UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



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


      For the period ended         September 30, 1996
                           -----------------------------------------------------


                                       OR

[ ]  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  0-13356
                           ---------


                        MCNEIL REAL ESTATE FUND XXI, L.P.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)




         California                           33-0030615
--------------------------------------------------------------------------------
(State or other jurisdiction of               (I.R.S. Employer
incorporation or organization)                 Identification No.)




             13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240
--------------------------------------------------------------------------------
             (Address of principal executive offices)       (Zip code)



Registrant's telephone number, including area code     (972) 448-5800
                                                  ------------------------------



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 and (2) has been  subject to such  filing
requirements for the past 90 days. Yes X No
                                      ---  ---

<PAGE>

                        MCNEIL REAL ESTATE FUND XXI, L.P.

                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
------- --------------------
                                 BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                        September 30,        December 31,
                                                                            1996                 1995
                                                                       ---------------      --------------
ASSETS 
------
Real estate investments:
<S>                                                                    <C>                  <C>           
   Land.....................................................           $     3,240,113      $    3,607,306
   Buildings and improvements...............................                29,317,722          33,341,911
                                                                        --------------       -------------
                                                                            32,557,835          36,949,217
   Less:  Accumulated depreciation and amortization.........               (14,333,588)        (15,278,026)
                                                                        --------------       -------------
                                                                            18,224,247          21,671,191

Asset held for sale.........................................                 2,711,429                   -

Cash and cash equivalents...................................                 1,629,136           1,998,301
Cash segregated for security deposits.......................                   183,072             167,007
Accounts receivable, net of allowance for doubtful
   accounts of $1,800 at December 31, 1995..................                   220,045             176,462
Escrow deposits.............................................                   618,555             611,639
Deferred borrowing costs, net of accumulated
   amortization of $137,892 and $90,135 at
   September 30, 1996 and December 31, 1995,
   respectively.............................................                   448,509             495,631
Prepaid expenses and other assets...........................                    66,763              58,418
                                                                        --------------       -------------
                                                                       $    24,101,756      $   25,178,649
                                                                        ==============       =============

LIABILITIES AND PARTNERS' DEFICIT
---------------------------------

Mortgage notes payable, net.................................           $    21,839,375      $   22,008,628
Mortgage note payable - affiliates..........................                   733,900             733,900
Accounts payable and accrued expenses.......................                   256,565             300,985
Accrued property taxes......................................                   395,429             338,135
Payable to affiliates.......................................                 4,083,881           4,217,978
Advances from affiliates....................................                   720,544             676,601
Security deposits and deferred rental revenue...............                   213,605             196,320
                                                                        --------------       -------------
                                                                            28,243,299          28,472,547
                                                                        --------------       -------------

Partners' deficit:
   Limited  partners  -  50,000  Units  authorized; 47,288
     and 47,308 Units outstanding  at September 30, 1996 
     and  December  31, 1995,  respectively, (24,949 
     Current Income Units outstanding at September 30, 1996
     and December 31,  1995  and  22,339 and 22,359 
     Growth/Shelter  Units  outstanding  at September
     30, 1996 and December 31,1995, respectively)...........                (3,782,516)         (2,943,347)
   General Partner..........................................                  (359,027)           (350,551)
                                                                        --------------       -------------
                                                                            (4,141,543)         (3,293,898)
                                                                        --------------       -------------
                                                                       $    24,101,756      $   25,178,649
                                                                        ==============       =============
</TABLE>

The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                            Three Months Ended                      Nine Months Ended
                                               September 30,                          September 30,
                                      ---------------------------------    ---------------------------------
                                          1996               1995               1996                1995
                                      --------------    ---------------    --------------     --------------
Revenue:
<S>                                   <C>                <C>               <C>                <C>           
   Rental revenue................     $    1,608,613     $    1,525,062    $    4,807,997     $    5,061,839
   Interest......................             26,292             27,334            80,167             86,576
   Gain on disposition of real
     estate......................                  -                  -                 -          1,615,811
                                       -------------      -------------     -------------      -------------
     Total revenue...............          1,634,905          1,552,396         4,888,164          6,764,226
                                       -------------      -------------     -------------      -------------

