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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q



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(Mark one)



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

For the quarterly period ended March 31, 2006 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 0-25606



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WELLS REAL ESTATE FUND VII, L.P.

(Exact name of registrant as specified in
its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Georgia                                                        |  | 58-2022629                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|6200 The Corners Pkwy., Norcross, Georgia                      |  | 30092-3365                             
|(Address of principal executive offices)                       |  | (Zip Code)                             
|                                                               | 
|Registrants telephone number, including area code             |  | (770) 449-7800                         

N/A

(Former name, former address, and former fiscal year, if changed since last report)

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 (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Wells Real Estate Fund VII, L.P. (the Partnership) other than historical facts may be considered
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, in particular, statements about our plans, strategies, and
prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a
guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as may, will, expect, intend,
anticipate, estimate, believe, continue, or other similar words. Specifically, we consider, among others, statements concerning future operating results and cash flows, our ability to meet future
obligations, and the amount and timing of any future distributions to limited partners to be forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this
report is filed with the Securities and Exchange Commission. We make no representations or warranties (express or implied) about the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update
or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Any such forward-looking statements are
subject to unknown risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or
impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, provide dividends to
stockholders, and maintain the value of our real estate properties, may be significantly hindered. See Item 1A in the Partnerships Annual Report on Form 10-K for the year ended December 31, 005 for a discussion of some of the risks
and uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in our forward-looking statements.



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WELLS REAL ESTATE FUND VII, L.P.

TABLE OF CONTENTS



|         |  |                       |  |                                                                                                                            |  |         
|-------- |  | --------------------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                       |  |                                                                                                                            |  | Page No.
|         |  |                      
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                           
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                                                       |  |         
|         |  |                       | 
|         |  |                       |  | Balance SheetsMarch 31, 2006 (unaudited) and December 31, 2005                                                            |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months Ended March 31, 2006 (unaudited) and 2005 (unaudited)                        |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2005 and the Three Months Ended March 31, 2006 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Three Months Ended March 31, 2006 (unaudited) and 2005 (unaudited)                        |  | 8       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Financial Statements (unaudited)                                                                        |  | 9       
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                      |  | 16      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                                 |  | 21      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                    |  | 21      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                           
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                          |  | 22      
|         |  |                       | 
|         |  | Item 1A.              |  | Risk Factors                                                                                                               |  | 22      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                |  | 22      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                            |  | 22      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                        |  | 22      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                          |  | 22      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                   |  | 22      



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PART I.    FINANCIAL STATEMENTS

The information furnished in the Partnerships accompanying balance
sheets and consolidated statements of operations, partners capital, and cash flows reflects all adjustments that are, in managements opinion, necessary for a fair and consistent presentation of the aforementioned financial statements.

The accompanying financial statements should be read in conjunction with the notes to the Partnerships financial statements and Managements
Discussion and Analysis of Financial Condition and Results of Operations included both in this report on Form 10-Q and in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2005. The Partnerships results of
operations for the three months ended March 31, 2006 are not necessarily indicative of the operating results expected for the full year.



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WELLS REAL ESTATE FUND VII, L.P.



BALANCE SHEETS

ASSETS



|                             |  |                            |           |                   |   |          
|---------------------------- |  | -------------------------- | --------- | ----------------- | - | ---------
|                             |  | (Unaudited) March 31, 2006 |           | December 31, 2005
|Investment in joint ventures |  | $                          | 2,082,109 |                   | $ | 2,050,867
|Cash and cash equivalents    |  |                            | 3,544,860 |                   |   | 3,507,960
|Due from joint ventures      |  |                            | 5,545     |                   |   | 39,159   
|Other assets                 |  |                            | 12,504    |                   |   | 498      
|                             |  |                            |           |                   |   |          
|Total assets                 |  | $                          | 5,645,018 |                   | $ | 5,598,484
|                             |  |                            |           |                   |   |          

LIABILITIES AND PARTNERS CAPITAL



|                                                 |  |   |           |  |   |          
|------------------------------------------------ |  | - | --------- |  | - | ---------
|Liabilities:                                     |  |   |           |  |   |          
|Accounts payable and accrued expenses            |  | $ | 62,883    |  | $ | 57,073   
|Due to affiliates                                |  |   | 5,844     |  |   | 8,402    
|                                                 |  |   |           |  |   |          
|Total liabilities                                |  |   | 68,727    |  |   | 65,475   
|                                                 |  |  
|Partners capital:                               |  |   |           |  |   |          
|Limited partners:                                |  |   |           |  |   |          
|Class A  2,156,298 units issued and outstanding |  |   | 4,130,640 |  |   | 4,055,781
|Class B  261,719 units issued and outstanding   |  |   | 1,445,219 |  |   | 1,477,228
|General partners                                 |  |   | 432       |  |   | 0        
|                                                 |  |   |           |  |   |          
|Total partners capital                          |  |   | 5,576,291 |  |   | 5,533,009
|                                                 |  |   |           |  |   |          
|Total liabilities and partners capital          |  | $ | 5,645,018 |  | $ | 5,598,484
|                                                 |  |   |           |  |   |          

See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.



STATEMENTS OF OPERATIONS



|                                                             |  |                                          |           |   |      |   |           |  
|------------------------------------------------------------ |  | ---------------------------------------- | --------- | - | ---- | - | --------- | -
|                                                             |  | (Unaudited) Three Months Ended March 31, |          
|                                                             |  | 2006                                     |           |   | 2005 |  
|                                                             |  |                                         
|EQUITY IN INCOME OF JOINT VENTURES                           |  | $                                        | 56,827    |   |      | $ | 89,965    |  
|                                                             |  |                                         
|EXPENSES:                                                    |  |                                          |           |   |      |   |           |  
|Partnership administration                                   |  |                                          | 33,305    |   |      |   | 31,609    |  
|Legal and accounting                                         |  |                                          | 18,841    |   |      |   | 13,307    |  
|                                                             |  |                                          |           |   |      |   |           |  
|Total expenses                                               |  |                                          | 52,146    |   |      |   | 44,916    |  
|                                                             |  |                                         
|INTEREST AND OTHER INCOME                                    |  |                                          | 38,601    |   |      |   | 27,769    |  
|                                                             |  |                                          |           |   |      |   |           |  
|NET INCOME                                                   |  | $                                        | 43,282    |   |      | $ | 72,818    |  
|                                                             |  |                                          |           |   |      |   |           |  
|                                                             |  |                                         
|NET INCOME (LOSS) ALLOCATED TO:                              |  |                                          |           |   |      |   |           |  
|CLASS A LIMITED PARTNERS                                     |  | $                                        | 74,859    |   |      | $ | 134,110   |  
|                                                             |  |                                          |           |   |      |   |           |  
|CLASS B LIMITED PARTNERS                                     |  | $                                        | (32,009   | ) |      | $ | (61,292   | )
|                                                             |  |                                          |           |   |      |   |           |  
|GENERAL PARTNERS                                             |  | $                                        | 432       |   |      | $ | 0         |  
|                                                             |  |                                          |           |   |      |   |           |  
|                                                             |  |                                         
|NET INCOME (LOSS) PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT: |  |                                          |           |   |      |   |           |  
|CLASS A                                                      |  | $                                        | 0.03      |   |      | $ | 0.06      |  
|                                                             |  |                                          |           |   |      |   |           |  
|CLASS B                                                      |  | $                                        | (0.12     | ) |      | $ | (0.23     | )
|                                                             |  |                                          |           |   |      |   |           |  
|                                                             |  |                                         
|WEIGHTED-AVERAGE LIMITED PARTNER UNITS OUTSTANDING:          |  |                                          |           |   |      |   |           |  
|CLASS A                                                      |  |                                          | 2,156,298 |   |      |   | 2,152,348 |  
|                                                             |  |                                          |           |   |      |   |           |  
|CLASS B                                                      |  |                                          | 261,719   |   |      |   | 265,669   |  
|                                                             |  |                                          |           |   |      |   |           |  

See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.



