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          March 31, 1997
                           -----------------------------------------------------


                                       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 600, 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>

                                                                          March 31,          December 31,
                                                                            1997                1996
                                                                       ---------------      --------------
ASSETS
------

Real estate investments:
<S>                                                                    <C>                  <C>           
   Land.....................................................           $     3,240,113      $    3,240,113
   Buildings and improvements...............................                29,609,240          29,542,828
                                                                        --------------       -------------
                                                                            32,849,353          32,782,941
   Less:  Accumulated depreciation and amortization.........               (15,027,239)        (14,661,016)
                                                                        --------------       -------------
                                                                            17,822,114          18,121,925

Asset held for sale.........................................                 2,737,706           2,731,674
Cash and cash equivalents...................................                 1,709,097           1,670,843
Cash segregated for security deposits.......................                   179,057             167,645
Accounts receivable.........................................                   327,957             317,152
Escrow deposits.............................................                   445,334             425,750
Deferred borrowing costs, net of accumulated amortiz-
   ation of $170,942 and $153,724 at March 31, 1997
   and December 31, 1996, respectively......................                   415,459             432,677
Prepaid expenses and other assets...........................                    86,633              63,559
                                                                        --------------       -------------
                                                                       $    23,723,357      $   23,931,225
                                                                        ==============       =============

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

Mortgage notes payable, net.................................           $    21,720,040      $   21,780,275
Mortgage note payable - affiliate...........................                   733,900             733,900
Accounts payable and accrued expenses.......................                   266,759             282,667
Accrued property taxes......................................                   326,927             347,845
Payable to affiliates.......................................                 4,367,686           4,210,324
Advances from affiliates....................................                   749,663             735,253
Deferred gain on involuntary conversion.....................                    66,879              66,879
Security deposits and deferred rental revenue...............                   204,120             195,060
                                                                        --------------       -------------
                                                                            28,435,974          28,352,203
                                                                        --------------       -------------
Partners' deficit:
   Limited partners - 50,000 Units authorized; 47,086 and
     47,288  Units outstanding at March 31, 1997 and
     December 31, 1996, respectively,  (24,906 Current 
     Income Units and 22,180  Growth/Shelter  Units
     outstanding at March 31, 1997 and 24,949  Current 
     Income Units and 22,339  Growth/Shelter  Units
     outstanding at December 31,1996).......................                (4,347,879)         (4,059,156)
   General Partner..........................................                  (364,738)           (361,822)
                                                                        --------------       -------------
                                                                            (4,712,617)         (4,420,978)
                                                                        --------------       -------------
                                                                       $    23,723,357      $   23,931,225
                                                                        ==============       =============
</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
                                                                                      March 31,
                                                                           ---------------------------------
                                                                                1997                1996
                                                                           --------------     --------------
Revenue:
<S>                                                                        <C>                <C>           
   Rental revenue ............................................             $    1,607,301     $    1,593,496
   Interest ...................................................                    18,501             22,049
                                                                            -------------       ------------
     Total revenue.............................................                 1,625,802          1,615,545
                                                                            -------------       ------------

Expenses:
   Interest....................................................                   513,851            513,916
   Interest - affiliates.......................................                    29,547             29,992
   Depreciation and amortization...............................                   366,223            402,714
   Property taxes..............................................                   135,339            119,691
   Personnel costs.............................................                   209,193            207,192
   Utilities...................................................                   115,312            113,082
   Repairs and maintenance.....................................                   178,765            176,105
   Property management fees -affiliates........................                    83,527             81,822
   Other property operating expenses...........................                   100,671            106,269
   General and administrative..................................                    27,414             15,943
   General and administrative - affiliates.....................                   157,599            181,307
                                                                            -------------      -------------
     Total expenses............................................                 1,917,441          1,948,033
                                                                            -------------      -------------

Net loss.......................................................            $     (291,639)    $     (332,488)
                                                                            =============      =============

Net loss allocable to limited partners -
   Current Income Unit.........................................            $      (26,248)    $      (29,923)
Net loss allocable to limited partners -
   Growth/Shelter Unit.........................................                  (262,475)          (299,239)
Net loss allocable to General Partner..........................                    (2,916)            (3,326)
                                                                            -------------     --------------
Net loss.......................................................            $     (291,639)    $     (332,488)
                                                                            =============      =============

