<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                          Washington, D.C. 20549-1004

                                   FORM 10-Q

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

     For the period ended               September 30, 1997
                                ------------------------------------------------

                                      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                           0-12538
                                    --------------------------------------------

               First Capital Institutional Real Estate, Ltd. - 1
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

            Florida                                         59-2197264         
-------------------------------                     ----------------------------
(State or other jurisdiction of                           (I.R.S. Employer      
incorporation or organization)                          Identification No.)    

Two North Riverside Plaza, Suite 1100, Chicago, Illinois           60606-2607  
----------------------------------------------------------        -------------
        (Address of principal executive offices)                   (Zip Code)  
                                                                               
                                (312) 207-0020
--------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)

                                Not applicable
--------------------------------------------------------------------------------
(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
                                        ---      ---
Documents incorporated by reference:

The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated October 25, 1982, included
in the Registrant's Registration Statement on Form S-11 (Registration No.
2-79092), is incorporated herein by reference in Part I of this report.




<PAGE>
 
BALANCE SHEETS
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                 September 30,
                                                     1997      December 31,
                                                  (Unaudited)      1996
---------------------------------------------------------------------------
<S>                                              <C>           <C>
ASSETS
Investment in commercial rental properties:
 Land                                             $ 2,351,100  $ 5,501,700
 Buildings and improvements                         8,317,400   31,417,700
---------------------------------------------------------------------------
                                                   10,668,500   36,919,400
Accumulated depreciation and amortization          (3,565,400) (13,081,500)
---------------------------------------------------------------------------
 Total investment properties, net of accumulated
  depreciation and amortization                     7,103,100   23,837,900
Cash and cash equivalents                           1,346,700    3,926,100
Investments in debt securities                      4,311,000      300,000
Rents receivable                                       41,600       60,200
Other assets                                            1,300       13,100
---------------------------------------------------------------------------
                                                  $12,803,700  $28,137,300
---------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
 Accounts payable and accrued expenses            $   123,200  $   263,000
 Due to Affiliates                                      3,400       20,500
 Real estate commissions due to Managing General
  Partner                                             403,000      403,000
 Distributions payable                              1,705,800      420,000
 Security deposits                                     44,200      147,200
 Other liabilities                                      7,600      117,300
---------------------------------------------------------------------------
                                                    2,287,200    1,371,000
---------------------------------------------------------------------------
Partners' capital:
 General Partners (deficit)                           184,300     (448,400)
 Limited Partners (60,000 Units issued and
  outstanding)                                     10,332,200   27,214,700
---------------------------------------------------------------------------
                                                   10,516,500   26,766,300
---------------------------------------------------------------------------
                                                  $12,803,700  $28,137,300
---------------------------------------------------------------------------
</TABLE>
 
 
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 1997 (Unaudited) and the year ended
December 31, 1996
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                          General     Limited
                                         Partners     Partners       Total
-------------------------------------------------------------------------------
<S>                                      <C>        <C>           <C>
Partners' (deficit) capital, January 1,
 1996                                    $(359,300)  $27,415,800   $27,056,500
Net (loss) income for the year ended
 December 31, 1996                         (89,100)    1,478,900     1,389,800
Distributions for the year ended
 December 31, 1996                                    (1,680,000)   (1,680,000)
-------------------------------------------------------------------------------
Partners' (deficit) capital, December
 31, 1996                                 (448,400)   27,214,700    26,766,300
Net income for the nine months ended
 September 30, 1997                        632,700     1,533,300     2,166,000
Distributions for the nine months ended
 September 30, 1997                                  (18,415,800)  (18,415,800)
-------------------------------------------------------------------------------
Partners' capital, September 30, 1997    $ 184,300  $ 10,332,200  $ 10,516,500
-------------------------------------------------------------------------------
</TABLE>
 
 
 
 
    The accompanying notes are an integral part of the financial statements.
2
<PAGE>
 