STATEMENTS OF PARTNERS CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2005

AND THE THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)



|                                                                                                                      |  |                  |  |        |                 |   |                        |         |   |        |   |            |   |  |   |     |  |   |             |  
|--------------------------------------------------------------------------------------------------------------------- |  | ---------------- |  | ------ | --------------- | - | ---------------------- | ------- | - | ------ | - | ---------- | - |  | - | --- |  | - | ----------- | -
|                                                                                                                      |  | Limited Partners |  |        | GeneralPartners |   | Total PartnersCapital |        
|                                                                                                                      |  | Class A          |  |        | Class B         |   |                        |        
|                                                                                                                      |  | Units            |  | Amount |                 |   | Units                  |         |   | Amount |   |            |  
|BALANCE, DECEMBER 31, 2004                                                                                            |  | 2,147,148        |  | $      | 12,916,741      |   |                        | 270,869 |   |        | $ | 507,760    |   |  | $ | 0   |  | $ | 13,424,501  |  
|                                                                                                                      |  |                  |  |        |                 |  
|Class B conversion elections                                                                                          |  | 9,150            |  |        | 22,415          |   |                        | (9,150  | ) |        |   | (22,415    | ) |  |   | 0   |  |   | 0           |  
|Net income                                                                                                            |  | 0                |  |        | 1,296,095       |   |                        | 0       |   |        |   | 2,262,412  |   |  |   | 0   |  |   | 3,558,507   |  
|Distributions of net sale proceeds ($4.73 and $4.82 per weighted-average Class A Unit and Class B Unit,
respectively) |  | 0                |  |        | (10,179,470     | ) |                        | 0       |   |        |   | (1,270,529 | ) |  |   | 0   |  |   | (11,449,999 | )
|                                                                                                                      |  |                  |  |        |                 |   |                        |         |   |        |   |            |   |  |   |     |  |   |             |  
|BALANCE, DECEMBER 31, 2005                                                                                            |  | 2,156,298        |  |        | 4,055,781       |   |                        | 261,719 |   |        |   | 1,477,228  |   |  |   | 0   |  |   | 5,533,009   |  
|                                                                                                                      |  |                  |  |        |                 |  
|Net income (loss)                                                                                                     |  | 0                |  |        | 74,859          |   |                        | 0       |   |        |   | (32,009    | ) |  |   | 432 |  |   | 43,282      |  
|                                                                                                                      |  |                  |  |        |                 |   |                        |         |   |        |   |            |   |  |   |     |  |   |             |  
|BALANCE, MARCH 31, 2006                                                                                               |  | 2,156,298        |  | $      | 4,130,640       |   |                        | 261,719 |   |        | $ | 1,445,219  |   |  | $ | 432 |  | $ | 5,576,291   |  
|                                                                                                                      |  |                  |  |        |                 |   |                        |         |   |        |   |            |   |  |   |     |  |   |             |  

See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.



STATEMENTS OF CASH FLOWS



|                                                                                  |  |                                         |           |   |      |   |           |  
|--------------------------------------------------------------------------------- |  | --------------------------------------- | --------- | - | ---- | - | --------- | -
|                                                                                  |  | (Unaudited) Three Months EndedMarch 31, |          
|                                                                                  |  | 2006                                    |           |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                                         |           |   |      |   |           |  
|Net income                                                                        |  | $                                       | 43,282    |   |      | $ | 72,818    |  
|Operating distributions received from joint ventures                              |  |                                         | 39,159    |   |      |   | 220,599   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                         |           |   |      |   |           |  
|Equity in income of joint ventures                                                |  |                                         | (56,827   | ) |      |   | (89,965   | )
|Operating changes in assets and liabilities:                                      |  |                                         |           |   |      |   |           |  
|Increase in other assets                                                          |  |                                         | (12,006   | ) |      |   | 0         |  
|Increase in accounts payable and accrued expenses                                 |  |                                         | 5,810     |   |      |   | 1,798     |  
|(Decrease) increase in due to affiliates                                          |  |                                         | (2,558    | ) |      |   | 1,705     |  
|                                                                                  |  |                                         |           |   |      |   |           |  
|Net cash provided by operating activities                                         |  |                                         | 16,860    |   |      |   | 206,955   |  
|                                                                                  |  |                                        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                                         |           |   |      |   |           |  
|Investment in joint ventures                                                      |  |                                         | 0         |   |      |   | (164,191  | )
|Net sale proceeds received from joint ventures                                    |  |                                         | 20,040    |   |      |   | 4,140,689 |  
|                                                                                  |  |                                         |           |   |      |   |           |  
|Net cash provided by investing activities                                         |  |                                         | 20,040    |   |      |   | 3,976,498 |  
|                                                                                  |  |                                         |           |   |      |   |           |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                         |  |                                         | 36,900    |   |      |   | 4,183,453 |  
|                                                                                  |  |                                        
|CASH AND CASH EQUIVALENTS, beginning of period                                    |  |                                         | 3,507,960 |   |      |   | 3,884,551 |  
|                                                                                  |  |                                         |           |   |      |   |           |  
|CASH AND CASH EQUIVALENTS, end of period                                          |  | $                                       | 3,544,860 |   |      | $ | 8,068,004 |  
|                                                                                  |  |                                         |           |   |      |   |           |  

See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.

CONDENSED NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2006 (unaudited)



|1. | ORGANIZATION AND BUSINESS
|-- | -------------------------

Wells Real Estate Fund VII, L.P.
(the Partnership) is a Georgia public limited partnership, with Leo F. Wells, III and Wells Partners, L.P. (Wells Partners), a Georgia nonpublic limited partnership, serving as its general partners (collectively, the
General Partners). Wells Capital, Inc. (Wells Capital) serves as the corporate general partner of Wells Partners. Wells Capital is a wholly owned subsidiary of Wells Real Estate Funds, Inc. Leo F. Wells, III is the president
and sole director of Wells Capital and the president, sole director, and sole owner of Wells Real Estate Funds, Inc. The Partnership was formed on December 1, 1992 for the purpose of acquiring, developing, owning, operating, improving, leasing,
and managing income-producing commercial properties for investment purposes. Upon subscription, limited partners elected to have their units treated as Class A Units or Class B Units. Limited partners have the right to change their prior
elections to have some or all of their units treated as Class A Units or Class B Units one time during each annual accounting period. Limited partners may vote to, among other things: (a) amend the partnership agreement, subject to certain
limitations; (b) change the business purpose or investment objectives of the Partnership; and (c) add or remove a general partner. A majority vote on any of the above-described matters will bind the Partnership, without the concurrence of
the General Partners. Each limited partnership unit has equal voting rights, regardless of class.

On April 6, 1994, the Partnership commenced an
offering of up to $25,000,000 of Class A or Class B limited partnership units pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933. The Partnership commenced active operations upon receiving and
accepting subscriptions for 125,000 units on April 26, 1994. The offering was terminated on January 5, 1995, at which time the Partnership had sold approximately 1,678,810 Class A Units and 739,207 Class B Units representing capital
contributions of $24,180,174.

