30, 2007. Also included in the loss from discontinued operations is loss for Big Walnut Apartments of approximately $104,000 and $251,000, respectively, for the three and nine months ended September 30, 2008 and loss of approximately $130,000 and $433,000, respectively, for the three and nine months ended September 30, 2007. Included in loss from discontinued operations for the three and nine months ended September 30, 2008 are revenues for Reflections Apartments of approximately $339,000 and $2,509,000, respectively. Included in loss from discontinued operations for the three and nine months ended September 30, 2007 are revenues for Reflections Apartments of approximately $1,080,000 and $3,203,000, respectively. Also included in loss from discontinued operations for the three and nine months ended September 30, 2008 are revenues for Big Walnut Apartments of approximately $457,000 and $1,375,000, respectively. Included in loss from discontinued operations for the three and nine months ended September 30, 2007 are revenues for Big Walnut Apartments of approximately $447,000 and $1,328,000, respectively. As a result of Big Walnut Apartments entering into a sale contract in September 2008 and meeting the FAS 144 criteria to be classified as held for sale, its assets and liabilities are classified as held for sale as of September 30, 2008. The December 31, 2007 balance sheet has been restated to reflect the assets and liabilities of Reflections Apartments and Big Walnut Apartments as held for sale.

Organization: On May 21, 2008, the Managing General Partner amended the Partnership Agreement to authorize the Managing General Partner to amend the Partnership Agreement and the Certificate of Limited Partnership to establish different designated series of limited partnership interests that have separate rights with respect to specific Partnership property. As of September 30, 2008, the Managing General Partner has not amended the Partnership Agreement or the Certificate of Limited Partnership establishing designated series interests.

Note B - Transactions with Affiliated Parties

The Partnership has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.

Affiliates of the Managing General Partner receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $272,000 and $297,000 for the nine months ended September 30, 2008 and 2007, respectively, which is included in operating expenses and loss from discontinued operations. At December 31, 2007, approximately $1,000 of such expense is accrued and is included in due to affiliates on the accompanying consolidated balance sheet.

An affiliate of the Managing General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $227,000 and $260,000 for the nine months ended September 30, 2008 and 2007, respectively, which is included in general and administrative expenses, investment properties, assets held for sale and gain on sale of discontinued operations. The portion of these reimbursements included in investment properties, assets held for sale and gain on sale of discontinued operations for the nine months ended September 30, 2008 and 2007 are construction management services provided by an affiliate of the Managing General Partner of approximately $89,000 and $106,000, respectively. At December 31, 2007, approximately $24,000 of reimbursements were accrued and were included in due to affiliates and assets held for sale on the accompanying consolidated balance sheet. No such amounts were due to affiliates of the Managing General Partner at September 30, 2008.

In accordance with the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the Managing General Partner, advanced the Partnership various funds in the past to cover capital expenditures, operational expenses, real estate taxes and funds in connection with the refinancing of the mortgage encumbering Big Walnut Apartments. No such advances were received during the nine months ended September 30, 2008. At September 30, 2008, there were no advances or associated accrued interest due to AIMCO Properties, L.P. At December 31, 2007, the amount of the outstanding advance balance and accrued interest due to AIMCO Properties, L.P. was approximately $6,797,000. The Partnership repaid in full the entire advance balance and accrued interest of approximately $7,046,000 with proceeds from the sale of Reflections Apartments. Interest was charged at prime plus 1% and interest expense was approximately $249,000 and $393,000 for the nine months ended September 30, 2008 and 2007, respectively. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.

The Partnership accrued a real estate commission due to the Managing General Partner of $48,000 upon the sale of Shoppes at River Rock during the year ended December 31, 1999. During 2002, the Partnership paid $30,000 of the amount to an unaffiliated third party as part of a settlement regarding brokerage services. Approximately $18,000 is accrued at September 30, 2008 and December 31, 2007 and is included in other liabilities in the accompanying consolidated balance sheets. Payment of this commission is subordinate to the limited partners receiving their original invested capital plus a cumulative non-compounded annual return of 8% on their adjusted invested capital.

The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers’ compensation, property casualty, general liability and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the nine months ended September 30, 2008, the Partnership was charged by AIMCO and its affiliates approximately $236,000 for insurance coverage and fees associated with policy claims administration. Additional charges will be incurred by the Partnership during 2008 as other insurance policies renew later in the year. The Partnership was charged by AIMCO and its affiliates approximately $202,000 for insurance coverage and fees associated with policy claims administration during the year ended December 31, 2007.