Expenses:
   Interest......................            514,231            541,237         1,499,211          1,844,910
   Interest - affiliates.........             30,182             31,277            90,027            165,581
   Depreciation and
     amortization................            410,925            418,203         1,219,510          1,325,801
   Property taxes................            125,608            144,023           370,744            442,160
   Personnel costs...............            187,992            199,148           563,345            613,232
   Utilities.....................            110,422            114,335           320,912            335,573
   Repair and maintenance........            187,333            199,156           538,871            547,099
   Property management
     fees - affiliates...........             82,623             78,324           249,970            271,870
   Other property operating
     expenses....................             89,602            152,716           302,162            428,311
   General and administrative....             15,856              4,537            49,429             41,715
   General and administrative -
     affiliates..................            163,274            193,735           531,628            601,222
                                       -------------      -------------     -------------      -------------
     Total expenses..............          1,918,048          2,076,691         5,735,809          6,617,474
                                       -------------      -------------     -------------      -------------

Net income (loss)................     $     (283,143)    $     (524,295)   $     (847,645)    $      146,752
                                       =============      =============     =============      =============

Net income (loss) allocable
   to limited partners - Current
   Income Unit...................     $      (25,483)    $      (47,186)   $      (76,288)    $       13,208
Net income (loss) allocable to
   to limited partners - Growth/
   Shelter Unit..................           (254,829)          (471,865)         (762,881)           132,077
Net income (loss) allocable
   to General Partner............             (2,831)            (5,244)           (8,476)             1,467
                                       -------------      -------------     -------------      -------------
Net income (loss)................     $     (283,143)    $     (524,295)   $     (847,645)    $      146,752
                                       =============      =============     =============      =============

Net income (loss) per limited 
   partnership unit:
   Current Income Units..........     $        (1.02)    $        (1.89)   $        (3.06)    $          .53
                                       =============      =============     =============      =============

   Growth/Shelter Units..........     $       (11.41)    $       (21.10)   $       (34.15)    $         5.91
                                       =============      =============     =============      =============
</TABLE>

The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.

<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                         STATEMENTS OF PARTNERS' DEFICIT
                                   (Unaudited)

              For the Nine Months Ended September 30, 1996 and 1995


<TABLE>
<CAPTION>

                                                                                                  Total
                                                    General                 Limited               Partners'
                                                    Partner                 Partners              Deficit
                                                 ---------------        ----------------       ---------------
<S>                                              <C>                    <C>                    <C>            
Balance at December 31, 1994..............       $     (348,843)        $    (2,774,251)       $   (3,123,094)

Net income
   General Partner........................                1,467                       -                 1,467
   Current Income Units...................                    -                  13,208                13,208
   Growth/Shelter Units...................                    -                 132,077               132,077
                                                  -------------           -------------         -------------
Total net income..........................                1,467                 145,285               146,752
                                                  -------------           -------------         -------------

Balance at September 30, 1995.............       $     (347,376)         $   (2,628,966)       $   (2,976,342)
                                                  =============           =============         =============


Balance at December 31, 1995..............       $     (350,551)         $   (2,943,347)       $   (3,293,898)

Net loss
   General Partner........................               (8,476)                                       (8,476)
   Current Income Units...................                                      (76,288)              (76,288)
   Growth/Shelter Units...................                                     (762,881)             (762,881)
                                                  -------------           -------------         -------------
Total net loss............................               (8,476)               (839,169)             (847,645)
                                                  -------------           -------------         -------------

Balance at September 30, 1996.............       $     (359,027)         $   (3,782,516)       $   (4,141,543)
                                                  =============           =============         =============
</TABLE>











The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.

<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
                                                                             Nine Months Ended
                                                                               September 30,
                                                                -------------------------------------------
                                                                        1996                    1995
                                                                -------------------       -----------------
Cash flows from operating activities:
<S>                                                             <C>                       <C>             
   Cash received from tenants........................           $        4,770,881        $      5,224,781
   Cash paid to suppliers............................                   (1,797,377)             (1,904,727)
   Cash paid to affiliates...........................                     (915,695)               (278,977)
   Interest received.................................                       80,167                  77,148
   Interest received from affiliates.................                            -                  71,614
   Interest paid.....................................                   (1,438,669)             (1,882,234)
   Interest paid to affiliates.......................                      (36,666)               (496,075)
   Property taxes paid...............................                     (363,815)               (673,395)
                                                                 -----------------          --------------
Net cash provided by operating activities............                      298,826                 138,135
                                                                 -----------------          --------------

