**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 WASHINGTON,
        DC 20549
 
 
 **FORM
        10-QSB**
 
 **[X]
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
        SECURITIES**
 **EXCHANGE
        ACT OF 1934**
 
 For
        the
        quarterly period ended June 30, 2007
 
 **[
        ] 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 Small Business Issuer as Specified In Its Charter)**TEXAS**
                (State
                  or Other Jurisdiction of Incorporation or Organization)
              **20-2964630**
                (I.R.S.
                  Employer Identification No.)**8
                  GREENWAY PLAZA, SUITE 1000**
                **HOUSTON,
                  TX**
                **77046**
                (Address
                  of Principal Executive Offices)**713-850-1400**
                (Issuer’s
                  Telephone Number, Including Area Code)
 
 
 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 issuer was required
        to
        file such reports), and (2) has been subject to such filing requirements
        for the
        past 90 days. YES  ̈  NO x
 
 Indicate
        by check mark whether the Registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). YES  ̈  NO x
 
  
  
 
 Table
        of
        Contents
 
 **Item
                  No.**
              
              **Form
                  10-Q SB Report Page****PART
                  I**1
              Financial
                  Statements
              F-1
                  through F-4Description
                  of Business and Nature of
                  Operations
              F-5Summary
                  of Significant Accounting
                  Policies
              F-5Investments
                    in Non-Consolidated
                    Entities
              F-9Acquired
                  Lease
                  Intangibles
              F-10Notes
                  Payable
              F-10Concentrations
              F-11Related
                  Party Transactions
              F-11Real
                  Estate Acquisitions and
                  Dispositions
              F-12Commitments
                  and Contingencies
              F-122
              Management’s
                  Discussion and Analysis of Financial
                  Condition and Results of Operations
              1-64
              Controls
                  and
                  Procedures
              7**PART
                  II**1
              Legal
                  Proceedings
              72
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              73
              Defaults
                  Upon Senior Securities
              74
              Submission
                  of Matters to a Vote of Security
                  Holders
              75
              Other
                  Information
              76
              Exhibits
              7
 
 
  *Table
            of
            Contents*
  
 **PART
        I– FINANCIAL INFORMATION**
  **ITEM** **1.**  **FINANCIAL
        STATEMENTS**
 **AmREIT
          MONTHLY INCOME & GROWTH FUND III, LTD.  AND
          SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS** June
          30, 2007 and December 31, 2006
 **(in
          thousands)**
 **June
                    30,**
                
                
                **December
                    31,****2007**
                
                
                **2006****ASSETS**
                
                (unaudited)Real
                    estate investments at cost:Land
                
                $
                18,466
                
                
                $
                18,466Buildings
                
                
                47,024
                
                
                
                46,452Tenant
                    improvements
                
                
                862
                
                
                
                78466,332
                
                
                
                65,682Less
                    accumulated depreciation and amortization
                
                
                (1,991
                )
                
                
                (1,184
                )64,341
                
                
                
                64,498Investment
                    in non-consolidated entities
                
                
                15,388
                
                
                
                15,382Intangible
                    lease cost, net
                
                
                3,696
                
                
                
                4,226Net
                    real estate investments
                
                
                83,425
                
                
                
                84,106Cash
                    and cash equivalents
                
                
                16,731
                
                
                
                23,128Tenant
                    receivables
                
                
                998
                
                
                
                526Accounts
                    receivable
                
                
                6
                
                
                
                6Accounts
                    receivable - related party
                
                
                2,069
                
                
                
                742Notes
                    receivable - related party
                
                
                7,035
                
                
                
                7,035Deferred
                    costs, net
                
                
                606
                
                
                
                545Other
                    assets
                
                
                1,122
                
                
                
                886TOTAL
                    ASSETS
                
                $
                111,992
                
                
                $
                116,974**LIABILITIES
                    AND PARTNERS' CAPITAL**Liabilities:Notes
                    payable
                
                $
                50,908
                
                
                $
                50,977Notes
                    payable - related party
                
                
                -
                
                
                
                1,144Accounts
                    payable
                
                
                1,189
                
                
                
                1,648Accounts
                    payable - related party
                
                
                167
                
                
                
                160Below
                    market leases, net
                
                
                815
                
                
                
                949Security
                    deposits
                
                
                119
                
                
                
                119TOTAL
                    LIABILITIES
                
                
                53,198
                
                
                
                54,997Minority
                    interest
                
                
                2,169
                
                
                
                2,235Partners'
                    capital:General
                    partner
                
                
                -
                
                
                
                -Limited
                    partners, 2,844 units outstanding
                
                
                56,625
                
                
                
                59,742TOTAL
                    PARTNERS' CAPITAL
                
                
                56,625
                
                
                
                59,742TOTAL
                    LIABILITIES AND PARTNERS' CAPITAL
                
                $
                111,992
                
                
                $
                116,974
  See
        Notes
        to Consolidated Financial Statements.
 
 F-1
 *Table
              of
              Contents*
  **AmREIT
        MONTHLY INCOME & GROWTH FUND III, LTD. AND
        SUBSIDIARIES****CONSOLIDATED STATEMENTS OF
        OPERATIONS**
 **(in
          thousands)**
 (unaudited)
 **Three
                    months ended June 30,**
                **Six
                    months ended June 30,****2007**
                
                
                **2006**
                
                
                **2007**
                
                
                **2006**Revenues:Rental
                    income from operating leases
                
                $
                1,838
                
                
                $
                845
                
                
                $
                3,579
                
                
                $
                1,707Total
                    revenues
                
                
                1,838
                
                
                
                845
                
                
                
                3,579
                
                
                
                1,707Expenses:General
                    and administrative
                
                
                79
                
                
                
                10
                
                
                
                115
                
                
                
                18Asset
                    management fees - related party
                
                
                154
                
                
                
                69
                
                
                
                309
                
                
                
                110Property
                    expense
                
                
                497
                
                
                
                202
                
                
                
                953
                
                
                
                398Property
                    management fees - related party
                
                
                62
                
                
                
                29
                
                
                
                121
                
                
                
                63Legal
                    and professional
                
                
                127
                
                
                
                106
                
                
                
                169
                
                
                
                151Depreciation
                    and amortization
                
                
                633
                
                
                