Note C – Casualty Gain

During April 2006, Reflections Apartments suffered significant damage to all of the property’s roofs as a result of hail and wind produced by tornadoes. The estimated cost to replace the roofs was approximately $554,000. During the fourth quarter of 2006 the Partnership received insurance proceeds of approximately $442,000. A casualty gain of approximately $27,000 was recognized during the fourth quarter of 2006 as a result of receiving insurance proceeds of approximately $442,000 offset by approximately $415,000 of undepreciated assets written off. The Partnership recognized a casualty gain of approximately $111,000 during the nine months ended September 30, 2007 due to the receipt of additional insurance proceeds of approximately $111,000, which is included in loss from discontinued operations.

During January 2007, Reflections Apartments suffered fire damage to one of its apartment units. The cost to repair the unit was approximately $52,000. During the nine months ended September 30, 2007, the Partnership received approximately $42,000 related to this casualty. During the three and nine months ended September 30, 2007, the Partnership recognized a casualty gain, of approximately $4,000, which is included in loss from discontinued operations, as a result of receiving $42,000 of insurance proceeds offset by approximately $38,000 of undepreciated assets being written off.

During February 2007, Big Walnut Apartments suffered water damage to one of the property’s buildings as a result of a snow storm and leaking roofs. The cost to repair the building was approximately $29,000. During the nine months ended September 30, 2007, the Partnership received insurance proceeds of approximately $26,000. The Partnership recognized a casualty gain of approximately $24,000, which is included in loss from discontinued operations, as a result of receiving approximately $26,000 of insurance proceeds offset by approximately $2,000 of undepreciated assets being written off.

Note D – Mortgage Refinancing

On September 26, 2007, the Partnership refinanced the mortgage encumbering Big Walnut Apartments. The refinancing replaced the existing mortgage, which at the time of refinancing had a principal balance of approximately $5,053,000, with a new mortgage loan in the principal amount of approximately $4,300,000. The new loan was refinanced under a secured real estate credit facility (“Secured Credit Facility”) with AEGON USA Realty Advisors, Inc., as agent for Transamerica Occidental Life Insurance Company, which has a maturity of October 1, 2010, with two one-year extension options. The new mortgage requires monthly payments of interest only beginning on November 1, 2007, through the October 1, 2010 maturity date, at which date the entire principal balance of $4,300,000 is due. The new loan has a variable interest rate of the one-month LIBOR rate plus 0.78% (3.27% per annum at September 30, 2008) and resets monthly. The variable interest rate may increase to the one-month LIBOR rate plus 0.98% if the debt service coverage ratio of the investment property decreases below a prescribed threshold. The Secured Credit Facility provides mortgage loans on properties owned by other partnerships that are affiliated with the Managing General Partner of the Partnership. The Secured Credit Facility creates separate loans for each property that are not cross-collateralized or cross-defaulted with the other property loans. The loans are prepayable without penalty. As a condition of the Secured Credit Facility, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee the obligations and liabilities of the Partnership with respect to the new mortgage financing. In connection with the refinancing, an affiliate of the Partnership’s Managing General Partner advanced the Partnership approximately $770,000 to cover the amount needed to payoff the existing mortgage and closing costs. Total capitalized loan costs in connection with the new mortgage were approximately $73,000, of which approximately $60,000 was incurred during the nine months ended September 30, 2007, and are included in assets held for sale.

Note E – Partnership Income Taxes

The states of Tennessee and Ohio enacted tax legislation concerning income taxes that impacts the Partnership. One of the provisions of the legislation requires the Partnership to be liable for any Tennessee and Ohio income taxes that arise as a result of two of the Partnership’s properties, The Trails Apartments and Big Walnut Apartments, being located in the states of Tennessee and Ohio, respectively. The Partnership has estimated that at September 30, 2008 deferred tax liabilities exist of approximately $14,000 and $5,000 as a result of the tax legislation for The Trails Apartments and Big Walnut Apartments, respectively, and accordingly recorded such liabilities. The Partnership classifies deferred tax expense related to the Trails Apartments with operating expenses on the consolidated statements of operations and in loss from discontinued operations for the expense related to Big Walnut Apartments. The deferred tax liabilities consist primarily of temporary differences related to land, buildings and accumulated depreciation.

