FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT
                          UNDER SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                        QUARTERLY OR TRANSITIONAL REPORT


                    U.S. Securities and Exchange Commission
                            Washington, D.C.  20549


                                  FORM 10-QSB

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


               For the quarterly period ended September 30, 1998


[ ]  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 2-95502


               DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
       (Exact name of small business issuer as specified in its charter)


         New York                                           13-3251176
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                          Identification No.)

                        55 Beattie Place, P.O. Box 1089
                        Greenville, South Carolina 29602
                    (Address of principal executive offices)

                                 (864) 239-1000
                          (Issuer's telephone number)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

a)
               DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III

                           CONSOLIDATED BALANCE SHEET
                                  (Unaudited)
                        (in thousands, except unit data)

                               September 30, 1998



Assets
 Cash and cash equivalents                             $ 3,655
 Receivables and deposits                                  565
 Other assets                                              312
 Investment properties:
     Land                                     $ 9,103
     Buildings and related personal property   24,531
                                               33,634
     Less accumulated depreciation            (16,178)  17,456

                                                       $21,988

Liabilities and Partners' Capital (Deficit)

Liabilities:
 Accounts payable                                      $   302
 Tenant security deposit liabilities                        47
 Accrued property taxes                                    280
 Due to affiliate                                          822
 Other liabilities                                         571
 Mortgage notes payable                                 15,242

Partners' Capital (Deficit):
 General partner's                            $  (127)
 Limited partners' (59,905 units issued
     and outstanding)                           4,851    4,724

                                                       $21,988
          See Accompanying Notes to Consolidated Financial Statements


b)
               DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
                        (in thousands, except unit data)




                                    Three Months           Nine Months
                                 Ended September 30,   Ended September 30,
                                   1998       1997       1998       1997
Revenues:
  Hotel operations              $ 1,328      $ 1,487    $ 5,342    $ 5,934
  Rental operations                 445          410      1,297      1,294
  Other income                       39           42        112        126
     Total revenues               1,812        1,939      6,751      7,354

Expenses:
  Hotel operations                1,445        1,358      4,346      4,423
  Rental operations                 108           95        323        281
  General and administrative         69           22        146         96
  Interest                          393          378      1,204      1,130
  Property taxes                    100           96        299        293
  Depreciation                      299          304        896        912
     Total expenses               2,414        2,253      7,214      7,135

Net (loss) income               $  (602)     $  (314)   $  (463)   $   219

Net (loss) income allocated to
  general partner (1%)          $    (6)     $    (3)   $    (5)   $     2

Net (loss) income allocated to
  limited partners (99%)           (596)        (311)      (458)       217
                                $  (602)     $  (314)   $  (463)   $   219

Net (loss) income per limited
  partnership unit              $ (9.95)     $ (5.19)   $ (7.65)   $  3.62

Distribution per limited
  partnership unit              $    --      $    --    $ 10.00    $    --

          See Accompanying Notes to Consolidated Financial Statements


c)
               DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III

        CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
                                  (Unaudited)
                        (in thousands, except unit data)


<TABLE>
<CAPTION>
                                    Limited
                                  Partnership   General     Limited
                                     Units      Partner    Partners       Total
<S>                                <C>        <C>          <C>         <C>
Original capital contributions      60,095     $       1    $  30,048   $  30,049

Partners' (deficit) capital at
  December 31, 1997                 59,905     $    (122)   $   5,908   $   5,786

Distribution to limited partners        --            --        (599)       (599)

Net loss for the nine months
  ended September 30, 1998              --            (5)       (458)       (463)

Partners' (deficit) capital at
  September 30, 1998                59,905     $    (127)   $   4,851   $   4,724
<FN>
          See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>

d)
               DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>

                                                              Nine Months Ended
                                                                 September 30,
                                                                1998      1997
<S>                                                           <C>       <C>
Cash flows from operating activities:
   Net (loss) income                                           $  (463)  $   219
   Adjustments to reconcile net (loss) income to net
    cash provided by operating activities:
     Depreciation                                                  896       912
     Amortization of loan costs and lease
     commissions                                                    66        22
     Changes in accounts:
        Receivables and deposits                                  (193)      (37)
        Other assets                                                 2       (39)
        Accounts payable                                           (50)     (156)
        Tenant security deposit liabilities                          4        (5)
        Accrued property taxes                                     158       153
        Due to affiliate                                            62        --
        Other liabilities                                          160       119

