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|------------------------------------------------------------------------------------------ | --------- | 
|UNITED STATES                                                                             
|SECURITIES AND EXCHANGE COMMISSION                                                        
|WASHINGTON,
DC 20549                                                                      
|                                                                                           |           | 
|                                                                                           |           | 
|                                                                                           |           | 
|                                                                                           | Form 10-Q | 
|                                                                                           |           | 
|                                                                                           |           | 
|                                                                                           |           | 
|(Mark One)                                                                                 |           | 
|x QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                                                          
|For the quarterly period ended March 31, 2011                                             
|                                                                                          
|o 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: 000-52619                                                         
|                                                                                           |           | 
|                                                                                           |           | 
|                                                                                           |           | 
|AmREIT
MONTHLY INCOME & GROWTH FUND III, LTD.                                             
|(Exact Name of Registrant as
specified in its charter)                                    

| |                                                                |  |                                      | 
| | -------------------------------------------------------------- |  | ------------------------------------ | 
| | Texas                                                          |  | 20-2964630                           | 
| | (State or other jurisdiction of incorporation or
organization) |  | (I.R.S. Employer Identification No.) | 
| |                                                                |  |                                      | 
| | 8 Greenway Plaza, Suite 1000                                   |  |                                      | 
| | Houston, TX                                                    |  | 77046                                | 
| | (address of principle executive offices)                       |  | (Zip Code)                           | 

|                                                                                                                                                                                                                                                                                                                                                                                                |  | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|Registrants telephone number, including
area code: (713) 850-1400                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                               
|Former name, former address and former
fiscal year, if changed from last report: Not Applicable                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                |  | 
|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. YesxNoo                               
|                                                                                                                                                                                                                                                                                                                                                                                               
|Indicate
by check mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). YesoNoo
|                                                                                                                                                                                                                                                                                                                                                                                               
|Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of large accelerated filer, accelerated filer and
smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):                                                                                

|                                                                                                                         |                     |                         |                            
|------------------------------------------------------------------------------------------------------------------------ | ------------------- | ----------------------- | ---------------------------
|Large accelerated filer o                                                                                                | Accelerated filer o | Non-accelerated filer o | Smaller reporting company x
|(Do
not check if smaller reporting company)                                                                             
|                                                                                                                         |                    
|Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YesoNox

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TABLE OF CONTENTS

|                               |         |                                                                                       |  |      | 
|------------------------------ | ------- | ------------------------------------------------------------------------------------- |  | ---- | 
|                               |         |                                                                                       |  | PAGE
|PART I - FINANCIAL INFORMATION |         |                                                                                       | 
|                               | ITEM 1. | FINANCIAL
STATEMENTS                                                                  |  | 1    | 
|                               | ITEM 2. | MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 17   | 
|                               | ITEM 3. | QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 20   | 
|                               | ITEM 4. | CONTROLS AND
PROCEDURES                                                               |  | 20   | 
|PART II - OTHER INFORMATION    |         |                                                                                       | 
|                               | ITEM 6. | EXHIBITS                                                                              |  | 20   | 
|SIGNATURES                     |         | 21                                                                                    | 
|EXHIBIT INDEX                  |         | 22                                                                                    | 

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Table of Contents

PART I 
FINANCIAL INFORMATION

|        |                      
|------- | ---------------------
|ITEM 1. | FINANCIAL STATEMENTS.

AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2011 and December 31, 2010
(in thousands, except for unit data)

|                                                                                  |  |               |        |                  |   |        |  
|--------------------------------------------------------------------------------- |  | ------------- | ------ | ---------------- | - | ------ | -
|                                                                                  |  | March 31,2011 |        | December 31,2010 |  
|                                                                                  |  | (unaudited)   |        |                  |  
|ASSETS                                                                            |  |               |        |                  |   |        |  
|Real estate
investments at cost:                                                  |  |               |        |                  |   |        |  
|Land                                                                              |  | $             | 14,638 |                  | $ | 18,446 |  
|Buildings                                                                         |  |               | 31,279 |                  |   | 47,308 |  
|Tenant improvements                                                               |  |               | 674    |                  |   | 957    |  
|                                                                                  |  |               | 46,591 |                  |   | 66,711 |  
|Less accumulated depreciation and
amortization                                    |  |               | (6,053 | )                |   | (8,372 | )
|                                                                                  |  |               | 40,538 |                  |   | 58,339 |  
|                                                                                  |  |               |        |                  |   |        |  
|Investment in non-consolidated entities                                           |  |               | 21,977 |                  |   | 22,190 |  
|Acquired lease intangibles, net                                                   |  |               | 466    |                  |   | 1,285  |  
|Net real estate investments                                                       |  |               | 62,981 |                  |   | 81,814 |  
|                                                                                  |  |               |        |                  |   |        |  
|Cash and
cash equivalents                                                         |  |               | 3,800  |                  |   | 2,646  |  
|Tenant
receivables, net                                                           |  |               | 323    |                  |   | 471    |  
|Accounts
receivable - related party                                               |  |               | 169    |                  |   | 163    |  
|Deferred
costs, net                                                               |  |               | 326    |                  |   | 463    |  
|Other assets                                                                      |  |               | 249    |                  |   | 642    |  
|TOTAL ASSETS                                                                      |  | $             | 67,848 |                  | $ | 86,199 |  
|                                                                                  |  |               |        |                  |   |        |  
|LIABILITIES AND CAPITAL                                                           |  |               |        |                  |   |        |  
|Liabilities:                                                                      |  |               |        |                  |   |        |  
|Notes payable                                                                     |  | $             | 34,652 |                  | $ | 50,372 |  
|Notes payable - related party                                                     |  |               | 2,689  |                  |   | 2,556  |  
|Accounts payable and other liabilities                                            |  |               | 454    |                  |   | 1,235  |  
|Accounts payable - related party                                                  |  |               | 169    |                  |   | 30     |  
|Acquired below-market lease intangibles,
net                                      |  |               | 99     |                  |   | 181    |  
|Security deposits                                                                 |  |               | 136    |                  |   | 164    |  
|TOTAL LIABILITIES                                                                 |  |               | 38,199 |                  |   | 54,538 |  
|                                                                                  |  |               |        |                  |   |        |  
|Capital:                                                                          |  |               |        |                  |   |        |  
|Partners capital:                                                                |  |               |        |                  |   |        |  
|General partner                                                                   |  |               |       |                  |   |       |  
|Limited partners, 2,833 units outstanding
at March 31, 2011 and December 31, 2010 |  |               | 29,649 |                  |   | 30,385 |  
|TOTAL PARTNERS CAPITAL                                                           |  |               | 29,649 |                  |   | 30,385 |  
|                                                                                  |  |               |        |                  |   |        |  
|Non-controlling interest                                                          |  |               |       |                  |   | 1,276  |  
|TOTAL CAPITAL                                                                     |  |               | 29,649 |                  |   | 31,661 |  
|TOTAL LIABILITIES
AND CAPITAL                                                     |  | $             | 67,848 |                  | $ | 86,199 |  

See Notes to Consolidated
Financial Statements.

1

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Table of Contents

AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND
SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS 
(in thousands, except for per unit data)
(unaudited)

|                                                           |  |                              |        |      |   |         |  
|---------------------------------------------------------- |  | ---------------------------- | ------ | ---- | - | ------- | -
|                                                           |  | Three months ended March 31, |       
|                                                           |  | 2011                         |        | 2010 |  
|                                                          
|Revenues:                                                  |  |                              |        |      |   |         |  
|Rental income from operating leases                        |  | $                            | 845    |      | $ | 1,157   |  
|Total revenues                                             |  |                              | 845    |      |   | 1,157   |  
|                                                           |  |                              |        |      |   |         |  
|Expenses:                                                  |  |                              |        |      |   |         |  
|General and administrative                                 |  |                              | 15     |      |   | 11      |  
|General and administrative - related party                 |  |                              | 90     |      |   | 93      |  
|Asset management fees - related party                      |  |                              | 154    |      |   | 154     |  
|Property expense                                           |  |                              | 247    |      |   | 241     |  
|Property management fees - related party                   |  |                              | 32     |      |   | 44      |  
|Legal and professional                                     |  |                              | 74     |      |   | 51      |  
|Depreciation and amortization                              |  |                              | 368    |      |   | 423     |  
|Total operating expenses                                   |  |                              | 980    |      |   | 1,017   |  
|                                                           |  |                              |        |      |   |         |  
|Operating
(loss) income                                    |  |                              | (135   | )    |   | 140     |  
|                                                           |  |                              |        |      |   |         |  
|Other income
(expense):                                    |  |                              |        |      |   |         |  
|Interest and other income                                  |  |                              | 2      |      |   |        |  
|Interest expense                                           |  |                              | (579   | )    |   | (579    | )
|Equity in losses from non-consolidated
entities            |  |                              | (330   | )    |   | (1,676  | )
|Margin tax expense                                         |  |                              | (7     | )    |   | (8      | )
|Total other expense                                        |  |                              | (914   | )    |   | (2,263  | )
|                                                           |  |                              |        |      |   |         |  
|                                                           |  |                              |        |      |   |         |  
|Loss before
discontinued operations                        |  |                              | (1,049 | )    |   | (2,123  | )
|                                                           |  |                              |        |      |   |         |  
|Income
(loss) from discontinued operations:                |  |                              |        |      |   |         |  
|Loss from real estate operations                           |  |                              | (45    | )    |   | (15     | )
|Gain on sale of real estate                                |  |                              | 1,734  |      |   |        |  
|Income (loss) from discontinued operations                 |  |                              | 1,689  |      |   | (15     | )
|                                                           |  |                              |        |      |   |         |  
|Net income
(loss), including non-controlling interest      |  |                              | 640    |      |   | (2,138  | )
|                                                          
|Net (income) loss attributable to
non-controlling interest |  |                              | (705   | )    |   | 8       |  
|Net loss
attributable to partners                          |  | $                            | (65    | )    | $ | (2,130  | )
|                                                           |  |                              |        |      |   |         |  
|Weighted
average units outstanding                         |  |                              | 2,833  |      |   | 2,833   |  
|Net loss per
unit                                          |  | $                            | (22.95 | )    | $ | (751.85 | )

See Notes to Consolidated
Financial Statements.

