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, 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>
                                                                       September 30,         December 31,
                                                                            1997                 1996
                                                                       ---------------      --------------
ASSETS
------

Real estate investments:
<S>                                                                    <C>                  <C>           
   Land.....................................................           $     3,240,113      $    3,240,113
   Buildings and improvements...............................                30,163,661          29,542,828
                                                                        --------------       -------------
                                                                            33,403,774          32,782,941
   Less:  Accumulated depreciation and amortization.........               (15,786,660)        (14,661,016)
                                                                        --------------       -------------
                                                                            17,617,114          18,121,925

Asset held for sale.........................................                 2,745,988           2,731,674
Cash and cash equivalents...................................                 1,719,793           1,670,843
Cash segregated for security deposits.......................                   198,481             167,645
Accounts receivable.........................................                   237,487             317,152
Escrow deposits.............................................                   516,908             425,750
Deferred borrowing costs, net of accumulated amortiz-
   ation of $203,483 and $153,724 at September 30,
   1997 and December 31, 1996, respectively.................                   382,918             432,677
Prepaid expenses and other assets...........................                    63,636              63,559
                                                                        --------------       -------------
                                                                       $    23,482,325      $   23,931,225
                                                                        ==============       =============

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

Mortgage notes payable, net.................................           $    21,595,273      $   21,780,275
Mortgage note payable - affiliate...........................                   733,900             733,900
Accounts payable and accrued expenses.......................                   288,922             282,667
Accrued property taxes......................................                   389,907             347,845
Payable to affiliates.......................................                 4,700,237           4,210,324
Advances from affiliates....................................                   779,875             735,253
Deferred gain on involuntary conversion.....................                         -              66,879
Security deposits and deferred rental revenue...............                   210,078             195,060
                                                                        --------------       -------------
                                                                            28,698,192          28,352,203
                                                                        --------------       -------------
Partners' deficit:
   Limited partners - 50,000 Units authorized; 47,086 and
     47,288 Units outstanding at September 30, 1997 and
     December  31, 1996,  respectively, (24,906 Current
     Income Units and 22,180 Growth/Shelter Units out-
     standing at September 30, 1997 and 24,949 Current
     Income Units and 22,339 Growth/Shelter Units
     outstanding at December 31,1996).......................                (4,846,096)         (4,059,156)
   General Partner..........................................                  (369,771)           (361,822)
                                                                        --------------       -------------
                                                                            (5,215,867)         (4,420,978)
                                                                        --------------       -------------
                                                                       $    23,482,325      $   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                     Nine Months Ended
                                                September 30,                        September 30,
                                      ---------------------------------    ---------------------------------
                                          1997               1996               1997                1996
                                      --------------    ---------------    --------------     --------------
Revenue:
<S>                                   <C>                <C>               <C>                <C>           
   Rental revenue................     $    1,633,807     $    1,608,613    $    4,855,619     $    4,807,997
   Interest......................             23,272             26,292            61,513             80,167
   Gain on involuntary
     conversion..................             39,846                  -            66,655                  -
                                       -------------      -------------     -------------      -------------
     Total revenue...............          1,696,925          1,634,905         4,983,787          4,888,164
                                       -------------      -------------     -------------      -------------

Expenses:
   Interest......................            483,810            514,231         1,503,455          1,499,211
   Interest - affiliates.........             30,579             30,182            90,537             90,027
   Depreciation and
     amortization................            372,320            410,925         1,125,644          1,219,510
   Property taxes................            135,339            125,608           406,017            370,744
   Personnel costs...............            214,682            187,992           596,134            563,345
   Utilities.....................            123,216            110,422           334,780            320,912
   Repairs and maintenance.......            191,082            187,333           581,204            538,871
   Property management
     fees - affiliates...........             85,888             82,623           252,172            249,970
   Other property operating
     expenses....................            112,146             83,788           310,802            284,720
   General and administrative....             28,995             21,670            91,301             66,871
   General and administrative -
     affiliates..................            165,682            163,274           486,630            531,628
                                       -------------      -------------     -------------      -------------
     Total expenses..............          1,943,739          1,918,048         5,778,676          5,735,809
                                       -------------      -------------     -------------      -------------

Net loss.........................     $     (246,814)    $     (283,143)   $     (794,889)    $     (847,645)
                                       =============      =============     =============      =============