                288
                
                
                
                1,303
                
                
                
                575Total
                    expenses
                
                
                1,552
                
                
                
                704
                
                
                
                2,970
                
                
                
                1,315Operating
                    income
                
                
                286
                
                
                
                141
                
                
                
                609
                
                
                
                392Other
                    income (expense):Interest
                    income - related party
                
                
                132
                
                
                
                127
                
                
                
                262
                
                
                
                127Interest
                    and other income
                
                
                223
                
                
                
                87
                
                
                
                481
                
                
                
                265Interest
                    expense
                
                
                (783
                )
                
                
                (405
                )
                
                
                (1,558
                )
                
                
                (801
                )Loss
                    from non-consolidated entities
                
                
                (90
                )
                
                
                (101
                )
                
                
                (198
                )
                
                
                (101
                )Minority
                    interest in loss of consolidated subsidiaries
                
                
                37
                
                
                
                28
                
                
                
                65
                
                
                
                53Total
                    other income (expense)
                
                
                (481
                )
                
                
                (264
                )
                
                
                (948
                )
                
                
                (457
                )Net
                    loss
                
                $
                (195
                )
                
                $
                (123
                )
                
                $
                (339
                )
                
                $
                (65
                )
  See
        Notes to Consolidated Financial
        Statements.
 
 F-2
 *Table
              of
              Contents*
  **AmREIT
        MONTHLY INCOME & GROWTH FUND III, LTD. AND
        SUBSIDIARIES****CONSOLIDATED STATEMENTS OF PARTNERS'
        CAPITAL**
 **For
        the six months ended June 30, 2007**
 **(in
        thousands)**
 (unaudited)
  GP
                
                
                LP
                
                
                Total**Balance
                    at December 31, 2006**
                
                $
                -
                
                
                $
                59,742
                
                
                $
                59,742Contributions,
                    net of offering costs
                
                
                -
                
                
                
                (96
                )
                
                
                (96
                )Net
                    loss (1)
                
                
                26
                
                
                
                (365
                )
                
                
                (339
                )Distributions
                
                
                (26
                )
                
                
                (2,656
                )
                
                
                (2,682
                )**Balance
                    at June 30, 2007**
                
                $
                -
                
                
                $
                56,625
                
                
                $
                56,625
   (1) 
          The
          allocation of net loss includes a curative allocation to increase the GP
          capital  account
          by $61,000.  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.














F-3
 *Table
              of
              Contents*
 **AmREIT
        MONTHLY INCOME & GROWTH FUND III, LTD. AND
        SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(in
          thousands)**
 **(unaudited)**
 **Six
                      months ended June 30,****2007**
                  
                  
                  **2006**Cash
                      flows from operating activities:Net
                      loss
                  
                  
                  $
                  (339
                  )
                  
                  $
                  (65
                  )Adjustments
                      to reconcile net loss to net cashprovided
                      by (used in) operating activities:Loss
                      from non-consolidated entities
                  
                  
                  198
                  
                  
                  
                  101Depreciation
                      and amortization
                  
                  
                  1,246
                  
                  
                  
                  527Minority
                      interest in loss of consolidated subsidiaries
                  
                  
                  (65
                  )
                  
                  
                  (53
                  )Increase
                      in tenant receivables
                  
                  
                  (471
                  )
                  
                  
                  (145
                  )Decrease
                      in accounts receivable
                  
                  
                  -
                  
                  
                  
                  162Increase
                      in accounts receivable - related party
                  
                  
                  (1,426
                  )
                  
                  
                  (424
                  )Increase
                      in deferred costs
                  
                  
                  (99
                  )
                  
                  
                  (5
                  )Increase
                      in other assets
                  
                  
                  (235
                  )
                  
                  
                  (210
                  )(Decrease)
                      increase in accounts payable and other liabilities
                  
                  
                  (458
                  )
                  
                  
                  382Increase
                      (decrease) in accounts payable - related party
                  
                  
                  7
                  
                  
                  
                  (8
                  )Increase
                      in security deposits
                  
                  
                  -
                  
                  
                  
                  39Net
                      cash (used in) provided by operating activities
                  
                  
                  (1,642
                  )
                  
                  
                  301Cash
                      flows from investing activities:Improvements
                      to real estate
                  
                  
                  (651
                  )
                  
                  
                  (13
                  )Acquisition
                      of investment properties
                  
                  
                  -
                  
                  
                  
                  (14,890
                  )Notes
                      receivable - related party
                  
                  
                  -
                  
                  
                  
                  (7,035
                  )Investment
                      in non-consolidated entities
                  
                  
                  (105
                  )
                  
                  
                  (1,709
                  )Net
                      proceeds from sale of investment property
                  
                  
                  -
                  
                  
                  
                  -Increase
                      (decrease) in preacquisition costs
                  
                  
                  -
                  
                  
                  
                  -Net
                      cash used in investing activities
                  
                  
                  (756
                  )
                  
                  
                  (23,647
                  )Cash
                      flows from financing activities:Proceeds
                      from notes payable
                  
                  
                  -
                  
                  
                  
                  -Payments
                      of notes payable
                  
                  
                  (69
                  )
                  
                  
                  (65
                  )Proceeds
                      from notes payable - related party
                  
                  
                  -
                  
                  
                  
                  2,049Payments
                      of notes payable - related party
                  
                  
                  (1,144
                  )
                  
                  
                  -Contributions
                  
                  
                  
                  -
                  
                  
                  
                  23,792Issuance
                      costs
                  
                  
                  
                  (96
                  )
                  
                  
                  (2,713
                  )Loan
                      acquisition costs
                  
                  
                  (6
                  )
                  
                  
                  -Distributions
                  
                  
                  
                  (2,684
                  )
                  
                  
                  (729
                  )Contributions
                      from minority interests
                  
                  
                  -
                  
                  
                  
                  -Distributions
                      to minority interests
                  
                  
                  -
                  
                  
                  
                  -Net
                      cash (used in) provided by financing activities
                  
                  
                  (3,999
                  )
                  
                  
                  22,334Net
                      decrease in cash and cash equivalents
                  
                  
                  (6,397
                  )
                  
                  
                  (1,012
                  )Cash
                      and cash equivalents, beginning of period
                  