Cash flows from investing activities:
   Additions to real estate investments..............                     (483,995)               (484,174)
   Net proceeds from disposition of real estate......                            -               2,199,917
   Repayment of advances to affiliates...............                            -                 300,000
                                                                 -----------------          --------------
Net cash provided by (used in)
   investing activities..............................                     (483,995)              2,015,743
                                                                 -----------------          --------------

Cash flows from financing activities:
   Deferred borrowing costs paid.....................                         (635)               (169,146)
   Proceeds from refinancings........................                            -                  60,103
   Principal payments on mortgage notes
     payable.........................................                     (183,361)               (195,165)
   Repayment of advances from affiliates.............                            -                (973,000)
                                                                 -----------------          --------------
Net cash used in financing activities................                     (183,996)             (1,277,208)
                                                                 -----------------          --------------

Net increase (decrease) in cash and
   cash equivalents..................................                     (369,165)                876,670

Cash and cash equivalents at beginning of
   period............................................                    1,998,301               1,151,098
                                                                 -----------------          --------------

Cash and cash equivalents at end of period...........           $        1,629,136         $     2,027,768
                                                                 =================          ==============
</TABLE>

The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>

                        McNEIL REAL ESTATE FUND XXI, L.P.

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

           Reconciliation of Net Income (Loss) to Net Cash Provided by
                              Operating Activities


<TABLE>
<CAPTION>
                                                                             Nine Months Ended
                                                                                September 30,
                                                                  ----------------------------------------
                                                                        1996                     1995
                                                                  -----------------        ---------------

<S>                                                               <C>                      <C>            
Net income (loss)....................................             $       (847,645)        $       146,752
                                                                   ---------------          --------------

Adjustments to reconcile  net income (loss) to net 
   cash  provided by operating  activities:
   Depreciation and amortization.....................                    1,219,510               1,325,801
   Amortization of deferred borrowing costs..........                       47,757                  45,270
   Amortization of discounts on mortgage
     notes payable...................................                       14,108                  15,823
   Interest added to advances to affiliates,
     net of payments.................................                            -                  62,186
   Interest added to advances from affiliates,
     net of payments.................................                       43,943                (276,837)
   Gain on disposition of real estate................                            -              (1,615,811)
   Changes in assets and liabilities:
     Cash segregated for security deposits...........                      (16,065)                 23,343
     Accounts receivable.............................                      (43,583)                141,264
     Escrow deposits.................................                       (6,916)               (395,659)
     Prepaid expenses and other assets...............                       (8,345)                 48,408
     Accounts payable and accrued expenses...........                      (44,420)                 50,100
     Accrued property taxes..........................                       57,294                 (36,594)
     Payable to affiliates...........................                     (134,097)                594,115
     Security deposits and deferred rental
       revenue.......................................                       17,285                   9,974
                                                                   ---------------          --------------

       Total adjustments.............................                    1,146,471                  (8,617)
                                                                   ---------------          --------------

Net cash provided by operating activities............             $        298,826         $       138,135
                                                                   ===============          ==============
</TABLE>




The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                          Notes to Financial Statements
                                   (Unaudited)

                               September 30, 1996

NOTE 1.
-------

McNeil  Real  Estate  Fund XXI,  L.P.  (the  "Partnership"),  formerly  known as
Southmark Realty Partners, Ltd., was organized on November 23, 1983 as a limited
partnership under the provisions of the California  Revised Limited  Partnership
Act to acquire and operate  commercial and residential  properties.  The general
partner of the Partnership is McNeil Partners,  L.P. (the "General Partner"),  a
Delaware limited partnership,  an affiliate of Robert A. McNeil ("McNeil").  The
principal place of business for the Partnership and the General Partner is 13760
Noel Road, Suite 700, LB70, Dallas, Texas, 75240.

In the opinion of management,  the financial  statements reflect all adjustments
necessary for a fair  presentation of the Partnership's  financial  position and
results  of  operations.  All  adjustments  were of a normal  recurring  nature.
However,  the results of operations for the nine months ended September 30, 1996
are not necessarily indicative of the results to be expected for the year ending
December 31, 1996.

NOTE 2.
-------

The  financial  statements  should  be read in  conjunction  with the  financial
statements  contained in the  Partnership's  Annual  Report on Form 10-K for the
year  ended  December  31,  1995,  and the  notes  thereto,  as  filed  with the
Securities and Exchange  Commission,  which is available upon request by writing
to McNeil Real Estate Fund XXI,  L.P. c/o McNeil Real Estate  Management,  Inc.,
Investor Services, 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.