The Partnership owns interests in all of its real estate assets through joint ventures with other entities affiliated with
the General Partners. During the periods presented, the Partnership owned interests in the following joint ventures (the Joint Ventures) and properties:



|                                                                           |  |                                                                                                                                        |  |                                                                                                                                                                                      
|-------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Joint Venture                                                              |  | Joint Venture Partners                                                                                                                 |  | Properties                                                                                                                                                                           
|Fund II, III, VI and VII Associates (Fund II-III-VI-VII Associates)      |  |   Fund II and Fund III Associates(Fund
II-III Associates)(1)   Wells Real Estate Fund VI, L.P.   Wells Real Estate Fund VII, L.P. |  | No properties owned during the periods presented                                                                                                                                     
|Fund V, Fund VI and Fund VII Associates (Fund V-VI-VII Associates)       |  |   Wells Real Estate Fund V, L.P.   Wells Real Estate Fund VI, L.P.   Wells Real Estate Fund VII, L.P.                               |  | No properties owned during the periods presented                                                                                                                                     
|Fund VI and Fund VII Associates (Fund VI-VII Associates)                 |  |   Wells Real Estate Fund VI, L.P.   Wells Real Estate Fund VII, L.P.                                                                 |  | No properties owned during the periods presented                                                                                                                                     
|Fund VI, Fund VII and Fund VIII Associates (Fund VI-VII-VIII Associates) |  |   Wells Real Estate Fund VI, L.P.   Wells Real Estate Fund VII, L.P.   Wells Real Estate Fund VIII, L.P.                            |  | 1. BellSouth Building A four-story office building located in Jacksonville, Florida 2. Tanglewood Commons(2) A retail center in Clemmons, North Carolina, and four outparcels of
land



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|                                                               |  |                                                                          |  |                                                                            
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------
|Joint Venture                                                  |  | Joint Venture Partners                                                   |  | Properties                                                                 
|Fund VII and Fund VIII Associates (Fund VII-VIII Associates) |  |   Wells Real Estate Fund VII, L.P.
  Wells Real Estate Fund VIII, L.P. |  | 3. CH2M Hill Building(3) An office building located in
Gainesville, Florida



| | (1) | Fund II-III Associates is a joint venture between Fund II and Fund
II-OW and Wells Real Estate Fund III, L.P.
| | --- | -------------------------------------------------------------------------------------------------------------



| | (2) | One outparcel of land was sold in October 2002, the shopping center
and one outparcel of land were sold in April 2005, a portion of an outparcel of land was condemned by the North Carolina Department of Transportation in October 2005, and two outparcels of land remain unsold as of March 31, 2006.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | This property was sold in December 2005.
| | --- | ----------------------------------------

Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund V, L.P.,
Wells Real Estate Fund VI, L.P, and Wells Real Estate Fund VIII, L.P. are affiliated with the Partnership through one or more common general partners. Each of the properties described above was acquired on an all-cash basis. For further information
regarding the Joint Ventures and foregoing properties, refer to the Partnerships Form 10-K for the year ended December 31, 2005.

On
April 21, 2005, Fund VI-VII-VIII Associates sold the Tanglewood Commons shopping center and one outparcel of land to an unrelated third party for a gross sales price of $11,500,000. As a result of the sale, the Partnership received net proceeds
of approximately $3,752,000 and was allocated a gain of approximately $1,811,000. On October 12, 2005, a portion of one of the remaining outparcels of land was condemned by the North Carolina Department of Transportation. As a result of the
land condemnation, the Partnership received net proceeds of approximately $17,000 and was allocated a gain of approximately $11,000.

On December 7,
2005, Fund VII-VIII Associates sold the CH2M Hill Building to an unrelated third party for a gross sale price of $8,200,000. As a result of the sale of the CH2M Hill Building, the Partnership received net sale proceeds of approximately $2,907,000
and was allocated a gain of approximately $1,465,000.



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------

Basis of
Presentation

The financial statements of the Partnership have been prepared in accordance with the rules and regulations of the Securities and Exchange
Commission, including the instructions to Form 10-Q and Article 10 of Regulation S-X, in accordance with such rules and regulations, and do not include all of the information and footnotes required by U.S. generally accepted accounting principles
(GAAP) for complete financial statements. In the opinion of the General Partners, the statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and necessary to fairly and
consistently present the results for these periods. Results for interim periods are not necessarily indicative of full-year results. For further information, refer to the financial statements and footnotes included in the Partnerships
Form 10-K for the year ended December 31, 2005.

Investment in Joint Ventures

The Partnership has evaluated the Joint Ventures and concluded that none are variable interest entities under the provisions of Financial Accounting Standards Board
Interpretation No. (FIN) 46(R), Consolidation of Variable Interest Entities, which supersedes FIN 46 and is an interpretation of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements.
The Partnership does not have control over the operations of the Joint Ventures; however, it does exercise significant influence. Approval by the Partnership as well as the other joint venture partners is required for any major decision or any
action that would materially affect the Joint Ventures, or their real property investments. Accordingly, upon applying the provisions of Statement of Financial Accounting Standard (SFAS) No. 94, Consolidation of All
Majority-Owned Subsidiaries, ARB No. 51, and Statement of Position No. 78-9, Accounting for Investments In Real Estate Ventures, the Partnership accounts for



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##### Table of Contents

its investments in the Joint Ventures using the equity method of accounting, whereby original investments are recorded at cost and subsequently adjusted for
contributions, distributions, and net income (loss) attributable to the Partnership. Pursuant to the terms of the joint venture agreements, all income (loss) and distributions are allocated to joint venture partners in accordance with their
respective ownership interests. Distributions of net cash from operations, if available, are generally distributed to the joint venture partners on a quarterly basis.

Other Assets

As of March 31, 2006 and December 31, 2005, other assets is comprised of the following items:



|                            |  |               |        |                  |   |    
|--------------------------- |  | ------------- | ------ | ---------------- | - | ---
|                            |  | March 31,2006 |        | December 31,2005
|Interest income receivable  |  | $             | 12,006 |                  | $ | 0  
|Insurance refund receivable |  |               | 498    |                  |   | 498
|                            |  |               |        |                  |   |    
|Total                       |  | $             | 12,504 |                  | $ | 498
|                            |  |               |        |                  |   |    

Distribution of Net Cash from Operations

Net cash from operations, if available, is generally distributed to limited partners quarterly. In accordance with the partnership agreement, such distributions are paid first to the Class A limited partners
until such limited partners have received a 10% per annum return on their respective adjusted capital contributions, as defined. Cash from operations is then paid to the General Partners until they have received an amount equal to 10% of
distributions. Any remaining cash from operations is to be allocated between the limited partners holding Class A Units and the General Partners on a basis of 90% and 10%, respectively. No distributions of net cash from operations will be made
to limited partners holding Class B Units.

