SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                   FORM 10-Q
(Mark One)

  X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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     EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 1999
                               --------------
                                      OR

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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     EXCHANGE ACT OF 1934.

For the transition period from              to             
                               ------------    ------------
Commission file number 0-14351
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                    BALCOR REALTY INVESTORS 85-SERIES II
                     A REAL ESTATE LIMITED PARTNERSHIP          
          -------------------------------------------------------
          (Exact name of registrant as specified in its charter)

          Illinois                                      36-3327917    
-------------------------------                     -------------------
(State or other jurisdiction of                      (I.R.S. Employer  
incorporation or organization)                      Identification No.)

2355 Waukegan Rd.
Bannockburn, Illinois 60015                               60015
----------------------------------------            ------------------- 
(Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code (847) 267-1600              
                                                   ---------------

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     
    -----     ----- 
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                    BALCOR REALTY INVESTORS - 85 SERIES II
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                                BALANCE SHEETS
                     March 31, 1999 and December 31, 1998
                                  (Unaudited)

                                    ASSETS

                                                 1999            1998
                                            --------------  --------------
Cash and cash equivalents                   $   1,928,725   $   1,948,772
Prepaid expenses                                    1,896
Accrued interest receivable                         7,742           8,299
                                            --------------  --------------
                                            $   1,938,363   $   1,957,071
                                            ==============  ==============

                       LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                            $      61,535   $      59,820
Due to affiliates                                  23,946          21,256
                                            --------------  --------------
     Total liabilities                             85,481          81,076
                                            --------------  --------------

Commitments and contingencies

Limited Partners' capital (83,936
  Interests issued and outstanding)             1,852,882       1,875,995
General Partner's capital                            None            None 
                                            --------------  --------------
     Total partners' capital                    1,852,882       1,875,995
                                            --------------  --------------
                                            $   1,938,363   $   1,957,071
                                            ==============  ==============

The accompanying notes are an integral part of the financial statements.
<PAGE>
                    BALCOR REALTY INVESTORS - 85 SERIES II
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                       STATEMENTS OF INCOME AND EXPENSES
                for the quarters ended March 31, 1999 and 1998
                                  (Unaudited)


                                                 1999            1998
                                            --------------  --------------
Income:
  Interest on short-term investments        $      23,009   $      31,186
                                            --------------  --------------
    Total income                                   23,009          31,186
                                            --------------  --------------
Expenses:
  Administrative                                   46,122          75,064
                                            --------------  --------------
    Total expenses                                 46,122          75,064
                                            --------------  --------------
Net loss                                    $     (23,113)  $     (43,878)
                                            ==============  ==============
Net loss allocated to General Partner               None            None 
                                            ==============  ==============
Net loss allocated to Limited Partners      $     (23,113)  $     (43,878)
                                            ==============  ==============
Net loss per Limited Partnership Interest
  (83,936 Interests issued and 
  outstanding) - Basic and Diluted          $       (0.28)  $       (0.52)
                                            ==============  ==============
Distribution to Limited Partners                    None    $     403,462
                                            ==============  ==============
Distribution per Limited Partnership
  Interest (83,936 Interests issued and 
  outstanding)                                      None    $        4.81
                                            ==============  ==============

The accompanying notes are an integral part of the financial statements.
<PAGE>
                    BALCOR REALTY INVESTORS - 85 SERIES II
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                           STATEMENTS OF CASH FLOWS
                for the quarters ended March 31, 1999 and 1998
                                  (Unaudited)

                                                 1999            1998
                                            --------------  --------------
Operating activities:
  Net loss                                  $     (23,113)  $     (43,878)
  Adjustments to reconcile net loss
    to net cash used in operating
    activities:
      Net change in:
        Accounts and accrued interest
          receivable                                  557           7,757
        Prepaid expenses                           (1,896)
        Accounts payable                            1,715          14,803
        Due to affiliates                           2,690           3,864
                                            --------------  --------------
    Net cash used in operating activities         (20,047)        (17,454)
                                            --------------  --------------
                                                          