NOTE 3.
-------

The  accompanying  financial  statements  have been  prepared  assuming that the
Partnership  will continue as a going concern.  The  Partnership  has previously
relied on advances  from  affiliates  to meet its debt  obligations  and to fund
capital improvements.  Additionally, the Partnership has had to defer payment of
payables to affiliates in order to meet its working capital needs. Additionally,
the  Partnership is faced with mortgage note  maturities of  approximately  $9.2
million in 1997 for which no extensions,  modifications or refinancings have yet
been negotiated.  There is no guarantee that such negotiations can be completed.
These  conditions raise  substantial  doubt about the  Partnership's  ability to
continue  as a going  concern.  The  financial  statements  do not  include  any
adjustments that might result from the outcome of these uncertainties.

NOTE 4.
-------

Certain  reclassifications  have been made to prior period amounts to conform to
the current period presentation.



<PAGE>
NOTE 5.
-------

The  Partnership  pays  property  management  fees  equal to 5% of gross  rental
receipts for its residential  properties and 6% of gross rental receipts for its
commercial  properties to McNeil Real Estate  Management,  Inc.  ("McREMI"),  an
affiliate of the General Partner, for providing property management services for
the Partnership's residential and commercial properties and leasing services for
its residential  properties.  McREMI may also choose to provide leasing services
for the Partnership's  commercial properties,  in which case McREMI will receive
property  management  fees from such  commercial  properties  equal to 3% of the
property's  gross  rental  receipts  plus  leasing   commissions  based  on  the
prevailing market rate for such services where the property is located.

The  Partnership  reimburses  McREMI  for  its  costs,  including  overhead,  of
administering the Partnership's affairs.

The  Partnership  is paying an asset  management  fee  which is  payable  to the
General  Partner.  Through 1999, the Asset Management Fee is calculated as 1% of
the  Partnership's  tangible asset value.  Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization  rate
of 9% to the annualized net operating income of each property or (ii) a value of
$10,000 per  apartment  unit for  residential  property and $50 per gross square
foot for commercial property to arrive at the property tangible asset value. The
property  tangible  asset  value is then  added to the book  value of all  other
assets excluding  intangible items. The fee percentage  decreases  subsequent to
1999.  Total  accrued  but  unpaid  asset  management  fees of  $2,831,399  were
outstanding at September 30, 1996.

The  Partnership  pays a disposition  fee to an affiliate of the General Partner
equal to 3% of the  gross  sales  price  for  brokerage  services  performed  in
connection  with the sale of the  Partnership's  properties.  The fee is due and
payable at the time the sale closes.  In  connection  with the sales of Suburban
Plaza and Wyoming Mall,  total accrued but unpaid  disposition  fees of $346,050
were outstanding at September 30, 1996 and December 31, 1995.

Prior  to the  restructuring  of the  Partnership,  affiliates  of the  Original
General  Partner  advanced  funds to enable the  Partnership to meet its working
capital requirements.  These advances were purchased by, and are now payable to,
the General Partner.

The total  advances from  affiliates at September 30, 1996 and December 31, 1995
consisted of the following:

                                                  September 30,   December 31,
                                                      1996            1995
                                                  -------------   ------------

Advances purchased by General Partner.......       $  630,574      $  630,574
Accrued interest payable....................           89,970          46,027
                                                    ---------       ---------
                                                   $  720,544      $  676,601
                                                    =========       =========






<PAGE>
Compensation  and  reimbursements  paid to or  accrued  for the  benefit  of the
General Partner and its affiliates are as follows:

                                                            Nine Months Ended
                                                               September 30,
                                                        ------------------------
                                                           1996         1995
                                                        ----------   -----------

Property management fees...........................     $  249,970   $   271,870
Charged to gain on disposition of real estate:
   Disposition fee.................................              -       346,050
Charged to interest -affiliates:
   Interest on advances from affiliates............          43,943       70,908
   Interest on mortgage note payable - affiliates..          46,084       94,673
Charged to general and administrative -affiliates:
   Partnership administration......................         230,765      301,077
   Asset management fee............................         300,863      300,145
                                                         ----------   ----------
                                                        $   871,625  $ 1,384,723
                                                         ==========   ==========

Payable to  affiliates  at September  30, 1996 and  December 31, 1995  consisted
primarily of unpaid asset management fees, property management fees, disposition
fees and partnership general and administrative expenses and are due and payable
from current operations.