Net loss per limited partnership unit:
Current Income Units...........................................            $        (1.05)    $        (1.20)
                                                                            =============      =============

Growth/Shelter Units...........................................            $       (11.83)    $       (13.40)
                                                                            =============      =============
</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 Three Months Ended March 31, 1997 and 1996

<TABLE>
<CAPTION>

                                                                                                  Total
                                                    General                 Limited               Partners'
                                                    Partner                 Partners              Deficit
                                                 ---------------         ---------------       ---------------
<S>                                              <C>                     <C>                   <C>            
Balance at December 31, 1995..............       $     (350,551)         $   (2,943,347)       $   (3,293,898)

Net loss
   General Partner........................               (3,326)                      -                (3,326)
   Current Income Units...................                    -                 (29,923)              (29,923)
   Growth/Shelter Units...................                    -                (299,239)             (299,239)
                                                  -------------           -------------         -------------
Total net loss............................               (3,326)               (329,162)             (332,488)
                                                  -------------           -------------         -------------

Balance at March 31, 1996.................       $     (353,877)         $   (3,272,509)       $   (3,626,386)
                                                  =============           =============         =============


Balance at December 31, 1996..............       $     (361,822)         $   (4,059,156)       $   (4,420,978)

Net loss
   General Partner........................               (2,916)                      -                (2,916)
   Current Income Units...................                    -                 (26,248)              (26,248)
   Growth/Shelter Units...................                    -                (262,475)             (262,475)
                                                  -------------           -------------         -------------
Total net loss............................               (2,916)               (288,723)             (291,639)
                                                  -------------           -------------         -------------

Balance at March 31, 1997.................       $     (364,738)         $   (4,347,879)       $   (4,712,617)
                                                  =============           =============         =============

</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 in Cash and Cash Equivalents

<TABLE>
<CAPTION>
                                                                            Three Months Ended
                                                                                 March 31,
                                                                -------------------------------------------
                                                                        1997                      1996
                                                                -------------------        ----------------

Cash flows from operating activities:
<S>                                                             <C>                        <C>            
   Cash received from tenants........................           $        1,586,353         $     1,613,389
   Cash paid to suppliers............................                     (676,100)               (585,662)
   Cash paid to affiliates...........................                      (83,764)                (80,827)
   Interest received.................................                       18,501                  22,049
   Interest paid.....................................                     (492,145)               (433,560)
   Interest paid to affiliates.......................                      (12,221)                (50,886)
   Property taxes paid...............................                     (164,733)               (107,866)
                                                                 -----------------          --------------
Net cash provided by operating activities............                      175,891                 376,637
                                                                 -----------------          --------------

Cash flows from investing activities:
   Additions to real estate investments..............                      (72,444)               (106,643)
                                                                 -----------------          --------------

Cash flows from financing activities:
   Principal payments on mortgage notes
     payable.........................................                      (65,193)                (59,810)
                                                                 -----------------          --------------

Net increase in cash and cash equivalents............                       38,254                 210,184

Cash and cash equivalents at beginning of
   period............................................                    1,670,843               1,998,301
                                                                 -----------------          --------------

Cash and cash equivalents at end of period...........           $        1,709,097         $     2,208,485
                                                                 =================          ==============
</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 Loss to Net Cash Provided by
                              Operating Activities

<TABLE>
<CAPTION>
                                                                            Three Months Ended
                                                                                 March 31,
                                                                  -----------------------------------------
                                                                        1997                     1996
                                                                  -----------------        ----------------
<S>                                                               <C>                      <C>             
Net loss.............................................             $       (291,639)        $      (332,488)
                                                                   ---------------          --------------