Distribution of Sale Proceeds

Upon the sale of properties, unless reserved, net sale proceeds are distributed in the following order:



| |  |  | In the event that the particular property sold is sold for a price that is less than its original property purchase price, to the limited partners holding Class A Units until
they have received an amount equal to the excess of the original property purchase price over the price for which the property was sold, limited to the amount of depreciation, amortization, and cost recovery deductions taken by the limited partners
holding Class B Units with respect to such property;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To limited partners holding units, which at any time have been treated as Class B Units, until such limited partners have received an amount necessary to equal the net cash
available for distribution received by the Class A limited partners on a per-unit basis;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To all limited partners, on a per-unit basis, until the limited partners have received 100% of their respective adjusted capital contributions, as defined;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To all limited partners on a per-unit basis until the limited partners have received a cumulative 10% per annum return on their respective adjusted capital contributions, as
defined;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To limited partners on a per-unit basis until the limited partners have received an amount equal to their respective cumulative limited partner return (defined as the sum of a
10% per annum cumulative return on net capital contributions for all periods during which the units were treated as Class A Units and a 15% per annum cumulative return on net capital contributions for all periods during which the
units were treated as Class B Units);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To the General Partners until they have received 100% of their respective capital contributions, as defined;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | To the General Partners until they have received 100% of their respective capital contributions; in the event that limited partners have received aggregate cash distributions from
the Partnership over the life of their investment in excess of a return of their net capital contributions plus their cumulative limited partner return, then the General Partners shall receive an additional sum equal to 25% of such excess; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Thereafter, 80% to the limited partners and 20% to the General Partners.
| | - |  | ------------------------------------------------------------------------



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##### Table of Contents

Allocations of Net Income, Net Loss, and Gain on Sale

For the purpose of determining allocations per the partnership agreement, net income is defined as net income recognized by the Partnership, excluding deductions for
depreciation and amortization and cost recovery and the gain on the sale of assets. Net income, as defined, of the Partnership will be allocated each year in the same proportions that net cash from operations is distributed to the partners holding
Class A Units and the General Partners. To the extent the Partnerships net income in any year exceeds net cash from operations, it will be allocated 99% to the limited partners holding Class A Units and 1% to the General Partners.

Net loss, depreciation, and amortization deductions for each fiscal year will be allocated as follows: (a) 99% to the limited partners holding Class
B Units and 1% to the General Partners until their capital accounts are reduced to zero; (b) then to any partner having a positive balance in his capital account in an amount not to exceed such positive balance; and (c) thereafter to the
General Partners.

Gain on the sale or exchange of the Partnerships properties will be allocated generally in the same manner that the net proceeds
from such sale are distributed to partners after the following allocations are made, if applicable: (a) allocations made pursuant to a qualified income offset provision in the partnership agreement; (b) allocations to partners having
negative capital accounts until all negative capital accounts have been restored to zero; (c) allocations to Class B limited partners in amounts equal to deductions for depreciation and amortization previously allocated to them with
respect to the specific property sold, but not in excess of the amount of gain on sale recognized by the Partnership with respect to the sale of such property; and (d) allocations to Class A limited partners and General Partners in amounts
equal to the deductions for depreciation and amortization previously allocated to them with respect to the specific partnership property sold, but not in excess of the amount of gain on sale recognized by the Partnership with respect to the sale of
such property.

Reclassifications

Certain prior year
amounts have been reclassified to conform with the current year financial statement presentation.

Recent Accounting Pronouncements

In June 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces
Accounting Principles Board Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 changes the method to account for and report changes in
accounting principles and corrections of errors. Previously, most voluntary changes in accounting principles required recognition as a cumulative effect adjustment to net income during the period in which the change was adopted. Conversely, in
circumstances where applicable accounting guidance does not include specific transition provisions, SFAS No. 154 requires retrospective application to prior periods financial statements unless it is impractical to determine either the
period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for fiscal years beginning after December 15, 2005; however, it does not change the transition provisions of any of the existing accounting
pronouncements. The adoption of this statement is not expected to have a material effect on the Partnerships financial statements.



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##### Table of Contents

|3. | INVESTMENT IN JOINT VENTURES
|-- | ----------------------------

Summary of Financial Information

Condensed financial information for the Joint Ventures for the three months ended March 31, 2006 and 2005, respectively, is presented below:



|                              |  |                             |         |                                         |   |         |                                           |   |         |                             |  |      |         |   |      |   |      |      |  |   |         |   |  |   |         |   |  |   |         |  
|----------------------------- |  | --------------------------- | ------- | --------------------------------------- | - | ------- | ----------------------------------------- | - | ------- | --------------------------- |  | ---- | ------- | - | ---- | - | ---- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                              |  | Total Revenues              |         | Income (Loss) FromContinuing Operations |   |         | Income (Loss) FromDiscontinued Operations |   |         | Net Income (Loss)           | 
|                              |  | Three Months EndedMarch 31, |         | Three Months EndedMarch 31,             |   |         | Three Months EndedMarch 31,               |   |         | Three Months EndedMarch 31, | 
|                              |  | 2006                        |         | 2005                                    |   | 2006    |                                           |   | 2005    |                             |  | 2006 |         |   | 2005 |   |      | 2006 |  |   | 2005    |  
|Fund II-III-VI-VII Associates |  | $                           | 0       |                                         | $ | 0       |                                           | $ | 0       |                             |  | $    | (6,042  | ) |      | $ | 0    |      |  | $ | 6,353   |   |  | $ | 0       |   |  | $ | 311     |  
|Fund V-VI-VII Associates      |  |                             | 0       |                                         |   | 0       |                                           |   | 0       |                             |  |      | (9,010  | ) |      |   | 0    |      |  |   | (3,307  | ) |  |   | 0       |   |  |   | (12,317 | )
|Fund VI-VII Associates        |  |                             | 0       |                                         |   | 0       |                                           |   | 0       |                             |  |      | (13,141 | ) |      |   | 0    |      |  |   | 0       |   |  |   | 0       |   |  |   | (13,141 | )
|Fund VI-VII-VIII Associates   |  |                             | 458,436 |                                         |   | 461,266 |                                           |   | 175,426 |                             |  |      | 129,740 |   |      |   | 98   |      |  |   | 164,227 |   |  |   | 175,524 |   |  |   | 293,967 |  
|Fund VII-VIII Associates      |  |                             | 0       |                                         |   | 0       |                                           |   | (4,498  | )                           |  |      | (5,856  | ) |      |   | (386 | )    |  |   | 16,852  |   |  |   | (4,884  | ) |  |   | 10,996  |  
|                              |  |                             |         |                                         |   |         |                                           |   |         |                             |  |      |         |   |      |   |      |      |  |   |         |   |  |   |         |   |  |   |         |  
|                              |  | $                           | 458,436 |                                         | $ | 461,266 |                                           | $ | 170,928 |                             |  | $    | 95,691  |   |      | $ | (288 | )    |  | $ | 184,125 |   |  | $ | 170,640 |   |  | $ | 279,816 |  
|                              |  |                             |         |                                         |   |         |                                           |   |         |                             |  |      |         |   |      |   |      |      |  |   |         |   |  |   |         |   |  |   |         |  

The Partnership allocates operating income (loss) and gain (loss) on the sale of properties generated by the Joint
Ventures to its Class A and Class B limited partners pursuant to the respective partnership agreement provisions outlined in Note 2. The components of income (loss) from discontinued operations recognized by the Joint Ventures are provided
below:



|                              |  |                       |      |   |                |   |       |  |   |                       |   |  |             |         |   |       |   |       |     |  |   |         |  
|----------------------------- |  | --------------------- | ---- | - | -------------- | - | ----- |  | - | --------------------- | - |  | ----------- | ------- | - | ----- | - | ----- | --- |  | - | ------- | -
|                              |  | March 31, 2006        |      |   | March 31, 2005 |  
|                              |  | OperatingIncome(Loss) |      |   | Gainon Sale    |   | Total |  |   | OperatingIncome(Loss) |   |  | Gainon Sale |         |   | Total |  
|Fund II-III-VI-VII Associates |  | $                     | 0    |   |                | $ | 0     |  | $ | 0                     |   |  | $           | (901    | ) |       | $ | 7,254 | (1) |  | $ | 6,353   |  
|Fund V-VI-VII Associates      |  |                       | 0    |   |                |   | 0     |  |   | 0                     |   |  |             | (3,307  | ) |       |   | 0     |     |  |   | (3,307  | )
|Fund VI-VII Associates        |  |                       | 0    |   |                |   | 0     |  |   | 0                     |   |  |             | 0       |   |       |   | 0     |     |  |   | 0       |  
|Fund VI-VII-VIII Associates   |  |                       | 98   |   |                |   | 0     |  |   | 98                    |   |  |             | 164,227 |   |       |   | 0     |     |  |   | 164,227 |  
|Fund VII-VIII Associates      |  |                       | (386 | ) |                |   | 0     |  |   | (386                  | ) |  |             | 16,852  |   |       |   | 0     |     |  |   | 16,852  |  
|                              |  |                       |      |   |                |   |       |  |   |                       |   |  |             |         |   |       |   |       |     |  |   |         |  
|                              |  | $                     | (288 | ) |                | $ | 0     |  | $ | (288                  | ) |  | $           | 176,871 |   |       | $ | 7,254 |     |  | $ | 184,125 |  
|                              |  |                       |      |   |                |   |       |  |   |                       |   |  |             |         |   |       |   |       |     |  |   |         |  



| | (1) | Represents additional gain recognized on the sale of
the Holcomb Bridge Property, which was deferred at closing related to a rental guarantee for certain space at the Holcomb Bridge Property.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Due from Joint Ventures