2

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AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND
SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CAPITAL 
For the three months ended March 31, 2011 
(in thousands)
(unaudited)

|                                          |  |                   |   |                  |   |                          |   |       |        |   |   |        |  
|----------------------------------------- |  | ----------------- | - | ---------------- | - | ------------------------ | - | ----- | ------ | - | - | ------ | -
|                                          |  | Partners Capital |   |                  |   |                          |  
|                                          |  | General Partner   |   | Limited Partners |   | Non-controlling
interest |   | Total |       
|                                          |  |                   |   |                  |   |                          |   |       |       
|Balance at December 31, 2010              |  | $                 |  |                  | $ | 30,385                   |   | $     | 1,276  |   | $ | 31,661 |  
|                                          |  |                   |   |                  |   |                          |   |       |        |   |   |        |  
|Net loss (1)                              |  |                   |  |                  |   | (65                      | ) |       | 705    |   |   | 640    |  
|Distributions                             |  |                   |  |                  |   | (671                     | ) |       |       |   |   | (671   | )
|Distributions to non-controlling interest |  |                   |  |                  |   |                         |   |       | (1,981 | ) |   | (1,981 | )
|                                          |  |                   |   |                  |   |                          |   |       |        |   |   |        |  
|Balance at March 31, 2011                 |  | $                 |  |                  | $ | 29,649                   |   | $     |       |   | $ | 29,649 |  

| |     |                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The
allocation of net loss includes a curative allocation to increase the General
Partner capital account by $1 for the three months ended March 31, 2011. The
cumulative curative allocation since inception of the Partnership is $322.
The Partnership Agreement provides that no Partner shall be required to fund
a deficit balance in their capital account.

See Notes to Consolidated
Financial Statements.

3

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AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND
SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands) 
(unaudited)

|                                                                                                                                                                                                                                      |  |                              |         |      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | ---- | - | ------ | -
|                                                                                                                                                                                                                                      |  | Three months ended March 31, |        
|                                                                                                                                                                                                                                      |  | 2011                         |         | 2010 |  
|Cash flows from operating activities:                                                                                                                                                                                                 |  |                              |         |      |   |        |  
|Net income (loss), including
non-controlling interest                                                                                                                                                                                 |  | $                            | 640     |      | $ | (2,138 | )
|Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating activities:                                                                                                                                    |  |                              |         |      |   |        |  
|Equity in losses from non-consolidated
entities                                                                                                                                                                                       |  |                              | 330     |      |   | 1,676  |  
|Gain on sale of real estate                                                                                                                                                                                                           |  |                              | (1,734  | )    |   |       |  
|Depreciation and amortization                                                                                                                                                                                                         |  |                              | 479     |      |   | 587    |  
|Amortization of above- and below-market
leases, net                                                                                                                                                                                   |  |                              | (10     | )    |   | (31    | )
|Amortization of loan acquisition costs                                                                                                                                                                                                |  |                              | 17      |      |   | 19     |  
|Bad debt expense                                                                                                                                                                                                                      |  |                              | 9       |      |   | 17     |  
|Decrease (increase) in tenant receivables                                                                                                                                                                                             |  |                              | 105     |      |   | (1     | )
|(Increase) decrease in accounts receivable
- related party                                                                                                                                                                            |  |                              | (6      | )    |   | 2      |  
|Increase in deferred costs                                                                                                                                                                                                            |  |                              | (55     | )    |   | (38    | )
|Decrease in other assets                                                                                                                                                                                                              |  |                              | 178     |      |   | 299    |  
|Decrease in accounts payable and other
liabilities                                                                                                                                                                                    |  |                              | (746    | )    |   | (441   | )
|Increase in accounts payable - related
party                                                                                                                                                                                          |  |                              | 215     |      |   | 155    |  
|(Decrease) increase in security deposits                                                                                                                                                                                              |  |                              | (4      | )    |   | 1      |  
|Net cash (used in) provided by operating activities                                                                                                                                                                                   |  |                              | (582    | )    |   | 107    |  
|                                                                                                                                                                                                                                      |  |                              |         |      |   |        |  
|Cash flows from investing activities:                                                                                                                                                                                                 |  |                              |         |      |   |        |  
|Improvements to real estate                                                                                                                                                                                                           |  |                              |        |      |   | (76    | )
|Proceeds from property sale                                                                                                                                                                                                           |  |                              | 4,493   |      |   |       |  
|Investments in non-consolidated entities                                                                                                                                                                                              |  |                              | (137    | )    |   | (281   | )
|Distributions from non-consolidated
entities                                                                                                                                                                                          |  |                              | 20      |      |   |       |  
|Net cash provided by (used in) investing
activities                                                                                                                                                                                   |  |                              | 4,376   |      |   | (357   | )
|                                                                                                                                                                                                                                      |  |                              |         |      |   |        |  
|Cash flows from financing activities:                                                                                                                                                                                                 |  |                              |         |      |   |        |  
|Payments on notes payable                                                                                                                                                                                                             |  |                              | (45     | )    |   | (43    | )
|Proceeds from notes payable - related party                                                                                                                                                                                           |  |                              |        |      |   | 400    |  
|Payments on notes payable - related party                                                                                                                                                                                             |  |                              |        |      |   | (1,000 | )
|Distributions                                                                                                                                                                                                                         |  |                              | (671    | )    |   |       |  
|Distributions to non-controlling interest                                                                                                                                                                                             |  |                              | (1,924  | )    |   |       |  
|Net cash used in financing activities                                                                                                                                                                                                 |  |                              | (2,640  | )    |   | (643   | )
|                                                                                                                                                                                                                                      |  |                              |         |      |   |        |  
|Net increase (decrease) in cash and cash
equivalents                                                                                                                                                                                  |  |                              | 1,154   |      |   | (893   | )
|Cash and cash equivalents, beginning of
period                                                                                                                                                                                        |  |                              | 2,646   |      |   | 3,297  |  
|Cash and cash equivalents, end of period                                                                                                                                                                                              |  | $                            | 3,800   |      | $ | 2,404  |  
|                                                                                                                                                                                                                                      |  |                              |         |      |   |        |  
|Supplemental schedule of cash flow
information:                                                                                                                                                                                       |  |                              |         |      |   |        |  
|                                                                                                                                                                                                                                      |  |                              |         |      |   |        |  
|Cash paid during the period for interest                                                                                                                                                                                              |  | $                            | 745     |      | $ | 683    |  
|                                                                                                                                                                                                                                      |  |                              |         |      |   |        |  
|Supplemental schedule of noncash investing
and financing activities:                                                                                                                                                                  |  |                              |         |      |   |        |  
|                                                                                                                                                                                                                                      |  |                              |         |      |   |        |  
|Net proceeds from sale of investment
property                                                                                                                                                                                         |  |                              |         |      |   |        |  
|Land                                                                                                                                                                                                                                  |  | $                            | 3,808   |      | $ |       |  
|Building and tenant improvements, net of
accumulated depreciation                                                                                                                                                                     |  |                              | 13,594  |      |   |       |  
|Receivables                                                                                                                                                                                                                           |  |                              | 34      |      |   |       |  
|Acquired lease intangibles, net                                                                                                                                                                                                       |  |                              | 746     |      |   |       |  
|Deferred costs and other assets                                                                                                                                                                                                       |  |                              | 374     |      |   |       |  
|Notes Payable                                                                                                                                                                                                                         |  |                              | (15,675 | )    |   |       |  
|Acquired below-market lease intangibles and
other liabilities                                                                                                                                                                         |  |                              | (122    | )    |   |       |  
|Gain on sale of investment                                                                                                                                                                                                            |  |                              | 1,734   |      |   |       |  
|                                                                                                                                                                                                                                      |  | $                            | 4,493   |      | $ |       |  
|                                                                                                                                                                                                                                      |  |                              |         |      |   |        |  
|During 2011, $130,000 in accounts payable -
related party was reclassified to notes payable - related party.                                                                                                                         
|                                                                                                                                                                                                                                      |  |                              |         |      |   |        |  
|In 2011, we reclassed $57,000 from non-controlling interest to
accounts payable - related party. This represents the final distribution to
be made to our non-controlling interest partner for the sale of the Lake
Houston property.