                  
                  23,128
                  
                  
                  
                  2,948Cash
                      and cash equivalents, end of period
                  
                  $
                  16,731
                  
                  
                  $
                  1,936**Supplemental
                      schedule of cash flow information:**Cash
                      paid during the year for interest
                  
                  $
                  1,656
                  
                  
                  $
                  710
  Supplemental schedule of noncash investing
          and financing
          activities:  In 2007, we incurred transaction costs
          receivable from an affiliate of $99,000 related to the partnership with
          Songy on
          5433 Westheimer. Such
          costs had not been paid by our affiliate as of year-end and were recorded
          as an
          increase to our investment in non-consolidated subsidiaries with
          a
          corresponding decrease in our related party receivable.
 See Notes to Consolidated Financial
          Statements.
  F-4
 *Table
              of
              Contents*
 **AmREIT
        MONTHLY INCOME & GROWTH FUND III, LTD. AND
        SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2007**
 
 **1.
        DESCRIPTION
        OF BUSINESS AND NATURE OF
        OPERATIONS**
 
 AmREIT
        Monthly Income & Growth Fund III, Ltd., a Texas limited partnership (the
“Partnership” or “MIG III”), was formed on April 19, 2005 to directly or
        indirectly acquire, develop and hold for lease commercial retail real estate
        net
        leased to high quality tenants.  The General Partner of the
        Partnership is AmREIT Monthly Income & Growth III Corporation, a Texas
        Corporation (the “General Partner”), which is wholly-owned by AmREIT, a Texas
        real estate investment trust.  The General Partner maintains its
        principal place of business in Houston, Texas.
 
 We
        commenced our principal operations on June 30, 2005 when we raised 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, or Units.  As of October 31, 2006, we had received
        approximately $71.1 million for the sale of 2,844 Units and closed the
        Offering.    We acquired our first two properties in late
        2005 - one on September 30, 2005 and the other on December 12,
        2005.  One of the properties was acquired directly and the other was
        acquired through a joint venture in which we own an interest.  During
        2006, we acquired two properties directly and made investments in entities
        that
        own five other properties.  At June 30, 2007, we directly owned three
        properties comprising 225,000 square feet of gross leasable area and owned
        an
        investment interest in six other properties comprising 955,000 square feet
        of
        gross leasable area.
 
 Our
        Units
        were sold pursuant to exemptions from registration under the Securities Act
        of
        1933 and are not currently listed on a national exchange.  These Units
        will be transferable only if we register them under such laws, and such
        registration is not expected.  We do not anticipate that any public
        market for the Units will develop.
 
 **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.   All significant inter-company accounts
        and transactions have been eliminated in consolidation.
 
 The
        consolidated financial statements included in this report are unaudited;
        however, amounts presented in the consolidated balance sheet as of December
        31,
        2006 are derived from our audited financial statements at 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. The majority of the
        leases
        are accounted for as operating leases with revenue being recognized on a
        straight-line basis over the terms of the individual leases. 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 provide for 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.
        During the six months ended June 30, 2007 and 2006, there were no percentage
        rents recognized.   We recognize lease termination fees in the
        period that the lease is terminated and collection of the fees is reasonably
        assured.  During the six months ended June 30, 2007 and 2006, we
        recognized no lease termination fees.
 
  F-5
 *Table
            of
            Contents*
  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.  We capitalize acquisition costs as incurred. Such costs
        are expensed if and when the acquisition becomes no longer
        probable.  During the six months ended June 30, 2007 and 2006, we did
        not capitalize any interest or taxes on properties under
        development.
  Acquired
        Properties and Acquired Lease Intangibles– We account for real estate
        acquisitions pursuant to Statement of Financial Accounting Standards No.
        141,
*Business Combinations* (SFAS No. 141).  Accordingly, we
        allocate the purchase price of the acquired 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 out-of-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 out-of-market leases and in-place
        lease value are recorded as acquired lease intangibles and are amortized
        as an
        adjustment to rental revenue or amortization expense, as appropriate, over
        the
        remaining terms of the underlying leases.  Premiums or discounts on
        acquired out-of-market debt are amortized to interest expense over the remaining
        term of such debt.
 
 Depreciation–   Depreciation
        is computed using the straight-line method over an estimated useful life
        of up
        to 50 years for buildings, up to 20 years for site improvements and over
        the
        term of lease for tenant improvements.
 
 Properties
        Held for Sale–Properties are classified as held for sale if we have decided
        to market the property for immediate sale in its present condition with the
        belief that the sale will be completed within one year.  Operating
        properties held for sale are 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 June 30, 2007 and December 31, 2006, we
        had no properties held for sale.
  Our
        properties generally have operations and cash flows that can be clearly
        distinguished from the rest of the Partnership.  The operations and
        gains on sales reported in discontinued operations include those properties
        that
        have been sold or are held for sale and for which operations and cash flows
        have
        been clearly distinguished.  The operations of these properties have
        been eliminated from ongoing operations, and we will not have continuing
        involvement after disposition.  Prior period operating activity
        related to any such properties is reclassified as discontinued operations
        in the
        accompanying statements of operations.   We did not have any
        discontinued operations for the six months ended June 30, 2007 and
        2006.
  Impairment–
        We review our properties for impairment whenever events or changes in
        circumstances indicate that the carrying amount of the assets, including
        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.  No impairment charges were recorded during the six months
        ended June 30, 2007 and 2006.
   F-6
 *Table
            of
            Contents*
  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 June 30, 2007
        and December 31, 2006, we did not have an allowance for uncollectible accounts
        related to our tenant receivables.
 
