SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC  20549

                                   FORM 8-K

                                CURRENT REPORT

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

      Date of Report (date of earliest event reported)  February 21, 1997

                     BALCOR REALTY INVESTORS 85-SERIES III
                       A REAL ESTATE LIMITED PARTNERSHIP
         ------------------------------------------------------------
                           Exact Name of Registrant


Illinois                                0-14350
-----------------------------------     -----------------------------------
State or other jurisdiction             Commission file number

2355 Waukegan Road
Suite A200
Bannockburn, Illinois                   36-3333344
-----------------------------------     -----------------------------------
Address of principal                    I.R.S. Employer
executive offices                       Identification
                                        Number

60015
-----------------------------------
Zip Code

              Registrant's telephone number, including area code:
                                (847) 267-1600
<PAGE>
ITEM 2.  ACQUISITION OR DISPOSITION OF ASSETS
------------------------------------------------------------------------

a)  North Hill Apartments

In 1985, North Hill Apartments, DeKalb County, Georgia, was acquired by a
limited partnership (the "Joint Venture") the general partner of which was a
joint venture between the Partnership and an affiliate.  The limited partner of
the Joint Venture was an affiliate of the seller.  The Partnership contributed
approximately $5,772,000 and the affiliate contributed approximately $1,924,000
from their respective offering proceeds towards the purchase of the property.
The property was purchased subject to $18,700,000 of first mortgage financing.
In 1986, the unaffiliated limited partner assigned its interest in the Joint
Venture to the Partnership and the Partnership's affiliate, which hold
interests of 75% and 25%, respectively, in the Joint Venture.  In 1994, the
Joint Venture repaid the first mortgage loan with proceeds from a new first
mortgage loan of $16,795,600, proceeds of a $1,350,000 note (the "Note"), from
two unaffiliated parties, and Joint Venture cash reserves.  The Note is
non-interest bearing and will be repaid only to the extent that the net
proceeds from the sale of the property exceed a certain predetermined level.  

The Partnership contracted to sell the property to an unaffiliated party, EEA
Development, Inc., a Delaware corporation, on February 21, 1997 for a sale
price of $22,750,000.  On February 27, 1997, the purchaser exercised its option
to terminate the agreement of sale.  On March 4, 1997, the agreement of sale
was reinstated.

The purchaser has deposited $150,000 into an escrow account as earnest money
and is obligated to deposit an additional $150,000 on or before March 13, 1997.
The purchaser will assume the existing first mortgage loan which is expected to
have an outstanding principal balance of approximately $16,552,000 at closing,
scheduled to occur on March 27, 1997.  If certain conditions described in the
agreement of sale relating to the assumption of the loan and the additional
financing of the property by the purchaser have not been satisfied on or before
March 20, 1997, the Joint Venture and the purchaser each have the right to
extend the date by which such obligations must be met to April 21, 1997, in
which event the closing will be held five days after the obligations are
satisfied. 

The remaining portion of the sale price will be payable in cash at closing.
From the proceeds of the sale, the Joint Venture will pay $227,500 to an
unaffiliated party as a brokerage commission. No portion of the sale proceeds
will be utilized towards the repayment of the Note, and the Note will be
forgiven.  The Joint Venture will receive the remaining proceeds of
approximately $5,971,000, of which the Partnership's share will be
approximately $4,478,000, less the Partnership's share of closing costs.
Neither the General Partner nor any affiliate will receive a brokerage
commission in connection with the sale of the property.  The General Partner
will be reimbursed by the Joint Venture for actual expenses incurred in
connection with the sale.
<PAGE>
An affiliate of the General Partner sold one property to the purchaser in 1996.

The closing is subject to the satisfaction of numerous terms and conditions.
There can be no assurance that all of the terms and conditions will be complied
with and, therefore, it is possible the sale of the property may not occur.

b)  Howell Station Apartments

In 1984, the Partnership acquired the Howell Station Apartments (formerly known
as Tempo Station Apartments), Duluth, Georgia (the "Property"), utilizing
approximately $5,216,000 from the Partnership's offering proceeds.  The
property was acquired subject to first mortgage financing of approximately
$7,349,000. In 1993, the mortgage loan was refinanced with a new mortgage loan
in the amount of $6,650,000 and the Partnership received a discount of
approximately $191,500 on the prior loan upon repayment.  

