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)  April 23, 1996

                    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) Country Ridge Apartments

In 1985, the Partnership acquired the Country Ridge Apartments, Farmington
Hills, Michigan, utilizing approximately $5,000,000 in offering proceeds.  The
property was acquired subject to first mortgage financing of approximately
$8,981,000.  

On April 23, 1996, the Partnership contracted to sell the property for a sale
price of $15,950,000 to an unaffiliated party, ERP Operating Limited
Partnership (the "Purchaser"), an Illinois limited partnership.  The Purchaser
has deposited $300,000 into an escrow account as earnest money.  The Purchaser
has the option, to be exercised prior to May 22, 1996, to assume the existing
first mortgage loan collateralized by the property (the "Loan") at closing.  If
the option is exercised, the Purchaser is obligated to deposit an additional
$200,000 into the escrow account no later than May 23, 1996.  At closing, the
Loan, which is expected to have a then outstanding balance of approximately
$8,770,000, will be either assumed by the Purchaser or repaid from the sale
proceeds, with the remainder of the purchase price paid in cash.  The Purchaser
will pay all closing costs relating to the sale, including title charges and
prepayment or assumption fees relating to the Loan. Of the remaining sale
proceeds, an amount not to exceed $500,000 will be retained by the Partnership
and not be available until 120 days after closing.  Neither the General
Partner, its affiliates nor any unaffiliated third party will receive a
brokerage commission in connection with the sale of the property. An affiliate
of the third party providing property management services for the Partnership
and certain affiliates will receive a fee for services in connection with the
sale of the property of $119,625.  The General Partner will be reimbursed by
the Partnership for actual expenses incurred in connection with the sale,
including legal fees.

If the Loan is to be repaid at closing, the closing will occur on the earliest
day the holder of the Loan will permit the Loan to be repaid, to be no earlier
than June 6, 1996.  If the Purchaser has exercised the option to assume the
Loan, the closing will be extended to a date no later than July 19, 1996.

The Partnership and affiliates of the General Partner have simultaneously
contracted to sell 18 other properties to the Purchaser, including Lakeville
Resort Apartments and Park Place Apartments, Phase II, described elsewhere in
this report. 

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>
b) Lakeville Resort Apartments

In 1986, Lakeville Resort Apartments, Petaluma, California, was acquired by a
joint venture (the "Joint Venture") in which the Partnership and an affiliate
held joint venture interests of approximately 40% and 60%, respectively.  The
Partnership contributed approximately $3,675,000 and the affiliate contributed
approximately $5,454,000 from their respective offering proceeds towards the
purchase of the property.  The property was acquired subject to first and
second mortgage financing totalling approximately $20,730,000.  In 1995, the
property was refinanced with a new first mortgage loan (the "Loan") in the
amount of $20,932,600.

On April 23, 1996, the Joint Venture contracted to sell the property for a sale
price of $27,200,000 to an unaffiliated party, ERP Operating Limited
Partnership (the "Purchaser"), an Illinois limited partnership.  The Purchaser
has deposited $300,000 into an escrow account as earnest money.  The Purchaser
has the option, to be exercised prior to May 22, 1996, to assume the Loan at
closing.  If the option is exercised, the Purchaser is obligated to deposit an
additional $200,000 into the escrow account no later than May 23, 1996.  At
closing, the Loan, which is expected to have a then outstanding balance of
approximately $20,800,000, will be either assumed by the Purchaser or repaid
from the sale proceeds, with the remainder of the purchase price paid in cash.
The Purchaser will pay all closing costs relating to the sale, including title
charges and prepayment or assumption fees relating to the Loan.  From the sale
proceeds, a brokerage commission of $136,000 will be paid to an unaffiliated
party.  In addition, an amount not to exceed $500,000 will be retained by the
Joint Venture and not be available until 120 days after closing.  Neither the
General Partner nor any of its affiliates will receive a brokerage commission
in connection with the sale of the property. An affiliate of the third party
providing property management services for the Partnership and certain
affiliates will receive a fee for services in connection with the sale of the
property of $204,000.  The General Partner will be reimbursed by the Joint
Venture for the Partnership's share of actual expenses incurred in connection
with the sale, including legal fees.  The net sale proceeds will be distributed
to the Partnership and the joint venture partner in accordance with their
respective joint venture interests.

