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SEC Response Letter

June 13,
2005

Via
EDGAR

Mr. Larry
Spirgel

Assistant
Director

Division
of Corporation Finance

United
States Securities and Exchange Commission

Mail Stop
0407

Washington,
DC 20549

RE:

Emeritus
Corporation

Form 10-K
for the fiscal year ended December 31, 2004

Filed
March 31, 2005

Form l0-Q
for the quarterly period ended March 31, 2005

Filed May
13, 2005

Dear Mr.
Spirgel:

This
letter is in response to your letter to us dated May 27, 2005, regarding the
above mentioned filings. In the interest of keeping matters clear, organized,
and in keeping with our understanding of your instructions, we repeated your
questions and comments in the same form and order they occurred in your letter
to us. Immediately after each of your questions, we follow with our response.

Form
l0-K for the fiscal year ended December 31, 2004

Administration,
page 7

1. We
understand that you have the Central, Eastern, Great Lakes and Western
operational groups. Please tell us how you determined that you have only one
reportable segment under SFAS 131.

Answer: Our
divisional organization is for purely administrative purposes. We do not prepare
separate financial information for these operating divisions that is evaluated
regularly by our chief operating decision maker in deciding how to allocate
resources or in assessing performance. Additionally, all of our operations are
similar throughout each division. Thus we believe the presentation of segment
information on a divisional basis is not required under SFAS 131.

3131
Elliott Avenue, Suite 500 · Seattle
WA 98121

PHONE
206.298.2909 · FAX
206.301.4500
· www.emeritus.com

Mr. Larry
Spirgel

Securities
and Exchange Commission

June 13,
2005

Page
2

Item
6. Selected Consolidated Financial Data. page 19

2. Please
present your ratio of earnings to fixed charges that complies with Item 503(d)
of

Regulation
S-K. Also, provide the required exhibit.

Answer:
We have
not presented a ratio of earnings to fixed charges since we do not have any
registered debt securities and, therefore, do not believe that Item 503(d) of
Regulation S-K applies.

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

HCP
Transaction, page 30

3. Please
tell us how you are accounting for the potential put option and the basis for
your accounting.

Answer:
This was
a sale-leaseback transaction in which the lease contained an event of default
clause
that may
require the
lessee to
repurchase
the properties for the greater of the then fair market value or the
landlord’s then
current investment amount. Given that, in an
event of default, the
buyer-lessor could compel the seller-lessee to
repurchase the property, the
sale-leaseback included continuing involvement as defined by SFAS 98 and EITF
97-1. We have recorded a liability in the amount of $83.5 million, which is
equal to the landlord’s
purchase price in accounting for the transaction as a financing in accordance
with SFAS 98. Additionally, we noted that the put option represented an embedded
derivative but, in accordance with SFAS 133 paragraph 12 and 61, determined that
the put option was not an embedded derivative requiring separate accounting. We
also evaluated FIN 45 and determined that separate valuation under FIN 45 was
not required since, even if the put was considered a guarantee, it would be a
guarantee of our own performance. Accordingly, no amounts were recorded for the
put option.

Summary
of Significant Accounting Policies and Use of Estimates, page
34;

4. Please
disclose your accounting policy for the $18 million contingencies
accrual.

Answer: Our
accounting policy regarding contingent liabilities is to recognize those
obligations if they are probable and estimable in accordance with SFAS 5 based
on management’s best estimate of the ultimate outcome. If a legal judgment has
been rendered against us, then we believe that we have a probable liability and
accrue the full amount of the judgment as the most likely estimate of the
probable loss unless we are able to obtain a legal opinion that the ultimate
settlement will be different. We request to review and modify our accounting
policy disclosures in future filings.

Mr. Larry
Spirgel

Securities
and Exchange Commission

June 13,
2005

Page
3

Contractual
Obligations. page 47

5. Please
present the required interest payments in the table.

Answer: There
are two tables in our disclosure (i) the principal payments for each period and
(ii) the interest payments for each period. We believe that this presents a
clearer picture of the obligations and related
interest and satisfies the reporting requirement. However, if the SEC staff
believes that the two tables should be combined into one, we request that we
change this disclosure in future filings.

Item
9A.
Controls
and Procedures, page 57

6. Your
certifying officers have concluded that your "disclosure controls and procedures
were inadequate as of December 31, 2004." Rather than concluding as to the
adequacy of your disclosure controls and procedures, you should conclude as to
the effectiveness. In future filings, revise to state clearly whether or not
your principal executive officer and principal financial officer concluded that
your disclosure controls and procedures were effective or not effective. In your
response, tell us whether your disclosure controls and procedures were effective
or not effective as of December 31, 2004. Exchange Act Rule 13a-15(e). Similarly
address your Form 10-Q for the quarterly period ended March 31,
2005.