 Accounts
        Receivable - Related Party– Included in accounts receivable – related party
        are short-term cash advances provided to certain of our affiliated investment
        entities for their development needs.  These cash advances are due
        upon demand.
  Notes
        Receivable  - Related Party– Included in notes receivable –
related party is a loan made to 5433 Westheimer, LP of which we own a
        50%
        interest (See Note 3.)  The note is uncollateralized and carries a
        LIBOR-based variable interest rate (LIBOR plus two percent).  The
        interest rate on the note was 7.4% as of December 31, 2006.  The note
        matured on April 1, 2007.  The note has not yet been renewed; however,
        we intend to renew it on an interim basis at substantially the same terms
        as
        were in effect at December 31, 2006 and then refinance the property with
        third-party debt.  We anticipate that this related party note
        receivable will be repaid to us in conjunction with the
        refinancing.
  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. Deferred leasing costs consist of external commissions associated
        with leasing our properties and are amortized to expense over the lease
        term.  Accumulated amortization related to loan
        acquisiton costs as of June 30, 2007 and December 31, 2006 totaled $84,000
        and $49,000, respectively.  Accumulated amortization related to
        deferred leasing costs as of June 30, 2007 and December 31, 2006, totaled
        $7,000
        and $1,000, respectively.
 
 INCOME
        TAXES
 
 Federal –
        No provision for U.S. federal income taxes related to our operations 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 SFAS No. 109, *Accounting for Income Taxes,*applies to the
        Texas Margin Tax.  For the six months ended June 30, 2007, we recorded
        a provision for Texas Margin Tax of $30,000.  No provision was
        recorded during the six months ended June 30, 2006 as the amount was considered
        insignificant.
  F-7
 *Table
            of
            Contents*
  USE
        OF
        ESTIMATES
 
 The
        preparation of consolidated financial statements in conformity with U.S.
        generally accepted accounting principles 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.
 
 FAIR
        VALUE OF FINANCIAL INSTRUMENTS
 
 Our
        consolidated financial instruments consist primarily of cash and cash
        equivalents, tenant receivables, accounts receivable, accounts receivable
–
related party, notes receivable – related party, accounts payable, accounts
        payable – related party, notes payable and notes payable – related
        party.  The carrying value of cash, cash equivalents, tenant
        receivables, accounts receivable, notes receivable, notes payable – related
        party and accounts payable are representative of their respective fair values
        due to the short-term maturity of these instruments. As of June 30, 2007
        and
        December 31, 2006, the carrying value of our total debt obligations was $50.9
        million and $51.0 million, respectively.  All of these amounts
        represent fixed-rate obligations with an estimated fair value of $49.4 million
        and $50.6 million as of June 30, 2007 and December 31, 2006,
        respectively.  These estimated fair values are based on a discounted
        cash flow analysis using current market rates of interest.
 
 CONSOLIDATION
        OF VARIABLE INTEREST ENTITIES
 
 We
        follow
        FIN No. 46R, which addresses how a business enterprise should evaluate
        whether it has a controlling financial interest in an entity through means
        other
        than voting rights.  FIN No. 46R requires a variable interest entity
        to be consolidated by a company that is subject to a majority of the risk
        of
        loss from the variable interest entity’s activities or entitled to receive a
        majority of the entity’s residual returns or both.  Disclosures are
        also required about variable interest entities in which a company has a
        significant variable interest but that it is not required to
        consolidate.  As of June 30, 2007 and December 31, 2006, we are not
        invested in any entities that qualify as variable interest entities pursuant
        to
        FIN No. 46R.
 
 NEW
        ACCOUNTING STANDARDS
 
 In
        June
        2005, the Emerging Issues Task Force issued EITF Issue No. 04-05 (EITF 04-05),
        *Determining Whether a General Partner, or the General Partners as a
        Group,
        Controls a Limited Partnership or Similar Entity When the Limited Partners
        Have
        Certain Rights*. EITF 04-05 makes it more likely that general partners will
        be required to consolidate limited partnerships by making it more difficult
        for
        a general partner to overcome the presumption that it controls the limited
        partnership. Under this new guidance, the presumption of general partner
        control
        will be overcome only when the limited partners have either of two types
        of
        rights; the right to dissolve or liquidate the partnership or otherwise remove
        the general partner “without cause” or the right to effectively participate in
        significant decisions made in the ordinary course of the partnership’s business.
        These ‘kick-out rights’ and ‘participating rights’ must be substantive in order
        to overcome the presumption of general partner control. The guidance was
        effective for us beginning in January 1, 2006, and we have therefore applied
        the
        EITF 04-05 in determining whether consolidation of our investee entities
        is
        appropriate.
 
 In
        September 2006, The Financial Accounting Standards Board (FASB) issued SFAS
        No.
        157, *Fair Value Measurements*, which defines fair value, establishes a
        framework for measuring fair value and requires enhanced disclosures about
        fair
        value measurements.  SFAS No. 157 requires companies to disclose the
        fair value of its financial instruments according to a fair value
        hierarchy.  Additionally, companies are required to provide certain
        disclosures regarding instruments within the hierarchy, including a
        reconciliation of the beginning and ending balances
        for each major category of assets and liabilities.  SFAS No. 157 is
        effective for our fiscal year beginning January 1, 2008.  The adoption
        of SFAS No.157 is not expected to have a material effect on our results of
        operations or financial position.
  In
        February 2007, the FASB issued SFAS No.
        159, *The Fair Value Option for Financial Assets and Financial
        Liabilities*. SFAS No. 159 expands opportunities to use fair value
        measurement in financial reporting and permits entities to choose to measure
        many financial instruments and certain other items at fair value. This Statement
        is effective for fiscal years beginning after November 15, 2007. We have
        not
        decided if we will choose to measure any eligible financial assets and
        liabilities at fair value under the provisions of SFAS No. 159.
  F-8
 *Table
            of
            Contents*
  OFFERING
        COSTS
 
 The
        General Partner funded all of the organization and offering costs on the
        Partnership’s behalf.  As of June 30, 2007, we had reimbursed the
        General Partner for approximately $417,000 of organization and offering costs.
        The offering costs, which include items such as legal and accounting fees,
        marketing, and promotional printing costs are treated as a reduction of
        partners’ capital along with sales commissions and dealer manager fees of 7.75%
        and 2.5%, respectively.  (See Note 8.)
  CASH
        AND
        CASH EQUIVALENTS
 
 For
        purposes of the consolidated statements of cash flows, 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.
  INTEREST
  Interest
        is charged to interest expense as it accrues.  No interest has been
        capitalized since inception of the partnership.
  SEGMENT
        REPORTING
  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
        level.  However, as each of our properties have similar economic
        characteristics, tenants and products and services, our properties have been
        aggregated into one reportable segment.
 