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                     1997       1996
------------------------------------------------------------------------
<S>                                                <C>       <C>
Income:
 Rental                                            $405,900  $1,254,300
 Interest                                           241,600      51,300
------------------------------------------------------------------------
                                                    647,500   1,305,600
------------------------------------------------------------------------
Expenses:
 Depreciation and amortization                       83,000     290,500
 Property operating:
 Affiliates                                          50,600      55,200
 Nonaffiliates                                      103,300     273,100
 Real estate taxes                                   46,400      94,700
 Insurance--Affiliate                                 7,900      15,100
 Repairs and maintenance                             72,300     178,700
 General and administrative:
 Affiliates                                           7,100      11,200
 Nonaffiliates                                       36,800      25,600
Additional expenses from sale of Property            18,000
------------------------------------------------------------------------
                                                    425,400     944,100
------------------------------------------------------------------------
Net income                                         $222,100  $  361,500
------------------------------------------------------------------------
Net (loss) allocated to General Partners           $(76,500) $  (22,600)
------------------------------------------------------------------------
Net income allocated to Limited Partners           $298,600  $  384,100
------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (60,000 Units outstanding)                        $   4.98  $     6.40
------------------------------------------------------------------------
</TABLE>
 
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                      1997       1996
-------------------------------------------------------------------------
<S>                                                <C>        <C>
Income:
 Rental                                            $2,411,400 $3,642,100
 Interest                                             482,400    159,100
 Gain on sale of property                           1,212,200
-------------------------------------------------------------------------
                                                    4,106,000  3,801,200
-------------------------------------------------------------------------
Expenses:
 Depreciation and amortization                        536,300    852,600
 Property operating:
 Affiliates                                           144,300    168,300
 Nonaffiliates                                        522,000    783,700
 Real estate taxes                                    223,400    283,700
 Insurance--Affiliate                                  23,400     45,300
 Repairs and maintenance                              349,800    517,100
 General and administrative:
 Affiliates                                            18,800     32,700
 Nonaffiliates                                        122,000    122,200
-------------------------------------------------------------------------
                                                    1,940,000  2,805,600
-------------------------------------------------------------------------
Net income                                         $ 2,166,00 $  995,600
-------------------------------------------------------------------------
Net income (loss) allocated to General Partners    $  632,700 $  (66,800)
-------------------------------------------------------------------------
Net income allocated to Limited Partners           $1,533,300 $1,062,400
-------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (60,000 Units outstanding)                        $    25.56 $    17.71
-------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1997 and 1996 (Unaudited)
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                           1997         1996
---------------------------------------------------------------------------------
<S>                                                    <C>           <C>
Cash flows from operating activities:
 Net income                                            $  2,166,000  $   995,600
 Adjustments to reconcile net income to net cash
  provided by operating activities:
 Depreciation and amortization                              536,300      852,600
 Gain on sale of property                                (1,212,200)
 Changes in assets and liabilities:
  Decrease in rents receivable                               18,600      111,200
  Decrease (increase) in other assets                        11,800      (14,600)
  (Decrease) in accounts payable and accrued expenses      (139,800)    (179,800)
  (Decrease) increase in due to Affiliates                  (17,100)       6,200
  (Decrease) in other liabilities                          (109,700)     (43,100)
---------------------------------------------------------------------------------
   Net cash provided by operating activities              1,253,900    1,728,100
---------------------------------------------------------------------------------
Cash flows from investing activities:
 Payments for capital and tenant improvements              (183,800)    (685,500)
 Proceeds from sale of property                          17,594,500
 (Increase) in investments in debt securities            (4,011,000)  (2,860,500)
---------------------------------------------------------------------------------
   Net cash provided by (used for) investing
    activities                                           13,399,700   (3,546,000)
---------------------------------------------------------------------------------
Cash flows from financing activities:
 Distributions paid to Partners                         (17,130,000)  (1,225,200)
 (Decrease) in security deposits                           (103,000)      (2,500)
---------------------------------------------------------------------------------
   Net cash (used for) financing activities             (17,233,000)  (1,227,700)
---------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents              (2,579,400)  (3,045,600)
Cash and cash equivalents at the beginning of the
 period                                                   3,926,100    4,254,900
---------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period     $  1,346,700  $ 1,209,300
---------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
3
<PAGE>
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is incorporated herein by reference.
 
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Under this method of accounting,
revenues are recorded when earned and expenses are recorded when incurred.
 
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
 
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and nine months ended September 30, 1997 are not necessarily
indicative of the operating results for the year ending December 31, 1997.
 
The financial statements include the Partnership's 50% interest in three joint
ventures with Affiliated partnerships. These joint ventures were formed for the
purpose of each acquiring a 100% interest in certain real properties and are
operated under the common control of the Managing General Partner. Accordingly,
the Partnership's pro rata share of the ventures' revenues, expenses, assets,
liabilities and Partners' capital is included in the financial statements.
 