Net loss allocable to limited
   partners - Current
   Income Unit...................     $      (22,213)    $      (25,483)   $      (71,540)    $      (76,288)
Net loss allocable to
   limited partners - Growth/
   Shelter Unit..................           (222,133)          (254,829)         (715,400)          (762,881)
Net loss allocable to
   General Partner...............             (2,468)            (2,831)           (7,949)            (8,476)
                                       -------------      -------------     -------------      -------------
Net loss.........................     $     (246,814)    $     (283,143)   $     (794,889)    $     (847,645)
                                       =============      =============     =============      =============

Net loss per limited partnership
   unit:
   Current Income Units..........     $         (.89)    $        (1.02)   $        (2.87)    $        (3.06)
                                       =============      =============     =============      =============

   Growth/Shelter Units..........     $       (10.02)    $       (11.41)   $       (32.25)    $       (34.15)
                                       =============      =============     =============      =============
</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, 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........................               (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)
                                                  =============           =============         =============


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

Net loss
   General Partner........................               (7,949)                      -                (7,949)
   Current Income Units...................                    -                 (71,540)              (71,540)
   Growth/Shelter Units...................                    -                (715,400)             (715,400)
                                                  -------------           -------------         -------------
Total net loss............................               (7,949)               (786,940)             (794,889)
                                                  -------------           -------------         -------------

Balance at September  30, 1997............       $     (369,771)         $   (4,846,096)       $   (5,215,867)
                                                  =============           =============         =============

</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,
                                                                -------------------------------------------
                                                                       1997                      1996
                                                                -------------------        ----------------

Cash flows from operating activities:
<S>                                                             <C>                        <C>            
   Cash received from tenants........................           $        4,807,668         $     4,770,881
   Cash paid to suppliers............................                   (1,938,994)             (1,797,377)
   Cash paid to affiliates...........................                     (248,889)               (915,695)
   Interest received.................................                       61,513                  80,167
   Interest paid.....................................                   (1,440,267)             (1,438,669)
   Interest paid to affiliates.......................                      (36,665)                (36,666)
   Property taxes paid...............................                     (420,636)               (363,815)
                                                                 -----------------          --------------
Net cash provided by operating activities............                      783,730                 298,826
                                                                 -----------------          --------------

Cash flows from investing activities:
   Net proceeds received from insurance
     company.........................................                      100,241                       -
   Additions to real estate investments..............                     (635,147)               (483,995)
                                                                 -----------------          --------------
Net cash used in investing activities................                     (534,906)               (483,995)
                                                                 -----------------          --------------

Cash flows from financing activities:
   Deferred borrowing costs paid.....................                            -                    (635)
   Principal payments on mortgage notes
     payable.........................................                     (199,874)               (183,361)
                                                                 -----------------          --------------
Net cash used in financing activities................                     (199,874)               (183,996)
                                                                 -----------------          --------------

Net increase (decrease) in cash and
   cash equivalents..................................                       48,950                (369,165)

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

Cash and cash equivalents at end of period...........           $        1,719,793         $     1,629,136
                                                                 =================          ==============

</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>
                                                                              Nine Months Ended
                                                                                September 30,
                                                                  -----------------------------------------
                                                                        1997                     1996
                                                                  -----------------        ----------------
<S>                                                               <C>                      <C>             
Net loss.............................................             $       (794,889)        $      (847,645)
                                                                   ---------------          --------------

Adjustments to reconcile net loss to net cash 
   provided by operating activities:
   Depreciation and amortization.....................                    1,125,644               1,219,510
   Amortization of deferred borrowing costs..........                       49,759                  47,757
   Amortization of discounts on mortgage
     notes payable...................................                       14,872                  14,108
   Accrued interest on advances from affiliates......                       44,622                       -
   Interest added to advances from affiliates,
     net of payments.................................                            -                  43,943
   Gain on involuntary conversion....................                      (66,655)                      -
   Changes in assets and liabilities:
     Cash segregated for security deposits...........                      (30,836)                (16,065)
     Accounts receivable.............................                      (20,800)                (43,583)
     Escrow deposits.................................                      (91,158)                 (6,916)
     Prepaid expenses and other assets...............                          (77)                 (8,345)
     Accounts payable and accrued expenses...........                        6,255                 (44,420)
     Accrued property taxes..........................                       42,062                  57,294
     Payable to affiliates...........................                      489,913                (134,097)
     Security deposits and deferred rental
       revenue.......................................                       15,018                  17,285
                                                                   ---------------          --------------

       Total adjustments.............................                    1,578,619               1,146,471
                                                                   ---------------          --------------

Net cash provided by operating activities............             $        783,730         $       298,826
                                                                   ===============          ==============

</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, 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 nine months ended September 30, 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.
-------

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

NOTE 4.
-------

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 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.  Total accrued but unpaid  Partnership
general and  administration  fees of $1,099,254 and $909,705 were outstanding at
September 30, 1997 and December 31, 1996, respectively.