 **3.
        INVESTMENT IN
        NON-CONSOLIDATED
        ENTITIES**
  During
        2006, we made the following investments in three entities through which we
        own
        an interest in five properties:
 
 ·
              In
                  March 2006, we acquired a 50% interest in 5433 Westheimer, LP which
                  owns
                  an office building in Houston, Texas with a gross leasable area
                  of 134,000
                  square feet.  The remaining 50% is owned by a third
                  party.
 ·
              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 a third
                  party.
 ·
              Also
                  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, Ltd.,
                  an affiliated merchant development
                  fund.
  F-9
 *Table
            of
            Contents*
  We
        report
        our investments in these entities using the equity method of accounting due
        to
        our ability to exercise significant influence over them.  Summarized
        financial data for our significant equity investees for the six months ended
        June 30, 2007 and 2006 is as follows:
 
 Six
                  months ended June 30,(In
                  thousands)
              
              2007
              
              
              2006Revenue
              
              $
              6,471
              
              
              $
              413Income
                  (loss) from continuing operations
              
              
              102
              
              
              
              (201
              )Net
                  income (loss)
              
              
              102
              
              
              
              (201
              )
 
 
 **4.
        ACQUIRED LEASE
        INTANGIBLES**
 
 In
        accordance with SFAS No. 141, we have identified and recorded the value of
        intangibles at the property acquisition date.  Such intangibles
        include the value of in-place leases and out-of-market
        leases.  Acquired lease intangible assets (in-place leases and
        above-market leases) are net of accumulated amortization of approximately
        $1,253,000 and $723,000 at June 30, 2007 and December 31, 2006,
        respectively.  These assets are amortized over the leases’ remaining
        terms, which range from 2 years to 25 years. The amortization of above-market
        leases is recorded as a reduction of rental income and the amortization of
        in-place leases is recorded to amortization expense.  The amortization
        expense related to in-place leases was approximately $496,000 and $179,000
        for
        the six months ended June 30, 2007 and 2006, respectively.  The
        amortization of above-market leases, which was recorded as a reduction of
        rental
        income, was approximately $34,000 and $1,000 during the six months ended
        June
        30, 2007 and 2006, respectively.
 
 Acquired
        lease intangible liabilities (below-market leases) are net of previously
        accreted minimum rent of approximately $350,000 and $216,000 at June 30,
        2007
        and December 31, 2006, respectively, and are accreted over the leases’ remaining
        terms, which range from 2 to 25 years.  Accretion of below-market
        leases was approximately $134,000 and $66,000 during the six months ended
        June
        30, 2007 and 2006, respectively.  Such accretion is recorded as an
        increase to rental income.
 
 **5.
        NOTES PAYABLE**
 
 Our
        outstanding debt at June 30, 2007 and December 31, 2006 consists entirely
        of
        fixed-rate mortgage loans of approximately $50.9 million and $51 million,
        respectively.  Our mortgage loans are secured by certain 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 mature over various terms
        ranging from September 2011 through June 2036.
  As
          of
          June 30, 2007, the weighted-average interest rate on our fixed-rate debt
          is
          5.9%, and the weighted average remaining life of such debt is 13.6
          years.  As of June 30, 2007, scheduled principal repayments on notes
          payable were as follows (in thousands):
 Scheduled
                  Payments by Year
              
              Scheduled
                  Principal Payments
              
              
              Term-Loan
                  Maturities
              
              
              Total
                  Payments2007
              
              $
              71
              
              
              $
              -
              
              
              $
              712008
              
              
              146
              
              
              
              -
              
              
              
              1462009
              
              
              156
              
              
              
              -
              
              
              
              1562010
              
              
              166
              
              
              
              -
              
              
              
              1662011
              
              
              175
              
              
              
              24,615
              
              
              
              24,790Beyond
                  five years
              
              
              674
              
              
              
              24,905
              
              
              
              25,579Total
              
              $
              1,388
              
              
              $
              49,520
              
              
              $
              50,908
 
   F-10
 *Table
            of
            Contents*
  **6.
        CONCENTRATIONS**
  As
        of
        June 30, 2007 and December 31, 2006, each of our four consolidated properties
        individually comprise greater than 20% of our consolidated total assets.
        Consistent with our strategy of investing in areas that we know well, three
        of
        our four properties are located in the Houston metropolitan
        area.  These Houston properties represent 81% of our rental income for
        the six months ended June 30, 2007.  Houston is Texas’ largest city
        and the fourth largest city in the United States.
 
 Following
        are the revenues generated by our top tenants during the three months and
        six
        months ended June 30, ($ in thousands):
 
 Six
                  months ended June 30,**Tenant**
              
              
              2007
              2006HEB
                  Grocery
              
              $
              1,054
              $          628DSW
              
              
              382
              382Fidelity
                  Investments
              
              
              147
              -Rice
                  Food Markets, Inc
              
              
              146
              -Baubles
                  & Beads
              
              
              104
              -$
              1,833
              $        1,010
 
 **7.  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.  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 six months ended June 30, 2007 and
        2006:
 
 Six
                  months ended June 30,Type
                  of Service
              
              2007
              
              
              2006Securities
                  Commissions, Due Diligence and Marketing Reimbursements
              
              $
              -
              
              
              $
              2,585Organizational
                  and Offering Cost Reimbursements
              
              
              96
              
              
              
              127Asset
                  Management Fees
              
              
              309
              
              
              
              110Development
                  and Acquisition Fees
              
              
              -
              
              
              
              432Property
                  Management and Leasing
              
              
              221
              
              
              
              63Administrative
                  Costs Reimbursements
              
              
              34
              
              
              
              -$
              660
              
              
              $
              3,317
 
 See
        also
        Note 3 regarding investments in non-consolidated entities and Note 1
        regarding notes receivable from related parties.
 
  F-11
 *Table
            of
            Contents*
  
 
 **8.
        REAL ESTATE ACQUISITIONS
        AND
        DISPOSITIONS**
 
 We
        did
        not make any property acquisitions or dispositions during the six months
        ended
        June 30, 2007.
  During
        2006, we invested approximately $33.5 million through the acquisition of
        two
        properties.  On June 30, 2006, we acquired Olmos Creek, a multi-tenant
        retail property in San Antonio, Texas with a gross leasable area of 102,000
        square feet.  On September 29, 2006, we acquired Lantern Lane, a
        shopping center in Houston, Texas anchored by Rice Food Markets.  The
        center has a gross leasable area of 79,000 square feet.  These
        acquisitions were accounted for as purchases and the results of their operations
        are included in the accompanying consolidated financial statements from the
        respective dates of acquisition.
 