Commercial rental properties are recorded at cost, net of any provisions for
value impairment, and depreciated (exclusive of amounts allocated to land) on
the straight-line method over their estimated useful lives. Lease acquisition
fees are recorded at cost and amortized on the straight-line method over the
life of each respective lease. Maintenance and repair costs are expensed
against operations as incurred: expenditures for improvements are capitalized
to the appropriate property accounts and depreciated on the straight-line
method over the estimated life of such improvements.
 
The Partnership evaluates its rental properties when conditions exist which may
indicate that it is probable that the sum of expected future cash flows
(undiscounted) from a property is less than its carrying basis. Upon
determination that an impairment has occurred, the basis in the rental property
is reduced to estimated fair value. The Managing General Partner was not aware
of any indicator that would result in a significant impairment loss during the
periods reported.
 
Property Sales are recorded when title transfers and sufficient consideration
has been received by the Partnership. Upon disposition, the related costs and
accumulated depreciation and amortization are removed from the respective
accounts. Any gain or loss is recognized in accordance with GAAP.
 
Cash equivalents are considered all highly liquid investments with maturity of
three months or less when purchased.
 
Investments in debt securities are comprised of corporate debt securities and
obligations of the United States government and are classified as held-to-
maturity. These investments are carried at their amortized cost basis in the
financial statements, which approximated fair market value. All of these
securities had maturities of less than one year when purchased.
 
Certain reclassifications have been made to the previously reported 1996
financial statements in order to provide comparability with the 1997 financial
statements. These reclassifications have no effect on the net income (loss) or
Partners' (deficit) capital.
 
Reference is made to the Partnership's annual report for the year ended
December 31, 1996, for a description of other accounting policies and
additional details of the Partnership's financial condition, results of
operations, changes in Partners' capital and changes in cash balances for the
year then ended. The details provided in the notes thereto have not changed
except as a result of normal transactions in the interim or as otherwise
disclosed herein.
 
2. RELATED PARTY TRANSACTIONS:
 
In accordance with the Partnership Agreement, subsequent to March 31, 1983, the
Termination of the Offering, the General Partners are entitled to 10% of
distributable Cash Flow (as defined in the Partnership Agreement) as their
Subordinated Partnership Management Fee, provided that Limited Partners first
receive specified non-cumulative annual rates of return on their Capital
Investment.
 
In accordance with the Partnership Agreement, Net Profits (exclusive of
depreciation and Net Profits from the sale or disposition of Partnership
properties) are allocated: first, to the General Partners, in an amount equal
to the greater of the General Partners' Subordinated Partnership Management Fee
or 1% of such Net Profits; and second, the balance, if any, to the Limited
Partners. Net Profits from the sale or disposition of a Partnership property
are allocated: first, to the General Partners, in an amount equal to the
aggregate amount of depreciation previously allocated to them; second, to the
General Partners and the Limited Partners with negative balances in their
capital accounts pro rata in proportion to such respective negative balances,
to the extent of the total of such negative balances; third, to the General
Partners, in an amount necessary to make the aggregate amount of their capital
accounts equal to the greater of the Sale Proceeds to be distributed to the
General Partners with respect to the sale or disposition of such property or 1%
of such Net Profits; and fourth, the balance, if any, to the Limited Partners.
Net Losses (exclusive of depreciation and Net Losses from the sale, disposition
or provision for value impairment of Partnership properties) are allocated 1%
to the General Partners and 99% to the Limited Partners. All depreciation is
allocated 10% to the General Partners and 90% to the Limited Partners. Net
Losses from the sale, disposition or provision for value impairment of
Partnership properties are allocated: first, to the extent that the balance
4
<PAGE>
 
in the General Partners' capital accounts exceeds their Capital Investment or
the balance in the capital accounts of the Limited Partners exceeds the amount
of their Capital Investment (collectively, the "Excess Balances"), to the
General Partners and the Limited Partners pro rata in proportion to such Excess
Balances until such Excess Balances are reduced to zero; second, to the General
Partners and the Limited Partners and among them (in the ratio which their
respective capital account balances bear to the aggregate of all capital
account balances) until the balance in their capital accounts shall be reduced
to zero; third, the balance, if any, 99% to the Limited Partners and 1% to the
General Partners. In all events there shall be allocated to the General
Partners not less than 1% of Net Profits and Net Losses from the sale,
disposition or provision for value impairment of a Partnership property. The
General Partners were not entitled to cash distributions for the quarter and
nine months ended September 30, 1997. During the nine months ended September
30, 1997, the General Partners were allocated Net Profits of $632,700 which
includes a net overall gain on the sale of three properties of $671,400. During
the quarter ended September 30, 1997, the General Partners were allocated Net
(Losses) of $(76,500) which included a reduction of $13,500 in the Net Profits
allocated to the General Partners from additional expenses related to the sales
of Lakewood and Peachtree.
 