Financing activity:
  Distribution to Limited Partners                               (403,462)
                                                            --------------
  Cash used in financing activity                                (403,462)
                                                            --------------
Net change in cash and cash equivalents           (20,047)       (420,916)
Cash and cash equivalents at beginning
  of period                                     1,948,772       2,418,169
                                            --------------  --------------
Cash and cash equivalents at end of period  $   1,928,725   $   1,997,253
                                            ==============  ==============
                                               
The accompanying notes are an integral part of the financial statements.
<PAGE>
                     BALCOR REALTY INVESTORS 85-SERIES II
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                         NOTES TO FINANCIAL STATEMENTS

1. Accounting Policy:

In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the quarter ended March 31,
1999, and all such adjustments are of a normal and recurring nature.

2. Partnership Termination:

The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership sold its final real estate investment in March
1997. The timing of the termination of the Partnership and final distribution
of cash will depend upon the nature and extent of liabilities and contingencies
which exist or may arise. Such contingencies may include legal and other fees
and costs stemming from litigation involving the Partnership including, but not
limited to, the lawsuits discussed in Note 4 of Notes to the Financial
Statements. Due to this litigation, the Partnership will not be dissolved and
reserves will be held by the Partnership until the conclusion of all
contingencies. There can be no assurances as to the time frame for conclusion
of these contingencies.
 
3. Transactions with Affiliates:

Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1999 are:
                                               
                                      Paid        Payable
                                   ------------  ---------         
   Reimbursement of expenses to
     the General Partner, at cost     $ 9,328    $ 23,946 

4. Contingencies:

The Partnership is currently involved in two related lawsuits, Masri vs. Lehman
Brothers, Inc., et al. and Bruss, et al. vs. Lehman Brothers, Inc., et al.,
whereby the Partnership and certain affiliates have been named as defendants
alleging substantially similar claims involving certain state securities and
common law violations with regard to the property acquisition process of the
Partnership, and to the adequacy and accuracy of disclosures of information
concerning, as well as marketing efforts related to, the offering of the
Limited Partnership Interests of the Partnership. The defendants continue to
vigorously contest these actions. A plaintiff class has not been certified in
either action. With respect to the Masri case, no determinations upon any
significant issues have been made. The Bruss complaint was filed on January 25,
1999. It is not determinable at this time how the outcome of either action will
impact the remaining cash reserves of the Partnership. The Partnership believes
it has meritorious defenses to contest the claims.
<PAGE>
                     BALCOR REALTY INVESTORS 85-SERIES II
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                     MANAGEMENT'S DISCUSSION AND ANALYSIS

Balcor Realty Investors 85-Series II (the "Partnership") was formed in 1984 to
invest in and operate real property. The Partnership raised $83,936,000 through
the sale of Limited Partnership Interests and utilized these proceeds to
acquire thirteen real property investments and a minority joint venture
interest in one additional real property.  As of March 31, 1999, the
Partnership had no properties remaining in its portfolio.

Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1998 for a more complete understanding of
the Partnership's financial position.

Operations
----------

Summary of Operations
---------------------

The operations of the Partnership in 1999 and 1998 consisted of administrative
expenses which were partially offset by interest income earned on short-term
investments. As a result of lower administrative expenses in 1999, the
Partnership's net loss decreased during the quarter ended March 31, 1999 as
compared to 1998. The decrease in the net loss was partially offset by lower
interest income earned on short-term investments. Further discussion of the
Partnership's operations is summarized below.

1999 Compared to 1998
---------------------

Discussions of fluctuations between 1999 and 1998 refer to the quarters ended
March 31, 1999 and 1998.

As a result of lower average cash balances due primarily to a distribution to
Limited Partners in January 1998 and lower interest rates, interest income on
short-term investments decreased during 1999 when compared to 1998. 