Adjustments to reconcile net loss to net cash 
   provided by operating activities:
   Depreciation and amortization.....................                      366,223                 402,714
   Amortization of deferred borrowing costs..........                       17,218                  15,919
   Amortization of discounts on mortgage
     notes payable...................................                        4,958                   4,704
   Accrued interest on advances from affiliates......                       14,410                  14,686
   Changes in assets and liabilities:
     Cash segregated for security deposits...........                      (11,412)                  8,011
     Accounts receivable.............................                      (10,805)                  3,296
     Escrow deposits.................................                      (19,584)                 82,134
     Prepaid expenses and other assets...............                      (23,074)                    597
     Accounts payable and accrued expenses...........                      (15,908)                  6,046
     Accrued property taxes..........................                      (20,918)                (25,463)
     Payable to affiliates...........................                      157,362                 182,302
     Security deposits and deferred rental
       revenue.......................................                        9,060                  14,179
                                                                   ---------------          --------------

       Total adjustments.............................                      467,530                 709,125
                                                                   ---------------          --------------

Net cash provided by operating activities............             $        175,891         $       376,637
                                                                   ===============          ==============
</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)

                                 March 31, 1997

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 600, 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 three months ended March 31, 1997 are
not  necessarily  indicative  of the results to be expected  for the year ending
December 31, 1997.

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,  1996,  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 The Herman  Group,  2121 San Jacinto
St., 26th Floor, Dallas, Texas 75201.

NOTE 3.
-------

The  accompanying  financial  statements  have been  prepared  assuming that the
Partnership  will continue as a going concern.  The Partnership has had to defer
payment of payables to  affiliates in order to meet its working  capital  needs.
Additionally,  in 1997, the mortgage notes payable  secured by Wise County Plaza
and Fort Meigs Plaza mature.  The mortgage  note payable - affiliate  secured by
Fort Meigs Plaza also matures in 1997. In addition to regularly  scheduled  debt
service payments,  balloon payments totaling  approximately $9.7 million are due
in 1997.  Management  expects to refinance  these mortgage notes as they mature.
However, 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.  The financial  statements do not include any adjustments that might
result from the outcome of these uncertainties.








<PAGE>
NOTE 4.
-------

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  $3,024,934  and
$2,927,930   were   outstanding  at  March  31,  1997  and  December  31,  1996,
respectively.

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 March 31, 1997 and December 31, 1996.

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 March 31, 1997 and  December  31, 1996
consisted of the following:

                                                      March 31,     December 31,
                                                         1997           1996
                                                      ----------    ------------

Advances purchased by General Partner..............   $  630,574    $  630,574
Accrued interest payable...........................      119,089       104,679
                                                       ---------     ---------
                                                      $  749,663    $  735,253
                                                       =========     =========





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

                                                        Three Months Ended
                                                             March 31,
                                                      ------------------------
                                                         1997          1996
                                                      ----------    ----------

Property management fees...........................   $   83,527    $   81,822
Charged to interest - affiliates:
  Interest on advances from affiliates..............      14,410        14,687
  Interest on mortgage note payable - affiliate.....      15,137        15,305
Charged to general and administrative -affiliates:
   Partnership administration.......................      60,595        83,647
   Asset management fee.............................      97,004        97,660
                                                       ---------     ---------
                                                      $  270,673    $  293,121
                                                       =========     =========

Payable  to  affiliates  at March  31,  1997 and  December  31,  1996  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 5.
-------

In March 1997, the lender on the Partnership's  $733,900 mortgage note payable -
affiliate  secured by Fort Meigs  Plaza  extended  the  maturity  of the note to
September 1, 1997 from April 1, 1997.


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

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

There has been no  significant  change in the  operations  of the  Partnership's
properties since December 31, 1996. The Partnership  reported a net loss for the
first three  months of 1997 of  $291,639  as compared to $332,488  for the first
three  months  of 1996.  Revenues  were  $1,625,802  in  1997,  as  compared  to
$1,615,545  for the same period in 1996.  Expenses  decreased to  $1,917,441  in
1997, from $1,948,033 in 1996.

Net cash  provided by  operating  activities  was  $175,891  for the first three
months of 1997. The Partnership  expended  $72,444 for capital  improvements and
$65,193 for  principal  payments on its mortgage  notes  payable.  Cash and cash
equivalents  increased by $38,254 for the first three months of 1997,  leaving a
balance of $1,709,097 at March 31, 1997.