NOTE 6.
-------

On July 12 and September 9, 1996,  Governour's Square Apartments suffered damage
from two  separate  hurricanes.  Repairs  are  estimated  to cost  approximately
$131,000,  $81,000 of which is expected to be covered by the insurance  carrier.
The basis of the  damaged  property  approximated  the  expected  proceeds to be
received from the insurance carrier.

NOTE 7.
-------

In 1996, the  Partnership  adopted the Financial  Accounting  Standards  Board's
Statement  of  Financial  Accounting  Standards  No.  121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of."
This statement  requires the cessation of  depreciation on assets held for sale.
Since Fort Meigs Plaza is  currently  classified  as an asset held for sale,  no
depreciation will be taken effective October 1, 1996.














<PAGE>

NOTE 8.
-------

On March 31, 1995,  Suburban  Plaza was sold to an  unrelated  third party for a
cash price of  $6,910,000.  Cash  proceeds and the gain on the  disposition  are
detailed below:

                                                   Gain on Sale   Cash Proceeds
                                                   ------------   -------------

Sales price.................................       $  6,910,000   $  6,910,000

Selling costs...............................           (293,754)       (86,454)
Retirement of mortgage discount.............           (683,198)
Carrying value..............................         (3,691,594)
Accounts receivable.........................           (315,979)
Deferred borrowing costs....................               (479)
Prepaid expenses............................            (63,548)
                                                    -----------

Gain on disposition of real estate..........       $  1,861,448
                                                    ===========


Retirement of mortgage note.................                        (3,963,489)
Retirement of mortgage notes - affiliates...                        (1,331,000)
Accrued interest paid on retired notes......                          (146,111)
Real estate tax proration...................                           (38,368)
Credit for security deposit liability.......                           (22,325)
                                                                   -----------
Net cash proceeds...........................                      $  1,322,253
                                                                   ===========



<PAGE>

On March 31, 1995,  Wyoming Mall was sold to an unrelated third party for a cash
price of $9,250,000. The Partnership had a 50% undivided interest in the assets,
liabilities  and  operations  of Wyoming  Mall,  owned  jointly with McNeil Real
Estate  Fund  XXII,  L.P.  Cash  proceeds  and the loss on the  disposition  are
detailed below:

                                                   Gain on Sale   Cash Proceeds
                                                   ------------   -------------

Sales price.................................       $  4,625,000   $  4,625,000

Selling costs...............................           (234,838)       (96,088)
Mortgage note prepayment penalty............           (138,441)      (138,441)
Carrying value..............................         (4,325,663)
Accounts receivable.........................            (81,749)
Deferred borrowing costs....................            (49,910)
Prepaid expenses............................            (40,036)
                                                   ------------

Loss on disposition of real estate..........      $    (245,637)
                                                   ============


Retirement of mortgage note.................                        (3,452,337)
Payment of 1994 taxes at closing............                           (23,735)
Real estate tax proration...................                           (14,154)
Credit for security deposit liability.......                           (22,581)
                                                                   -----------
Net cash proceeds...........................                      $    877,664
                                                                   ===========


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

FINANCIAL CONDITION
-------------------

Net loss for the first  nine  months of 1996 was  $847,645  as  compared  to net
income of $146,752 for the same period in 1995.

On March 31, 1995,  Wyoming Mall was sold to an unrelated third party for a cash
price of $9,250,000. The Partnership had a 50% undivided interest in the assets,
liabilities  and  operations  of Wyoming  Mall,  owned  jointly with McNeil Real
Estate Fund XXII,  L.P. The  Partnership  received net cash proceeds of $877,664
from the sale of the property and recorded a loss on  disposition of real estate
of  $245,637.  The  Partnership  recorded  $256,873 of revenue  and  $268,760 of
expense for the first nine months of 1995 for Wyoming Mall.

Suburban  Plaza  was  sold to an  unrelated  third  party  for a cash  price  of
$6,910,000.  The  Partnership  received  net cash  proceeds  of  $1,322,253  and
recorded a gain on  disposition of real estate of  $1,861,448.  The  Partnership
recorded  $306,747 of revenue and  $328,237 of expense for the first nine months
of 1995 for Suburban Plaza.



<PAGE>
The Partnership's working capital needs have been supported by net proceeds from
the December  1993 sale of Hickory Lake  Apartments  and the March 1995 sales of
Suburban Plaza and Wyoming Mall and by deferring certain affiliate payables.