Primarily due to a decrease in accounting fees, administrative expenses
decreased during 1999 as compared to 1998.

Liquidity and Capital Resources
-------------------------------

The cash position of the Partnership decreased by approximately $20,000 as of
March 31, 1999 as compared to December 31, 1998 due to cash used in operating
activities for the payment of administrative expenses, which was partially
offset by interest income earned on short-term investments. 
<PAGE>
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership sold its final real estate investment in March
1997. The timing of the termination of the Partnership and final distribution
of cash will depend upon the nature and extent of liabilities and contingencies
which exist or may arise. Such contingencies may include legal and other fees
and costs stemming from litigation involving the Partnership including, but not
limited to, the lawsuits discussed in Note 4 of Notes to the Financial
Statements. Due to this litigation, the Partnership will not be dissolved and
reserves will be held by the Partnership until the conclusion of all
contingencies. There can be no assurances as to the time frame for conclusion
of these contingencies.

Limited Partners have received cumulative distributions of Net Cash Proceeds of
$154.81 per $1,000 Interest, as well as certain tax benefits. No additional
distributions are anticipated to be made prior to the termination of the
Partnership. However, after paying final partnership expenses, any remaining
cash reserves will be distributed. Limited Partners will not recover a
substantial portion of their original investment.

The Partnership sold all of its remaining real property investments and
distributed a majority of the proceeds from these sales to Limited Partners in
1996 and 1997. Since the Partnership no longer has any operating assets, the
number of computer systems and programs necessary to operate the Partnership
has been significantly reduced. The Partnership relies on third party vendors
to perform most of its functions and has implemented a plan to determine the
Year 2000 compliance status of these key vendors. The Partnership is within its
timeline for having these plans completed prior to the year 2000.

The Partnership's plan to determine the Year 2000 compliance status of its key
vendors involves the solicitation of information from these vendors through the
use of surveys, follow-up discussions and review of data where needed. The
Partnership has sent out surveys to these vendors and received back a majority
of these surveys. While the Partnership cannot guarantee Year 2000 compliance
by its key vendors, and in many cases will be relying on statements from these
vendors without independent verification, preliminary surveys indicate that the
key vendors performing services for the Partnership are aware of the issues and
are working on a solution to achieve compliance before the year 2000. The
Partnership is in the process of developing a contingency plan in the event any
of its key vendors are not Year 2000 compliant prior to the year 2000. As part
of its contingency plan, the Partnership will identify replacement vendors in
the event that current vendors are not substantially Year 2000 compliant by
June 30, 1999. The Partnership does not believe that failure by any of its key
vendors to be Year 2000 compliant by the year 2000 would have a material effect
on the business, financial position or results of operations of the
Partnership.
<PAGE>
                    BALCOR REALTY INVESTORS 85 - SERIES II
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                          PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------

(a) Exhibits:

(4) Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-11 dated March 12, 1985
(Registration No. 2-95000) and Form of Confirmation regarding Interests in the
Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1992 are incorporated herein by reference.

(27) Financial Data Schedule of the Registrant for the quarter ending March 31,
1999 is attached hereto.

(b) Reports on Form 8-K: No Reports were filed on Form 8-K during the quarter
ended March 31, 1999.
<PAGE>
SIGNATURES

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


                         BALCOR REALTY INVESTORS 85-SERIES II
                         A REAL ESTATE LIMITED PARTNERSHIP



                         By:  /s/Thomas E. Meador                            
                              ---------------------------------
                              Thomas E. Meador
                              President and Chief Executive Officer (Principal
                              Executive Officer) of Balcor Partners - XVII, 
                              the General Partner



                         By:  /s/Jayne A. Kosik                            
                              ----------------------------------
                              Jayne A. Kosik
                              Senior Managing Director and Chief Financial 
                              Officer (Principal Accounting and Financial 
                              Officer) of Balcor Partners - XVII, the General 
                              Partner





Date:  May 7, 1999                   
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