On February 26, 1997, the Partnership contracted to sell the Property for a
sale price of $9,000,000 to an unaffiliated party, Group One Investments, Inc.,
an Illinois corporation.  In addition, the Partnership has executed an
agreement to sell to the purchaser the personal property located at the
Property for a sale price of $1,000,000.  The purchaser is obligated to deposit
$100,000 into an escrow account as earnest money.  The remaining portion of the
sale price will be payable in cash at closing, scheduled for April 4, 1997.

From the proceeds of the sale, the Partnership will pay the outstanding
principal balance of the mortgage loan, which is expected to be approximately
$6,450,000 at closing,  $150,000 to an unaffiliated party as a brokerage
commission and $100,000 to an affiliate of the third party providing property
management services for the property as a fee for services rendered in
connection with the sale of the property.  The Partnership will receive the
remaining proceeds of approximately $3,300,000, less closing costs. Of such
proceeds, $100,000 will be retained by the Partnership and will not be
available for use or distribution by the Partnership until 90 days after
closing.

Neither the General Partner nor any affiliate will receive a brokerage
commission in connection with the sale of the Property.  The General Partner
will be reimbursed by the Partnership for actual expenses incurred in
connection with the sale.

An affiliate of the General Partner sold one  property to the purchaser in
1996.

The closing is subject to the satisfaction of numerous terms and conditions.
There can be no assurance that all of the terms and conditions will be complied
with and, therefore, it is possible the sale of the Property may not occur.
<PAGE>
ITEM 7.  FINANCIAL STATEMENTS AND EXHIBITS
----------------------------------------------------------------------

     (A)  FINANCIAL STATEMENTS AND EXHIBITS:

            None

     (B)  PRO FORMA FINANCIAL INFORMATION:

            None

     (C)  EXHIBITS:

          (2) (a) (i)   Agreement of Sale relating to the sale of North Hill 
                        Apartments, Atlanta, Georgia.

                  (ii)  Termination Notice relating to the sale 
                        of North Hill Apartments, Atlanta, Georgia.

                  (iii) Reinstatement of, and First Amendment to, the Agreement
                        of Sale and Escrow Agreement relating to the sale of 
                        North Hill Apartments, Atlanta, Georgia.

              (b) (i)   Agreement of Sale relating to the sale of Howell 
                        Station Apartments, Duluth, Georgia.

                  (ii)  Amendment No. 1 to Agreement of Sale relating to the 
                        sale of Howell Station Apartments, Duluth, Georgia.

                  (iii) Agreement relating to the sale of Howell Station 
                        Apartments, Duluth, Georgia.

                  (iv)  Amendment No. 2 to Agreement of Sale relating to the 
                        sale of Howell Station Apartments, Duluth, Georgia.


     No information is required under Items 1, 3, 4, 5, 6 and 8 and these items
have, therefore, been omitted.
<PAGE>
Signature
-------------

     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 hereunto duly authorized.


                    BALCOR REALTY INVESTORS 85-SERIES III
                    A REAL ESTATE LIMITED PARTNERSHIP

                         By:  Balcor Partners-XVIII, an Illinois
                              general partnership, its general partner

                         By:  The Balcor Company, a Delaware corporation,
                              a partner

                         By:   /s/ Jerry M. Ogle
                              -------------------------------------------
                                   Jerry M. Ogle, Managing Director 
                                   and Secretary