As presented in the accompanying balance sheets, due from joint ventures as of
March 31, 2006 and December 31, 2005 represents operating cash flow generated by the Joint Ventures for the three months ended March 31, 2006 and December 31, 2005, respectively, which is attributable to the Partnership.



|4. | RELATED-PARTY TRANSACTIONS
|-- | --------------------------

Management and Leasing Fees

The Partnership entered into a property management and leasing agreement with Wells Management Company, Inc. (Wells Management), an
affiliate of the General Partners. In consideration for the management and leasing of the Partnerships properties, the Joint Ventures pay Wells Management Company, Inc. management and leasing fees equal to (a) of the gross revenues
collected monthly, 3% of the gross revenues for management and 3% of the gross revenues for leasing (aggregate maximum of 6%), plus a separate fee for the one-time initial lease-up of newly constructed properties in an amount not to



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##### Table of Contents

exceed the fee customarily charged in arms-length transactions by others rendering similar services in the same geographic area for similar properties
or (b) in the case of commercial properties leased on a long-term net basis (ten or more years), 1% of the gross revenues except for initial leasing fees equal to 3% of the gross revenues over the first five years of the lease term. Management
and leasing fees are paid by the Joint Ventures and, accordingly, included in equity in income (loss) of joint venture in the accompanying statements of operations. The Partnerships share of management and leasing fees and lease acquisition
costs incurred though the Joint Ventures is $4,650 and $14,164 for the three months ended March 31, 2006 and 2005, respectively.

Administration
Reimbursements

Wells Capital, the corporate general partner of Wells Partners, one of the Partnerships general partners, and Wells Management
perform certain administrative services for the Partnership, relating to accounting and other partnership administration, and incurs the related expenses. Such expenses are allocated among the other entities affiliated with the General Partners
based on estimates of the amount of time dedicated to each fund by individual administrative personnel. In the opinion of the General Partners, this allocation is a reasonable estimation of such expenses. The Partnership reimbursed Wells Capital and
Wells Management for administrative expenses of $16,212 and $24,666 for the three months ended March 31, 2006 and 2005, respectively. In addition, Wells Capital pays for certain operating expenses of the Partnership (bill-backs)
directly and invoices the Partnership for the reimbursement thereof. As of March 31, 2006 and December 31, 2005, the due to affiliates balances represent administrative reimbursements and bill-backs due to Wells Management and/or Wells
Capital.

Economic Dependency

We have engaged Wells
Capital and Wells Management to provide certain essential services, including supervision of the management and leasing of our properties, asset acquisition and disposition services, as well as other administrative responsibilities for us including
accounting services, investor communications and relations. These agreements are terminable by either party upon 60 days written notice. As a result of these relationships, we are dependent upon Wells Capital and Wells Management.

Wells Capital and Wells Management are all owned and controlled by Wells Real Estate Funds, Inc. (WREF). The operations of Wells Capital and Wells
Management represent substantially all of the business of WREF. Accordingly, we focus on the financial condition of WREF when assessing the financial condition of Wells Capital and Wells Management. In the event that WREF was to become unable to
meet its obligations as they become due, we might be required to find alternative service providers.

Future net income generated by WREF will be largely
dependent upon the amount of fees earned by Wells Capital and Wells Management based on, among other things, the level of investor proceeds raised from the sale of common stock for certain WREF-sponsored programs and the volume of future
acquisitions and dispositions of real estate assets by WREF-sponsored programs. As of March 31, 2006, the General Partners believe that WREF generates adequate cash flow from operations and has adequate liquidity available in the form of cash
on hand and current receivables necessary to meet its current and future obligations as they become due.

Litigation Against Related Parties

During early 2004, a putative class action complaint was filed against, among others, Leo. F. Wells, III, one of our General Partners, Wells Capital,
the corporate general partner of Wells Partners, our other general partner, and Wells Management (Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia, Civil Action No. 04-A-2791-2). The Court granted the
plaintiffs motion to permit voluntary dismissal of this suit, and the case was subsequently dismissed without prejudice. In November 2004, the same plaintiffs filed a second putative class action complaint against, among others,
Mr. Wells, Wells Capital, and Wells Management (Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia Civil Action No. 04A-13051-6). The second action alleges, among other things, that:
(i) Mr. Wells and Wells Capital breached



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##### Table of Contents

their fiduciary duties to the limited partners of Wells Real Estate Fund I (Fund I), a previously syndicated real estate partnership having
common general partners, in connection with certain disclosures and prior actions relating to the distribution of net sale proceeds, (ii) the defendants breached an alleged contract arising out of a June 2000 consent solicitation to the limited
partners of Fund I relating to an alleged waiver of deferred management fees, and (iii) certain misrepresentations and omissions in an April 2002 consent solicitation to the limited partners of Fund I caused that consent solicitation to be
materially misleading. The plaintiffs seek, among other remedies, judgment against Mr. Wells and Wells Capital, jointly and severally, in an amount to be proven at trial; punitive damages; disgorgement of fees earned by the General Partners;
enforcement of the alleged contract relating to the alleged waiver of deferred management fees; and an award to the plaintiffs of their attorneys fees, costs, and expenses. On January 28, 2005, the defendants filed motions for summary
judgment and motions to dismiss the plaintiffs claims. Pursuant to orders entered July 1, 2005, the Court granted the defendants motions to dismiss and for summary judgment on all counts in the complaint. Thus, this action has now
been dismissed, subject to the plaintiffs right to file a notice of appeal within the required time period. On August 3, 2005, the plaintiffs filed a motion requesting the Court to vacate and re-enter the orders to give the plaintiffs an
opportunity to file a motion for reconsideration or notice of appeal. On February 15, 2006, the Court heard argument on the plaintiffs motion to vacate and to re-enter the judgments previously entered on July 1, 2005. Following the
argument, the Court stated orally from the bench that he would grant the motion, so the judgments could be re-entered to allow the plaintiffs thirty days within which to file a notice of appeal. The Court has not yet entered an order granting this
motion.

On or about August 8, 2005, the defendants filed a motion for attorneys fees and expenses of litigation. On or about August 12,
2005, the plaintiffs filed a motion for attorneys fees and expenses of litigation as to one defense asserted by the defendants. On April 20, 2006, the Court held a hearing addressing only the liability aspects of the defendants and
the plaintiffs motions for attorneys fees and expenses. The Court has not yet ruled on either partys motion.



|5. | SUBSEQUENT EVENTS
|-- | -----------------

Distribution of Net Sale Proceeds

The 2005 sale and land condemnation of Tanglewood Commons and the 2005 sale of the CH2M Hill Building generated total net sale proceeds to the
Partnership of approximately $6,677,000. Upon evaluating the capital needs of the existing properties in which the Partnership holds an interest, our General Partners have determined to reserve from these amounts net sale proceeds of approximately
$775,000. In accordance with the terms of the partnership agreement, on May 1, 2006, the General Partners distributed the residual net sale proceeds of approximately $2,400,000 to the limited partners of record as of March 31, 2006, which,
under the terms of the partnership agreement, does not include limited partners acquiring units after December 31, 2005.