Answer:
Our
disclosure controls and procedures were not effective as of December 31, 2004,
but were effective as of March 31, 2005. In all future filings, we will use the
word "effectiveness" and "effective" and will cease to use the word "adequate"
in this context.

Consolidated
Statement of Operations, page F-4

7. Comply
with SAB 1l (B).

Answer: Since we
do not have a line item called "Cost of goods sold" in our Statement of
Operations and the fact that we do include "Depreciation and amortization" prior
to computing "Operating income from continuing operations," we believe we are in
compliance with the intent of this item. In addition, we do not present a gross
profit and our presentation is consistent with industry practice.

Mr. Larry
Spirgel

Securities
and Exchange Commission

June 13,
2005

Page
4

8. We
note that you redeemed the Series A Preferred Stock in August 2003. Please tell
how you considered
the adoption of SFAS 150 on this transaction.

Answer: We
considered the provisions of SFAS 150 with regards to the presentation of our
Series A Preferred Stock. As disclosed in Footnote 10 to the consolidated
financial statements, the Series A Preferred Stock was convertible into common
shares up until the date of mandatory redemption. As a
result, we concluded that the Series A Preferred Stock are not
mandatorily redeemable because the redemption is conditional, contingent upon
the holder’s not exercising its option to convert into common shares, which is
in
accordance with paragraph A9 of SFAS 150. Thus, our
adoption of SFAS 150 had no
impact on the classification of our Series A preferred stock.

Note
6. Long-Term Investments, page F-18

9. Please
tell us why after the LLC elected to be treated as a corporation you were
required to account for your interest in the corporation on a cost basis under
APB 18.

Answer:
With
regards to our investment in the LLC, we were not required to account for our
interest in the LLC on a cost basis. In initially accounting for the LLC, we
considered the provisions of EITF
Issue No. 03-16, “Accounting
for Investments in Limited Liability Companies,” which provides the guidance in
this area, and a final conclusion was reached in March 2004 that indicates that
if an LLC maintains separate member accounts similar to a limited partnership,
then the
provisions of SOP 78-9 and related guidance, including the guidance provided by
the SEC staff in EITF D-46, should apply to LLCs with such individual ownership
accounts. Therefore, since our ownership exceeded the 3-5% level indicated in
EITF D-46, even though we did not exercise significant influence as defined in
APB 18, equity method accounting was considered appropriate upon formation of
the LLC. Our footnote discloses this as a requirement to account for the
investment under the equity method. As discussed in footnote 3 to the
consolidated financial statements, the LLC made an election to be taxed as a
“C-corporation” beginning January 31, 2004. Upon election of being taxed as a
C-corporation, we reevaluated the investment to determine whether APB 18 would
apply and whether the investment should be accounted for on a cost vs. equity
method. Since the entity was no longer similar to a pass-through entity and
separate ownership accounts were no longer maintained, we concluded that APB 18
would be the appropriate literature to evaluate whether the entity should be
accounted for on the equity method. As noted above, we had previously assessed
the influence we had with regards to our investment including assessment of the
provisions of items such as protective rights as defined by EITF 96-16 and
concluded that we did not have significant influence over the operations or
decisions of the LLC and that accounting for our investment using the cost basis
of accounting was in accordance with APB 18.

Mr. Larry
Spirgel

Securities
and Exchange Commission

June 13,
2005

Page
5

Note
17. Sales, Leases and Acquisitions. including Certain Related-Party, page
F-30

10. Per
page F-17, we understand that you do not believe any of your VIE's are required
to be consolidated under FIN 46R. Please tell us the factors, including the
purchase option, you considered in your conclusion for each of the leases
disclosed in this note, include in your response references to the
appropriate paragraph in FIN 46R.

Answer:
With the
exception of the lease of eight communities in May 2003, none of our operating
leases have residual value guarantees, fixed price purchase options, or other
non-market terms and therefore, in accordance with paragraph B24 of FIN 46R,
these are not variable interests.