See Notes to Consolidated
Financial Statements.

4

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Table of Contents

AmREIT MONTHLY INCOME &
GROWTH FUND III, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011(unaudited)

|   |                                                 
|-- | ------------------------------------------------
|1. | DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

AmREIT Monthly
Income & Growth Fund III, Ltd., a Texas limited partnership (hereinafter
referred to as the Partnership, MIG III, we, us or our), was formed
on April 19, 2005 to acquire, develop and operate, directly or indirectly
through joint venture arrangements, a portfolio of commercial real estate consisting
primarily of multi-tenant shopping centers and mixed-use developments. The
general partner of the Partnership is AmREIT Monthly Income & Growth III
Corporation, a Texas corporation (the General Partner), which is a subsidiary
of AmREIT, Inc., a Securities and Exchange Commission (SEC) reporting,
non-traded Maryland corporation that has elected to be taxed as a real estate
investment trust (AmREIT). The General Partner maintains its principal place
of business in Houston, Texas.

We commenced
our principal operations on June 30, 2005, when we accepted subscriptions for
the minimum offering of $2.0 million pursuant to the terms of our Offering
Memorandum dated April 19, 2005 (the Offering Memorandum) and issued the
initial 80 limited partnership units (the Units). As of October 31, 2006, we
had received $71.1 million for the sale of 2,844 Units and closed the offering.
As of March 31, 2011, our investments include three wholly-owned properties
comprising approximately 225,000 square feet of gross leasable area and seven
properties in which we own a non-controlling interest through joint ventures
comprising approximately 1,142,000 square feet of gross leasable area.

Our Units were
sold pursuant to exemptions from registration under the Securities Act of 1933,
as amended (Securities Act), and are not currently listed on a national
securities exchange. These Units will be transferable only if we register them
under applicable securities laws (such registration is not expected) or
pursuant to an exemption under the Securities Act and applicable state
securities laws. We do not anticipate that any public market for the Units will
develop.

The U.S.
economy is still experiencing weakness from recent economic conditions, which
resulted in increased unemployment, weakening of tenant financial condition,
large-scale business failures and tight credit markets. Our results of
operations may be sensitive to changes in overall economic conditions that
impact tenant leasing practices. Adverse economic conditions affecting tenant
income, such as employment levels, business conditions, interest rates, tax
rates, fuel and energy costs and other matters, could reduce overall tenant
leasing or cause tenants to shift their leasing practices. In addition, periods
of economic slowdown or recession, rising interest rates or declining demand
for real estate, or the public perception that any of these events may occur,
could result in a general decline in rents or an increased incidence of
defaults under existing leases. Although the U.S. economy has emerged from the
recent recession, high levels of unemployment have persisted, and rental rates
and valuations for retail space have not fully recovered to pre-recession
levels. At this time, it is difficult to determine the breadth and duration of
the financial market problems and the many ways in which they may affect our
tenants and our business in general. A significant additional deterioration in
the U.S. economy or the bankruptcy or insolvency of one or more of our significant
tenants could cause our cash resources to be insufficient to meet our
obligations over the next 12 months. Effective July 15, 2009, we suspended all
distributions in an effort to conserve cash and to protect our limited
partners invested capital. As we have several projects that are mid-stream in
redevelopment, we are conserving cash from operations to improve our ability to
fund capital improvements, tenant improvements and leasing commissions, and to
meet our obligations, including debt service. We believe that the economy and
real estate market will recover prior to our anticipated liquidation
commencement date of October 31, 2012. However, if the economy has not
recovered, we may seek to postpone liquidation if we believe such liquidation
is not in the best interests of the Partners at that time.

We have $24.6
million in debt that matures during 2011. This amount consists of a $13.4
million mortgage on our Lantern Lane property that matures in September 2011
and a $11.2 million mortgage on our Olmos Creek property that matures in
December 2011. In each case, we believe that we will be able to extend the
mortgage with the current lender, refinance with a new lender or dispose of the
property in an orderly sale prior to the maturity date. No assurance can be
given that we will be able to generate such liquidity. In the event that we are
unable to generate sufficient liquidity, we may be forced to sell one or more
properties at a time when it is disadvantageous to do so, potentially resulting
in losses on disposition of those properties.

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|   |                                           
|-- | ------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF
PRESENTATION

Our financial
records are maintained on the accrual basis of accounting whereby revenues are
recognized when earned and expenses are recorded when incurred. The
consolidated financial statements include our accounts as well as the accounts
of any wholly- or majority-owned subsidiaries in which we have a controlling
financial interest. Investments in joint ventures and partnerships where we
have the ability to exercise significant influence but do not exercise
financial and operating control are accounted for using the equity method (see
Note 3). The significant accounting policies of our non-consolidated entities
are consistent with those of our subsidiaries in which we have a controlling
financial interest. As applicable, we consolidate certain joint ventures and
partnerships in which we own less than a 100% equity interest if the entity is
a variable interest entity and we are the primary beneficiary (as defined in
Accounting Standards Codification (ASC) 810, Consolidation).
As of March 31, 2011, we do not have any interests in variable interest
entities. All significant inter-company accounts and transactions have been
eliminated in consolidation.

The
consolidated financial statements included in this Quarterly Report on Form
10-Q (Report) are unaudited; however, amounts presented in the consolidated
balance sheet as of December 31, 2010 are derived from our audited financial
statements as of that date. In our opinion, all adjustments necessary for a
fair presentation of such financial statements have been included. Such
adjustments consisted of normal recurring items.

REVENUE RECOGNITION

We lease space
to tenants under agreements with varying terms. All of the leases are accounted
for as operating leases, and, although certain leases of the properties provide
for tenant occupancy during periods for which no rent is due and/or increases
or decreases in the minimum lease payments over the terms of the leases,
revenue is recognized on a straight-line basis over the terms of the individual
leases. Revenue recognition under a lease begins when the lessee takes
possession of or controls the physical use of the leased asset. Generally,
possession or control occurs on the lease commencement date. We have determined
that we are the owner of any tenant improvements that we fund pursuant to the
lease terms. In cases where significant tenant improvements are made prior to
lease commencement, the leased asset is considered to be the finished space,
and revenue recognition therefore begins when the improvements are
substantially complete.

Accrued rents
are included in tenant receivables. Revenue from tenant reimbursements of
taxes, maintenance expenses and insurance is recognized in the period the
related expense is recorded. Additionally, certain of the lease agreements
contain provisions that grant additional rents based on tenants sales volumes
(contingent or percentage rent). Percentage rents are recognized when the
tenants achieve the specified targets as defined in their lease agreements. No
percentage rents were recognized during the three months ended March 31, 2011
and 2010. We recognize lease termination fees in the period that the lease is
terminated and collection of the fees is reasonably assured. During the three
months ended March 31, 2011 and 2010, we recognized no lease termination fees.
Upon early lease termination, as applicable, we also provide for losses related
to unrecovered intangibles and other assets and write off any assets or
liabilities and the associated accumulated amortization.

REAL ESTATE
INVESTMENTS

Development Properties
-Land, buildings and improvements are recorded at cost. Expenditures
related to the development of real estate are carried at cost which includes
capitalized carrying charges, acquisition costs and development costs. Carrying
charges, primarily interest, real estate taxes and loan acquisition costs, and
direct and indirect development costs related to buildings under construction,
are capitalized as part of construction in progress. The capitalization of such
costs ceases at the earlier of one year from the date of completion of major
construction or when the property, or any completed portion, becomes available
for occupancy.

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Acquired Properties and Acquired Lease
Intangibles - We account for acquisitions
of operating properties pursuant to ASC 805, Business
Combinations (ASC 805), as we believe our operating real estate
meets the definition of a business pursuant to this guidance. Accordingly, we
allocate the purchase price of the acquired operating properties to land,
building and improvements, identifiable intangible assets and to the acquired
liabilities based on their respective fair values. Identifiable intangibles
include amounts allocated to acquired above and below-market leases, the value
of in-place leases and customer relationship value, if any. We determine fair
value based on estimated cash flow projections that utilize appropriate discount
and capitalization rates and available market information. Estimates of future
cash flows are based on a number of factors including the historical operating
results, known trends and specific market and economic conditions that may
affect the property. Factors considered by management in our analysis of
determining the as-if-vacant property value include an estimate of carrying
costs during the expected lease-up periods considering market conditions and
costs to execute similar leases. In estimating carrying costs, management
includes real estate taxes, insurance and estimates of lost rentals at market
rates during the expected lease-up periods, tenant demand and other economic
conditions. Management also estimates costs to execute similar leases including
leasing commissions, tenant improvements, legal and other related expenses.
Intangibles related to above and below-market leases and in-place lease value
are recorded as acquired lease intangibles and are amortized as an adjustment
to rental income or amortization expense, as appropriate, over the remaining
terms of the underlying leases. Below market leases include fixed-rate renewal
periods. Premiums or discounts on acquired above and below-market debt are
amortized to interest expense over the remaining term of such debt.