 See
        Note
        3 for a discussion of our 2006 investment activity with respect to our
        non-consolidated entities.
 
 **9.
        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 satisfactorily
        evidence that they have remediated the site, 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.
  F-12
 *Table
            of
            Contents*
  **ITEM** **2.
        MANAGEMENT’S DISCUSSION AND ANALYSIS
        OR PLAN OF
        OPERATION.**
   The
        following discussion and analysis should be read in conjunction with the
        accompanying consolidated financial statements and notes thereto.
  Our
        disclosure and analysis in this Quarterly Report contain forward-looking
        statements, which provide our current expectations or forecasts of future
        events.  Words such as “believe,” “anticipate,” “expect,” and “intend”
and similar expressions may identify forward-looking statements, but the
        absence
        of these words does not necessarily mean that a statement is not
        forward-looking. Forward-looking statements are subject to known and unknown
        risks and uncertainties and are based on potentially inaccurate assumptions
        that
        could cause actual results to differ materially from those expected or implied
        by the forward-looking statements. Our actual results could differ materially
        from those anticipated in the forward-looking statements for many
        reasons.   You should not unduly rely on these forward-looking
        statements, which speak only as of the date of this Quarterly Report. We
        undertake no obligation to publicly revise any forward-looking statement
        to
        reflect circumstances or events after the date of this Quarterly Report or
        to
        reflect the occurrence of unanticipated events, except as may be required
        by
        law. You should, however, review the factors and risks we describe in the
        reports we file from time to time with the Securities and Exchange Commission,
        or SEC, after the date of this Quarterly Report.
 
 **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 the Partnership Agreement.  Our General
        Partner is a wholly owned subsidiary of AmREIT, a Texas real estate investment
        trust with shares of common stock traded on the American Stock Exchange (AMEX:
        AMY).  In addition to owning its general partner interest for which it
        contributed $1,000, our General Partner contributed $800,000 to us in exchange
        for limited partnership units, or Units, which represent approximately 1%
        of the
        outstanding Units.  The remaining Units are held by other Limited
        Partners.  We qualify as a partnership for federal income tax
        purposes.
  We
        derive
        a substantial portion of our revenue from our rental income.  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 six months ended June 30, 2007 and 2006. As of June 30, 2007,
        our
        properties were 92% leased and the debt leverage ratio of our portfolio was
        approximately 45%, with all of such debt carrying a fixed rate of
        interest.
 
 We
        commenced our principal operations on June 30, 2005, when we raised the minimum
        offering of $2.0 million pursuant to the terms of our Offering Memorandum
        and
        issued 80 Units to the initial investors.  As of October 31, 2006, we
        had received $71.1 million from the sale of 2,844 Units to investors and
        closed
        the Offering.  We acquired our first interest in a property on
        September 30, 2005.
  As
        of
        June 30, 2007, we directly owned three properties comprising 225,000 square
        feet
        of gross leasable area and owned an interest in six other properties comprising
        955,000 square feet of gross leasable area.  To acquire interests in
        these properties, we used $30.9 million in proceeds from the Offering and
        borrowings of approximately $54.3 million.  The areas where a majority
        of our properties are located are highly populated, suburban communities
        in
        Texas.
 
 Our
        Units
        were sold pursuant to exemptions from registration under the Securities Act
        of
        1933, as amended, and are not currently listed on any securities
        exchange.  These Units will be transferable only if we register them
        under applicable securities laws, and such registration is not
        expected.  We do not anticipate that any public market for
        the  Units will develop.
  1
 *Table
            of Contents*
   **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,
        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 material adverse ways, and those estimates could be different
        under
        different assumptions or conditions.
 
 ***Revenue
        Recognition***
 
 We
        lease
        space to tenants under agreements with varying terms.  The majority of
        the leases are accounted for as operating leases with revenue being recognized
        on a straight-line basis over the terms of the individual
        leases.  When we acquire a property, the term of existing leases is
        considered to commence as of the acquisition date for the purposes of this
        calculation.  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).  We defer the recognition of
        contingent or percentage rental income until the specific targets as defined
        in
        lease agreements that trigger the contingent or percentage rental income
        are
        achieved. Cost recoveries from tenants are included in rental income in the
        period the related costs are incurred.
 
 ***Valuation
        of Real Estate Assets***
 
 We
        continually monitor events and changes in circumstances that could indicate
        that
        the carrying amounts of our real estate assets, including accrued rental
        income,
        may not be recoverable through operations.  When indicators of
        potential impairment are present that indicate that the carrying amounts
        of real
        estate and related intangible assets may not be recoverable, we assess the
        recoverability of the assets by determining whether the carrying value of
        the
        assets will be recovered through the undiscounted future operating cash flows
        expected from the use of the assets and their eventual
        disposition.  If impairment is indicated, a loss will be recorded for
        the amount by which the carrying value of the asset exceeds its estimated
        fair
        value.
  The
        estimation of expected future cash flows is inherently uncertain and relies
        on
        subjective assumptions about future and current market conditions and events
        that affect the ultimate value of the property.  It requires us to
        estimate future market rental income amounts subsequent to the expiration
        of
        current lease agreements, property operating expenses, discount rates, the
        number of months it takes to re-lease the property and the number of years
        the
        property is held for investment.  The use of inappropriate assumptions
        in the future cash flow analysis would result in an incorrect assessment
        of the
        property’s future cash flow and fair value and could result in the overstatement
        of the carrying value of our real estate and related intangible assets and
        net
        income.
  We
        have
        not recorded any impairment losses since the inception of the
        Partnership.
  ***Investment
        in Real Estate Assets***
  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 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.  We capitalize acquisition costs as
        incurred.  Such costs are expensed if and when the acquisition becomes
        no longer probable.  We
          are
          required to make subjective assessments as to the useful lives of our
          depreciable assets.  We consider the period of future benefit of the
          asset to determine the appropriate useful lives.  These assessments,
          which are based on estimates, have a direct impact on net
          income.  Depreciation is computed using the straight-line method over
          an estimated useful life of up to 50 years for buildings, up to
          20 years for site improvements and over the life of lease for tenant
          improvements and intangible lease costs.
  2
 *Table
            of Contents*
  ***Valuation
        of Receivables***
 
 We
        determine an appropriate allowance for the uncollectible portion of tenant
        receivables and accounts receivable based upon an analysis of balances
        outstanding, historical payment history, tenant credit worthiness, additional
        guarantees and other economic trends.  Balances outstanding include
        base rents, tenant reimbursements and receivables attributed to the accrual
        of
        straight line rents.  Additionally, we consider estimates of the
        expected recovery of pre-petition and post-petition claims with respect to
        tenants in bankruptcy in our assessment of the likelihood of collecting the
        related receivables.
 