Property Under Contract

On April 6, 2006, Fund VI-VII-VIII Associates and another Wells-affiliated joint venture entered into an agreement to sell the BellSouth Building
and a second office property to an unaffiliated third party for an aggregate gross sales price of $24,000,000, less agreed upon credits of $251,000, excluding closing costs (the Agreement). As of April 18, 2006, the inspection
period has expired, and the earnest money deposit of $1,000,000 has become non-refundable pursuant to the Agreement. The Partnership expects this transaction to close in the second quarter of 2006; however, there are no assurances regarding when or
if this sale will be completed.



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##### Table of Contents

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

The following discussion and analysis should be read in conjunction with the accompanying financial statements and notes thereto. See also Cautionary Note Regarding Forward-Looking Statements preceding
Part I, as well as the notes to our financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations provided in our Annual Report on Form 10-K for the year ended December 31, 2005.

Overview

Management believes that the Partnership typically
operates through the following five key life cycle phases. The duration of each phase is dependent upon various economic, industry, market, and other internal/external factors. Some overlap naturally exists in the transition from one phase to the
next.



| |  |  | Fundraising phase
| | - |  | -----------------

The period during which the
Partnership is raising capital through the sale and issuance of limited partner units to the public;



| |  |  | Investing phase
| | - |  | ---------------

The period during which the
Partnership invests the capital rose during the fundraising phase, less upfront fees, into the acquisition of real estate assets;



| |  |  | Holding phase
| | - |  | -------------

The period during which the
Partnership owns and operates its real estate assets during the initial lease terms of the tenants;



| |  |  | Positioning-for-sale phase
| | - |  | --------------------------

The period during which
the leases in place at the time of acquisition expire and, thus, the Partnership expends time, effort, and funds to re-lease such space to existing and/or new tenants. Following the holding phase, the Partnership continues to own and operate the
real estate assets, evaluate various options for disposition, and market the real estate assets for sale; and



| |  |  | Disposition-and-liquidation phase
| | - |  | ---------------------------------

The period
during which the Partnership sells its real estate investments, distributes net sale proceeds to the partners, liquidates, and terminates the Partnership.

Portfolio Overview

We are currently in the disposition-and-liquidation phase of the Partnerships life cycle. We have now sold eight
assets, and the BellSouth Building is currently under contract for sale. There are no assurances that the sale of the BellSouth Building will be completed. The completion of this sale, with what we believe is favorable pricing, would be a desirable
outcome following the re-leasing activities undertaken during 2005. The completion of this transaction would result in the only remaining real estate assets in the portfolio being the two Tanglewood Commons land outparcels, which are currently being
marketed for sale. Also, we completed a net sale proceeds distribution totaling approximately $2,400,000 in May 2006, from the sales of Tanglewood Commons and the CH2M Hill Building.

With the last rental property remaining in the portfolio under contract for sale, the General Partners are currently reserving operating cash distributions to limited partners and the remaining net sale proceeds from
the sale of the CH2M Hill Building. The General Partners anticipate that operating distributions will be reserved in the near term, considering the number of anticipated property sales. Once the details surrounding the potential sale of the
BellSouth Building are finalized, the General Partners will evaluate when further distributions of net sale proceeds are appropriate.

Property Summary

Information relating to the properties owned, or previously owned, by joint ventures is provided below:



| |  |  | The Cherokee Commons property was sold on October 1, 2001.
| | - |  | ----------------------------------------------------------



| |  |  | The Stockbridge Village III, Stockbridge Village I Expansion, and Hannover Center properties were sold on April 29, 2004.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | The Holcomb Bridge Property was sold on July 1, 2004.
| | - |  | -----------------------------------------------------



| |  |  | The Marathon Building was sold on December 29, 2004.
| | - |  | ----------------------------------------------------



| |  |  | The Tanglewood Commons shopping center was sold on April 21, 2005. On October 12, 2005, a portion of one of the remaining outparcels of land was condemned. We retain an
ownership interest in two remaining outparcels of land, which are being marketed for sale now that the shopping center has been sold.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The CH2M Hill Building was sold on December 7, 2005.
| | - |  | ----------------------------------------------------



| |  |  | The BellSouth Building located in Jacksonville, Florida, is currently 100% leased. We have completed an approximately three-year lease extension with BellSouth Advertising and
Publishing Corporation (BellSouth), a subsidiary of BellSouth Company through April 2009 and an approximate ten-year lease extension with American Express Travel Related Services Company, Inc. (American Express) through
February 2016. As part of this negotiation, BellSouth re-leased approximately 12,000 square feet of space to American Express effective November 1, 2005. This property is currently under contract for sale.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources

Overview

Our operating strategy entails funding expenditures related to the recurring operations of the Joint Ventures properties and the portfolio with operating cash
flows, including current and prior period operating distributions received from the Joint Ventures, and assessing the amount of remaining cash flows that will be required to fund known future re-leasing costs and other capital improvements. Any
residual operating cash flows are generally considered available for distribution to the Class A limited partners and, unless reserved, are generally paid quarterly. To the extent that operating cash flows are insufficient to fund our recurring
operations, net sale proceeds will be utilized. As a result, the ongoing monitoring of our cash position is critical to ensuring that adequate liquidity and capital resources are available. Economic downturns in one or more of our core markets could
adversely impact the ability of our tenants to honor lease payments and our ability to re-lease space on favorable terms as leases expire or space otherwise becomes vacant. In the event of either situation, cash flows and, consequently, our ability
to provide funding for capital needs could be adversely affected.

Short-Term Liquidity

During the three months ended March 31, 2006, we generated net operating cash flows, including operating distributions received from the Joint Ventures, of
approximately $17,000, as compared to approximately $207,000 for the three months ended March 31, 2005. The 2006 decrease is primarily due to the corresponding decline in operating distributions received from Joint Ventures as further described
below. Operating distributions from the Joint Ventures are generally representative of rental revenues and tenant reimbursements, less property operating expenses, management fees, general administrative expenses, and capital expenditures.

Operating distributions received from the Joint Ventures have declined in 2006, primarily due to (i) forgone cash flows as a result of the sale of
the CH2M Hill Building, (ii) forgone cash flows as a result of the sales of the Tanglewood Commons shopping center and outparcels of land, and (iii) funding re-leasing costs at the BellSouth Building, should the proposed sale of this
property not close. Future operating distributions from the Joint Ventures are expected to be reserved as a result of the anticipated sale of the BellSouth Building. Future operating distributions paid to limited partners are also expected to be
reserved as a result of the anticipated sale of the remaining rental property.

We believe that the cash on hand is sufficient to cover our working capital
needs, including liabilities of approximately $69,000 as of March 31, 2006. We expect to continue to generate cash flows from the anticipated sale of the remaining rental property sufficient to cover our estimated future expenses.

Long-Term Liquidity

We expect that our future sources of capital
will be primarily derived from net proceeds generated from the sale of the remaining rental property.



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##### Table of Contents

Capital Resources

The Partnership is an investment vehicle formed for the purpose of acquiring, owning, and operating income-producing real properties or investing in joint ventures formed for the same purpose, and has invested all of the partners
original capital contributions. Thus, it is unlikely that we will acquire interests in any additional properties or joint ventures. Historically, our investment strategy has generally involved acquiring properties on an all-cash basis that are
pre-leased to creditworthy tenants through joint ventures with affiliated partnerships.