With
respect to the May 2003 transaction, FIN 46R would indicate, per paragraphs 12,
13, and B24, that a fixed price purchase option would be a variable interest in
the lessor VIE if the fair value of the assets leased is
more than 50% of the of the fair value of the lessor VIE’s total assets or the
lease transaction represents
a Silo within the lessor VIE. The lessor for these facilities is Health Care
Realty Trust, Inc., a publicly traded REIT (NYSE: HR), which we do not believe
is a VIE but in any case the assets being leased are significantly below 50% of
the fair value of the total assets of the REIT and are not a Silo within the
REIT.

With
respect to the other leases which are accounted for as capital or financing
leases, none of the leases contain residual value guarantees, fixed price
purchase options, or other non-market terms. They are all with publicly traded
REITs (Health Care REIT, Inc. (NYSE: HCN); Nationwide Health Properties, Inc.
(NYSE: NHP); and Health Care Property Investors, Inc. (NYSE: HCP)) and represent
a minority of each REIT's total assets. Therefore, we do not believe that these
leases represent variable interests in the lessor.

Emeritrust
II Communities Lease, page F-32

11.
Please tell us why the 500,000 warrants you issued are considered lease
acquisition costs. Include in your response references to the appropriate
accounting literature.

Answer: The
warrants issued were additional costs incurred to enter into the lease and, like
the other direct costs incurred to obtain the lease, were accounted for as lease
acquisition costs in accordance with SFAS 13.

Mr. Larry
Spirgel

Securities
and Exchange Commission

June 13,
2005

Page
6

Lease
of Eight Communities in May 2003, Page F-32

12.
Please tell us why it is appropriate to account for these leases as operating
leases under SFAS 13.

Answer:
The lease
of the eight communities under a master lease in May 2003 was accounted for as
an operating lease because it met the criteria for such classification under
SFAS 13. The lease does not transfer ownership of the properties to us at the
end of the lease term. Although the lease does contain a purchase option, we
believe the option price is not a bargain purchase option. The purchase option
may only be exercised by us after the first anniversary of the lease through the
end of the third year of the lease term. The option expires after the third year
of the lease. The purchase price is equal to the REIT’s original investment
through year two of the lease, and the original investment plus 3% in the third
year of the lease. It was management’s belief at the inception of the lease, and
it is still management’s belief today, that the fair market value of these
properties would be less than the purchase option price throughout the option
exercise period. The financial operations of the properties at the inception of
the lease did not support the purchase price option amount, and it was
management’s belief that because of the short-term nature of the purchase
option, the operations would not improve to the point where the purchase option
would ever be consider a bargain purchase before it expired. The initial lease
term of 10 years is less than 75% of the estimated economic life of the leased
property. The three 5-year renewal options were not included in this criteria
test because they are exercised at the option of the Company, are not bargain
renewal options, and there are no lease provisions or economic penalties that
would compel us to exercise the renewal options. The present value of the
minimum lease payments at the beginning of the lease term, including fixed rent
escalators and lease acquisition costs, is less than 90% of the fair value of
the leased property. The discount rate used in calculating the present value was
the Company’s incremental borrowing rate at inception of the lease.

.

Repurchase
of the Series A Preferred Stock, page F-33

13. You
received net proceeds of $10.2 million in repayment of your notes receivable
with a carrying value of $4.4 million. Please tell us how the amount of the
deferred gain was determined.

Answer:
In July
2003, we acquired three communities that we formerly leased and simultaneously
sold the properties to a REIT and leased them back. We had made loans to the
original landlord and such notes receivable, including accumulated interest,
totaled $4.4 million on the date of acquisition. We acquired the properties for
the amount of the underlying mortgage on the properties, plus forgiveness of the
notes receivable. The underlying mortgage totaled approximately $13.9 million,
thus our basis in the properties was approximately $18.3 million. The sales
price to the REIT was $24.9 million, resulting in a gain on sale of
approximately $6.6 million. In addition, the original lease was accounted for as
an

Mr. Larry
Spirgel

Securities
and Exchange Commission

June 13,
2005

Page
7

operating
lease with straight-line rent accruals. The deferred rent payable balance at the
date of acquisition was approximately $1.9 million. This deferred rent payable
amount was reversed since we were no longer obligated for those future rents.
The gain on sale of the properties plus the reversal of deferred rent payable
resulted in a deferred gain of $8.5 million on this transaction. The Company
received $10.2 million in cash in this sale-leaseback transaction for a sales
price of $24.9 million less assumption by the REIT of the underlying mortgage of
$13.9 million less approximately $800,000 in lease acquisition costs on the new
lease.

Note
18. Commitments and Contingencies, page F-38

14. You
have concluded that "the damage award was not justified by the facts or the law
in the case presented by the plaintiff." Based o