<PAGE>
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 three months
of 1997, at March 31, 1997 the Partnership  owed affiliate  advances of $749,663
and payables to affiliates for property management fees, Partnership general and
administrative  expenses,  asset  management fees and disposition  fees totaling
$4,367,686.

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

Revenue:

Total  revenue  increased  by  $10,257  for the  first  three  months of 1997 as
compared to the first three months of 1996.  The increase was due to an increase
in rental  revenue,  partially  offset by a  decrease  in  interest  income,  as
discussed below.

Rental revenue increased by $13,805 for the three months ended March 31, 1997 as
compared to the same period in 1996. Rental revenue for all properties increased
slightly during the first quarter of 1997, except at Evergreen Square Apartments
where rental revenue decreased  slightly due to a decline in occupancy to 83% at
the end of March 1997 from 90% at the end of March 1996.  In  addition,  in 1996
the Partnership received  approximately  $18,000 of rental revenue relating to a
property which had previously  been sold. No such income was received during the
first three months of 1997.

Interest income decreased by $3,548 for the three months ended March 31, 1997 as
compared to the same period in 1996 due to a lower amount of cash  available for
short-term  investment in 1997.  The  Partnership  held $1.7 million of cash and
cash  equivalents  at March 31, 1997 as  compared  to $2.2  million at March 31,
1996.

Expenses:

Total  expenses  decreased  by  $30,592  for the first  three  months of 1997 as
compared to the same period in 1996.  The  decrease was mainly due to a decrease
in general and  administrative - affiliates,  partially offset by an increase in
property taxes and general and administrative expenses, as discussed below.

Property taxes increased by $15,648 for the three months ended March 31, 1997 as
compared to the same period in 1996. The increase was partially due to increased
property taxes at Woodcreek and Evergreen  Square  Apartments.  In addition,  in
1996 the  Partnership  received an  approximately  $5,700 refund of prior years'
property taxes relating to Bedford Green Apartments. No such refund was received
in the first quarter of 1997.

General and administrative expenses for the first three months of 1997 increased
by $11,471 as compared to the same period in 1996.  Costs  incurred for investor
services were paid to an unrelated  third party in 1997. In the first quarter of
1996,  such costs were paid to an  affiliate  of the  General  Partner  and were
included  in general  and  administrative  -  affiliates  on the  Statements  of
Operations.






<PAGE>
General  and  administrative  -  affiliates  decreased  by $23,708 for the three
months ended March 31, 1997 as compared to the same period in 1996. The decrease
was mainly due to a decrease in overhead  expenses  allocated to the Partnership
by McREMI,  which was partially due to investor  services being  performed by an
unrelated  third party in 1997,  as  discussed  above.  In addition  there was a
slight  decrease  in asset  management  fees as a result  of a  decrease  in the
tangible asset value of the Partnership, on which the fees are based.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

At March 31, 1997, the Partnership held cash and cash equivalents of $1,709,097.

Cash of $175,891  was provided by  operating  activities  during the first three
months of 1997 as compared to $376,637  provided during the same period in 1996.
The decrease in cash  provided by  operations  in the first  quarter of 1997 was
mainly the result of an increase in cash paid to  suppliers,  interest  paid and
property taxes paid due to the timing of the payment of invoices.

Cash used for additions to real estate investments totaled $72,444 for the first
three  months of 1997 as  compared to  $106,643  for the same period in 1996.  A
greater amount was spent in the first quarter of 1996 for  replacement of siding
at Governour's Square Apartments.

Short-term liquidity

For  the  remainder  of  1997,  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.  In 1997, the
mortgage notes payable secured by Wise County Plaza and Fort Meigs Plaza mature.
The mortgage note payable affiliate secured by Fort Meigs Plaza matured on April
1, 1997 and the  maturity  was  extended  to  September,  1997.  In  addition to
regularly   scheduled  debt  service   payments,   balloon   payments   totaling
approximately  $9.7  million are due in 1997.  Management  expects to  refinance
these  mortgage  notes as they  mature.  However,  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.  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
Partnership properties.