Note F – Sale of Investment Property

On July 31, 2008, the Partnership sold Reflections Apartments to a third party for a gross sales price of approximately $31,010,000. The net proceeds received by the Partnership were approximately $30,661,000 after payment of closing costs of approximately $227,000 and a prepayment penalty of approximately $122,000 owed by the Partnership. The Partnership used approximately $11,981,000 to repay the mortgage encumbering the property. As a result of the sale, the Partnership recorded a gain of approximately $15,472,000, which is included in gain from sale of discontinued operations, and a loss on the early extinguishment of debt of approximately $137,000 due to the write off of unamortized loan costs and a prepayment penalty, which is included in loss from discontinued operations for the three and nine months ended September 30, 2008. In June 2008, the Partnership recorded additional property tax expense for Reflections Apartments, due to receipt of the final taxable value and rate for 2006 from the local taxing authority. Although the assessed value for 2006 is under appeal, the Partnership recorded additional property tax expense of approximately $207,000 related to the 2006 tax year and adjusted the Partnership’s estimated taxes for 2007 based on the 2006 value by approximately $214,000. The Partnership escrowed approximately $613,000 until final settlement of the 2006 tax appeal. The property’s operations were income of approximately $15,000 and loss of approximately $276,000, respectively, for the three and nine months ended September 30, 2008 and income of approximately $8,000 and $129,000 respectively, for the three and nine months ended September 30, 2007. Also included in loss from discontinued operations are revenues of approximately $339,000 and $2,509,000 for the three and nine months ended September 30, 2008, respectively and approximately $1,080,000 and $3,203,000 for the three and nine months ended September 30, 2007, respectively.

Note G – Subsequent Event

On October 22, 2008, the Partnership sold Big Walnut Apartments to a third party for a gross sales price of approximately $8,300,000. In connection with the sale contract, the Partnership received a deposit of approximately $830,000. The deposit was recorded as a restricted escrow and deferred revenue which is included in assets and liabilities held for sale. The net proceeds received by the Partnership were approximately $8,262,000 after payment of closing costs of approximately $38,000. The Partnership used approximately $4,300,000 to repay the mortgage encumbering the property. As a result of the sale, the Partnership recorded a gain of approximately $4,270,000 and a loss on the early extinguishment of debt of approximately $48,000 during the fourth quarter of 2008. In accordance with the Partnership agreement, the Partnership’s Managing General Partner will evaluate the cash requirements of the Partnership to determine what portion of the sales proceeds will be available for distribution to the limited partners.

Note H - Contingencies

The Partnership has previously disclosed in its quarterly, annual and current reports the legal proceedings related to the Nuanes and Heller actions. On June 30, 2006, the trial court entered an order confirming its approval of the class action settlement and entering judgment thereto after the Court of Appeal had remanded the matter for further findings. On August 31, 2006, an objector filed an appeal from the order. The Court of Appeal issued an opinion on February 20, 2008, affirming the order approving the settlement and judgment entered thereto, and the California Supreme Court thereafter denied the objector’s petition for review. All appeals have now been exhausted, and the Court’s order approving the settlement and entering judgment is now final. Payments associated with the settlement were disbursed during September 2008.

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked inexcess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts will be dismissed. During the three months ended September 30, 2008, the Partnership was charged approximately $3,000 for settlement amounts for alleged unpaid overtime to employees who had worked at the Partnership’s investment properties. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The Managing General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.

The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.

Environmental

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines, or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its properties.

Mold

The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented policies, procedures, third-party audits and training and the Managing General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s consolidated financial condition or results of operations.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Report contains or may contain information that is forward-looking, including, without limitation, statements regarding the effect of redevelopments, the Partnership’s future financial performance, including the Partnership’s ability to maintain current or meet projected occupancy and rent levels, and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and, in addition, will be affected by a variety of risks and factors that are beyond the Partnership’s control including, without limitation: natural disasters such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect the Partnership’s properties and interpretations of those regulations; the competitive environment in which the Partnership operates; financing risks, including the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets; insurance risks; development risks; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the Partnership. Readers should carefully review the Partnership’s consolidated financial statements and the notes thereto and the other documents the Partnership files from time to time with the Securities and Exchange Commission.

The Partnership's investment properties consist of two apartment complexes, one which is classified as held for sale at September 30, 2008. The following table sets forth the average occupancy of the properties for the nine months ended September 30, 2008 and 2007:

	Average Occupancy
	2008	2007
Big Walnut Apartments
Columbus, Ohio	95%	96%
The Trails Apartments
Nashville, Tennessee	97%	97%

The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment properties, interest rates on mortgage loans, costs incurred to operate the investment properties, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, the Managing General Partner may use rental concessions and rental rate reductions to offset softening market conditions, accordingly, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnership’s financial results.

Results of Operations

The Partnership’s net income for the three and nine months ended September 30, 2008 was approximately $15,108,000 and $14,323,000, respectively, compared to net loss of approximately $407,000 and $1,033,000, respectively, for the corresponding period in 2007. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the consolidated statements of operations for the three and nine months ended September 30, 2007 have been restated to reflect the operations of Reflections Apartments as income (loss) from discontinued operations due to its sale on July 31, 2008 and to reflect the operations of Big Walnut Apartments as loss from discontinued operations.