The Joint Ventures fund capital expenditures primarily related to
building improvements for the purpose of maintaining the quality of the properties, and tenant improvements for the purpose of readying its properties for re-leasing. As leases expire, we will work with the Joint Ventures to attempt to re-lease
space to an existing tenant or market the space to prospective new tenants. Generally, tenant improvements funded in connection with lease renewals require less capital than those funded in connection with new leases. However, external conditions,
such as the supply of and demand for comparable space available within a given market, drive capital costs as well as rental rates. Any capital or other expenditures not provided for by the operations of the Joint Ventures will be required to be
funded by the Partnership and the respective joint venture partners on a pro-rata basis.

Operating cash flows, if available, are generally distributed
from the Joint Ventures to the Partnership approximately one month following calendar quarter-ends. Our cash management policy typically includes first utilizing current period operating cash flow until depleted, at which point operating reserves
are utilized to fund capital and other required expenditures. In the event that current and prior period accumulated operating cash flows are insufficient to fund such costs, net property sale proceeds reserves would then be utilized.

As of March 31, 2006, we have received, used, distributed, and held net sale proceeds allocated to the Partnership from the sale of properties as presented below:



|                                                   |  |                  |            |                                     |      |         |                                              |   |                          |  |                                                             |         |                                                   |                                            |  |   |            |  |   |          
|-------------------------------------------------- |  | ---------------- | ---------- | ----------------------------------- | ---- | ------- | -------------------------------------------- | - | ------------------------ |  | ----------------------------------------------------------- | ------- | ------------------------------------------------- | ------------------------------------------ |  | - | ---------- |  | - | ---------
|Property
Sold                                      |  | Net SaleProceeds |            | PartnershipsApproximateOwnership % |      |         | Net
SaleProceeds Allocated to thePartnership |   | Use of Net Sale Proceeds |  | Net
SaleProceeds Distributed toPartners as ofMarch 31, 2006 |         | UndistributedNet SaleProceeds as
ofMarch 31, 2006
|                                                   |  |                  |            | Amount                              |      | Purpose |                                              |  
|                                                   |  |                  |            |                                     |      |         |                                             
|Cherokee Commons(sold in 2001)                     |  | $                | 8,414,089  |                                     | 10.9 | %       |                                              | $ | 886,212                  |  | $                                                           | 151,211 |                                                   |   Re-leasing the Marathon Building (2004) |  | $ | 735,001    |  | $ | 0        
|                                                   |  |                  |            |                                     |      |         |                                             
|Tanglewood Commons Outparcel(sold in 2002)         |  |                  | 524,398    |                                     | 33.4 | %       |                                              |   | 175,149                  |  |                                                             | 126,160 |                                                   |   Re-leasing the Marathon Building (2004) |  |   | 48,989     |  |   | 0        
|                                                   |  |                  |            |                                     |      |         |                                             
|Stockbridge Village III(sold in 2004)              |  |                  | 2,909,853  |                                     | 55.2 | %       |                                              |   | 1,606,248                |  |                                                             | 0       |                                                   |                                           |  |   | 1,606,248  |  |   | 0        
|                                                   |  |                  |            |                                     |      |         |                                             
|Stockbridge Village I Expansion(sold in 2004)      |  |                  | 4,108,277  |                                     | 55.2 | %       |                                              |   | 2,267,781                |  |                                                             | 0       |                                                   |                                           |  |   | 2,267,781  |  |   | 0        
|                                                   |  |                  |            |                                     |      |         |                                             
|Hannover Center(sold in 2004)                      |  |                  | 1,703,431  |                                     | 36.6 | %       |                                              |   | 624,067                  |  |                                                             | 0       |                                                   |                                           |  |   | 624,067    |  |   | 0        
|                                                   |  |                  |            |                                     |      |         |                                             
|Holcomb Bridge Property(sold in 2004)              |  |                  | 6,889,379  |                                     | 50.4 | %       |                                              |   | 3,473,625                |  |                                                             | 0       |                                                   |                                           |  |   | 3,473,625  |  |   | 0        
|                                                   |  |                  |            |                                     |      |         |                                             
|Marathon Building(sold in 2004)                    |  |                  | 9,927,330  |                                     | 41.7 | %       |                                              |   | 4,140,689                |  |                                                             | 0       |                                                   |                                           |  |   | 4,140,689  |  |   | 0        
|                                                   |  |                  |            |                                     |      |         |                                             
|Tanglewood Commons shopping center(sold in 2005)   |  |                  | 11,236,283 |                                     | 33.4 | %       |                                              |   | 3,752,368                |  |                                                             | 0       |                                                   |                                           |  |   | 3,501,597  |  |   | 250,771  
|                                                   |  |                  |            |                                     |      |         |                                             
|Tanglewood Commons land condemnation(sold in 2005) |  |                  | 52,050     |                                     | 33.4 | %       |                                              |   | 17,382                   |  |                                                             | 0       |                                                   |                                           |  |   | 0          |  |   | 17,382   
|                                                   |  |                  |            |                                     |      |         |                                             
|CH2M Hill Building(sold in 2005)                   |  |                  | 7,935,259  |                                     | 36.6 | %       |                                              |   | 2,907,154                |  |                                                             | 0       |                                                   |                                           |  |   | 0          |  |   | 2,907,154
|                                                   |  |                  |            |                                     |      |         |                                              |   |                          |  |                                                             |         |                                                   |                                            |  |   |            |  |   |          
|                                                   |  |                  |            |                                     |      |         |                                             
|Total                                              |  |                  |            |                                     |      |         |                                              | $ | 19,850,675               |  | $                                                           | 277,371 |                                                   |                                            |  | $ | 16,397,997 |  | $ | 3,175,307
|                                                   |  |                  |            |                                     |      |         |                                              |   |                          |  |                                                             |         |                                                   |                                            |  |   |            |  |   |          



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Upon evaluating the capital needs of the properties in which we currently hold an interest, our General Partners have
determined to hold reserves of net sale proceeds of approximately $775,000. Accordingly, in May 2006, the remaining net sale proceeds of approximately $2,400,000 from the sale of the Tanglewood Commons shopping center and the CH2M Hill Building were
distributed to the limited partners of record as of March 31, 2006, which, under the terms of the Partnership Agreement, did not include limited partners acquiring units after December 31, 2005.

Results of Operations

Equity in Income of Joint Ventures

Equity in income of Joint Ventures was $56,827 and $89,965 for the three months ended March 31, 2006 and 2005, respectively. The 2006 decrease, as
compared to 2005, is primarily attributable to a decline in operating income resulting primarily from the sales of the Tanglewood Commons shopping center in April 2005 and the CH2M Hill Building in December 2005.

We expect equity in income of Joint Ventures to decrease going forward as a result of forgone operating income resulting from the anticipated sale of the BellSouth
Building.

Expenses

Our total expenses were $52,146
and $44,916 for the three months ended March 31, 2006 and 2005, respectively. The 2006 increase, as compared to 2005, is primarily due to an increase in legal fees and printing costs associated with increased reporting and regulatory
requirements. We anticipate additional increases in our administrative expenses in future periods resulting from increased costs relating to compliance with reporting and regulatory requirements.

Interest and Other Income

Interest and other income was $38,601 and
$27,769 for the three months ended March 31, 2006 and 2005, respectively. The 2006 increase, as compared to 2005, is a result of an increase in the daily interest yield. Future levels of interest income will be largely dependent upon the timing
of future dispositions and net sale proceeds distributions to the investors.