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and nine months ended September 30, 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                             Paid
                                                       ----------------
                                                                 Nine
                                                       Quarter  Months  Payable
-------------------------------------------------------------------------------
<S>                                                    <C>     <C>      <C>
Property management and leasing fees                   $27,400 $151,300   None
Reimbursement of property insurance premiums, at cost    6,900   23,400   None
Legal                                                   20,500   76,900   None
Reimbursement of expenses, at costs
 --Accounting                                            2,100    9,600 $1,700
 --Investor communications                               2,100    7,600  1,700
-------------------------------------------------------------------------------
                                                       $59,000 $268,800 $3,400
-------------------------------------------------------------------------------
</TABLE>
As of September 30, 1997, the Partnership owed $403,000 to the Managing General
Partner for real estate commissions earned in connection with the sales of
Partnership properties. These commissions have been accrued but not paid. Under
the terms of the Partnership Agreement, these commissions will not be paid
until the Limited Partners have received cumulative distributions of Sale or
Refinancing Proceeds equal to 100% of their Original Capital Contribution plus
a cumulative return (including all Cash Flow which has been distributed to the
Limited Partners from the initial date of investment) of 6% simple interest per
annum on their Capital Investment.
 
An Affiliate of the Managing General Partner provides property and supervisory
management as well as leasing services for the Partnership's remaining property
for fees ranging from 3% to 6% of gross rents received from the property.
 
Jacor Communications, Inc. ("Jacor"), a radio broadcasting company, which is
approximately 31% owned by Affiliates of the Managing General Partner, was
obligated to the Partnership under a lease for office space of Peachtree
Palisades East Office Building ("Peachtree"). Peachtree was sold on May 5,
1997. See Note 3 for additional information. For the 1997 period that the
Partnership owned Peachtree, Jacor paid approximately $74,800 in total rents.
The per square foot rent paid by Jacor was comparable to that paid by other
tenants at Peachtree.
 
3. PROPERTY SALES:
 
On May 5, 1997, the Partnership consummated the sale of Peachtree, located in
Atlanta, Georgia, for a sale price of $7,749,200. Net proceeds from this
transaction were $7,430,300, which was net of closing expenses. The Partnership
reported a net gain of $1,098,100 for the nine months ended September 30, 1997
in connection with this sale and distributed $7,440,000 or $124.00 per Unit on
August 31, 1997 to Limited Partners of record as of May 5, 1997.
 
On May 16, 1997, a joint venture in which the Partnership owns a 50% interest,
consummated the sale of Lakewood Square Shopping Center ("Lakewood"), located
in Lakewood, California, for a sale price of $17,750,000, of which the
Partnership's share was $8,875,000. The Partnership's share of net proceeds
from this transaction was $8,661,300, which was net of closing expenses. The
Partnership reported a net gain of $167,800 for the nine months ended September
30, 1997 in connection with this sale and distributed $8,640,000 or $144.00 per
Unit on August 31, 1997 to Limited Partners of record as of May 16, 1997.
 
On June 27, 1997, a joint venture in which the Partnership owns a 50% interest,
consummated the sale of 12621 Featherwood Office Building, located in Houston,
Texas, for a sale price of $3,146,700, of which the Partnership's share was
$1,573,350. The Partnership's share of net proceeds from this transaction was
$1,492,000, which was net of closing expenses. The Partnership reported a net
loss of $53,700 for the nine months ended September 30, 1997 in connection with
this sale and will distribute $1,495,800 or $24.93 per Unit on November 30,
1997 to Limited Partners of record as of June 27, 1997.
 