On July 31, 2008, the Partnership sold Reflections Apartments to a third party for a gross sales price of approximately $31,010,000. The net proceeds received by the Partnership were approximately $30,661,000 after payment of closing costs of approximately $227,000 and a prepayment penalty of approximately $122,000 owed by the Partnership. The Partnership used approximately $11,981,000 to repay the mortgage encumbering the property. As a result of the sale, the Partnership recorded a gain of approximately $15,472,000, which is included in gain from sale of discontinued operations, and a loss on the early extinguishment of debt of approximately $137,000 due to the write off of unamortized loan costs and a prepayment penalty, which is included in loss from discontinued operations for the three and nine months ended September 30, 2008. The property’s operations were income of approximately $15,000 and a loss of approximately $276,000, respectively for the three and nine months ended September 30, 2008 and income of approximately $8,000 and $129,000, respectively, for the three and nine months ended September 30, 2007. Also included in loss from discontinued operations are revenues of approximately $339,000 and $2,509,000 for the three and nine months ended September 30, 2008, respectively and approximately $1,080,000 and $3,203,000 for the three and nine months ended September 30, 2007, respectively.

The Partnership entered into a sale contract on September 29, 2008 to sell Big Walnut Apartments to a third party for a gross sales price of approximately $8,300,000. In connection with the sale contract, the Partnership received a deposit of approximately $830,000. The deposit was recorded as a restricted escrow and deferred revenue. On October 22, 2008, the Partnership sold Big Walnut Apartments. Included in loss from discontinued operations is loss for Big Walnut Apartments of approximately $104,000 and $251,000, respectively, for the three and nine months ended September 30, 2008 and loss of approximately $130,000 and $433,000, respectively, for the three and nine months ended September 30, 2007. Included in loss from discontinued operations for the three and nine months ended September 30, 2008 are revenues for Big Walnut Apartments of approximately $457,000 and $1,375,000, respectively. Included in loss from discontinued operations for the three and nine months ended September 30, 2007 are revenues for Big Walnut Apartments of approximately $447,000 and $1,328,000, respectively. As a result of Big Walnut Apartments being held for sale and meeting the FAS 144 criteria to be classified as held for sale, its assets and liabilities are classified as held for sale as of September 30, 2008 and December 31, 2007.

The Partnership’s loss from continuing operations for the three and nine months ended September 30, 2008 was approximately $138,000 and $485,000, respectively, compared to loss from continuing operations of approximately $262,000 and $729,000, respectively, for the corresponding period in 2007. The decrease in loss from continuing operations for both periods is due to an increase in total revenues and a decrease in total expenses. Total revenues increased for both periods due to an increase in both rental and other income. Rental income increased primarily due to an increase in the average rental rate at The Trails Apartments. Other income increased primarily due to an increase in lease cancellation fees.

Total expenses decreased for the three months ended September 30, 2008 due to a decrease in operating and interest expenses, partially offset by an increase in general and administrative expense. Deprecation and property tax expense remained relatively constant for the three months ended September 30, 2008. Total expenses decreased for the nine months ended September 30, 2008 due to a decrease in interest expense, partially offset by an increase in depreciation expense. Property tax expense, general and administrative expense and operating expense remained relatively constant for the nine months ended September 30, 2008. Operating expense decreased for the three months ended September 30, 2008 due to a decrease in salaries and related employee benefits and utility costs at The Trails Apartments. Interest expense decreased for the comparable periods primarily due to a decrease in interest charged on advances from an affiliate of the Managing General Partner. Deprecation expense increased for the nine months ended September 30, 2008 as a result of property improvements and replacements placed into service during the past twelve months.

The increase in general and administrative expense for the three months ended September 30, 2008 is primarily due to an increase in management reimbursements paid to the Managing General Partner as allowed under the Partnership Agreement. General and administrative expense remained relatively constant for the nine months ended September 30, 2008 as decreases in legal costs and management reimbursements paid to the Managing General Partner were offset by increases in taxes and fees and costs associated with the annual audit. Also included in general and administrative expenses for the three and nine months ended September 30, 2008 and 2007 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement.

During April 2006, Reflections Apartments suffered significant damage to all of the property’s roofs as a result of hail and wind produced by tornadoes. The estimated cost to replace the roofs is approximately $554,000. During the fourth quarter of 2006 the Partnership received insurance proceeds of approximately $442,000. A casualty gain of approximately $27,000 was recognized during the fourth quarter of 2006 as a result of receiving insurance proceeds of approximately $442,000 offset by approximately $415,000 of undepreciated assets written off. The Partnership recognized a casualty gain of approximately $111,000, which is included in loss from discontinued operations, during the nine months ended September 30, 2007 due to the receipt of additional insurance proceeds of approximately $111,000.