The Partnership  has had little ready cash reserves since its inception.  It has
been largely  dependent on  affiliates  to support its  operations.  Although no
additional  advances from  affiliates were required during the first nine months
of 1996,  at  September  30, 1996 the  Partnership  owed  affiliate  advances of
$720,544 and payables to affiliates for property  management  fees,  Partnership
general and administrative  expenses, asset management fees and disposition fees
totaling $4,083,881.

RESULTS OF OPERATIONS
---------------------

Revenue:

Rental  revenue  increased  by $83,551  for the three  months and  decreased  by
$253,842 for the nine months ended  September  30, 1996, as compared to the same
periods in 1995. The overall decrease was primarily due to the sales of Suburban
Plaza and  Wyoming  Mall,  which  contributed  rental  revenue of  approximately
$306,000 and $255,000, respectively, in the first nine months of 1995. Increased
occupancy at Bedford  Green  Apartments  and Wise County  Plaza,  and  increased
rental rates at Governour's  Square  partially offset the loss in rental revenue
from the sold properties.

During the first  nine  months of 1995,  the  partnership  recognized  a gain on
disposition  of real estate on Suburban  Plaza of  $1,861,448  and a loss on the
sale of Wyoming Mall of $245,637.

Expenses:

Total expenses  decreased by $158,643 and $881,665 for the three and nine months
ended September 30, 1996, respectively, as compared to the same periods in 1995.
The  decreases  in interest  expense,  depreciation  and  amortization  expense,
property taxes,  personnel costs and property  management fees are primarily due
to the sales of Suburban Plaza and Wyoming Mall in March 1995.

Interest -  affiliates  decreased  by $1,095 and  $75,554 for the three and nine
months ended September 30, 1996,  respectively,  as compared to the same periods
in 1995.  The decrease  was mainly due to the  repayment of $973,000 of advances
and  $1,331,000 of mortgage  notes payable from  affiliates in the first half of
1995.

Other  property  operating  expenses  decreased  by $63,114 and $126,149 for the
three and nine months ended September 30, 1996, respectively, as compared to the
same  periods in 1995.  The  decreases  were mainly due to the sales of Suburban
Plaza and Wyoming Mall, which incurred  approximately  $46,000 of other property
operating  expenses in the first nine months of 1995.  In addition,  Wise County
Plaza incurred  $18,000 to settle  litigation  with a tenant in 1995. All of the
properties  experienced a decrease in employee  training and marketing  costs in
1996.

General and administrative - affiliates decreased by $30,461 and $69,594 for the
three and nine months ended September 30, 1996, respectively, as compared to the
same periods in 1995.  The decrease was mainly due to a lower amount of overhead
expenses being allocated to the Partnership by McREMI.



<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

At  September  30,  1996,  the  Partnership  held cash and cash  equivalents  of
$1,629,136.

Cash of $298,826  was  provided by  operating  activities  during the first nine
months of 1996 as compared to $138,135  provided during the same period in 1995.
Cash received from tenants, cash paid to suppliers,  interest paid, and property
taxes paid  decreased  due to the sales of Suburban  Plaza and Wyoming  Mall. No
interest was received from affiliates during the first nine months of 1996 since
the previous advances of $300,000 to McNeil Real Estate Fund XXII, L.P. ("McNeil
XXII") for Wyoming Mall were paid off in 1995.  With the proceeds from the sales
of Suburban Plaza and Wyoming Mall, the  Partnership  was able to repay $973,000
of advances and  $1,331,000  of mortgage  notes  payable from  affiliates in the
first half of 1995,  thereby reducing the interest paid to affiliates during the
first half of 1996.

The Partnership received $2,199,917 of proceeds from the sales of Suburban Plaza
and  Wyoming  Mall  during  the first  nine  months of 1995.  Additionally,  the
Partnership received $300,000 in 1995 from McNeil XXII for repayment of previous
advances for Wyoming Mall.

Short-term liquidity

For  the  remainder  of  1996,  present  cash  balances  and  operations  of the
properties  are  expected  to  provide  sufficient  cash  for  normal  operating
expenses,   debt  service  payments  and  budgeted  capital  improvements.   The
Partnership has no established  lines of credit from outside  sources.  Although
affiliates of the Partnership have previously funded cash deficits, there can be
no assurance the  Partnership  will receive  additional  funds.  Other  possible
actions  to resolve  cash  deficiencies  include  refinancing,  deferring  major
capital  or  repair   expenditures  on  Partnership   properties   except  where
improvements are expected to enhance the  competitiveness  and  marketability of
the properties,  deferring payables to or arranging financing from affiliates or
the ultimate sale of other properties.