          Net cash provided by operating activities                642     1,188

Cash flows used in investing activities:
   Property improvements and replacements                         (254)     (223)

Cash flows from financing activities:
   Payments on mortgage notes payable                             (218)     (196)
   Loan costs paid                                                 (25)       --
   Distribution paid to limited partners                          (599)     (599)

          Net cash used in financing activities                   (842)     (795)

Net (decrease) increase in cash and cash equivalents              (454)     170

Cash and cash equivalents at beginning of period                 4,109     3,447

Cash and cash equivalents at end of period                     $ 3,655   $ 3,617

Supplemental disclosure of cash flow information:
  Cash paid for interest                                       $ 1,172   $ 1,113
<FN>
     See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>

             e)   DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


NOTE A - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Drexel Burnham
Lambert Real Estate Associates III (the "Partnership") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B.  Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.  In the opinion of DBL Properties Corporation ("DBL" or
the "General Partner"), all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 30, 1998,
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1998.  For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-KSB for the fiscal year ended December
31, 1997.

NOTE B - BASIS OF ACCOUNTING

The consolidated financial statements include the accounts of the Partnership
and its 90% general partnership interest in DBL Airport Valley Limited
Partnership ("DBLAV"), which owns and operates two hotels in Tucson and Green
Valley, Arizona, and its 90% general partnership interest in Shallowford
Associates, Ltd. ("Shallowford"), which owns and operates a shopping center in
Roswell, Georgia. All material intercompany transactions and balances have been
eliminated in consolidation.  In addition, the consolidated financial statements
include the accounts and operations of its wholly-owned property, Perimeter
Square Shopping Center ("Perimeter Square"), which is a shopping center in
Tulsa, Oklahoma.

Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.

NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES

The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership Agreement provides for certain payments to affiliates for
services and as reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.

On June 24, 1997, IFGP Corporation acquired all of the issued and outstanding
stock of DBL. Upon the closing, the officers and directors of DBL resigned and
IFGP Corporation caused new officers and directors of this entity to be elected.

The following transactions with The Wynnewood Company (the former owner of DBL)
and its affiliates prior to June 24, 1997, and with affiliates of IFGP
Corporation subsequent to June 24, 1997, during the nine month period ended
September 30, 1997, and with affiliates of IFGP Corporation during the nine
month period ended September 30, 1998, were incurred:

                                                          1998      1997
                                                          (in thousands)
   Property management fees (included in
     operating expenses)                                 $321       $285
   Reimbursement for services of affiliates (included
     in general and administrative expenses)               70         11

Prior to June 24, 1997, affiliates of the General Partner provided property
management services for the commercial properties and partnership administrative
services for the Partnership.  At September 30, 1998, the Partnership owed an
affiliate of the General Partner approximately $822,000 for payroll expenses
paid by an affiliate of the General Partner on behalf of the hotel properties.
Subsequent to September 30, 1998, approximately $237,000 of such amount has been
paid.

Included in other liabilities at September 30, 1998, is a $25,000 note payable
to the co-venturer in Shallowford.  The note does not have any stipulated terms
for repayment and it accrues interest at 3% above prime.  Interest expense on
the note amounted to approximately $2,000 for both the nine month periods ended
September 30, 1998 and 1997, respectively.  Total accrued interest payable of
approximately $17,000 is included in other liabilities at September 30, 1998.

NOTE D - DISTRIBUTIONS TO LIMITED PARTNERS

In February 1998, the Partnership declared and paid a cash distribution to the
limited partners of approximately $599,000 ($10.00 per limited partnership
unit).

In December 1996, the Partnership declared a cash distribution to the limited
partners of approximately $599,000 ($10.00 per limited partnership unit).  The
distribution was accrued at December 1996 and paid in March 1997.