If the Loan is to be repaid at closing, the closing will occur on the earliest
day the holder of the Loan will permit the Loan to be repaid, to be no earlier
than June 6, 1996.  If the Purchaser has exercised the option to assume the
Loan, the closing will be extended to a date no later than July 19, 1996.

The Partnership and affiliates of the General Partner have simultaneously
contracted to sell 18 other properties to the Purchaser, including Country
Ridge Apartments and Park Place Apartments, Phase II, described elsewhere in
this report.  

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>
c) Park Place Apartments, Phase II

In 1985, the Partnership acquired the Park Place Apartments, Phase II,
Plymouth, Minnesota, utilizing approximately $4,972,000 in offering proceeds.
The property was acquired subject to first mortgage financing of approximately
$8,550,000.   In 1993, the mortgage loan was refinanced with a new mortgage
loan (the "Loan") in the amount of $9,170,400.  

On April 23, 1996, the Partnership contracted to sell the property for a sale
price of $12,125,000 to an unaffiliated party, ERP Operating Limited
Partnership (the "Purchaser"), an Illinois limited partnership.  The Purchaser
has deposited $300,000 into an escrow account as earnest money.  The Purchaser
has the option, to be exercised prior to May 22, 1996, to assume the Loan at
closing.  If the option is exercised, the Purchaser is obligated to deposit an
additional $200,000 into the escrow account no later than May 23, 1996.  At
closing, the Loan, which is expected to have a then outstanding balance of
approximately $9,000,000, will be either assumed by the Purchaser or repaid
from the sale proceeds, with the remainder of the purchase price paid in cash.
The Purchaser will pay all closing costs relating to the sale, including title
charges and prepayment or assumption fees relating to the Loan.  Of the
remaining sale proceeds, a brokerage commission of $60,625 will be paid to an
unaffiliated party.  In addition, an amount not to exceed $500,000 will be
retained by the Partnership and not be available until 120 days after closing.
Neither the General Partner nor its affiliates will receive a brokerage
commission in connection with the sale of the property. An affiliate of the
third party providing property management services for the Partnership and
certain affiliates will receive a fee for services in connection with the sale
of the property of $121,250.  The General Partner will be reimbursed by the
Partnership for actual expenses incurred in connection with the sale, including
legal fees.

If the Loan is to be repaid at closing, the closing will occur on the earliest
day the holder of the Loan will permit the Loan to be repaid, to be no earlier
than June 6, 1996.  If the Purchaser has exercised the option to assume the
Loan, the closing will be extended to a date no later than July 19, 1996.

The Partnership and affiliates of the General Partner have simultaneously
contracted to sell 18 other properties to the Purchaser, including Country
Ridge Apartments and Lakeville Resort Apartments described elsewhere in this
report.  One of the 19 properties, Park Place Apartments, Phase I, which is
owned by an affiliate of the General Partner, is located adjacent to this
property.  If a default occurs under the agreement of sale for the property or
the adjacent property, such action will be considered a default under the other
agreement.  In the event the Purchaser terminates either agreement, the other
agreement will also be deemed to be terminated.

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) Agreement of Sale and attachment thereto relating
                      to the sale of the Country Ridge apartment complex,
                      Farmington Hills, Michigan.

                (b)  Agreement of Sale and attachment thereto relating
                       to the sale of the Lakeville Resort apartment
                       complex, Petaluma, California.

                (c) Agreement of Sale and attachment thereto
                      relating to the sale of the Park Place
                      apartment complex, Phase II, Plymouth,
                      Minnesota.  

