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, 1997


[  ]  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                           (IRS Employer
incorporation or organization)                          Identification No.)

                        One Insignia Financial Plaza
                      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)

                               September 30, 1997


Assets
  Cash and cash equivalents:
     Unrestricted                                            $  3,616,965
     Restricted--tenant security deposits                          18,536
  Accounts receivable, net of $54,801
    allowance for doubtful accounts                               274,517
  Prepaid expenses                                                116,116
  Deferred charges                                                208,667
  Deferred rent receivable                                         74,046
  Escrows and other assets                                        188,215
  Real and personal property:
     Land and improvements                    $  9,102,865
     Buildings and improvements                 24,183,680
                                                33,286,545
     Less accumulated depreciation             (14,983,347)    18,303,198
                                                             $ 22,800,260

Liabilities and Partners' Equity (Deficit)

Liabilities
  Accounts payable                                           $    243,763
  Accrued liabilities:
     Interest                                 $     74,470
     Real estate taxes                             307,284
     Professional fees                              56,106
     Other                                         333,454        771,314
  Demand note payable - related party                              25,000
  Deposits and other liabilities                                   66,097
  Mortgages payable                                            15,528,587
       Total liabilities                                       16,634,761

  Partners' Equity (Deficit)
     General partner's                        $   (117,193)
     Limited partners' (60,095 units issued
       and 59,905 units outstanding)             6,282,692      6,165,499
                                                             $ 22,800,260

                 See Notes to Consolidated Financial Statements



b)                   DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III

                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                        (Unaudited)
<TABLE>
<CAPTION>
                                       Three Months Ended         Nine Months Ended
                                          September 30,             September 30,
                                       1997          1996         1997         1996
<S>                               <C>           <C>          <C>           <C>
Revenues:
 Hotel operations                  $1,486,908    $1,395,109   $5,934,188    $5,654,675
 Rental operations                    409,061       398,985    1,293,312     1,230,618
 Other income                          42,267        33,010      126,111       103,546
   Total revenues                   1,938,236     1,827,104    7,353,611     6,988,839

Expenses:
 Hotel operations                   1,423,617     1,376,014    4,622,321     4,443,979
 Rental operations                    122,549       106,580      366,623       359,951
 Depreciation and amortization        311,293       316,696      934,467       949,242
 Mortgage interest                    372,388       364,253    1,115,615     1,088,205
 General and administrative            22,044        26,222       95,729        88,712
   Total expenses                   2,251,891     2,189,765    7,134,755     6,930,089

Net (loss) income                  $ (313,655)   $ (362,661)  $  218,856    $   58,750

Net (loss) income allocated to
  general partner (1%)             $   (3,137)   $   (3,627)  $    2,189    $      588
Net (loss) income allocated to
  limited partners (99%)             (310,518)     (359,034)     216,667        58,162

                                   $ (313,655)   $ (362,661)  $  218,856    $   58,750

Net (loss) income per limited
 unit                              $    (5.18)   $    (5.99)  $     3.62    $      .97
<FN>
                See Notes to Consolidated Financial Statements
</FN>
</TABLE>

c)               DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III
        CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                          Limited
                                        Partnership   General      Limited
                                           Units      Partner's    Partners'        Total
<S>                                     <C>        <C>          <C>           <C>
Original capital contributions           60,095     $   1,000    $30,047,500   $30,048,500

Partners' (deficit) equity at
  December 31, 1996                      59,905     $(119,382)   $ 6,066,025   $ 5,946,643

Net income for the nine months
  ended September 30, 1997                   --         2,189        216,667       218,856

Partners' (deficit) equity at
  September 30, 1997                     59,905     $(117,193)   $ 6,282,692   $ 6,165,499
<FN>
                      See Notes to Consolidated Financial Statements
</FN>
</TABLE>

d)                  DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III

                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (Unaudited)
<TABLE>
<CAPTION>
                                                                    Nine Months Ended
                                                                      September 30,
                                                                    1997         1996
<S>                                                            <C>           <C>
Cash flows from operating activities:
 Net income                                                     $  218,856    $   58,750
 Adjustments to reconcile net income to net
  cash provided by operating activities:
  Depreciation and amortization                                    934,467       949,242
  Change in accounts:
    Restricted cash                                                  1,446            --
    Accrued interest receivable                                         --       (23,318)
    Accounts receivable                                             16,921      (132,411)
    Prepaid expense                                                (32,329)      101,296
    Deferred charges                                               (46,820)       (9,043)
    Deferred rent receivable                                        10,834           682
    Escrows and other assets                                       (26,444)     (263,664)
    Accounts payable                                              (155,866)      140,501
    Accrued liabilities                                            277,382       186,664
    Deposits and other liabilities                                  (9,700)        1,350

      Net cash provided by operating activities                  1,188,747     1,010,049

Cash flows from investing activities:
 Property improvements and replacements                           (223,046)     (310,269)
 Purchases of certificates of deposit                                   --       (20,614)

      Net cash used in investing activities                       (223,046)     (330,883)

Cash flows from financing activities:
 Payments of mortgages payable                                    (196,434)      (75,490)
 Distributions paid to partners                                   (599,050)     (599,050)

      Net cash used in financing activities                       (795,484)     (674,540)

Net increase in unrestricted cash and cash equivalents             170,217         4,626

Unrestricted cash and cash equivalents at beginning of period    3,446,748     1,829,631

Unrestricted cash and cash equivalents at end of period         $3,616,965    $1,834,257

Supplemental disclosure of cash flow information:
 Cash paid for interest                                         $1,112,903    $1,088,386
<FN>
                      See Notes to Consolidated Financial Statements
</FN>
</TABLE>

e)               DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES III

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    (Unaudited)


NOTE 1 - 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, 1997,
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1997.  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, 1996.