4. ENVIRONMENTAL MATTER:
 
In December 1996, the Managing General Partner became aware of the existence of
hazardous substances in the ground under Lakewood. The sources of the hazardous
substances is believed to emanate from one or more of the tenants operating a
dry cleaning business at Lakewood. In connection with the 1997 sale of
Lakewood, the purchaser assumed the obligation to remedy the hazardous
substances in the manner required by law, which includes, but is not limited
to, payment of all costs in connection with the remediation work. Also included
in the agreement was a one-year indemnification by the purchaser against and
from any and all claims, demands, losses, liabilities, costs, damages,
expenses, clean-up costs required by, and fines and damages imposed by
governmental agencies with jurisdiction over Lakewood, and all reasonable costs
and expenses incurred by the purchaser related to the hazardous substances.
 
5. SUBSEQUENT EVENT:
 
On November 10, 1997, a joint venture in which the Partnership owns a 50%
interest, consummated the sale of Foxhall Square Office Building, located in
Washington D.C., for a sale price of $17,125,000, of which the Partnership's
share was $8,562,500. The Partnership's share of proceeds from this transaction
was approximately $8,250,000, which is net of actual and estimated closing
expenses. The Partnership will report a net gain for financial reporting
purposes of approximately $1,150,000 for the year ending December 31, 1997 from
this sale and intends to distribute $8,250,000 or $137.50 per Unit on February
28, 1998 to Limited Partners of record as of November 10, 1997.
 
                                                                               5
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Reference is made to the Partnership's annual report for the year ended
December 31, 1996 for a discussion of the Partnership's business.
 
OPERATIONS
The table below includes a recap of certain operating results of each of the
Partnership's properties for the quarters and nine months ended September 30,
1997 and 1996. The discussion following the table should be read in conjunction
with the financial statements and notes thereto appearing in this report.
 
<TABLE>
<CAPTION>
                               Comparative Operating Results(a)
                             For the Quarter   For the Nine Months
                                  Ended               Ended
                            9/30/97  9/30/96   9/30/97     9/30/96
--------------------------------------------------------------------
<S>                         <C>      <C>      <C>         <C>
FOXHALL SQUARE BUILDING (50%)
Rental revenues             $418,500 $397,600 $1,268,000  $1,183,200
--------------------------------------------------------------------
Property net income         $100,800 $ 82,900 $  369,700  $  334,400
--------------------------------------------------------------------
Average occupancy                91%      85%        91%         84%
--------------------------------------------------------------------
PEACHTREE PALISADES OFFICE BUILDING (B)
Rental revenues                      $394,800 $  601,900  $1,073,100
--------------------------------------------------------------------
Property net income                  $ 43,700 $   36,300  $   13,300
--------------------------------------------------------------------
Average occupancy                         90%                    91%
--------------------------------------------------------------------
LAKEWOOD SQUARE SHOPPING CENTER (50%)(B)
Rental revenues                      $332,300 $  501,000  $  986,700
--------------------------------------------------------------------
Property net income                  $170,100 $  253,000  $  479,500
--------------------------------------------------------------------
Average occupancy                         97%                    96%
--------------------------------------------------------------------
12621 FEATHERWOOD BUILDING (50%)(B)
Rental revenues                      $129,600         (c) $  399,100
--------------------------------------------------------------------
Property net income (loss)           $ 49,700 $  (40,500) $  162,700
--------------------------------------------------------------------
Average occupancy                        100%                   100%
--------------------------------------------------------------------
</TABLE>
(a) The above table excludes certain income and expense items which are either
 not directly related to individual property operating results such as interest
 income and general and administrative expenses or are related to properties
 previously owned by the Partnership.
(b) Property was sold during the quarter ended June 30, 1997. See Note 3 of
    Notes to Financial Statements for additional information.
(c) Property was vacant from December 14, 1996 through the date of its sale,
    June 27, 1997.
 
Unless otherwise disclosed, discussions of fluctuations between 1997 and 1996
refer to both the quarters and nine months ended September 30, 1997 and 1996.
 
Net income increased by $1,170,400 for the nine months ended September 30, 1997
when compared to the nine months ended September 30, 1996 and decreased by
$139,400 for the quarter ended September 30, 1997 when compared to the quarter
ended September 30, 1996. The changes were primarily due to the effects of the
1997 sales of three of the Partnership's properties. For the comparable nine
month periods, the results were most significantly affected by the net gain of
$1,212,200 on the sales of these properties. In addition, results for the
comparable quarterly and nine-month periods diminished by $321,800 and
$406,700, respectively, due to the absence of operating results from the sold
properties. For further information regarding the sales, see Note 3 of Notes to
the Financial Statements.
 
The following comparative discussion excludes the results of the Partnership's
properties sold during 1997.
 