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, Vice President 
                                 and Secretary
Dated:  May 8, 1996
<PAGE>
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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)  April 23, 1996

                    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) Country Ridge Apartments

In 1985, the Partnership acquired the Country Ridge Apartments, Farmington
Hills, Michigan, utilizing approximately $5,000,000 in offering proceeds.  The
property was acquired subject to first mortgage financing of approximately
$8,981,000.  

On April 23, 1996, the Partnership contracted to sell the property for a sale
price of $15,950,000 to an unaffiliated party, ERP Operating Limited
Partnership (the "Purchaser"), an Illinois limited partnership.  The Purchaser
has deposited $300,000 into an escrow account as earnest money.  The Purchaser
has the option, to be exercised prior to May 22, 1996, to assume the existing
first mortgage loan collateralized by the property (the "Loan") at closing.  If
the option is exercised, the Purchaser is obligated to deposit an additional
$200,000 into the escrow account no later than May 23, 1996.  At closing, the
Loan, which is expected to have a then outstanding balance of approximately
$8,770,000, will be either assumed by the Purchaser or repaid from the sale
proceeds, with the remainder of the purchase price paid in cash.  The Purchaser
will pay all closing costs relating to the sale, including title charges and
prepayment or assumption fees relating to the Loan. Of the remaining sale
proceeds, an amount not to exceed $500,000 will be retained by the Partnership
and not be available until 120 days after closing.  Neither the General
Partner, its affiliates nor any unaffiliated third party will receive a
brokerage commission in connection with the sale of the property. An affiliate
of the third party providing property management services for the Partnership
and certain affiliates will receive a fee for services in connection with the
sale of the property of $119,625.  The General Partner will be reimbursed by
the Partnership for actual expenses incurred in connection with the sale,
including legal fees.

If the Loan is to be repaid at closing, the closing will occur on the earliest
day the holder of the Loan will permit the Loan to be repaid, to be no earlier
than June 6, 1996.  If the Purchaser has exercised the option to assume the
Loan, the closing will be extended to a date no later than July 19, 1996.

The Partnership and affiliates of the General Partner have simultaneously
contracted to sell 18 other properties to the Purchaser, including Lakeville
Resort Apartments and Park Place Apartments, Phase II, described elsewhere in
this report. 

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) Lakeville Resort Apartments

In 1986, Lakeville Resort Apartments, Petaluma, California, was acquired by a
joint venture (the "Joint Venture") in which the Partnership and an affiliate
held joint venture interests of approximately 40% and 60%, respectively.  The
Partnership contributed approximately $3,675,000 and the affiliate contributed
approximately $5,454,000 from their respective offering proceeds towards the
purchase of the property.  The property was acquired subject to first and
second mortgage financing totalling approximately $20,730,000.  In 1995, the
property was refinanced with a new first mortgage loan (the "Loan") in the
amount of $20,932,600.

On April 23, 1996, the Joint Venture contracted to sell the property for a sale
price of $27,200,000 to an unaffiliated party, ERP Operating Limited
Partnership (the "Purchaser"), an Illinois limited partnership.  The Purchaser
has deposited $300,000 into an escrow account as earnest money.  The Purchaser
has the option, to be exercised prior to May 22, 1996, to assume the Loan at
closing.  If the option is exercised, the Purchaser is obligated to deposit an
additional $200,000 into the escrow account no later than May 23, 1996.  At
closing, the Loan, which is expected to have a then outstanding balance of
approximately $20,800,000, will be either assumed by the Purchaser or repaid
from the sale proceeds, with the remainder of the purchase price paid in cash.
The Purchaser will pay all closing costs relating to the sale, including title
charges and prepayment or assumption fees relating to the Loan.  From the sale
proceeds, a brokerage commission of $136,000 will be paid to an unaffiliated
party.  In addition, an amount not to exceed $500,000 will be retained by the
Joint Venture and not be available until 120 days after closing.  Neither the
General Partner nor any of its affiliates will receive a brokerage commission
in connection with the sale of the property. An affiliate of the third party
providing property management services for the Partnership and certain
affiliates will receive a fee for services in connection with the sale of the
property of $204,000.  The General Partner will be reimbursed by the Joint
Venture for the Partnership's share of actual expenses incurred in connection
with the sale, including legal fees.  The net sale proceeds will be distributed
to the Partnership and the joint venture partner in accordance with their
respective joint venture interests.