NOTE E - SUBSEQUENT EVENT; TRANSFER OF CONTROL

On October 1, 1998, Insignia Financial Group, Inc., the sole shareholder of IFGP
Corporation,  completed its merger with and into Apartment Investment and
Management Company  ("AIMCO"), a publicly traded real estate investment trust,
with AIMCO being the surviving corporation (the "Insignia Merger"). As a result
of the Insignia Merger, AIMCO acquired control of IFGP Corporation and, as a
result thereof, the General Partner.  The General Partner does not believe that
this transaction will have a material effect on the affairs and operations of
the Partnership.

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The Partnership's investment properties consist of two shopping centers and two
hotels. The following table sets forth the average occupancy of the properties
for the nine month periods ended September 30, 1998 and 1997:

                                          Average
                                         Occupancy
Property                              1998       1997
Perimeter Square                       91%        91%
   Tulsa, Oklahoma
Shallowford Corners                    92%        91%
   Roswell, Georgia
Green Valley Hotel                     61%        67%
   Green Valley, Arizona
Tucson Airport Hotel                   74%        79%
   Tucson, Arizona


The General Partner attributes the decline in occupancy at Tuscon Airport Hotel
to the addition of three new competing hotels in the vicinity of the property.
Additionally, two more competing hotels are expected to open for business during
1998.  The General Partner attributes the decline in occupancy at Green Valley
Hotel to the absence of a movie production for which the hotel was the primary
facility for the production employees in 1997.

The Partnership realized net losses of approximately $602,000 and $463,000 for
the three and nine month periods ended September 30, 1998, respectively. For the
three month period ended September 30, 1997, the Partnership realized a net loss
of approximately $314,000.  For the nine month period ended September 30, 1997,
the Partnership realized net income of approximately $219,000.  The increase in
net loss for the three and nine month periods are attributable to decreased
hotel income and increased interest and general and administrative expenses.
The decrease in hotel income is primarily due to the declines in occupancy
discussed above. Partially offsetting the decrease in hotel operations income is
a decrease in hotel operations expense that coincides with the decrease in
occupancies discussed above.  The increase in interest expense is the result of
the Partnership successfully negotiating a forbearance agreement with the holder
of the mortgage encumbering Shallowford Corners. The agreement required
increasing the interest rate from 8.75% to 10% (see below for discussion on
Shallowford Corners).  The increase in general and administrative expense is
primarily due to an increase in legal fees.

As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental or hospitality market environment of each of its investment
properties to assess the feasibility of increasing rates, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expense.  As part of this plan, the General Partner attempts to protect the
Partnership from the burden of inflation-related increases in expenses by
increasing rates and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental or room rate reductions to offset softening market conditions, there
is no guarantee that the General Partner will be able to sustain such a plan.

At September 30, 1998, the Partnership held cash and cash equivalents of
approximately $3,655,000 versus approximately $3,617,000 at September 30, 1997.
The decrease in cash and cash equivalents for the nine month period ended
September 30, 1998, was approximately $454,000.  The increase in cash and cash
equivalents for the nine month period ended September 30, 1997, was
approximately $170,000.  Net cash provided by operating activities decreased
primarily due to the decrease in hotel operations, as discussed above, as well
as a decrease in receivables and deposits.  The decrease results from the timing
of collections on the receivables. Net cash used in investing activities
increased due to increased property improvement and replacement expenditures.
Net cash used in financing activities increased due to increased mortgage
payments.

The first mortgage of $7,750,000 on the property matured on April 15, 1997.  On
October 15, 1997, the General Partner negotiated a forbearance agreement with
the holder of the mortgage through December 30, 1998.  The forbearance agreement
requires interest only payments based on a 10% per annum interest rate. The
General Partner is currently negotiating options with the lender regarding the
forbearance agreement. If an agreement with the lender cannot be reached, the
property could be lost through foreclosure.

The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the investment properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state and local legal and regulatory requirements. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
The General Partner is currently assessing the need for capital improvements at
each of the Partnership's properties.  To the extent that additional capital
improvements are required the Partnership's distributable cash flow, if any, may
be adversely affected, at least in the short term. The mortgage indebtedness of
approximately $15,242,000 is being amortized over varying periods with balloon
payments due over periods ranging from December 1998 (see discussion above
regarding Shallowford Corners Shopping Center) to November 2001. The General
Partner will attempt to refinance such remaining indebtedness or sell the
properties prior to such maturity dates.  If the properties cannot be refinanced
or sold for a sufficient amount, the Partnership will risk losing such
properties through foreclosure. Distributions of approximately $599,000 ($10 per
limited partner unit) were paid to the limited partners during the nine months
ended September 30, 1998 and 1997.  Future cash distributions will depend on the
levels of cash generated from operations, property sales or refinancings, and
the availability of cash reserves.  The Partnership's distribution policy will
be reviewed on a quarterly basis.  There can be no assurance, however, that the
Partnership will generate sufficient funds from operations to permit additional
distributions to its partners in 1998 or subsequent periods.