Dated:  March 7, 1997
<PAGE>
[{"type": "8-K", "sequence": "1", "description": "MARCH 7, 1997 8-K FOR BRI 85 III", "secsgml_size_bytes": 9395}]
{"company-data": {"conformed-name": "BALCOR REALTY INVESTORS 85 SERIES III", "cik": "0000766769", "assigned-sic": "6500", "irs-number": "363333344", "state-of-incorporation": "IL", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-14350", "film-number": "97552861"}, "business-address": {"street1": "2355 WAUKENGAN ROAD #A200", "city": "DEERFIELD", "state": "IL", "zip": "60015-1586", "phone": "7086772900"}, "mail-address": {"street1": "2355 WAUKENGAN ROAD #A200", "city": "DEERFIELD", "state": "IL", "zip": "60015-1586"}}
SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC  20549

                                   FORM 8-K

                                CURRENT REPORT

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

      Date of Report (date of earliest event reported)  February 21, 1997

                     BALCOR REALTY INVESTORS 85-SERIES III
                       A REAL ESTATE LIMITED PARTNERSHIP
         ------------------------------------------------------------
                           Exact Name of Registrant

Illinois                                0-14350
-----------------------------------     -----------------------------------
State or other jurisdiction             Commission file number

2355 Waukegan Road
Suite A200
Bannockburn, Illinois                   36-3333344
-----------------------------------     -----------------------------------
Address of principal                    I.R.S. Employer
executive offices                       Identification
                                        Number

60015
-----------------------------------
Zip Code

              Registrant's telephone number, including area code:
                                (847) 267-1600
ITEM 2.  ACQUISITION OR DISPOSITION OF ASSETS
------------------------------------------------------------------------

a)  North Hill Apartments

In 1985, North Hill Apartments, DeKalb County, Georgia, was acquired by a
limited partnership (the "Joint Venture") the general partner of which was a
joint venture between the Partnership and an affiliate.  The limited partner of
the Joint Venture was an affiliate of the seller.  The Partnership contributed
approximately $5,772,000 and the affiliate contributed approximately $1,924,000
from their respective offering proceeds towards the purchase of the property.
The property was purchased subject to $18,700,000 of first mortgage financing.
In 1986, the unaffiliated limited partner assigned its interest in the Joint
Venture to the Partnership and the Partnership's affiliate, which hold
interests of 75% and 25%, respectively, in the Joint Venture.  In 1994, the
Joint Venture repaid the first mortgage loan with proceeds from a new first
mortgage loan of $16,795,600, proceeds of a $1,350,000 note (the "Note"), from
two unaffiliated parties, and Joint Venture cash reserves.  The Note is
non-interest bearing and will be repaid only to the extent that the net
proceeds from the sale of the property exceed a certain predetermined level.  

The Partnership contracted to sell the property to an unaffiliated party, EEA
Development, Inc., a Delaware corporation, on February 21, 1997 for a sale
price of $22,750,000.  On February 27, 1997, the purchaser exercised its option
to terminate the agreement of sale.  On March 4, 1997, the agreement of sale
was reinstated.

The purchaser has deposited $150,000 into an escrow account as earnest money
and is obligated to deposit an additional $150,000 on or before March 13, 1997.
The purchaser will assume the existing first mortgage loan which is expected to
have an outstanding principal balance of approximately $16,552,000 at closing,
scheduled to occur on March 27, 1997.  If certain conditions described in the
agreement of sale relating to the assumption of the loan and the additional
financing of the property by the purchaser have not been satisfied on or before
March 20, 1997, the Joint Venture and the purchaser each have the right to
extend the date by which such obligations must be met to April 21, 1997, in
which event the closing will be held five days after the obligations are
satisfied. 

The remaining portion of the sale price will be payable in cash at closing.
From the proceeds of the sale, the Joint Venture will pay $227,500 to an
unaffiliated party as a brokerage commission. No portion of the sale proceeds
will be utilized towards the repayment of the Note, and the Note will be
forgiven.  The Joint Venture will receive the remaining proceeds of
approximately $5,971,000, of which the Partnership's share will be
approximately $4,478,000, less the Partnership's share of closing costs.
Neither the General Partner nor any affiliate will receive a brokerage
commission in connection with the sale of the property.  The General Partner
will be reimbursed by the Joint Venture for actual expenses incurred in
connection with the sale.
An affiliate of the General Partner sold one property to the purchaser in 1996.