We expense
acquisition costs associated with operating properties as incurred in
accordance with ASC 805. We did not expense any acquisition costs or capitalize
any interest or taxes during the three months ended March 31, 2011 and 2010.

Depreciation -Depreciation
is computed using the straight-line method over an estimated useful life of up
to 39 years for buildings and site improvements and over the term of lease for
tenant-specific improvements. We re-evaluate the useful lives of our buildings
and improvements as warranted by changing conditions at our properties. As part
of this re-evaluation, we may also consider whether such changes indicate a
potential impairment, and we will perform an impairment analysis as necessary,
at the property level. In the case of a property redevelopment, we will
reassess the useful lives of specific buildings and other improvements to be
demolished as part of that redevelopment once the redevelopment is probable to
occur.

Properties Held for Sale -Properties will be classified as held for sale if we decide to market the
property for immediate sale in its present condition with the belief that the
sale will be completed within one year. Properties held for sale will be
carried at the lower of cost or fair value less cost to sell. Depreciation and
amortization are suspended during the held for sale period. As of March 31,
2011 and December 31, 2010, we had no properties held for sale.

Impairment -
We review our properties for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets, including
acquired lease intangibles and accrued rental income, may not be recoverable
through operations. We determine whether an impairment in value occurred by
comparing the estimated future cash flows (undiscounted and without interest
charges), including the residual value of the property, with the carrying value
of the individual property. If impairment is indicated, a loss will be recorded
for the amount by which the carrying value of the asset exceeds its fair value.
Both the estimated undiscounted cash flow analysis and fair value determination
are based upon various factors that require complex and subjective judgments to
be made by management. Such assumptions include projecting lease-up periods,
holding periods, cap rates, rental rates, operating expenses, lease terms,
tenant creditworthiness, tenant improvement allowances, terminal sales value
and certain macroeconomic factors among other assumptions to be made for each
property. For our multi-building retail centers, we consider the entire retail
center as the asset group for purposes of our impairment analysis. We review
our investments in non-consolidated entities for impairment based on a similar
review of the properties held by the investee entity. No impairment charges
were recognized during the three months ended March 31, 2011 and 2010.

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ENVIRONMENTAL
EXPOSURES

We are subject
to numerous environmental laws and regulations as they apply to real estate
pertaining to chemicals used by the dry cleaning industry, the existence of
asbestos in older shopping centers and underground petroleum storage tanks. We
believe that the tenants who currently operate dry cleaning plants or gas
stations do so in accordance with current laws and regulations. We believe that
the ultimate disposition of currently known environmental matters will not have
a material affect on our financial position, liquidity or operations (See Note
10). However, we can give no assurance that existing environmental studies with
respect to the shopping centers have revealed all potential environmental
liabilities; that any previous owner, occupant or tenant did not create any
material environmental condition not known to it; that the current environmental
condition of the shopping centers will not be affected by tenants and
occupants, by the condition of nearby properties or by unrelated third parties;
or that changes in applicable environmental laws and regulations or their
interpretation will not result in additional environmental liability to the
Partnership.

RECEIVABLES AND
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS

Tenant Receivables -Included in tenant receivables are base rents, tenant reimbursements and
receivables attributable to recording rents on a straight-line basis. An
allowance for the uncollectible portion of accrued rents and accounts
receivable is determined based upon customer credit-worthiness (including
expected recovery of our claim with respect to any tenants in bankruptcy),
historical bad debt levels and current economic trends. Bad debt expenses and
any related recoveries are included in general and administrative expense. As
of March 31, 2011 and December 31, 2010, our allowance for uncollectible
accounts related to our tenant receivables was $439,000 and $448,000,
respectively.

Accounts Receivable -
Related Party - Included in accounts receivable - related party are
short-term cash advances provided to certain of our affiliated investment
entities primarily for their working capital needs. These cash advances are due
upon demand.

DEFERRED COSTS

Deferred costs
include deferred leasing costs and loan acquisition costs, net of amortization.
Loan acquisition costs are incurred in obtaining financing and are amortized to
interest expense over the term of the debt agreements using a method that
approximates the effective interest method. Deferred leasing costs consist of
external commissions associated with leasing our properties and are amortized
to depreciation and amortization expense on a straight-line basis over the
lease term. If a lease is terminated early, or a loan is paid in full prior to
maturity, the remaining deferred costs will be written off. Accumulated
amortization related to loan acquisition costs as of March 31, 2011 and December
31, 2010 totaled $262,000 and $348,000, respectively. Accumulated amortization
related to leasing costs as of March 31, 2011 and December 31, 2010 totaled
$136,000 and $156,000, respectively.

DISCONTINUED
OPERATIONS

During the
three months ended March 31, 2011, we sold our Market at Lake Houston property
to AmREIT. This disposed property has been reflected as discontinued operations
in the accompanying statement of operations. We had no properties classified as
held for sale as of March 31, 2011or disposed of in prior periods. The
following is a summary of our discontinued operations for the three months
ended March 31, 2011 and 2010 (in thousands):

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|                                           |  |                                      |       |      |   |      |  
|------------------------------------------ |  | ------------------------------------ | ----- | ---- | - | ---- | -
|                                           |  | For the three months
ended March 31, |      
|                                           |  | 2011                                 |       | 2010 |  
|Revenues:                                  |  |                                      |       |      |   |      |  
|Rental income from operating leases        |  |                                      | 329   |      |   | 529  |  
|Total revenues                             |  |                                      | 329   |      |   | 529  |  
|                                          
|Expenses:                                  |  |                                      |       |      |   |      |  
|General and administrative                 |  |                                      | 4     |      |   | 1    |  
|Property expense                           |  |                                      | 80    |      |   | 126  |  
|Property management fees - related party   |  |                                      | 12    |      |   | 18   |  
|Legal and professional                     |  |                                      | 11    |      |   | 1    |  
|Depreciation and amortization              |  |                                      | 112   |      |   | 164  |  
|Total operating expenses                   |  |                                      | 219   |      |   | 310  |  
|                                          
|Operating income                           |  |                                      | 110   |      |   | 219  |  
|                                          
|Other (expense):                           |  |                                      |       |      |   |      |  
|Interest expense                           |  |                                      | (141  | )    |   | (230 | )
|Margin tax expense                         |  |                                      | (14   | )    |   | (4   | )
|Total other expense                        |  |                                      | (155  | )    |   | (234 | )
|Loss from real estate operations           |  |                                      | (45   | )    |   | (15  | )
|Gain on sale of real estate                |  |                                      | 1,734 |      |   |     |  
|Income (loss) from discontinued operations |  | $                                    | 1,689 |      | $ | (15  | )

INCOME TAXES

Federal -No
provision for U.S. federal income taxes is included in the accompanying
consolidated financial statements. As a partnership, we are not subject to
federal income tax, and the federal tax effect of our activities is passed
through to our partners.

State -In May
2006, the State of Texas adopted House Bill 3, which modified the states
franchise tax structure, replacing the previous tax based on capital or earned
surplus with one based on margin (often referred to as the Texas Margin Tax
effective with franchise tax reports filed on or after January 1, 2008. The
Texas Margin Tax is computed by applying the applicable tax rate (1% for the
Partnership) to the profit margin, which, generally, will be determined for us
as total revenue less a 30% standard deduction. Although House Bill 3 states
that the Texas Margin Tax is not an income tax, the Partnership believes that
ASC 740 Income Taxes, applies to
the Texas Margin Tax. For the three months ended March 31, 2011 and 2010, we
recorded tax provisions of approximately $7,000 and $8,000, respectively, for
the Texas Margin Tax ($14,000 and $3,000, respectively related to discontinued
operations).

USE OF ESTIMATES

The
preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles (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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

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FAIR VALUE
MEASUREMENTS

We account for
assets and liabilities measured at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures
(ASC 820). ASC 820 emphasizes that fair value is a market-based measurement,
not an entity-specific
measurement. Therefore, a fair value measurement should be determined based on
the assumptions that market participants would use in pricing the asset or
liability. As a basis for considering market participant assumptions in fair
value measurements, ASC 820 establishes a fair value hierarchy that
distinguishes between market participant assumptions based on market data
obtained from sources independent of the reporting entity (observable inputs
that are classified within Levels 1 and 2 of the hierarchy) and the reporting
entitys own assumptions about market participant assumptions (unobservable
inputs classified within Level 3 of the hierarchy). The three levels of inputs
used to measure fair value are as follows:

| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 1
Inputs  Quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Partnership has the ability to access.                                    
| |   |                                                                                                                                                                                      
| |  | Level 2 Inputs
 Inputs other than quoted prices included in Level 1 that are observable for
the asset or liability, either directly or indirectly.                                  
| |   |                                                                                                                                                                                      
| |  | Level 3
Inputs  Unobservable inputs for the asset or liability, which are typically
based on the Partnerships own assumptions, as there is little, if any,
related market activity.