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  $3,225,011  and
$2,927,930  were  outstanding  at  September  30, 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 September 30, 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 September 30, 1997 and December 31, 1996
consisted of the following:

                                                     September 30,  December 31,
                                                          1997          1996
                                                     -------------  ------------

Advances purchased by General Partner..............    $ 630,574    $  630,574
Accrued interest payable...........................      149,301       104,679
                                                        --------     ----------
                                                       $ 779,875    $  735,253
                                                        ========     ==========



<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,
                                                       ------------------------
                                                          1997         1996
                                                       ---------     ---------

Property management fees............................   $ 252,172     $ 249,970
Charged to interest - affiliates:
  Interest on advances from affiliates..............      44,622        43,943
  Interest on mortgage note payable - affiliate.....      45,915        46,084
Charged to general and administrative -affiliates:
  Partnership administration........................     189,549       230,765
  Asset management fee..............................     297,081       300,863
                                                        --------      --------
                                                       $ 829,339     $ 871,625
                                                        ========      ========

Payable to  affiliates  at September  30, 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 6.
-------

In October  1997,  the lender on the  Partnership's  mortgage  note payable to a
non-affiliate  secured by Fort Meigs Plaza  extended the maturity of the note to
December  15, 1997 from  October  15,  1997.  The  mortgage  note  payable to an
affiliate  matured on September 1, 1997 and the affiliate has verbally agreed to
extend  the  maturity  to  December  15,  1997.  The  Partnership  is  currently
attempting to refinance the mortgages.

The mortgage  notes  payable  secured by Wise County Plaza  matured on August 1,
1997. The Partnership is currently attempting to negotiate an extension with the
lender.

NOTE 7.
-------

On July 12 and September 5, 1996, Governour's Square Apartments suffered damages
from  two  separate  hurricanes.  Repairs  of  damages  totaling  $191,178  were
completed.  Reimbursements  for the repairs  totaling $40,937 were received from
the  insurance  carrier in 1996,  and $100,241 were  received  during 1997.  The
Partnership recognized a gain on involuntary conversion of $27,252 in the fourth
quarter of 1996 and $66,655 in the first nine months of 1997.  The total gain on
involuntary  conversion of $93,907  represents the insurance claims in excess of
the basis of the property damaged by the hurricanes.


<PAGE>
NOTE 8.
-------

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 was placed on the market for sale,  no  depreciation  was
taken effective October 1, 1996.

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 nine months of 1997 of $794,889 as compared to $847,645 for the first nine
months of 1996.  Revenues  increased to  $4,983,787  in 1997 from  $4,888,164 in
1996. Expenses were $5,778,676 in 1997 as compared to $5,735,809 in 1996.

Net cash provided by operating activities was $783,730 for the first nine months
of 1997. The Partnership expended $635,147 for capital improvements and $199,874
for principal payments on its mortgage notes payable.  The Partnership  received
$100,241 in proceeds from the insurance carrier for hurricane damage suffered at
Governour's  Square  Apartments in 1996. Cash and cash equivalents  increased by
$48,950 for the first nine months of 1997,  leaving a balance of  $1,719,793  at
September 30, 1997.

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 1997,  at  September  30, 1997 the  Partnership  owed  affiliate  advances of
$779,875 and payables to affiliates for property  management  fees,  Partnership
general and administrative  expenses, asset management fees and disposition fees
totaling $4,700,237.

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

Revenue:

Total  revenue  increased  by $62,020  and $95,623 for the three and nine months
ended September 30, 1997, respectively, as compared to the same periods in 1996.
The increase  was due to an increase in rental  revenue,  partially  offset by a
decrease in interest income,  as discussed  below. In addition,  the Partnership
recognized  a $66,655 gain on  involuntary  conversion  during 1997  relating to
hurricane  damage at  Governour's Square  Apartments,  as  discussed  in Item 1,
Note 7.