The closing is subject to the satisfaction of numerous terms and conditions.
There can be no assurance that all of the terms and conditions will be complied
with and, therefore, it is possible the sale of the property may not occur.

b)  Howell Station Apartments

In 1984, the Partnership acquired the Howell Station Apartments (formerly known
as Tempo Station Apartments), Duluth, Georgia (the "Property"), utilizing
approximately $5,216,000 from the Partnership's offering proceeds.  The
property was acquired subject to first mortgage financing of approximately
$7,349,000. In 1993, the mortgage loan was refinanced with a new mortgage loan
in the amount of $6,650,000 and the Partnership received a discount of
approximately $191,500 on the prior loan upon repayment.  

On February 26, 1997, the Partnership contracted to sell the Property for a
sale price of $9,000,000 to an unaffiliated party, Group One Investments, Inc.,
an Illinois corporation.  In addition, the Partnership has executed an
agreement to sell to the purchaser the personal property located at the
Property for a sale price of $1,000,000.  The purchaser is obligated to deposit
$100,000 into an escrow account as earnest money.  The remaining portion of the
sale price will be payable in cash at closing, scheduled for April 4, 1997.

From the proceeds of the sale, the Partnership will pay the outstanding
principal balance of the mortgage loan, which is expected to be approximately
$6,450,000 at closing,  $150,000 to an unaffiliated party as a brokerage
commission and $100,000 to an affiliate of the third party providing property
management services for the property as a fee for services rendered in
connection with the sale of the property.  The Partnership will receive the
remaining proceeds of approximately $3,300,000, less closing costs. Of such
proceeds, $100,000 will be retained by the Partnership and will not be
available for use or distribution by the Partnership until 90 days after
closing.

Neither the General Partner nor any affiliate will receive a brokerage
commission in connection with the sale of the Property.  The General Partner
will be reimbursed by the Partnership for actual expenses incurred in
connection with the sale.

An affiliate of the General Partner sold one  property to the purchaser in
1996.

The closing is subject to the satisfaction of numerous terms and conditions.
There can be no assurance that all of the terms and conditions will be complied
with and, therefore, it is possible the sale of the Property may not occur.
ITEM 7.  FINANCIAL STATEMENTS AND EXHIBITS
----------------------------------------------------------------------

     (A)  FINANCIAL STATEMENTS AND EXHIBITS:

            None

     (B)  PRO FORMA FINANCIAL INFORMATION:

            None

     (C)  EXHIBITS:

          (2) (a) (i)   Agreement of Sale relating to the sale of North Hill 
                        Apartments, Atlanta, Georgia.

                  (ii)  Termination Notice relating to the sale 
                        of North Hill Apartments, Atlanta, Georgia.

                  (iii) Reinstatement of, and First Amendment to, the Agreement
                        of Sale and Escrow Agreement relating to the sale of 
                        North Hill Apartments, Atlanta, Georgia.

              (b) (i)   Agreement of Sale relating to the sale of Howell 
                        Station Apartments, Duluth, Georgia.

                  (ii)  Amendment No. 1 to Agreement of Sale relating to the 
                        sale of Howell Station Apartments, Duluth, Georgia.

                  (iii) Agreement relating to the sale of Howell Station 
                        Apartments, Duluth, Georgia.

                  (iv)  Amendment No. 2 to Agreement of Sale relating to the 
                        sale of Howell Station Apartments, Duluth, Georgia.

     No information is required under Items 1, 3, 4, 5, 6 and 8 and these items
have, therefore, been omitted.
Signature
-------------

     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 hereunto duly authorized.

                    BALCOR REALTY INVESTORS 85-SERIES III
                    A REAL ESTATE LIMITED PARTNERSHIP

                         By:  Balcor Partners-XVIII, an Illinois
                              general partnership, its general partner

                         By:  The Balcor Company, a Delaware corporation,
                              a partner

                         By:   /s/ Jerry M. Ogle
                              -------------------------------------------
                                   Jerry M. Ogle, Managing Director 
                                   and Secretary

Dated:  March 7, 1997