Inflation

We are exposed to inflation risk as income from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our
tenant leases that would protect us from the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per-square-foot basis, or in
some cases, annual reimbursement of operating expenses above a certain per-square-foot allowance. However, due to the long-term nature of our leases, the leases may not readjust their reimbursement rates frequently enough to cover inflation.

Application of Critical Accounting Policies

Summary

Our accounting policies have been established to conform to GAAP. The preparation of financial statements in conformity with GAAP
requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If managements judgment or interpretation of the facts and circumstances relating to various transactions had been different,
it is possible that different accounting policies



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would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different
estimates that may impact comparability of our results of operations to those of companies in similar businesses.

Below is a discussion of the accounting
policies that management considers to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.

Investment in Real Estate Assets

We will be required to make subjective assessments as to the useful lives of our
depreciable assets. We will consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of the Joint Ventures assets by class
are as follows:



|                      |  |                                       
|--------------------- |  | --------------------------------------
|Buildings             |  | 40 years                              
|Building improvements |  | 5-25 years                            
|Land improvements     |  | 20 years                              
|Tenant improvements   |  | Shorter of lease term or economic life

In the event that the Joint Ventures utilize inappropriate useful lives or methods of depreciation, our net income
would be misstated.

Valuation of Real Estate Assets

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets in which we have an ownership interest, either directly or through investments in the Joint Ventures, may not
be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate assets may not be recoverable, management assesses the recoverability of the real estate assets by determining whether the
carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not
exceed the carrying value, management adjusts the real estate assets to the fair value, as defined by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and recognizes an impairment loss. Estimated fair values
are calculated based on the following information, dependent upon availability, in order of preference: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of undiscounted cash
flows, including estimated salvage value. We have determined that there has been no impairment in the carrying value of any of the real estate assets held as of March 31, 2006.

Projections of expected future cash flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the
number of months it takes to re-lease the property, and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the propertys
future cash flows and fair value, and could result in the overstatement of the carrying value of real estate assets held by the Joint Ventures and net income of the Partnership.

Related-Party Transactions

We have entered into agreements with Wells Capital and Wells Management, affiliates of
our General Partners, and their affiliates, whereby we pay certain fees and expense reimbursements to Wells Capital, Wells Management, and their affiliates for asset management; the management and leasing of our properties; administrative services
relating to accounting, property management, and other partnership administration; and incur the related expenses. See Note 4 to our financial statements included in this report for a description of these fees and expense reimbursements we have
incurred.



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Potential Tax Impact on Limited Partners Holding Class B Units  American Jobs Creation Act of 2004

The American Jobs Creation Act of 2004 added Section 470 to the Internal Revenue Code, which provides certain limitations on the utilization of
losses by investors that are allocable to leased property owned by a partnership having both taxable and tax-exempt partners such as the Partnership. In March 2005, the Internal Revenue Service (IRS) issued IRS Notice 2005-29,
which announced that the IRS would not apply Section 470 to partnerships for the taxable year 2004 based solely on the fact that a partnership had both taxable and tax-exempt partners. In December 2005, the IRS issued IRS Notice 2006-2
extending the period for transitional relief through the 2005 tax year; however, it is important to note that IRS Notices 2005-29 and 2006-2 provide relief for partnerships only for tax years 2004 and 2005. Although the IRS has indicated that it is
continuing to study the application of Section 470 to partnerships, such as the Partnership, unless further legislation is enacted to address this issue, or some other form of relief from the provisions of Section 470 of the American Jobs
Creation Act of 2004 is granted, beginning in tax year 2006, and thereafter, passive losses allocable to limited partners holding Class B Units may only be used to offset passive income generated from the same property or within the same fund.

Subsequent Event

On April 6, 2006, Fund
VI-VII-VIII Associates and another Wells-affiliated joint venture entered into an agreement to sell the BellSouth Building and a second office property to an unaffiliated third party for an aggregate gross sales price of $24,000,000, less agreed
upon credits of $251,000, excluding closing costs (the Agreement). As of April 18, 2006, the inspection period has expired, and the earnest money deposit of $1,000,000 has become non-refundable pursuant to the Agreement. The
Partnership expects this transaction to close in the second quarter of 2006; however, there are no assurances regarding when or if this sale will be completed.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Since
we do not borrow any money, make any foreign investments, or invest in any market risk-sensitive instruments, we are not subject to risks relating to interest rates, foreign current exchange rate fluctuations, or the other market risks contemplated
by Item 305 of Regulation S-K.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

We carried out an evaluation, under the
supervision and with the participation of management of Wells Capital, the corporate general partner of one of our General Partners, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal
Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report in providing a reasonable level of assurance that information we are required to disclose in reports
that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in applicable SEC rules and forms, including providing a reasonable level of assurance that
information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.

There were no significant changes in our internal control over financial reporting during the quarter ended March 31, 2006 that have
materially affected, or are likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II.    OTHER INFORMATION



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

We are from time to time a party to other legal
proceedings, which arise in the ordinary course of our business. We are not currently involved in any litigation the outcome of which would, in managements judgment based on information currently available, have a material adverse effect on
our results of operations or financial condition, nor is management aware of any such litigation threatened against us during the quarter ended March 31, 2006, requiring disclosure under Item 103 of Regulation S-K.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

There have been no material changes from the risk
factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------



|(a) | We did not sell any equity securities that were not registered under the Securities Act of 1933 during the quarter ended March 31, 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



|(b) | Not applicable.
|--- | ---------------



|(c) | We did not redeem any securities during the quarter ended March 31, 2006.
|--- | -------------------------------------------------------------------------



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------



|(a) | We were not subject to any indebtedness and, therefore, did not default with respect to any indebtedness during the quarter ended March 31, 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Not applicable.
|--- | ---------------



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

No matters
were submitted to a vote of our limited partners during the quarter ended March 31, 2006.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------



|(a) | During the quarter ended March 31, 2006, there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Not applicable.
|--- | ---------------



|ITEM 6. | EXHIBITS
|------- | --------

The Exhibits to this report are set forth on Exhibit
Index to First Quarter Form 10-Q attached hereto.



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|             |  |  |  |                                                                                                    |  |                                                
|------------ |  |  |  | -------------------------------------------------------------------------------------------------- |  | -----------------------------------------------
|             |  |  |  | WELLS REAL ESTATE FUND VII, L.P. (Registrant)                                                     
|             |  |  | 
|             |  |  |  | By:                                                                                                |  | WELLS PARTNERS, L.P. (General
Partner)         
|             |  |  | 
|             |  |  |  | By:                                                                                                |  | WELLS CAPITAL, INC. (Corporate General
Partner)
|             |  | 
|May 11, 2006 |  |  |  | /S/    LEO F. WELLS,
III                                                                          
|             |  |  |  | Leo F. Wells, III President, Principal
Executive Officer, and Sole Director of Wells Capital, Inc.
|             |  | 
|May 11, 2006 |  |  |  | /S/    DOUGLAS P.
WILLIAMS                                                                        
|             |  |  |  | Douglas P. Williams Principal Financial
Officer of Wells Capital, Inc.                            



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EXHIBIT INDEX

TO

FIRST QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND VII, L.P.



|            |  |                                                                                                                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                               
|            | 
|10.1        |  | Purchase and Sale Agreement for BellSouth Building (previously filed with the Commission as Exhibit 10.1 to the Form 10-Q of Wells Real Estate Fund IV, L.P. for the period ending March 31,
2006, Commission File No. 0-20103, and hereby incorporated by this reference)
|            | 
|31.1        |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                    
|            | 
|31.2        |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                    
|            | 
|32.1        |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002