During January 2007, Reflections Apartments suffered fire damage to one of its apartment units. The cost to repair the unit was approximately $52,000. During the nine months ended September 30, 2007, the Partnership received approximately $42,000 related to this casualty. During the three and nine months ended September 30, 2007, the Partnership recognized a casualty gain of approximately $4,000, which is included in loss from discontinued operations, as a result of receiving $42,000 of insurance proceeds offset by approximately $38,000 of undepreciated assets being written off.

During February 2007, Big Walnut Apartments suffered water damage to one of the property’s buildings as a result of a snow storm and leaking roofs. The cost to repair the building was approximately $29,000. During the nine months ended September 30, 2007, the Partnership received insurance proceeds of approximately $26,000. During the nine months ended September 30, 2007, the Partnership recognized a casualty gain of approximately $24,000, which is included in loss from discontinued operations, as a result of receiving approximately $26,000 of insurance proceeds offset by approximately $2,000 of undepreciated assets being written off.

Liquidity and Capital Resources

At September 30, 2008, the Partnership had cash and cash equivalents of approximately $2,602,000, compared to approximately $294,000 at September 30, 2007. Cash and cash equivalents increased approximately $1,875,000, from December 31, 2007, due to approximately $29,738,000 and $9,000 of cash provided by investing and operating activities, respectively, partially offset by approximately $27,872,000 of cash used in financing activities. Cash provided by investing activities consisted of net proceeds from the sale of Reflections Apartments and deferred sale revenue, partially offset by property improvements and replacements and an increase in restricted escrow. Cash used in financing activities consisted of repayment of the mortgage note payable encumbering Reflections Apartments, a distribution to partners, repayment of advances from an affiliate of the Managing General Partner, principal payments made on the mortgages encumbering the Partnership’s investment properties and a prepayment penalty paid. The Partnership invests its working capital reserves in interest bearing accounts.

The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the Partnership’s properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. The Managing General Partner monitors developments in the area of legal and regulatory compliance. Capital improvements planned for each of the Partnership's properties are detailed below.

Big Walnut Apartments

During the nine months ended September 30, 2008, the Partnership completed approximately $1,032,000 of capital expenditures at Big Walnut Apartments consisting primarily of recreational facilities, interior decorating, roof and floor covering replacements and improvements related to casualties. These improvements were funded from operating cash flow. This property is classified as held for sale at September 30, 2008 and was sold on October 22, 2008.

The Trails Apartments

During the nine months ended September 30, 2008, the Partnership completed approximately $119,000 of capital expenditures at The Trails Apartments consisting primarily of appliance and floor covering replacements. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during the remainder of 2008. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

Reflections Apartments

During the nine months ended September 30, 2008, the Partnership completed approximately $193,000 of capital expenditures at Reflections Apartments consisting primarily of kitchen and bath upgrades, structural improvements and appliance and floor covering replacement. These improvements were funded from operating cash flow. The Partnership sold Reflections Apartments to a third party on July 31, 2008.

Capital expenditures will be incurred only if cash is available from operations, Partnership reserves or advances from AIMCO Properties, L.P., although AIMCO Properties, L.P. is not obligated to provide such advances. To the extent that capital improvements are completed, the Partnership’s distributable cash flow, if any, may be adversely affected at least in the short term.

The Partnership's assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. On September 26, 2007, the Partnership refinanced the mortgage encumbering Big Walnut Apartments. The refinancing replaced the existing mortgage, which at the time of refinancing had a principal balance of approximately $5,053,000, with a new mortgage loan in the principal amount of approximately $4,300,000. The new loan was refinanced under a secured real estate credit facility (“Secured Credit Facility”) with AEGON USA Realty Advisors, Inc., as agent for Transamerica Occidental Life Insurance Company, which has a maturity of October 1, 2010, with two one-year extension options. The new mortgage requires monthly payments of interest only beginning on November 1, 2007, through the October 1, 2010 maturity date, at which date the entire principal balance of $4,300,000 is due. The new loan has a variable interest rate of the one-month LIBOR rate plus 0.78% (3.27% per annum at September 30, 2008) and resets monthly. The variable interest rate may increase to the one-month LIBOR rate plus 0.98% if the debt service coverage ratio of the investment property decreases below a prescribed threshold. The Secured Credit Facility provides mortgage loans on properties owned by other partnerships that are affiliated with the Managing General Partner of the Partnership. The Secured Credit Facility creates separate loans for each property thatare not cross-collateralized or cross-defaulted with the other property loans. The loans are prepayable without penalty. As a condition of the Secured Credit Facility, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain obligations and liabilities of the Partnership with respect to the new mortgage financing. Subsequent to September 30, 2008, the mortgage encumbering Big Walnut apartments was repaid with proceeds from the property’s sale on October 22, 2008.

The mortgage indebtedness encumbering The Trails Apartments of approximately $8,468,000 matures in January 2016 at which time a balloon payment of approximately $7,385,000 is required. The Managing General Partner will attempt to refinance and/or sell the property prior to such maturity date. If the property cannot be refinanced or sold for a sufficient amount, the Partnership may risk losing such property through foreclosure.