The General  Partner has  established a revolving  credit facility not to exceed
$5,000,000  in the aggregate  which is available on a "first-come  first-served"
basis  to  the  Partnership  and  other  affiliated  partnerships,   if  certain
conditions are met.  Borrowings  under the facility may be used to fund deferred
maintenance,  refinancing  obligations  and working  capital needs.  There is no
assurance  that the  Partnership  will  receive any  additional  funds under the
facility  because no amounts have been reserved for any particular  partnership.
As of September 30, 1996,  $4,082,159 remained available for borrowing under the
facility;  however,  additional  funds could be available as other  partnerships
repay existing  borrowings.  This  commitment  will terminate on March 26, 1997.
Additionally, the General Partner has, in its discretion,  advanced funds to the
Partnership in addition to the revolving credit facility. The General Partner is
not obligated to advance funds to the Partnership and there is no assurance that
the Partnership will receive additional funds.








<PAGE>
Long-term liquidity

Operations of the  Partnership's  properties are expected to provide  sufficient
cash flow for operating expenses, debt service payments and capital improvements
in the foreseeable  future. The Partnership has significant  mortgage maturities
during 1997,  and management  expects to refinance  these mortgage notes as they
mature.  If management is unable to refinance the mortgage notes as they mature;
the  Partnership  will require  other sources of cash. No such sources have been
identified.

These  conditions raise  substantial  doubt about the  Partnership's  ability to
continue  as a going  concern.  The  financial  statements  do not  include  any
adjustments that might result from the outcome of these uncertainties.

Distributions

To maintain adequate cash balances of the Partnership,  distributions to Current
Income Unit holders were suspended in 1989.  There have been no distributions to
Growth/Shelter  Units  holders.   Distributions  to  Unit  holders  will  remain
suspended  for the  foreseeable  future.  The General  Partner will  continue to
monitor  the cash  reserves  and working  capital  needs of the  Partnership  to
determine when cash flows will support distributions to the Unit holders.



<PAGE>


                           PART II. OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
-------  --------------------------------

(a)      Exhibits.

         Exhibit
         Number                     Description
         -------                    -----------
         4.                         Amended and  Restated  Limited   Partnership
                                    Agreement     dated    March    26,    1992.
                                    (Incorporated  by  reference  to the Current
                                    Report of the  Registrant  on Form 8-K dated
                                    March 26, 1992, as filed on April 9, 1992).

         11.                        Statement  regarding   computation  of   Net
                                    Income (Loss) per Limited  Partnership Unit:
                                    Net income  (loss) per  limited  partnership
                                    unit is  computed  by  dividing  net  income
                                    (loss)  allocated to the limited partners by
                                    the  weighted   average  number  of  limited
                                    partnership  units  outstanding.   Per  unit
                                    information   has  been  computed  based  on
                                    24,949 Current  Income Units  outstanding in
                                    1996  and  1995  and   22,339   and   22,359
                                    Growth/Shelter Units outstanding in 1996 and
                                    1995, respectively.

         27.                        Financial   Data  Schedule  for  the quarter
                                    ended September 30, 1996.


(b)      Reports on Form 8-K.  There were no reports  on  Form  8-K filed during
         the quarter ended September 30, 1996.



<PAGE>



                        MCNEIL REAL ESTATE FUND XXI, L.P.

                                   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:



                              McNEIL REAL ESTATE FUND XXI, L.P.

                                By: McNeil Partners, L.P., General Partner

                                    By: McNeil Investors, Inc., General Partner



November 14, 1996                       By:   /s/  Donald K. Reed
-----------------                          ------------------------------------
Date                                       Donald K. Reed
                                           President and Chief Executive Officer




November 14, 1996                       By:   /s/  Ron K. Taylor
-----------------                          ------------------------------------
Date                                       Ron K. Taylor
                                           Acting Chief Financial Officer of
                                             McNeil Investors, Inc.




November 14, 1996                       By:   /s/  Carol A. Fahs
-----------------                          -------------------------------------
Date                                       Carol A. Fahs
                                           Chief Accounting Officer of McNeil
                                             Real Estate Management, Inc.