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 June 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.)

                  One Insignia Financial Plaza, 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)

                                 June 30, 1998



Assets
 Cash and cash equivalents                                        $ 3,490
 Receivables and deposits                                             410
 Other assets                                                         310
 Investment properties:
     Land                                              $ 9,103
     Buildings and related personal property            24,336
                                                        33,439
     Less accumulated depreciation                     (15,879)    17,560

                                                                  $21,770

Liabilities and Partners' Capital (Deficit)

Liabilities
 Accounts payable                                                 $   279
 Tenant security deposit liabilities                                   47
 Accrued property taxes                                               184
 Due to affiliate                                                     215
 Other liabilities                                                    402
 Mortgage notes payable                                            15,317

Partners' Capital (Deficit)
 General partner's                                     $  (121)
 Limited partners' (59,905 interests issued
     and outstanding)                                    5,447      5,326

                                                                  $21,770

          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           Six Months
                                     Ended June 30,        Ended June 30,
                                    1998       1997       1998       1997
Revenues:
  Hotel operations               $ 1,600      $ 1,842    $ 4,014    $ 4,447
  Rental operations                  435          426        852        884
  Other income                        33           39         73         84
     Total revenues                2,068        2,307      4,939      5,415

Expenses:
  Hotel operations                 1,413        1,459      2,901      3,065
  Rental operations                  121           93        215        186
  General and administrative          57           44         77         74
  Interest                           394          375        811        752
  Property taxes                      98           99        199        197
  Depreciation                       298          304        597        608
     Total expenses                2,381        2,374      4,800      4,882

Net (loss) income                $  (313)     $   (67)   $   139    $   533

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

Net (loss) income allocated to
  limited partners (99%)            (310)         (66)       138        528
                                 $  (313)     $   (67)   $   139    $   533

Net (loss) income per limited
  partnership unit               $ (5.17)     $ (1.10)   $  2.30    $  8.81

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
                                         Interest     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 income for the six months
  ended June 30, 1998                        --             1            138          139

Partners' (deficit) capital at
  June 30, 1998                          59,905     $    (121)     $   5,447    $   5,326
<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)



                                                        Six Months Ended
                                                            June 30,
                                                        1998        1997
Cash flows from operating activities:
   Net income                                         $   139     $   533
   Adjustments to reconcile net income to net
    cash provided by operating activities:
     Depreciation                                         597         608
     Amortization of loan costs and lease commissions      45          15
     Change in accounts:
        Receivables and deposits                          (38)        (69)
        Other assets                                       --         (29)
        Accounts payable                                  (73)        (81)
        Tenant security deposit liabilities                 4          (4)
        Accrued property taxes                             62         127
        Due to affiliate                                 (545)         --
        Other liabilities                                  (9)        (52)

          Net cash provided by operating activities       182       1,048

Cash flows used in investing activities:
   Property improvements and replacements                 (59)       (146)

Cash flows from financing activities:
   Payments on mortgage notes payable                    (143)       (130)
   Distribution paid to limited partners                 (599)       (599)
          Net cash used in financing activities          (742)       (729)

Net (decrease) increase in cash and cash
   equivalents                                           (619)        173

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

Cash and cash equivalents at end of period            $ 3,490     $ 3,620

Supplemental disclosure of cash flow information:
  Cash paid for interest                              $   789     $   743

               See Accompanying Notes to Consolidated Financial Statements

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 six month periods ended June 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, Insignia Financial Group, Inc., a Delaware corporation
("Insignia"), and IFGP Corporation, a wholly-owned subsidiary of Insignia and 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.  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 during
the six month period ended June 30, 1997, and with affiliates of Insignia during
the six month period ended June 30, 1998, were incurred (in thousands):

                                                             1998    1997

   Property management fees (included in operating
     expenses)                                               $234     $227
   Reimbursement for services of affiliates (included
     in general and administrative expenses)                   45       --

Prior to Insignia's affiliation on June 24, 1997, affiliates of Insignia
provided property management services for the commercial properties and
partnership administrative services for the Partnership.  At June 30, 1998, the
Partnership owed Insignia approximately $215,000 for payroll expenses paid by
Insignia on behalf of the hotel properties.

Included in other liabilities at June 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 $1,000 for both the six month periods ended June
30, 1998 and 1997. Total accrued interest payable of approximately $16,000 is
included in other liabilities at June 30, 1998.

On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust.  The closing, which
is anticipated to happen in September or October of 1998, is subject to
customary conditions, including government approvals and the approval of
Insignia's shareholders.  If the closing occurs, AIMCO will then control the
General Partner of the Partnership.

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.


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 six month periods ended June 30, 1998 and 1997:

                                                   Average
                                                  Occupancy
Property                                      1998          1997

Perimeter Square                               91%           92%
   Tulsa, Oklahoma
Shallowford Corners                            91%           90%
   Roswell, Georgia
Green Valley Hotel                             71%           79%
   Green Valley, Arizona
Tucson Airport Hotel                           77%           81%
   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 income of approximately $139,000 and $533,000 for
the six month periods ended June 30, 1998 and 1997, respectively.  For the three
month periods ended June 30, 1998 and 1997, the Partnership realized a net loss
of approximately $313,000 and $67,000, respectively.  The decrease in net income
for the six month period and increase in net loss for the three month period are
attributable to decreased hotel income and increased interest expense.  The
decrease in hotel income is primarily due to the declines in occupancy 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%. Partially offsetting the decrease in hotel operations
income is a decrease in hotel operations expense that coincides with the
decreases in occupancy discussed above.  The increase in net loss for the three
month period ended June 30, 1998, is also due to the increase in rental
operations expense.  The increase was primarily due to roof and exterior repairs
at Shallowford Corners.

As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental 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
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.

At June 30, 1998, the Partnership held cash and cash equivalents of
approximately $3,490,000 versus approximately $3,620,000 at June 30, 1997.  The
decrease in cash and cash equivalents for the six month period ended June 30,
1998, was approximately $619,000.  The increase in cash and cash equivalents for
the six month period ended June 30, 1997, was approximately $173,000.  Net cash
provided by operating activities decreased primarily due to the decrease in
hotel operations, as discussed above, as well as the payments made to
affiliates. Net cash used in investing activities decreased due to a decrease in
property improvement and replacement expenditures. Net cash used in financing
activities remained relatively consistent.

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.  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.  If the mortgage
is not refinanced, 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.  The mortgage
indebtedness of approximately $15,317,000 matures at various times with balloon
payments due at maturity at which time the properties will either be refinanced
or sold (see discussion above regarding Shallowford Corners Shopping Center).
Future cash distributions will depend on the levels of cash generated from
operations, property sales or refinancings, and the availability of cash
reserves. Distributions of approximately $599,000 ($10 per limited partner unit)
were paid to the limited partners during the six months ended June 30, 1998 and
1997.

Year 2000

The Partnership is dependent upon the General Partner and Insignia for
management and administrative services.  Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue").  The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems.  The General Partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.

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:  None filed during the quarter ended June 30,
            1998.


                                     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: August 13, 1998