Net income increased by $200,600 and $364,900 for the quarter and nine months
ended September 30, 1997 when compared to the quarter and nine months ended
September 30, 1996, respectively. The increases were primarily due to an
increase in interest earned on the Partnership's short-term investments due to
an increase in the amount of cash available for investment. Also contributing
the increases were improved operating results at Foxhall Square Office Building
("Foxhall"), which resulted from an increase in revenues, and for the
comparable nine month periods decreased general and administrative expenses
resulting from reduced personnel costs and accounting fees.
 
Rental revenues increased by $20,900 or 5.2% and $84,800 or 7.2% for the
quarter and nine months ended September 30, 1997 when compared to the quarter
and nine months ended September 30, 1996, respectively. The increases were
primarily due to increases in average occupancy.
 
Depreciation and amortization expenses increased by $5,100 and $21,100,
respectively, for the periods under comparison. The increases were primarily
due to an increase in the depreciable assets placed in service.
 
Real estate tax expense increased by $8,200 and $19,500 for the quarter and
nine months ended September 30, 1997 when compared to the quarter and nine
months ended September 30, 1996, respectively. The increase was primarily due
to a projected increase in real estate taxes at Foxhall.
 
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
property. Notwithstanding the Partnership's intention relative to property
sales, another primary objective of the Partnership is to provide cash
distributions to Limited Partners from Partnership operations. To the extent
cumulative cash distributions exceed net income, such excess distributions will
be treated as a return of capital. Cash Flow (as defined in the Partnership
Agreement) is generally not equal to net income or cash flows as determined by
generally accepted accounting principles ("GAAP"), since certain items are
treated differently under the Partnership Agreement than under GAAP. Management
believes that to facilitate a clear understanding of the Partnership's
operations, an analysis of Cash Flow (as defined in the Partnership Agreement)
should be examined in conjunction with an analysis of net income or cash flows
(as determined by GAAP). The following table includes a reconciliation of Cash
Flow (as defined in the Partnership Agreement) to cash flow provided by
operating activities as determined by GAAP. Such amounts are not indicative of
actual distributions to Partners and should not necessarily be considered as an
alternative to the results disclosed in the Statements of Income and Expenses
and Statements of Cash Flows.
 
6
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
 
<TABLE>
<CAPTION>
                           Comparative Cash Flow
                            Results For the Nine
                                Months Ended
                            9/30/97       9/30/96
----------------------------------------------------
<S>                       <C>           <C>
Cash Flow (as defined in
 the Partnership
 Agreement)               $  1,490,100  $ 1,848,200
Items of reconciliation:
Decrease in current
 assets                         30,400       96,600
(Decrease) in current
 liabilities                  (266,600)    (216,700)
----------------------------------------------------
Net cash provided by
 operating activities     $  1,253,900  $ 1,728,100
----------------------------------------------------
Net cash provided by
 (used for) investing
 activities               $ 13,399,700  $(3,546,000)
----------------------------------------------------
Net cash (used for)
 financing activities     $(17,233,000) $(1,227,700)
----------------------------------------------------
</TABLE>
 
The decrease in Cash Flow (as defined in the Partnership Agreement) of $358,100
for the nine months ended September 30, 1997 when compared to nine months ended
September 30, 1996 was primarily due to the effects of the sales of Peachtree,
Lakewood and Featherwood. Partially offsetting the decrease were improved
operating results, exclusive of depreciation and amortization, at Foxhall and
increased interest income generated by the Partnership's short-term
investments.
 
The decrease in the Partnership's cash position of $2,579,400 as of September
30, 1997 when compared to December 31, 1996 was primarily the result of the
Partnership utilizing its cash to invest in short-term debt securities
partially offset by the cash provided by operating activities. Liquid assets,
including cash, cash equivalents and investments in debt securities as of
September 30, 1997, were comprised of amounts held for working capital purposes
and undistributed Sales Proceeds.
 
Net cash provided by operating activities decreased by $474,200 for the nine
months ended September 30, 1997 when compared to the nine months ended
September 30, 1996. The decrease was primarily due to the absence of results
from the Partnership's sold properties. Partially offsetting the decrease was
the increase in interest earned on the Partnership's short-term investments,
resulting from the investment of Sales Proceeds prior to their distribution to
Limited Partners.
 