 ***Real
        Estate Acquisitions***
 
 We
        account for real estate acquisitions pursuant to Statement of Financial
        Accounting Standards No. 141, *Business Combinations*(SFAS
        No. 141). Accordingly, we allocate the purchase price of the acquired
        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 out-of-market
        leases, the value of in-place leases and customer relationships, 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 out-of-market leases and in-place
        lease value are recorded as acquired lease intangibles and are amortized
        as an
        adjustment to rental revenue or amortization expense, as appropriate, over
        the
        remaining terms of the underlying leases.  Any premiums or discounts
        on acquired out-of-market debt are amortized to interest expense over the
        remaining term of such debt.
 
 The
        fair
        values of above-market and below-market in-place lease values are recorded
        based
        on the present value (using an interest rate which reflects the risks associated
        with the leases acquired) of the difference between (1) the contractual amounts
        to be paid pursuant to the in-place leases and (2) our estimate of fair market
        lease rates for the corresponding in-place leases, measured over a period
        equal
        to the remaining non-cancelable term of the lease. The above-market and
        below-market lease values are capitalized as intangible lease assets or
        liabilities and are amortized as an adjustment of rental income over the
        remaining terms of the respective leases.
  The
        fair
        values of in-place leases include costs associated with obtaining a new tenant,
        opportunity costs associated with lost rentals which are avoided by acquiring
        an
        in-place lease, and tenant relationships. Direct costs associated with obtaining
        a new tenant include commissions, tenant improvements, and other direct costs
        and are estimated based on management’s consideration of current market costs to
        execute a similar lease. These direct costs are included in intangible lease
        assets in the accompanying consolidated balance sheet and are amortized to
        expense over the remaining terms of the respective leases. The value of
        opportunity costs is calculated using the contractual amounts to be paid
        pursuant to the in-place leases over a market absorption period for a similar
        lease. Customer relationships are valued based on expected renewal of a lease
        or
        the likelihood of obtaining a particular tenant for other locations. These
        intangibles are included in intangible lease assets in the accompanying
        consolidated balance sheet and are amortized to expense over the remaining
        term
        of the respective leases.
  3
 *Table
            of
            Contents*
  **Recently
        Issued Accounting Pronouncements**
 
 In
        June
        2005, the Emerging Issues Task Force issued EITF Issue No. 04-05 (EITF 04-05),
        *Determining Whether a General Partner, or the General Partners as a
        Group,
        Controls a Limited Partnership or Similar Entity When the Limited Partners
        Have
        Certain Rights*. EITF 04-05 makes it more likely that general partners will
        be required to consolidate limited partnerships by making it more difficult
        for
        a general partner to overcome the presumption that it controls the limited
        partnership. Under this new guidance, the presumption of general partner
        control
        will be overcome only when the limited partners have either of two types
        of
        rights – the right to dissolve or liquidate the partnership or otherwise remove
        the general partner “without cause” or the right to effectively participate in
        significant decisions made in the ordinary course of the partnership’s business.
        These “kick-out rights” and “participating rights” must be substantive in order
        to overcome the presumption of general partner control. The guidance was
        effective for us beginning in the first quarter of 2006, and we have therefore
        applied the EITF 04-05 in determining whether consolidation of our investee
        entities is appropriate.
 
 In
        September 2006, FASB issued SFAS No. 157, *Fair Value
        Measurements*.  SFAS No. 157 defines fair value, establishes a
        framework for measuring fair value and requires enhanced disclosures about
        fair
        value measurements.  SFAS No. 157 requires companies to disclose the
        fair value of its financial instruments according to a fair value
        hierarchy.  Additionally, companies are required to provide certain
        disclosures regarding instruments within the hierarchy, including a
        reconciliation of the beginning and ending balances for each major category
        of
        assets and liabilities.  SFAS No. 157 is effective for our fiscal year
        beginning January 1, 2008.  The adoption of SFAS No. 157 is not
        expected to have a material effect on our results of operations or financial
        position.
 
 In
        February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for
        Financial Assets and Financial Liabilities*. SFAS No. 159 expands
        opportunities to use fair value measurement in financial reporting and permits
        entities to choose to measure many financial instruments and certain other
        items
        at fair value. This Statement is effective for fiscal years beginning after
        November 15, 2007. We have not decided if we will choose to measure any eligible
        financial assets and liabilities at fair value under the provisions of SFAS
        No.
        159.
 
 **Results
        of Operations**
  We
        commenced our principal operations on June 30, 2005, when we raised 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
        one interest in a property through a consolidated joint venture on September
        30,
        2005 and acquired a direct interest in another property on December 12,
        2005.  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 other
        properties.  At June 30, 2007, we directly owned three properties
        comprising 225,000 square feet of gross leasable area and owned an investment
        interest in six other properties comprising 955,000 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.
 
 *Six
        Months Ended June 30, 2007 versus Six Months Ended June 30,
        2006*
 
 *Revenue.*Revenue
        increased approximately $1.9 million to approximately $3.6 million during
        the
        six months ended June 30, 2007 compared to approximately $1.7 million for
        the
        six months ended June 30, 2006.   This increase was primarily due
        to the acquisitions of Olmos Creek (June 30, 2006) and Lantern Lane (September
        29, 2006) neither of which generated revenues during the 2006 period given
        the
        timing of the acquisitions.
 