Long-term liquidity

The Partnership  determined to evaluate market and other economic  conditions to
establish  the  optimum  time  to  commence  an  orderly   liquidation   of  the
Partnership's  assets in  accordance  with the terms of the Amended  Partnership
Agreement.  Taking such conditions as well as other pertinent  information  into
account,  the Partnership has determined to begin orderly liquidation of all its
assets.  Although there can be no assurance as to the timing of the  liquidation
due to real estate  market  conditions,  the general  difficulty of disposing of
real estate,  and other general  economic  factors,  it is anticipated that such
liquidation  would result in the  dissolution of the  Partnership  followed by a
liquidating  distribution  to the limited  partners by  December  2001.  In this
regard, the Partnership has placed Fort Meigs Plaza on the market for sale.
<PAGE>

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.

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
-------  -----------------

James F.  Schofield,  Gerald C. Gillett,  Donna S. Gillett,  Jeffrey  Homburger,
Elizabeth Jung,  Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors,  Inc., McNeil Real Estate Management,  Inc., Robert A. McNeil,
Carole J. McNeil,  McNeil Pacific  Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX,  Ltd.,  McNeil Real  Estate  Fund X, Ltd.,  McNeil Real Estate Fund XI,
Ltd.,  McNeil  Real Estate Fund XII,  Ltd.,  McNeil Real Estate Fund XIV,  Ltd.,
McNeil Real Estate Fund XV, Ltd.,  McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P.,  McNeil Real Estate Fund XXII,  L.P.,  McNeil Real Estate
Fund XXIV,  L.P.,  McNeil Real Estate  Fund XXV,  L.P.,  McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII,  L.P., et al. - Superior Court of
the State of California for the County of Los Angeles,  Case No. BC133799 (Class
and Derivative Action Complaint).

The action involves  purported  class and derivative  actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the  "Partnerships").  Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management,  Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their  fiduciary  duties and certain  obligations  under the respective  Amended
Partnership  Agreement.  Plaintiffs  allege that  Defendants  have rendered such
Units highly illiquid and  artificially  depressed the prices that are available
for Units on the resale market.  Plaintiffs also allege that Defendants  engaged
in a course of conduct to prevent the  acquisition  of Units by an  affiliate of
Carl  Icahn  by  disseminating  purportedly  false,  misleading  and  inadequate
information.  Plaintiffs  further allege that Defendants  acted to advance their
own personal  interests at the expense of the Partnerships'  public unit holders
by failing to sell Partnership  properties and failing to make  distributions to
unitholders.




<PAGE>

On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs  are suing for breach of  fiduciary  duty,  breach of contract and an
accounting,  alleging,  among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive,  that these fees should
be reduced retroactively and that the respective Amended Partnership  Agreements
governing the Partnerships are invalid.

Defendants  filed a demurrer to the  consolidated  and amended  complaint  and a
motion to strike on February 14, 1997,  seeking to dismiss the  consolidated and
amended complaint in all respects.  A hearing on Defendant's demurrer and motion
to strike  was held on May 5,  1997.  The Court  granted  Defendants'  demurrer,
dismissing  the  consolidated  and  amended   complaint  with  leave  to  amend.
Plaintiffs  have until May 27, 1997 to file a second amended  complaint,  unless
otherwise agreed to by the parties.

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
                                    24,906  and  24,949   Current  Income  Units
                                    outstanding in 1997 and 1996,  respectively,
                                    and 22,180 and 22,339  Growth/Shelter  Units
                                    outstanding in 1997 and 1996, respectively.

         27.                        Financial   Data  Schedule for  the  quarter
                                    ended March 31, 1997.


(b)      Reports  on  Form  8-K.  There were no reports on Form 8-K filed during
         the quarter ended March 31, 1997.



<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






May 14, 1997                       By:  /s/  Ron K. Taylor
--------------                        ------------------------------------------
Date                                    Ron K. Taylor
                                        President and Director of McNeil 
                                         Investors, Inc.
                                        (Principal Financial Officer)




May 14, 1997                       By:  /s/  Carol A. Fahs
--------------                        ------------------------------------------
Date                                    Carol A. Fahs
                                        Vice President of McNeil Investors, Inc.
                                        (Principal Accounting Officer)