ASC 820
requires the use of observable market data, when available, in making fair
value measurements. Observable inputs that the market participants would use in
pricing the asset or liability are developed based on market data obtained from
sources independent of our own. Unobservable inputs are inputs that reflect our
assumptions about the assumptions market participants would use in pricing the
asset or liability developed based on the best information available in the
circumstances. When inputs used to measure fair value fall within different
levels of the hierarchy, the level within which the fair value measurement is
categorized is based on the lowest level input that is significant to the fair
value measurement.

The following
table presents our notes payable and related valuation inputs within the fair
value hierarchy utilized to measure fair value as of March 31, 2011 and
December 31, 2010 (in thousands):

|                  |  |         |   |         |   |         |  |   |   | 
|----------------- |  | ------- | - | ------- | - | ------- |  | - | - | 
|March 31, 2011    |  | Level 1 |   | Level 2 |   | Level 3 | 
|Notes Payable     |  | $       |  |         | $ | 35,663  |  | $ |  | 
|                 
|December 31, 2010 |  | Level 1 |   | Level 2 |   | Level 3 | 
|Notes Payable     |  | $       |  |         | $ | 52,021  |  | $ |  | 

Notes Payable  We disclose the fair value of our financial instruments in accordance with
ASC 825, Financial Instruments,
on a recurring basis. Our consolidated financial instruments consist of cash
and cash equivalents, tenant receivables, accounts receivable  related party,
notes payable, notes payable  related party, and accounts payable and other
liabilities. The carrying values of all but the notes payable are
representative of the fair values due to the short term nature of the
instruments. In determining the fair value of our debt instruments, we
determine the appropriate Treasury Bill Rate based on the remaining time to
maturity for each of the debt instruments. We then add the appropriate yield
spread to the Treasury Bill Rate. The yield spread is a risk premium estimated
by investors to account for credit risk involved in debt financing. The spread
is typically estimated based on the property type and loan-to-value ratio of
the debt instrument. The result is an estimate of the market interest rate a
typical investor would expect to receive given the underlying subject asset
(property type) and remaining time to maturity. We believe the fair value of
our notes payable is classified in Level 2 of the fair value hierarchy. Based
on these estimates, the fair value of notes payable was $35.7 million and $52.0
million at March 31, 2011 and December 31, 2010, respectively.

CASH AND CASH
EQUIVALENTS

We consider
all highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. Cash and cash equivalents consist of
demand deposits at commercial banks and money market funds.

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INTEREST

Interest is
charged to interest expense as it accrues. No interest has been capitalized on
any consolidated properties since inception of the Partnership.

SEGMENT REPORTING

ASC 280, Segment Reporting establishes standards
for reporting financial and descriptive information about an enterprises
reportable segments. We determined that we have one reportable segment with
activities related to investing in real estate. Our investments in real estate
generate rental revenue and other income through the leasing of multi-tenant
retail properties, which comprised 100% of our total consolidated revenues for
all periods presented. We evaluate operating performance on an individual
property level. However, as all of our properties have similar economic
characteristics, tenants and products and services, our properties have been
aggregated into one reportable segment.

RECLASSIFICATIONS

Certain prior
period amounts in the consolidated financial statements have been reclassified
to conform to the presentation used in the current period consolidated
financial statements.

|   |                                         
|-- | ----------------------------------------
|3. | INVESTMENTS IN NON-CONSOLIDATED ENTITIES

Since
inception, we have made the following investments in five entities through
which we own an interest in seven properties:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In March
2006, we acquired a 50% interest in 5433 Westheimer, LP, which owns an office
building with a gross leasable area of 134,000 square feet and a 152-room
hotel in Houston, Texas. In November 2008, we acquired an additional 7.5%
interest in 5433 Westheimer, LP from our third party, joint-venture partner
for $800,000. The remaining 42.5% is owned by that same party. The property
is not consolidated into our financial statements as we and our joint venture
partner share equally in decision making rights through our equal ownership
in the general partner. Construction of the hotel was completed in August
2009, and we are currently evaluating opportunities to further develop the
property.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | In December
2006, we acquired a 20% interest in PTC/BSQ Holding Company LLC, which owns
three multi-tenant retail properties located in Plano, Texas with a combined
gross leasable area of 395,000 square feet. The remaining 80% is owned by an
unaffiliated third party.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | In December
2006, we acquired a 50% interest in AmREIT Casa Linda, LP, which owns a
multi-tenant retail property located in Dallas, Texas with a combined gross
leasable area of 325,000 square feet. The remaining 50% is owned by AmREIT
Monthly Income and Growth Fund IV, LP (MIG IV), an affiliate of our General
Partner.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | In August
2007, we acquired a 30% interest in AmREIT Woodlake Square, LP, which owns a
multi-tenant retail property located in Houston, Texas with a combined gross
leasable area of 206,000 square feet. The remaining 70% interest was held by
affiliated AmREIT entities, MIG IV and AmREIT Realty Investment Corporation
(ARIC). In July 2010, we and our affiliated partners of AmREIT Woodlake, LP
entered into a joint venture with a third-party institutional partner wherein
the partner acquired a 90% interest in the joint venture. As a result of this
transaction, we now hold a 3% interest in Woodlake Square, which carries a
promoted interest in profits and cash flows once an 11.65% return is met on
the project. We will continue to account for this investment using the equity
method given our ability to significantly influence the propertys
operations. The joint venture commenced redevelopment of this property in the
third quarter of 2010 with the total cost of the project estimated to be $8.0
million. The redevelopment was completed in April 2011, and Randalls
celebrated its grand opening on April 13, 2011. The redevelopment was
completed on budget.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In November
2007, we acquired a 30% interest in AmREIT Westheimer Gessner, LP, which owns
Woodlake Pointe, a multi-tenant retail property located in Houston, Texas
with a combined gross leasable area of 82,120 square feet. The remaining 70%
is owned by affiliated AmREIT entities, MIG IV and ARIC. In May 2008, AmREIT
Westheimer Gessner, LP acquired an additional tract of land adjacent to
Woodlake Pointe for $1.3 million.

We report our
investments in these entities using the equity method of accounting due to our
ability to exercise significant influence over them. Combined condensed
financial information for our non-consolidated entities is summarized as of and
for the three months ended March 31, 2011 and 2010, as follows (in thousands):

|                              |  |                              |        |      |   |        |  
|----------------------------- |  | ---------------------------- | ------ | ---- | - | ------ | -
|                              |  | Three months ended March 31, |       
|                              |  | 2011                         |        | 2010 |  
|Revenue                       |  | $                            | 5,423  |      | $ | 5,504  |  
|Depreciation
and amortization |  |                              | (1,829 | )    |   | (6,255 | )
|Interest
expense              |  |                              | (1,530 | )    |   | (1,665 | )
|Net loss                      |  |                              | (985   | )    |   | (5,075 | )

|   |                           
|-- | --------------------------
|4. | ACQUIRED LEASE INTANGIBLES

In accordance
with ASC 805, we have identified and recorded the value of acquired lease
intangibles at the property acquisition date. Such intangibles include the
value of acquired in-place leases and above and below-market leases. Acquired
lease intangible assets (in-place leases and above-market leases) are amortized
over the leases remaining terms, which range from 1 year to 14 years. Acquired
lease intangible liabilities (below-market leases) are accreted over the
leases remaining non-cancelable lease term, plus any fixed-rate renewal
options, if any, which range from 1 year to 14 years. The amortization of above
(and below) market leases is recorded as a reduction of (increase in) rental
income, and the amortization of in-place leases is included in depreciation and
amortization expense. The amortization expense related to in-place leases was
approximately $63,000 and $121,000 for the three months ended March 31, 2011
and 2010, respectively. The amortization of above-market leases, which was
recorded as a reduction of rental income, was approximately $9,000 and $12,000
during the three months ended March 31, 2011 and 2010, respectively. Accretion
of below-market leases was approximately $19,000 and $43,000 during the three
months ended March 31, 2011 and 2010, respectively.

Acquired
in-place and above and below-market lease amounts and their respective
accumulated amortization are as follows (in thousands):

|                                               |  |                |        |                   |   |        |  
|---------------------------------------------- |  | -------------- | ------ | ----------------- | - | ------ | -
|                                               |  | March 31, 2011 |        | December 31, 2010 |  
|Acquired lease intangible assets:              |  |                |        |                   |   |        |  
|In-place leases                                |  | $              | 2,257  |                   | $ | 3,992  |  
|In-place leases - accumulated amortization     |  |                | (1,814 | )                 |   | (2,739 | )
|Above-market leases                            |  |                | 265    |                   |   | 269    |  
|Above-market leases - accumulated amortization |  |                | (242   | )                 |   | (237   | )
|Acquired lease intangibles, net                |  | $              | 466    |                   | $ | 1,285  |  
|                                               |  |                |        |                   |   |        |  
|Acquired lease intangible liabilities:         |  |                |        |                   |   |        |  
|Below-market leases                            |  | $              | 532    |                   | $ | 699    |  
|Below-market leases - accumulated amortization |  |                | (433   | )                 |   | (518   | )
|Acquired below-market lease intangibles, net   |  | $              | 99     |                   | $ | 181    |  

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|   |              
|-- | -------------
|5. | NOTES PAYABLE

Our
outstanding debt at March 31, 2011 and December 31, 2010 consisted entirely of
fixed-rate mortgage loans of approximately $34.7 million and $50.4 million,
respectively. Our mortgage loans are secured by our real estate properties and
may be prepaid, but could be subject to a yield-maintenance premium or
prepayment penalty. Mortgage loans are generally due in monthly installments of
interest and principal and our mortgages mature over various terms ranging from
September 2011 through June 2015. As of March 31, 2011, the weighted-average
interest rate on our fixed-rate debt is 6.0%, and the weighted average
remaining life of such debt is 1.6 years.