Net cash (used for) provided by investing activities changed from $(3,546,000)
for the nine months ended September 30, 1996 to $13,399,700 for the nine months
ended September 30, 1997. The change was due to the receipt of proceeds from
the sale of Partnership properties and reduced expenditures for capital and
tenant improvements, partially offset by an increase in investment in debt
securities. The increase in investments in debt securities is the result of the
continued extension of the maturities of certain of the Partnership's short-
term investments in an effort to maximize the return on these amounts as they
are held for working capital purposes or distributions to Limited Partners.
These investments are of investment-grade and generally mature less than one
year from their date of purchase.
 
The Partnership maintains working capital reserves to pay for capital
expenditures. During the nine months ended September 30, 1997, the Partnership
spent $183,800 for capital and tenant improvements and leasing costs.
 
On May 5, 1997, the Partnership completed the sale of Peachtree. Net proceeds
generated from this sale amounted to $7,430,300. In connection with this sale,
the Partnership declared a special distribution in the amount of $7,440,000 or
$124.00 per Unit, which the Partnership distributed on August 31, 1997 to
Limited Partners of record as of May 5, 1997.
 
On May 16, 1997, a joint venture in which the Partnership has a 50% interest,
completed the sale of Lakewood. The Partnership's share of net proceeds from
this sale amounted to $8,661,300. In connection with this sale, the Partnership
declared a special distribution in the amount of $8,640,000 or $144.00 per
Unit, which the Partnership distributed on August 31, 1997 to Limited Partners
of record as of May 16, 1997.
 
On June 27, 1997, a joint venture in which the Partnership has a 50% interest,
completed the sale of Featherwood. The Partnership's share of net proceeds from
this sale amounted to $1,492,000. In connection with this sale, the Partnership
declared a special distribution in the amount of $1,495,800 or $24.93 per Unit,
which the Partnership intends to distribute on November 30, 1997 to Limited
Partners of record as of June 27, 1997.
 
On November 10, 1997, a joint venture in which the Partnership has a 50%
interest, completed the sale of Foxhall. The Partnership's share of net
proceeds from this sale amounted to approximately $8,250,000 or $137.50 per
Unit. In connection with this sale, the Partnership has declared a special
distribution in this amount, which the Partnership will distribute on February
28, 1998 to Limited Partners of record as of November 10, 1997.
 
The increase in net cash used for financing activities of $16,005,300 for the
nine months ended September 30, 1997 when compared to the nine months ended
September 30, 1996 was due primarily to the distribution of Sales Proceeds from
the sales of Peachtree and Lakewood.
 
Distributions to Limited Partners for the quarter ended September 30, 1997 were
declared in the amount of $210,000 or $3.50 per Unit. Cash distributions are
made 60 days after the last day of each fiscal quarter.
 
As described in Note 4 of Notes to Financial Statements, there is uncertainty
surrounding an environmental matter at Lakewood. The Managing General Partner
is in correspondence with the purchaser of Lakewood for the purpose of
monitoring their remediation efforts. The Managing General Partner believes
that the entire remediation process could take from twelve to twenty-four
months. There can be no assurance as to the actual timeframe for the
remediation or that it will be completed without cost to the Partnership. As a
result of this, together with other potential post closing matters related to
the sales of Partnership properties, it will be necessary for the Partnership
to remain open. Following the special distribution of Foxhall Sale Proceeds on
February 28, 1998, distributions will be suspended. When the environmental
matter at Lakewood is satisfactorily remediated, Limited Partners will receive
a final liquidating distribution of the remaining cash currently held by the
Partnership, less amounts reserved for administrative expenses and any amounts
deemed necessary to resolve, or provide for, any post closing matters.
                                                                               7
<PAGE>
 
                          PART II. OTHER INFORMATION

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

          (a)  Exhibits:  None

          (b)  Reports on Form 8-K:

               A Report was filed on Form 8-K on July 14, 1997 reporting the
               sale of Featherwood.


<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.

                         FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 1

                              By:  FIRST CAPITAL FINANCIAL CORPORATION
                                   MANAGING GENERAL PARTNER

Date:  November 14, 1997      By:  /s/  DOUGLAS CROCKER II
       -----------------           -----------------------
                                        DOUGLAS CROCKER II
                                   President and Chief Executive Officer

Date:  November 14, 1997      By:  /s/  NORMAN M. FIELD
       -----------------           -----------------------
                                        NORMAN M. FIELD
                                   Vice President - Finance and Treasurer