Pursuant to the Partnership Agreement, the term of the Partnership is scheduled to expire on December 31, 2008. The Managing General Partner has been exploring the sale of the Partnership’s remaining investment property in 2009; however, the Managing General Partner is uncertain whether the Partnership will proceed with this plan given current economic conditions. If the Managing General Partner elects to not move forward with the sale of the remaining investment property, the Managing General Partner plans to extend the term of the Partnership.

The Partnership distributed the following amounts during the nine months ended September 30, 2008 and 2007 (in thousands, except per unit data):

		Per Limited		Per Limited
	Nine Months Ended	Partnership	Nine Months Ended	Partnership
	September 30, 2008	Unit	September 30, 2007	Unit

Sale(1)	$ 9,144	$ 7,464.16	$ - --	$ - --

(1) Proceeds from the July 2008 sale of Reflections Apartments.

Future cash distributions will depend on the levels of net cash generated from operations, the timing of debt maturity, property sales and/or refinancings. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance that the Partnership will generate sufficient funds from operations, after required capital expenditures, to permit additional distributions to its partners during 2008 or subsequent periods.

Other

In addition to its indirect ownership of the managing and associate general partner interests in the Partnership, AIMCO and its affiliates owned 706.00 limited partnership units ("Units") in the Partnership representing 57.67% of the outstanding Units at September 30, 2008. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 57.67% of the outstanding Units, AIMCO is in a position to control all such voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.

Critical Accounting Policies and Estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

Impairment of Long-Lived Assets

Investment property is recorded at cost, less accumulated depreciation, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of the property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.

Real property investment is subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership’s investment property. These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; and changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing. Any adverse changes in these factors could cause impairment of the Partnership’s asset.

Revenue Recognition

The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.

ITEM 4T. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures.

The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.

(b) Changes in Internal Control Over Financial Reporting.

There have been no significant changes in the Partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 6. EXHIBITS

See Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

	By: Davidson Diversified Properties, Inc.
	Managing General Partner

Date: November 14, 2008	By: /s/Martha L. Long
	Martha L. Long
	Senior Vice President

Date: November 14, 2008	By: /s/Stephen B. Waters
	Stephen B. Waters
	Vice President

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

EXHIBIT INDEX

Exhibit Number Description of Exhibit

3 Partnership Agreement dated June 11, 1984, as amended is incorporated by reference to Exhibit A to the Prospectus of the Registrant dated October 16, 1984 as filed with the Commission pursuant to Rule 424(b) under the Act.

3B Amendment No. 1 to the Partnership Agreement dated August 1, 1985 is incorporated by reference to Exhibit 3B to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985.

3C First Amendment to the Partnership Agreement of Registrant, dated May 21, 2008.

4 Certificate of Limited Partnership dated June 11, 1984 is incorporated by reference to Exhibit 4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.

4A Certificate of Amendment to Limited Partnership dated July 17, 1984 is incorporated by reference to Exhibit 4A to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.

4B Restated Certificate of Limited Partnership dated October 5, 1984 is incorporated by reference to Exhibit 4B to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.

10I Contract for Sale of Real Estate for Big Walnut Apartments dated December 6, 1984 between Community Development Company, an Ohio limited partnership and Tennessee Trust Company, as Trustee is incorporated by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K dated March 28, 1985.

10J Assignment of Contract for Sale of Real Estate dated March 22, 1985 between Tennessee Trust Company, Trustee, and the Registrant, relating to assignment of Purchase Agreement for Big Walnut Apartments is incorporated by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated March 28, 1985.

10K Contract for Sale of Real Estate for The Trails Apartments dated July 31, 1985 between Trails of Nashville Associates, Ltd., a Tennessee limited partnership by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K dated August 30, 1985.

10L Assignment of Contract for Sale of Real Estate dated August 28, 1985 between Tennessee Trust Company, as Trustee and the Registrant, relating to assignment of Contract for Sale of Real Estate for The Trails Apartments is incorporated by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated August 30, 1985.

10GG Assignment of Limited Partnership Interest of Freeman Equities, Limited, dated December 31, 1991 between Davidson Diversified Properties, Inc. and Insignia Jacques-Miller, L.P. is incorporated by reference to Exhibit 10KKK to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.

10HH Assignment of General Partner Interests of Freeman Equities, Limited, dated December 31, 1991 between Davidson Diversified Properties, Inc. and MAE GP Corporation is incorporated by reference to Exhibit 10LLL to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.

10II Stock certificate, dated December 31, 1991 showing ownership of 1,000 shares of Davidson Diversified Properties, Inc. by MAE GP Corporation is incorporated by reference to Exhibit 10MMM to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.