As of March
31, 2011, scheduled principal repayments on notes payable were as follows (in
thousands):

|                           |  |   |                              |  |                      |        |                |   |        |  | 
|-------------------------- |  | - | ---------------------------- |  | -------------------- | ------ | -------------- | - | ------ |  | 
|Scheduled Payments by Year |  |   | Scheduled
Principal
Payments |  | Term-Loan
Maturities |        | Total
Payments |  
|2011                       |  | $ | 130                          |  | $                    | 24,615 |                | $ | 24,745 | 
|2012                       |  |   | 183                          |  |                      |       |                |   | 183    | 
|2013                       |  |   | 196                          |  |                      |       |                |   | 196    | 
|2014                       |  |   | 207                          |  |                      |       |                |   | 207    | 
|2015                       |  |   | 92                           |  |                      | 9,229  |                |   | 9,321  | 
|Thereafter                 |  |   |                             |  |                      |       |                |   |       | 
|Total                      |  | $ | 808                          |  | $                    | 33,844 |                | $ | 34,652 | 

We serve as
guarantor on debt in the amount of $36.9 million that is the primary obligation
of our non-consolidated joint ventures. This debt matures in 2013 and 2014. We
have not accrued any liability with respect to these guarantees as we believe
it is unlikely we would be required to perform and, therefore, the fair value
of any obligation would be insignificant.

Notes Payable  Related Party As of March 31, 2011 and December 31, 2010, the balance of notes payable
 related party was $2.7 million and $2.6 million, respectively. Of the balance
as of March 31, 2011, $1.7 million accrues interest monthly at LIBOR plus a
spread of 4.0% with a floor of 7.0%, and the remaining amount accrues interest
monthly at LIBOR plus a spread of 3.875% with a floor of 5.375%. The notes are
due on demand and are secured by our investment interests in the Woodlake
Pointe and Woodlake Square properties.

|   |               
|-- | --------------
|6. | CONCENTRATIONS

As of March
31, 2011 and December 31, 2010, each of our three consolidated properties
individually comprised greater than 10% of our consolidated total assets.
Consistent with our strategy of investing in geographic areas that we know
well, two of our three properties are located in the Houston metropolitan area.
These Houston properties represent 77% and 83% of our rental income for the
three months ended March 31, 2011 and 2010, respectively. Houston is Texas
largest city and the fourth largest city in the United States.

Following are
the base rents generated by our top five tenants during the three months ended
March 31, 2011 and 2010 (in thousands):

|                                  |  |                              |     |      |   |     |  | 
|--------------------------------- |  | ---------------------------- | --- | ---- | - | --- |  | 
|                                  |  | Three months ended March 31, |    
|                                  |  | 2011                         |     | 2010 |  
|Tenant                            |  |                              |     |      |   |     |  | 
|H-E-B Grocery (1)                 |  | $                            | 251 |      | $ | 356 | 
|Rice Food Markets, Inc.           |  |                              | 73  |      |   | 73  | 
|Fidelity Investments              |  |                              | 46  |      |   | 53  | 
|Fadis Mediterranean
Delight, Inc. |  |                              | 33  |      |   | 33  | 
|Potbelly Sandwich Works           |  |                              | 30  |      |   | 30  | 
|                                  |  | $                            | 433 |      | $ | 545 | 

| |     |                                                                                                                                                                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | HEB Grocery
is the anchor tenant on our Olmos Creek property and was the anchor tenant on
our Market at Lake Houston property prior to its sale in February 2011 to
AmREIT. The HEB Grocery on the Market at Lake Houston property accounted for
$172,000 and $277,000 in base rents for the three months ended March 31, 2011,
2010, respectively.

13

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|   |                                               
|-- | ----------------------------------------------
|7. | PARTNERS CAPITAL AND NON-CONTROLLING INTEREST

Our General
Partner invested $800,000 as a limited partner and $1,000 as a general partner.
We began raising capital in June 2005 and raised approximately $71 million at
the time of the offerings closing in October 2006. The General Partners
$800,000 investment represents a 1.1% limited partner interest in the
Partnership.

Limited Optional Redemption Our Units were sold pursuant to exemptions from registration under the
Securities Act and are not currently listed on a national exchange or otherwise
traded in an organized securities market. These Units may be transferred only
with consent of the General Partner after delivery of required documents, and,
in any event, only if we register the offer and sale of the Units under
applicable securities laws or if an exemption from such registration is
available. We do not expect to register the offer and sale of Units. Moreover,
we do not anticipate that any public market for the Units will develop. In order
to provide limited partners with the possibility of liquidity, limited partners
who have held their Units for at least three years may receive the benefit of
interim liquidity by presenting all of those Units to the Partnership for
redemption. At that time, we may, at our sole election and subject to the
conditions and limitations described below, redeem the Units presented for cash
to the extent that we have sufficient funds available to us to fund such
redemption. The redemption price to be paid will be 92% of the limited
partners unreturned invested capital. At no time during a 12-month period,
however, may the number of Units redeemed by us exceed 2% of the number of
Units outstanding at the beginning of that 12-month period. During the three
months ended March 31, 2011, we received one redemption request in the amount
of $30,000 which was denied. During the three months ended March 31, 2010, we
did not receive any redemption requests. During the three months ended March
31, 2009, we received three redemption requests, two of which were denied in
the aggregate amount of $74,000 and one of which was granted in the amount of
$28,000. All redemption requests that have been granted were paid with cash
flows from operations. We suspended the optional redemption program during the
second quarter of 2009 due to macroeconomic conditions and the need to preserve
cash.

Distributions
During the operating stage of the Partnership, net cash flow, as defined, will
be distributed 99% to the limited partners and 1% to the General Partner. Our
distributions were paid at a rate of 3.0% per annum on invested capital through
June 30, 2009. We suspended all distribution payments in July 2009 and do not
anticipate reinstating distributions until improvements in the real estate and
liquidity markets warrant such payment. In March 2011, we made a one-time
distribution to our partners for $671,000, which was funded by proceeds
received from the sale of the Market at Lake Houston property. All
distributions to date have been a return of capital, and the source of such
distributions has been cash flows from operations and investing activities as
well as our capital raising activities. During the liquidation stage of the
Partnership (anticipated to commence in October 2012, unless extended), net
cash flow, as defined, will be distributed among the limited partners and the
General Partner in the following manner:

| |   |                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | First - 99%
to the limited partners and 1% to the General Partner until such time as the
limited partners have received cumulative distributions from all sources
(including monthly cash distributions during the operating stage of the
Partnership) equal to 100% of their unreturned invested capital plus an
amount equal to 10% per annum uncompounded on their invested capital;
|
| |  | Second -
100% to the General Partner until it has received cumulative distributions
from all sources (other than with respect to its limited partner Units it
purchased) in an amount equal to 40% of the net cash flow paid to date to the
limited partners in excess of their adjusted capital; and                                                                                  
|
| |  | Thereafter -
60% to the limited partners and 40% to the General Partner.                                                                                                                                                                                                                                                                                                               

Non-controlling Interest Non-controlling interest represented a 40% ownership interest that one of
our affiliate investment funds had in a real estate partnership that we
consolidated as a result of our 60% controlling financial interest in such
partnership.

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|   |                           
|-- | --------------------------
|8. | RELATED PARTY TRANSACTIONS

Certain of our
affiliates received fees and compensation during the organizational stage of
the Partnership, including securities commissions and due diligence
reimbursements, marketing reimbursements and reimbursement of organizational
and offering expenses. These affiliates also receive fees for ongoing property
management and administrative services. In the event that these companies are
unable to provide us with the respective services, we would be required to find
alternative providers of these services. The following table summarizes the
amount of such compensation paid to our affiliates during the three months
ended March 31, 2011 and 2010 (in thousands):

|                                           |  |                              |      |  |      |     |  | 
|------------------------------------------ |  | ---------------------------- | ---- |  | ---- | --- |  | 
|                                           |  | Three
months ended March 31, |     
|Type of
service                            |  |                              | 2011 |  | 2010 |    
|Asset
management fees                      |  | $                            | 154  |  | $    | 154 | 
|Property
management fees and leasing costs |  |                              | 99   |  |      | 99  | 
|Administrative
costs reimbursements        |  |                              | 90   |  |      | 93  | 
|                                           |  | $                            | 343  |  | $    | 346 | 

In addition to
the above fees paid by us, the non-consolidated entities in which we have
investments pay property management and leasing fees to one of our affiliated
entities. During the three months ended March 31, 2011 and 2010, such fees
totaled $214,000 and $164,000, respectively. For more information, see Note 3
regarding investments in non-consolidated entities. On February 25, 2011, we
sold the Market at Lake Houston property to AmREIT. For more information, see
Note 9 regarding real estate acquisitions and dispositions.

|   |                                          
|-- | -----------------------------------------
|9. | REAL ESTATE ACQUISITIONS AND DISPOSITIONS

During the
three months ended March 31, 2011, we sold the Market at Lake Houston property
to AmREIT, which generated net proceeds of $4.5 million and resulted in a gain
of $1.7 million. In conjunction with the sale, we extinguished outstanding debt
in the amount of $15.7 million that was secured by the property. We did not
have any real estate acquisitions during the three months ended March 31, 2011.
We did not have any real estate acquisitions or dispositions during the three
months ended March 31, 2010.

|    |                              
|--- | -----------------------------
|10. | COMMITMENTS AND CONTINGENCIES

Litigation - In
the ordinary course of business, we may become subject to litigation or claims.
There are no material pending legal proceedings known to be contemplated
against us.