If the Loan is to be repaid at closing, the closing will occur on the earliest
day the holder of the Loan will permit the Loan to be repaid, to be no earlier
than June 6, 1996.  If the Purchaser has exercised the option to assume the
Loan, the closing will be extended to a date no later than July 19, 1996.

The Partnership and affiliates of the General Partner have simultaneously
contracted to sell 18 other properties to the Purchaser, including Country
Ridge Apartments and Park Place Apartments, Phase II, described elsewhere in
this report.  

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.
c) Park Place Apartments, Phase II

In 1985, the Partnership acquired the Park Place Apartments, Phase II,
Plymouth, Minnesota, utilizing approximately $4,972,000 in offering proceeds.
The property was acquired subject to first mortgage financing of approximately
$8,550,000.   In 1993, the mortgage loan was refinanced with a new mortgage
loan (the "Loan") in the amount of $9,170,400.  

On April 23, 1996, the Partnership contracted to sell the property for a sale
price of $12,125,000 to an unaffiliated party, ERP Operating Limited
Partnership (the "Purchaser"), an Illinois limited partnership.  The Purchaser
has deposited $300,000 into an escrow account as earnest money.  The Purchaser
has the option, to be exercised prior to May 22, 1996, to assume the Loan at
closing.  If the option is exercised, the Purchaser is obligated to deposit an
additional $200,000 into the escrow account no later than May 23, 1996.  At
closing, the Loan, which is expected to have a then outstanding balance of
approximately $9,000,000, will be either assumed by the Purchaser or repaid
from the sale proceeds, with the remainder of the purchase price paid in cash.
The Purchaser will pay all closing costs relating to the sale, including title
charges and prepayment or assumption fees relating to the Loan.  Of the
remaining sale proceeds, a brokerage commission of $60,625 will be paid to an
unaffiliated party.  In addition, an amount not to exceed $500,000 will be
retained by the Partnership and not be available until 120 days after closing.
Neither the General Partner nor its affiliates will receive a brokerage
commission in connection with the sale of the property. An affiliate of the
third party providing property management services for the Partnership and
certain affiliates will receive a fee for services in connection with the sale
of the property of $121,250.  The General Partner will be reimbursed by the
Partnership for actual expenses incurred in connection with the sale, including
legal fees.

If the Loan is to be repaid at closing, the closing will occur on the earliest
day the holder of the Loan will permit the Loan to be repaid, to be no earlier
than June 6, 1996.  If the Purchaser has exercised the option to assume the
Loan, the closing will be extended to a date no later than July 19, 1996.

The Partnership and affiliates of the General Partner have simultaneously
contracted to sell 18 other properties to the Purchaser, including Country
Ridge Apartments and Lakeville Resort Apartments described elsewhere in this
report.  One of the 19 properties, Park Place Apartments, Phase I, which is
owned by an affiliate of the General Partner, is located adjacent to this
property.  If a default occurs under the agreement of sale for the property or
the adjacent property, such action will be considered a default under the other
agreement.  In the event the Purchaser terminates either agreement, the other
agreement will also be deemed to be terminated.

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) Agreement of Sale and attachment thereto relating
                      to the sale of the Country Ridge apartment complex,
                      Farmington Hills, Michigan.

                (b)  Agreement of Sale and attachment thereto relating
                       to the sale of the Lakeville Resort apartment
                       complex, Petaluma, California.

                (c) Agreement of Sale and attachment thereto
                      relating to the sale of the Park Place
                      apartment complex, Phase II, Plymouth,
                      Minnesota.  

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, Vice President 
                                 and Secretary
Dated:  May 8, 1996