10.9 Multifamily Note dated May 31, 2006 between The Trails, L.P., a South Carolina limited partnership, and Johnston Capital Group, Inc., a Texas corporation incorporated by reference to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2006.

10.10 Multifamily Deed of Trust, Assignment of Rents and Security Agreement dated May 31, 2006 between The Trails, L.P., a South Carolina limited partnership, and Johnston Capital Group, Inc., a Texas corporation incorporated by reference to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2006.

10.11 Guaranty Agreement dated May 31, 2006 between AIMCO Properties, L.P., a Delaware limited partnership and Johnston Capital Group, Inc., a Texas corporation, The Trails, L.P., a South Carolina limited partnership, and Johnston Capital Group, Inc., a Texas corporation incorporated by reference to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2006.

10.12 Open-End Mortgage, Security Agreement and Fixture Filing between Big Walnut, L.P., a Delaware limited partnership and Transamerica Occidental Life Insurance Company, an Iowa corporation. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated October 2, 2007)

10.13 Secured Promissory Note between Big Walnut, L.P., a Delaware limited partnership and Transamerica Occidental Life Insurance Company, an Iowa corporation. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated October 2, 2007)

10.14 Carveout Guarantee and Indemnity Agreement between AIMCO Properties, L.P., a Delaware limited partnership and Transamerica Occidental Life Insurance Company, an Iowa corporation. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated October 2, 2007)

10.15 Purchase and Sale Contract between Davidson Diversified Real Estate II, L.P, a Delaware limited partnership, and Ardizzone Enterprises, Inc., an Indiana corporation, dated May 22, 2008. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated May 22, 2008)

10.16 First Amendment to Purchase and Sale Contract between Davidson Diversified Real Estate II, L.P, a Delaware limited partnership, and Ardizzone Enterprises, Inc., an Indiana corporation, dated July 9, 2008. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated July 9, 2008)

10.17 Agreement for Purchase and Sale and Joint Escrow Instructions between Big Walnut, L.P., a Delaware limited partnership, and the affiliated Selling Partnerships and JRK Property Holdings, Inc., a California corporation and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated September 29, 2008. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated September 29, 2008)

10.18 First Amendment to Agreement for Purchase and Sale and Joint Escrow Instructions between Big Walnut, L.P., a Delaware limited partnership, and the affiliated Selling Partnerships and JRK Property Holdings, Inc., a California corporation and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated September 30, 2008. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated September 29, 2008)

10.19 Second Amendment to Agreement for Purchase and Sale and Joint Escrow Instructions between Big Walnut, L.P., a Delaware limited partnership, and the affiliated Selling Partnerships and JRK Property Holdings, Inc., a California corporation and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated October 2, 2008. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated September 29, 2008)

10.20 Third Amendment to Agreement for Purchase and Sale and Joint Escrow Instructions between Big Walnut, L.P., a Delaware limited partnership, and the affiliated Selling Partnerships and JRK Property Holdings, Inc., a California corporation and JRK Birchmont Advisors, LLC, a Delaware limited liability company, dated October 21, 2008. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated October 22, 2008)

31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99A Agreement of Limited Partnership for Big Walnut, L.P. between Davidson Diversified Properties, Inc. and Davidson Diversified Real Estate II, L.P. entered into on August 23, 1991 is incorporated by reference to Exhibit 99A to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992.

EX-31.1 2 ddre2_ex31z1.htm EXHIBIT 31.1 Exhibit 31

Exhibit 31.1

CERTIFICATION

I, Martha L. Long, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Davidson Diversified Real Estate II, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 14, 2008

/s/Martha L. Long

Martha L. Long

Senior Vice President of Davidson Diversified Properties, Inc., equivalent of the chief executive officer of the Partnership

EX-31.2 3 ddre2_ex31z2.htm EXHIBIT 31.2 Exhibit 31

Exhibit 31.2

CERTIFICATION

I, Stephen B. Waters, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Davidson Diversified Real Estate II, L.P.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 14, 2008

/s/Stephen B. Waters

Stephen B. Waters

Vice President of Davidson Diversified Properties, Inc., equivalent of the chief financial officer of the Partnership

EX-32.1 4 ddre2_ex32z1.htm EXHIBIT 32.1 Exhibit 32

Exhibit 32.1

Certification of CEO and CFO

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Davidson Diversified Real Estate II, L.P. (the "Partnership"), for the quarterly period ended September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Martha L. Long, as the equivalent of the chief executive officer of the Partnership, and Stephen B. Waters, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

	/s/Martha L. Long
	Name: Martha L. Long
	Date: November 14, 2008

	/s/Stephen B. Waters
	Name: Stephen B. Waters
	Date: November 14, 2008

This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-3.C 5 ddre2_ex3zc.htm EXHIBIT 3C

Exhibit 3C

FIRST AMENDMENT
TO
THE PARTNERSHIP AGREEMENT
OF
DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

This FIRST AMENDMENT TO THE PARTNERSHIP AGREEMENT OF DAVIDSON DIVERSIFIED REAL ESTATE II, L.P., dated as of May 21, 2008 (this "Amendment"), is made by Davidson Diversified Properties, Inc., a Tennessee corporation (the "Managing General Partner"). All capitalized terms used in this Amendment but not otherwise defined herein shall have the respective meanings given to them in the Partnership Agreement (as defined below).