NOTE 2 - 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.

Certain reclassifications have been made to the 1996 information to conform to
the 1997 presentation.

NOTE 3 - TRANSACTIONS WITH AFFILIATED PARTNERS

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 payments to affiliates for services and
as reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.

On June 24, 1997, Insignia Financial Group, Inc., a Delaware corporation
("Insignia"), and IFGP Corporation, a Delaware corporation ("IFGP)
(collectively, the "Buyer"), entered into a Stock Purchase Agreement (the
"Agreement") with The Wynnewood Company, Inc., a New York corporation
("Seller"), DBL, a New York corporation, and William Clements, an individual and
the owner of 100% of the capital stock of Seller ("Clements").  The closing of
the transactions contemplated by the Agreement occurred on June 24, 1997 (the
"Closing").  At the Closing, pursuant to the
terms and conditions of the Agreement, the Buyer acquired all of the issued and
outstanding stock of DBL.

Upon the Closing, the officers and directors of DBL resigned and Insignia caused
new officers and directors of this entity to be elected.

The following transactions with The Wynnewood Company and its affiliates prior
to June 24, 1997, and with affiliates of Insignia subsequent to June 24, 1997,
were incurred during the nine month periods ended September 30, 1997 and 1996:

                                                      For the Nine Months Ended
                                                             September 30,
                                                            1997         1996
   Property management fees (including in operating
     expenses)                                           $285,329      $211,199
   Reimbursement for services of affiliates (included
     in general and administrative expenses)               10,500            --


Prior to Insignia's affiliation on June 24, 1997, affiliates of Insignia
provided property management and partnership administrative services for the
Partnership.

NOTE 4 - DISTRIBUTION TO LIMITED PARTNERS

In December 1996, the Partnership declared a cash distribution to the limited
partners in the amount of $599,050 ($10.00 per limited partnership interest).
The distribution was accrued at December 1996 and paid in March 1997.

NOTE 5 - SUBSEQUENT EVENT, MORTGAGE PAYABLE

On October 15, 1997, the mortgage encumbering Shallowford Corners Shopping
Center, which originally matured April 15, 1997, was extended through a
forbearance agreement to June 30, 1998.  The forbearance agreement requires
interest only payments based on a 10% annum interest rate.


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, 1997 and 1996:

                                                    Average
                                                   Occupancy
Property                                       1997          1996

Perimeter Square                                91%           94%
   Tulsa, Oklahoma
Shallowford Corners                             91%           90%
   Roswell, Georgia
Green Valley Hotel                              67%           67%
   Green Valley, Arizona
Tucson Airport Hotel                            79%           81%
   Tucson, Arizona


For the nine months ended September 30, 1997, the Partnership realized net
income of $218,856 compared to net income of $58,750 for the corresponding
period of 1996. For the three months ended September 30, 1997 and 1996, the
Partnership realized net losses of $313,655 and $362,661, respectively.  This
fluctuation in net earnings is due primarily to the seasonal variation in
occupancy at the Green Valley and Tucson Airport Hotels.

The increase in net income for the nine months ended September 30, 1997, was due
primarily to the increase in hotel net operating income.  During the nine months
ended September 30, 1997, the hotels had net operating income of $1,311,867
compared to $1,210,696 for the corresponding period in 1996 primarily due to an
increase in room rates at the Tucson Airport Hotel.  Also contributing to the
increase in net income was an increase in rental and other income.  Rental
income increased primarily due to new leases being executed at Shallowford
Corners at rental rates which exceeded the expired leases on the same space.
Other income increased due to an increase in interest income as a result of
higher average cash balances.

As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environments of the 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 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, 1997, the Partnership had unrestricted cash and cash
equivalents of $3,616,965 versus $1,834,257 at September 30, 1996.  The increase
in unrestricted cash is primarily due to a long term certificate of deposit
investment being reinvested in a short term certificate of deposit, and as a
result, is included in unrestricted cash at September 30, 1997.  Net cash
provided by operating activities increased primarily due to the increase in net
income, as discussed above.  Net cash used in investing activities decreased
primarily due to a decrease in property improvement and replacement
expenditures. Net cash used in financing activities increased due to a
$1,500,000 mortgage payable encumbering Perimeter Square, which requires monthly
principal payments, being executed in October 1996.

The main tenant in the Shallowford Corners Shopping Center, occupying 45,528 sq.
ft., approximately 39% of the leaseable space, was approached by a competing
center to vacate its space and occupy space in the competing center. The General
Partner has had a number of discussions with that tenant regarding expanding and
improving the space it occupies as well as adding additional parking space to
the center.  The tenant is presently studying its alternatives. In October 1997,
the General Partner executed a new letter of intent for the sale of the
property.  The sale of the property is anticipated to close during December
1997.  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 June 30, 1998.  The
forbearance agreement requires interest only payments based on a 10% per annum
interest rate.  If the property is not sold, the property could be lost through
foreclosure when the forbearance agreement expires.

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 properties to adequately maintain the physical
assets and other operating needs of the Partnership.  Such assets are currently
thought to be sufficient for any near-term needs of the Partnership.  The
mortgage indebtedness of $15,528,587 matures at various times with balloon
payments due at maturity at which time the properties will either be refinanced
or sold (also see discussion above regarding Shallowford Corners Shopping
Center). Future cash distributions will depend on the levels of cash generated
from operations, property sales, and the availability of cash reserves.
Distributions of $599,050 ($10 per limited partner unit) were paid to the
limited partners during the nine months ended September 30, 1997 and 1996.



                            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:  None filed during the quarter ended 
           September 30, 1997.


                                     SIGNATURE


  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/William H. Jarrard, Jr.
                               William H. Jarrard, Jr.
                               President and Director


                         Date: November 13, 1997