Environmental matters
- In connection with the ownership and operation of real estate, we may be
potentially liable for costs and damages related to environmental matters. We
have not been notified by any governmental authority of any non-compliance,
liability or other claim.

In conjunction
with our acquisition of the Lantern Lane shopping center in September 2006, we
identified an environmental exposure caused by a dry cleaning business that
operated on the property prior to our ownership. Our agreement with the seller provides
that, if the seller cannot provide satisfactory evidence that they have
performed appropriate remediation, we can reduce our note payable to them by
the lesser of the actual costs to remediate or $1.0 million. We believe that
the remediation costs will not exceed $1.0 million based on our environmental
investigation. We have not recorded a separate liability for this exposure as
we believe that we are fully indemnified by the seller pursuant to this
arrangement. To the extent that we are required to fund a portion of the
remediation, such amount will be financed through the reduction of the note
payable to the seller. We believe that this matter will not have an adverse
effect on our consolidated financial position or results of operations, and we
are aware of no other environmental exposures.

15

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|    |                  
|--- | -----------------
|11. | SUBSEQUENT EVENTS

We have
evaluated all events or transactions as of the date through which the financial
statements were made available for issuance. Except as noted below, we did not
have any material subsequent events that impacted our consolidated financial
statements.

On April 4,
2011, we contributed $1.5 million to PTC/BSQ Holding Company LLC, one of our
non-consolidated joint venture entities. The entity used these proceeds along
with proceeds from our unaffiliated third party joint venture partner to
purchase a vacant anchor building that is located next to our Preston Towne
Crossing property.

16

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|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following
discussion and analysis should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.

Certain
information presented in this Report constitutes forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (Exchange Act). Although we
believe that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, our actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include the following: changes in general
economic conditions, changes in real estate market conditions, continued availability
of proceeds from our debt or equity capital, our ability to locate suitable
tenants for our properties, the ability of tenants to make payments under their
respective leases, timing of acquisitions, development starts and sales of
properties, the ability to meet development schedules and other risks,
uncertainties and assumptions. Any forward-looking statement speaks only as of
the date on which it was made, and the Partnership undertakes no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operation results over
time.

Overview

We are a Texas
limited partnership formed on April 19, 2005 to acquire, develop and operate,
directly or indirectly through joint venture or other arrangements, commercial
retail real estate consisting of single-tenant and multi-tenant properties net
leased to investment grade and other creditworthy tenants throughout the United
States. We focus on properties characterized by high automobile traffic counts,
high populations, high household incomes and limited opportunities for
competition.

We have no
employees and are managed by AmREIT Monthly & Income III Corporation, our
General Partner, pursuant to our Partnership Agreement. Our General Partner is
a wholly-owned subsidiary of AmREIT. We qualify as a partnership for federal
income tax purposes.

As of March
31, 2011, our investments include three wholly-owned properties comprising
approximately 225,000 square feet of gross leasable area and seven properties
in which we own a non-controlling interest through joint ventures comprising
approximately 1,142,000 square feet of gross leasable area. A majority of our
properties are located in highly populated, suburban communities in Texas. We
derive a substantial portion of our revenue from rental income from these
properties, primarily from net leasing arrangements, where most of the
operating expenses of the properties are absorbed by our tenants. As a result,
our operating results and cash flows are primarily influenced by rental income
from our properties and interest expense on our property acquisition
indebtedness. Rental income accounted for 100% of our total revenue during the
three months ended March 31, 2011 and 2010. As of March 31, 2011, our
properties had an average occupancy rate of approximately 77%, and the average
debt leverage ratio of the properties in which we have an investment interest
was approximately 61%, with 68% of such debt carrying a fixed rate of interest.

Summary of Critical Accounting Policies

Our results of
operations and financial condition, as reflected in the accompanying
consolidated financial statements and related footnotes, are subject to
managements evaluation and interpretation of business conditions, retailer
performance, changing capital market conditions and other factors, which could
affect the ongoing viability of our tenants. Management believes the most
critical accounting policies in this regard are revenue recognition, regular
evaluation of whether the value of a real estate asset has been impaired,
accounting for the investment in real estate assets, accounting for the
investment in non-consolidated entities, allowance for uncollectible accounts
and accounting for real estate acquisitions. We evaluate our assumptions and
estimates on an on-going basis. We base our estimates on historical experience
as well as various other assumptions that we believe to be reasonable under the
circumstances. Actual results could vary from those estimates, perhaps in
materially adverse ways, and those estimates could be different under different
assumptions or conditions.

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An accounting
policy is deemed to be critical if it requires an accounting estimate to be
made based on assumptions about matters that are highly uncertain at the time
the estimate is made, and if different estimates that reasonably could have
been used, or changes in the accounting estimates that are reasonably likely to
occur periodically, could materially impact the financial statements.
Information with respect to the Partnerships critical accounting policies that
the Partnership believes could have the most significant effect on the
Partnerships reported results and require subjective or complex judgments by
management is contained in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations of the Partnerships Annual
Report on Form 10-K for the fiscal year ended December 31, 2010. Management
believes that, as of March 31, 2011, there have been no material changes to
this information.

Results of Operations

We commenced our principal
operations on June 30, 2005 when we accepted subscriptions for the minimum
offering of $2.0 million pursuant to the terms of our Offering Memorandum and
issued the initial 80 Units to investors. During 2005, we acquired a direct
interest in a property on September 30, 2005 and acquired an interest in
another property on December 12, 2005 through a consolidated joint venture.
During 2006, we acquired direct interests in two more properties, one on June
30, 2006 and the other on September 29, 2006. In 2006, we also made investments
in three joint ventures through which we obtained an ownership interest in five
properties. In 2007, we made investments in two more joint ventures through
which we obtained an ownership interest in two properties. During 2008, we made
an investment in one additional property through an existing joint venture and
acquired an additional equity interest in another existing joint venture. On
February 25, 2011, we sold our 60% majority interest in a property to AmREIT.
As of March 31, 2011, our investments include three wholly-owned properties
comprising approximately 225,000 square feet of gross leasable area and seven
properties in which we own a non-controlling interest through joint ventures
comprising approximately 1,142,000 square feet of gross leasable area.

Our direct property
acquisitions were accounted for as purchases and the results of their
operations are included in our consolidated financial statements from their
respective dates of acquisition. We report our investments in joint ventures
under the equity method of accounting given our ability to exercise significant
influence over them.

Three Months Ended March 31, 2011 versus Three Months Ended
March 31, 2010

Revenue.Revenue decreased approximately $312,000 during the three months ended
March 31, 2011 as compared to the same period in 2010 ($845,000 in 2011 versus
$1.2 million in 2010). The decrease is primarily attributable to the DSW Shoes
vacancy at Westside Plaza and the Blockbuster vacancy at Lantern Lane.

Legal and Professional Fees.Legal and professional fees increased
approximately $23,000 during the three months ended March 31, 2011 as compared
to the same period in 2010 ($74,000 in 2011 versus $51,000 in 2010). This
increase was due to the timing in the payment of tax fees. We incurred the 2010
tax fees during the three months ended March 31, 2011, whereas the 2009 tax
fees were incurred during the three months ended June 30, 2010.

Depreciation and Amortization Expense.Depreciation and amortization expense
decreased approximately $55,000 during the three months ended March 31, 2011 as
compared to the same period in 2010 ($368,000 in 2011 versus $423,000 in 2010).
This decrease was primarily due to a decrease in amortization of in-place
leases as a substantial portion of those costs became fully amortized in the
latter part of 2010 or were written off due to tenant vacancies.

Equity in Losses From Non-Consolidated Entities.Equity in losses from non-consolidated
entities decreased approximately $1.3 million for the three months ended March
31, 2011 as compared to the same period in 2010 ($330,000 in 2011 versus $1.7
million in 2010). These amounts represent our ownership portion of our joint
ventures net income or loss for the period. The decreased loss is due to a
decrease in depreciation expense on our Woodlake Square property. During 2010,
our joint venture reassessed and shortened the estimated useful lives of
various buildings consistent with its plan to demolish such buildings as part
of the redevelopment, which led to increased depreciation expense on the
property in 2010.