WHEREAS, Davidson Diversified Real Estate II, L.P., a Delaware limited partnership (the "Partnership"), is governed pursuant to the terms of that certain Partnership Agreement of Davidson Diversified Real Estate II, L.P., dated as of June 11, 1984 (the ^"Partnership Agreement^"); and

WHEREAS, the Managing General Partner has determined that this Amendment is in the best interests of the Partnership and Limited Partners, and a majority in interest of the Limited Partners of the Partnership have approved this Amendment.

NOW, THEREFORE, in consideration of these premises and of the mutual provisions, conditions and covenants herein contained, the parties hereto do hereby agree as follows:

1. Amendment to the Partnership Agreement.

(a) The Partnership Agreement is hereby amended by the addition of a new Article XXIII, which will read in its entirety as follows:

"XXIII. SERIES OF LIMITED PARTNERSHIP INTERESTS

Notwithstanding any other provision of this Agreement, the Managing General Partner is hereby authorized to amend this Agreement and the Certificate of Limited Partnership at any time, and from time to time, as it determines, in its sole discretion, may be necessary or desirable to establish, and convert existing limited partnership interests into, different designated series of limited partnership interests that have separate rights with respect to specified partnership property, in accordance with Section 17-218 of the Delaware Revised Uniform Limited Partnership Act. Without limitation of the foregoing, the Managing General Partner shall be authorized to adopt amendments that provide for any or all of the following:

All income, earnings, profits and proceeds from the series property, including any proceeds derived from the refinancing, sale or other disposition of such property, and any funds or payments derived from any reinvestment of such proceeds, shall be allocated solely to such series for all purposes, and shall be so recorded upon the books of account of the Partnership.
Separate and distinct books and records shall be maintained for each series, and the assets and liabilities associated with a particular series shall be held and accounted for separately from the other assets of the Partnership and other series.
If there are any assets, income, earnings, profits, proceeds, funds or payments that are not readily identifiable as belonging to any particular series, the Managing General Partner shall allocate them among any one or more of the series in such manner and on such basis as the Managing General Partner, in its sole discretion, deems fair and equitable, which determination shall be conclusive and binding on the Limited Partners of all series for all purposes.
The assets belonging to a particular series shall be charged solely with the liabilities of the Partnership in respect of such series and all expenses, costs, charges and reserves attributable to such series. Any general liabilities, expenses, costs, charges or reserves of the Partnership that are not readily identifiable as belonging to any particular series shall be allocated and charged by the Partnership to and among one or more of the series in such manner and on such basis as the Managing General Partner, in its sole discretion, deems fair and equitable, which allocation shall be conclusive and binding on the Limited Partners of all series for all purposes.
No Limited Partner of any series will have any claim on or any right to any assets allocated to or belonging to any other series.
At the time a series of limited partnership interest is established, a separate capital account shall be established on the books of each series for each Limited Partner which shall initially consist of that portion of such Limited Partner's existing capital account that relates to the series property. Thereafter, the capital account of each Limited Partner in that series shall be adjusted in the manner set forth in the Agreement, but only with respect to (i) capital contributions to such series, (ii) allocations of profit and loss relating to the series, and (iii) distributions paid in respect of such series."

2. Miscellaneous.

(a) Effect of Amendment.In the event of any conflict or inconsistency between the terms of the Partnership Agreement and the terms of this Amendment, the terms of this Amendment shall prevail, and any conflicting or inconsistent provisions shall be reconciled and construed to give effect to the terms and intent of this Amendment.

(b) Ratification. Except as otherwise expressly modified hereby, the Partnership Agreement shall remain in full force and effect, and all of the terms and provisions of the Partnership Agreement, as herein modified, are hereby ratified and reaffirmed.

(c) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ITS PRINCIPLES OF CONFLICTS OF LAW.

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IN WITNESS WHEREOF, the Managing General Partner has executed this Amendment as of the date first set forth above.

DAVIDSON DIVERSIFIED PROPERTIES, INC.

/s/Brian J. Bornhorst

Name: Brian J. Bornhorst

Title: Vice President