Transfer of Control; Subsequent Event

On October 1, 1998, Insignia Financial Group, Inc., the sole shareholder of IFGP
Corporation, completed its merger with and into Apartment Investment and
Management Company  ("AIMCO"), a publicly traded real estate investment trust,
with AIMCO being the surviving corporation (the "Insignia Merger"). As a result
of the Insignia Merger, AIMCO acquired control of IFGP Corporation and, as a
result thereof, the General Partner.  The General Partner does not believe that
this transaction will have a material effect on the affairs and operations of
the Partnership.

Year 2000

General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year.  The Partnership is
dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent").  Any computer programs or hardware
that have date-sensitive software or embedded chips may recognize a date using
"00" as the year 1900 rather than the year 2000.  This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

The Managing Agent has determined that it will be required to modify or replace
significant portions of its software and certain hardware so that those systems
will properly utilize dates beyond December 31, 1999. The Managing Agent
presently believes that with modifications or replacements of existing software
and certain hardware, the Year 2000 Issue can be mitigated.  However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Managing
Agent and the Partnership.

Status of Progress in Becoming Year 2000 Compliant

The Managing Agent's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing and implementation.  To date, the
Managing Agent has fully completed its assessment of all information systems
that could be significantly affected by the Year 2000, and has begun the
remediation, testing and implementation phase on both hardware and software
systems.  Assessments are continuing in regards to embedded systems in operating
equipment.  The Managing Agent anticipates having all phases complete by June 1,
1999.

In addition to the areas the Partnership is relying on the Managing Agent to
verify compliance with,  the Partnership has certain operating equipment,
primarily at the property sites,  which needed to be evaluated for Year 2000
compliance.  The focus of the General Partner was to the security systems,
elevators, heating-ventilation-air-conditioning systems, telephone systems and
switches, and sprinkler systems. The General Partner is currently engaged in the
identification of all non-compliant operational systems, and is in the process
of estimating the costs associated with any potential modifications or
replacements needed to such systems in order for them to be Year 2000 compliant.
It is not expected that such costs would have a material adverse affect upon
the operations of the Partnership.

Risk Associated with the Year 2000

The General Partner believes that the Managing Agent has an effective program in
place to resolve the Year 2000 issue in a timely manner and has appropriate
contingency plans in place for critical applications that could affect the
Partnership's operations.   To date, the General Partner  is not aware of any
external agent with a Year 2000 issue that would materially impact the
Partnership's results of operations, liquidity or capital resources.  However,
the General Partner has no means of ensuring that external agents will be Year
2000 compliant.  The General Partner does not believe that the inability of
external agents to complete their Year 2000 resolution process in a timely
manner will have a material impact on the financial position or results of
operations of the Partnership.  However, the effect of non-compliance by
external agents is not readily determinable.

Other

Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements.  Such forward-looking statements speak only as of the date
of this quarterly report.  The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.


                           PART II - OTHER INFORMATION
 


  ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K


      a)       Exhibit 27, Financial Data Schedule, is filed as an exhibit to
               this report.

      b)       Reports on Form 8-K:  A Form 8-K was filed on September 30, 1998,
               regarding changes in Registrant's certifying accountants 
               (Item 4).
 

                                   SIGNATURES


  In accordance with the requirements of the Exchange Act, the registrant
  caused this report to be signed on its behalf by the undersigned, thereunto
  duly authorized.



                         DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III

                         By:  DBL Properties Corporation
                              Its General Partner



                         By:  /s/Patrick Foye
                              Patrick Foye
                              Executive Vice President


                         By:  /s/Timothy R. Garrick
                              Timothy R. Garrick
                              Vice President - Accounting
                              (Duly Authorized Officer)


                         Date:  November 16, 1998