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Gain on Sale of Real Estate.During the three months ended March 31, 2011,
we recognized a gain of $1.7 million on the sale of the Market at Lake Houston
property. See Note 9 in the Notes to our Consolidated Financial Statements for
further discussion on the sale of the Market at Lake Houston property.

Net (Income) Loss Attributable to Non-Controlling Interest.Net income attributable to non-controlling
interest of $705,000 for the three months ended March 31, 2011 is almost
entirely the gain recognized from the sale of the Market at Lake Houston
property in February 2011, a portion of which was attributable to
non-controlling interest.

Liquidity and Capital Resources

We expect to meet our
liquidity requirements through cash on-hand, net cash provided by distributions
from joint ventures, proceeds from secured or unsecured financings from banks
and other lenders, the selective and strategic sale of properties and net cash
flows from operations. We expect that our primary uses of capital will be for
investment in real estate properties and related improvements and the payment
of operating expenses, including interest expense on any outstanding
indebtedness. As we sell properties during our operating period, we plan to
strategically reinvest most of the proceeds from such sales rather than
distributing the proceeds to our Partners. In February 2011, we sold the Market
at Lake Houston property to AmREIT for cash proceeds of $2.6 million (net of
$1.9 million in distributions to the non-controlling interest).

As of March 31, 2011 and
December 31, 2010, our cash and cash equivalents totaled approximately $3.8
million and $2.6 million, respectively. Cash flows provided by (used in)
operating activities, investing activities and financing activities during the
three months ended March 31, 2011 and 2010 are as follows (in thousands):

|                     |  |                              |        |      |   |      |  
|-------------------- |  | ---------------------------- | ------ | ---- | - | ---- | -
|                     |  | Three months ended March 31, |       
|                     |  |                              |       
|                     |  | 2011                         |        | 2010 |  
|                     |  |                              |        |      |   |      |  
|Operating activities |  | $                            | (582   | )    | $ | 107  |  
|Investing activities |  |                              | 4,376  |      |   | (357 | )
|Financing activities |  |                              | (2,640 | )    |   | (643 | )

Net cash flows used in
operating activities increased approximately $689,000 during the three months
ended March 31, 2011 as compared to the same period in 2010 ($582,000 used in
operating activities in 2011 versus $107,000 provided by operating activities
in 2010). This increase in operating cash outflows was primarily attributable
to a reduction in rental income, which was primarily due to reduced occupancy
rates at Westside Plaza and Lantern Lane, coupled with the sale of The Market
at Lake Houston property in February 2011.

Net cash flows provided by
investing activities increased approximately $4.7 million during the three
months ended March 31, 2011 as compared to the same period in 2010 ($4.4 million
provided by investing activities in 2011versus $357,000 used in investing
activities in 2010). This increase in cash inflows is primarily due to net cash
proceeds of $4.5 million received from the sale of The Market at Lake Houston
property in February 2011, coupled with a decrease in cash paid for
improvements to real estate and a decrease in cash contributions to our
non-consolidated investment properties.

Net cash flows used in
financing activities increased approximately $2.0 million for the three months
ended March 31, 2011 as compared to the same period in 2010 ($2.6 million in
2011 versus $643,000 in 2010). This increase was primarily due to distributions
made to our non-controlling interest of $1.9 million and distributions made to
our limited partners of $671,000 during the 2011 period, both of which were
funded by the sale of The Market at Lake Houston. These outflows in 2011 were
partially offset by net repayments on notes payable  related party of $600,000
made during the 2010 period.

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The U.S. economy is still
experiencing weakness from recent economic conditions, which resulted in
increased unemployment, weakening of tenant financial condition, large-scale
business failures and tight credit markets. Our results of operations may be sensitive
to changes in overall economic conditions that impact tenant leasing practices.
Adverse economic conditions affecting tenant income, such as employment levels,
business conditions, interest rates, tax rates, fuel and energy costs and other
matters, could reduce overall tenant leasing or cause tenants to shift their
leasing practices. In addition, periods of economic slowdown or recession,
rising interest rates or declining demand for real estate, or the public
perception that any of these events may occur, could result in a general
decline in rents or an increased incidence of defaults under existing leases.
Although the U.S. economy has emerged from the recent recession, high levels of
unemployment have persisted, and rental rates and valuations for retail space
have not fully recovered to pre-recession levels. At this time, it is difficult
to determine the breadth and duration of the financial market problems and the
many ways in which they may affect our tenants and our business in general. A
significant additional deterioration in the U.S. economy or the bankruptcy or
insolvency of one or more of our significant tenants could cause our cash
resources to be insufficient to meet our obligations over the next 12 months.
Effective July 15, 2009, we suspended all distributions in an effort to
conserve cash and to protect partners invested capital. As we have several
projects that are mid-stream in redevelopment, we are conserving cash from
operations to improve our ability to fund capital improvements, tenant
improvements and leasing commissions, and to meet our obligations, including
debt service. We believe that the economy and real estate market may recover
prior to our anticipated liquidation commencement date of October 31, 2012.
However, if the economy has not recovered, we may seek to postpone liquidation
if we believe such liquidation is not in the best interests of the Partners at
that time.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                           
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------
|ITEM 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                           
|Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                           
|ITEM 4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | CONTROLS
AND PROCEDURES                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                           
|Evaluation
of Disclosure Controls and Procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                           
|Under the supervision and
with the participation of our General Partners Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), our General Partners management
has evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the
Exchange Act) as of March 31, 2011. Based on that evaluation, our General
Partners CEO and CFO concluded that, as of March 31, 2011, our disclosure
controls and procedures were effective in causing material information
relating to us to be recorded, processed, summarized and reported by
management on a timely basis and to ensure the quality and timeliness of our
public disclosures in accordance with SEC disclosure obligations.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                           
|Changes in
Internal Controls                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                           
|There has been no change to
our internal control over financial reporting during the quarter ended March
31, 2011 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                           
|PART II  OTHER INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                           
|ITEM6.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | EXHIBITS                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                           
|The exhibits listed on the
accompanying Exhibit Index are filed, furnished, or incorporated by reference
(as stated therein) as part of this Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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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.

|                   |                                               |                                                         
|------------------ | --------------------------------------------- | --------------------------------------------------------
|                   | AmREIT Monthly Income &
Growth Fund III, Ltd.
|                   |                                               |                                                         
|                   | By:                                           | AmREIT Monthly Income &
Growth III                      
|                   |                                               | Corporation, its General
Partner                        
|Date: May 13, 2011 |                                               |                                                         
|                   |                                               |                                                         
|                   | By:                                           | /s/ H. Kerr Taylor                                      
|                   |                                               | H. Kerr Taylor                                          
|                   |                                               | President, Chief Executive
Officer, and Director        
|                   |                                               |                                                         
|                   | By:                                           | /s/ Chad C. Braun                                       
|                   |                                               | Chad C. Braun                                           
|                   |                                               | Executive Vice President,
Chief Financial Officer, Chief
|                   |                                               | Operating Officer,
Treasurer and Secretary              

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|              |  |                                                                                                                                                                                                                                                                                                                 
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT INDEX
|              |  |                                                                                                                                                                                                                                                                                                                 
|Exhibit 3.1   |  | Certificate of Limited
Partnership of AmREIT Monthly Income & Growth Fund III, Ltd., dated April
19, 2005 (incorporated herein by reference from Exhibit 3.1 to the
Partnerships Registration Statement on Form 10-SB dated April 30, 2007).                                                                   
|              |  |                                                                                                                                                                                                                                                                                                                 
|Exhibit 3.2   |  | Agreement of Limited
Partnership of AmREIT Monthly & Income Growth Fund III, Ltd., dated April
19, 2005 (incorporated herein by reference from Exhibit 3.2 to the
Partnerships Registration Statement on Form 10-SB dated April 30, 2007).                                                                     
|              |  |                                                                                                                                                                                                                                                                                                                 
|Exhibit 10.17 |  | Real Estate Sales Contract,
effective as of January 14, 2011, between AmREIT Lake Houston, L.P., and
AmREIT Realty Investment Corporation (incorporated herin by reference from
Exhibit 10.17 to the Partnerships Annual Report on Form 10-K for the fiscal
year ended December 31, 2010 dated March 31, 2011).
|              |  |                                                                                                                                                                                                                                                                                                                 
|Exhibit 31.1  |  | Certification pursuant to
Rule 13a-14(a) of Chief Executive Officer of our General Partner (filed
herewith).                                                                                                                                                                                                    
|              |  |                                                                                                                                                                                                                                                                                                                 
|Exhibit 31.2  |  | Certification pursuant to
Rule 13a-14(a) of Chief Financial Officer of our General Partner (filed
herewith).                                                                                                                                                                                                    
|              |  |                                                                                                                                                                                                                                                                                                                 
|Exhibit 32.1  |  | Chief Executive Officer of
our General Partner certification pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).                                                                                                                        
|              |  |                                                                                                                                                                                                                                                                                                                 
|Exhibit 32.2  |  | Chief Financial Officer of
our General Partner certification pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).                                                                                                                        

22

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