<PAGE>
Rental  revenue  increased  by $25,194 and $47,622 for the three and nine months
ended September 30, 1997, respectively, as compared to the same periods in 1996.
Rental revenue increased at Governour's Square, Bedford Green,  Breckenridge and
Woodcreek  apartments  due to increases in rental rates in 1997.  An increase in
average  occupancy  at  Fort  Meigs  Plaza  and  a  decrease  in  discounts  and
concessions  given to tenants at Wise County Plaza resulted in increased  rental
revenue at those properties. These increases were partially offset by a decrease
in rental revenue at Evergreen Square Apartments due to a decline in the average
occupancy  rate  in  1997.  In  addition,   in  1996  the  Partnership  received
approximately  $29,000  of  rental  revenue  relating  to  properties  which had
previously  been sold. No such income was received  during the first nine months
of 1997.

Interest  income  decreased  by $3,020 and $18,654 for the three and nine months
ended September 30, 1997, respectively, as compared to the same periods in 1996.
The Partnership had a greater amount of cash available for short-term investment
in the first seven months of 1996. In August 1996, the Partnership paid $700,000
in previously  accrued overhead  reimbursements  to McREMI,  which decreased the
amount of cash available for short-term  investment in 1997 and the last part of
1996.

Expenses:

Total  expenses  increased  by $25,691 and $42,867 for the three and nine months
ended September 30, 1997, respectively, as compared to the same periods in 1996.

General  and  administrative  expenses  for the  three  and  nine  months  ended
September 30, 1997 increased by $7,325 and $24,430, respectively, as compared to
the same periods in 1996.  Approximately  $15,000 of costs incurred for investor
services were paid to an unrelated third party in 1997. In the first nine months
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.

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

At  September  30,  1997,  the  Partnership  held cash and cash  equivalents  of
$1,719,793.

Cash of $783,730  was  provided by  operating  activities  during the first nine
months of 1997 as compared to $298,826  provided during the same period in 1996.
The increase in cash provided by operations in the first nine months of 1997 was
mainly the result of a decrease in cash paid to  affiliates  in 1997.  In August
1996,   the   Partnership   paid   $700,000  of  previously   accrued   overhead
reimbursements to McREMI.

In 1997,  the  Partnership  received  $100,241  in proceeds  from the  insurance
carrier for hurricane damage at Governour's  Square  Apartments in 1996. No such
proceeds were received in the first nine months of 1996.

Cash used for  additions  to real estate  investments  totaled  $635,147 for the
first nine months of 1997 as compared to $483,995 for the same period in 1996. A
greater  amount  was spent in 1997 for  landscaping  and  exterior  painting  at
Governour's Square Apartments due to hurricane damage sustained in 1996.




<PAGE>
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.  The mortgage
notes  payable  secured by Wise County  Plaza  matured on August 1, 1997 and the
Partnership  is currently  attempting to negotiate an extension with the lender.
The  mortgage  note payable - affiliate  secured by Fort Meigs Plaza  matured on
September 1, 1997. The maturity of the Fort Meigs Plaza mortgage note payable to
a  non-affiliate  was extended to December  1997 from October  1997.  Fort Meigs
Plaza is  currently  on the market for sale.  The  Partnership  will  attempt to
extend the maturity of the mortgages until the property can be sold.

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 or sell the property  securing the
loan.  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  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.

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 or sell the  property  securing  the  loan.  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 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.

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.  On
October  31,  1997,  the  Plaintiffs  filed a second  consolidated  and  amended
complaint.  Defendants intend to file a demurrer to the second  consolidated and
amended complaint on or before December 1, 1997.



<PAGE>



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 September 30, 1997.


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






November 13, 1997                 By:  /s/  Ron K. Taylor
-----------------                    -------------------------------------------
Date                                   Ron K. Taylor
                                       President and Director of McNeil 
                                        Investors, Inc.
                                       (Principal Financial Officer)




November 13, 1997                 By:  /s/  Carol A. Fahs
-----------------                    -------------------------------------------
Date                                   Carol A. Fahs
                                       Vice President of McNeil Investors, Inc.
                                       (Principal Accounting Officer)