 *General
        & Administrative.*General and administrative expenses increased
        approximately $97,000 to approximately $115,000 during the six months ended
        June
        30, 2007 compared to approximately $18,000 for the six months ended June
        30,
        2006.  This increase was primarily due to an increase in
        administrative cost reimbursements as a result of our increased financial
        reporting requirements during 2007.  Additionally, we recorded an
        accrual during 2007 for Texas margin tax which was enacted on January 1,
        2007.
  4
 *Table
            of
            Contents*
  *Asset
        Management Fees.*Asset management fees increased approximately
        $199,000 to approximately $309,000 during the six months ended June 30, 2007
        compared to approximately $110,000 for the six months ended June 30,
        2006.  Asset management fees have increased commensurate with the
        increase in assets under management as a result of our capital-raising efforts
        which continued through October 31, 2006.
 
 *Property
        Expenses.*Property operating expenses increased approximately
        $555,000 to approximately $953,000 during the six months ended June 30, 2007
        compared to approximately $398,000 for the six months ended June 30,
        2006.  This increase was primarily due to the acquisitions of Olmos
        Creek (June 30, 2006) and Lantern Lane (September 29, 2006) neither of which
        incurred property expenses during the 2006 period given the timing of the
        acquisitions.
 
 *Property
        Management Fees – Related Party.*  Property management fees to a
        related party increased approximately $58,000 to approximately $121,000 during
        the six months ended June 30, 2007 compared to approximately $63,000 for
        the six
        months ended June 30, 2006.  This increase was primarily due to the
        acquisitions of Olmos Creek (June 30, 2006) and Lantern Lane (September 29,
        2006) neither of which generated property management fees during the 2006
        period
        given the timing of the acquisitions.
 
 *Legal
        and Professional Fees.*Legal and professional fees increased
        approximately $18,000 to approximately $169,000 during the six months ended
        June
        30, 2007 compared to approximately $151,000 for the six months ended June
        30,
        2006.  This increase was due to additional fees paid in 2007 related
        to the audits of the years ended December 31, 2006 and 2005.
 
 *Depreciation
        and Amortization Expense.*Depreciation and amortization expense
        increased approximately $728,000 to approximately $1.3 million during the
        six
        months ended June 30, 2007 compared to approximately $575,000 for the six
        months
        ended June 30, 2006    This increase was primarily due to
        the acquisitions of Olmos Creek (June 30, 2006) and Lantern Lane (September
        29,
        2006) neither of which were depreciated or amortized during the 2006 period
        given the timing of the acquisitions.
 
 *Interest
        Income – Related Party.*Interest income – related party is
        related to a loan made to 5433 Westheimer, LP, of which we own a 50%
        interest.  The amount increased approximately $135,000 to
        approximately $262,000 during the six months ended June 30, 2007 compared
        to
        approximately $127,000 during the six months ended June 30, 2006.  The
        increase is attributable to our acquisition of 5433 Westheimer on March 31,
        2006, resulting in only 3 months of interest income being generated during
        the
        2006 period versus six months during the 2007 period.
 
 *Interest
        and Other Income.*  Interest and other income increased
        approximately $216,000 to approximately $481,000 during the six months ended
        June 30, 2007 compared to approximately $265,000 for the six months ended
        June
        30, 2007  This increase was primarily due to earning interest on a
        higher balance of investable funds during the 2007 period   as
        compared to the 2006 period.  We continued our capital-raising efforts
        through October 31, 2006 and we invest our excess cash in short-term investments
        or overnight funds until properties suitable for acquisition can be identified
        and acquired.
 
 *Interest
        Expense.*Interest expense increased approximately $757,000 to
        approximately $1.6 million during the six months ended June 30, 2007 compared
        to
        approximately $801,000 for the six months ended June 30, 2006 This increase
        was
        primarily due to the acquisitions of Olmos Creek (June 30, 2006) and Lantern
        Lane (September 29, 2006) neither of which incurred interest expense during
        the
        2006 period given the timing of the acquisitions. All of our properties are
        financed with fixed-rate mortgages.
 
 *Loss
        From Non-Consolidated Entities.*Loss from
        non-consolidated entities increased approximately $97,000 to approximately
        $198,000 for the six months ended June 30, 2007 compared to approximately
        $101,000 for the six months ended June 30, 2006.   These
        amounts represent our ownership portion of our joint ventures’ net income or
        loss for the period.  The increased loss is primarily attributable to
        our 50% ownership interest in 5433 Westheimer which was acquired on March
        31,
        2006 and our 50% ownership interest in Casa Linda which was acquired on December
        8, 2006.  Both properties have been operating at net losses given
        their vacancies.  To allow us to begin executing on our plan to
        redevelop the 5433 Westheimer property, we have not been seeking out new
        long-term leases nor have we been renewing existing tenants on a long-term
        basis, resulting in the vacancies.
  5
 *Table
            of
            Contents*
  **Liquidity
        and Capital Resources**
  We
        expect
        to meet our short-term liquidity requirements through net cash provided by
        property operations.  We expect to meet our long-term liquidity
        requirements through 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,
        the
        payment of operating expenses, including interest expense on any outstanding
        indebtedness, and the payment of distributions to our Partners.  As we
        sell properties during our operating period, we plan to strategically reinvest
        the proceeds from such sales rather than distributing the proceeds to our
        Partners.
  At
        June
        30, 2007 and December 31, 2006, our cash and cash equivalents totaled
        approximately $16.7 million and approximately $23.1 million, respectively.
        Cash
        flows provided by (used in) operating activities, investing activities and
        financing activities for the six months ended June 30, 2007 and
        2006  are as follows (in thousands):
 
 2007
              
              
              2006Operating
                  activities
              
              $
              (1,642
              )
              
              $
              301Investing
                  activities
              
              $
              (756
              )
              
              $
              (23,647
              )Financing
                  activities
              
              $
              (3,999
              )
              
              $
              22,334
 
 Net
        cash
        flows from operating activities decreased approximately $1.9 million to net
        cash
        used by operating activities of approximately $1.6 million for the six months
        ended June 30, 2007 compared to net cash provided by operating activities
        of
        approximately $301,000 for the six months ended June 30, 2006.  This
        decrease was primarily attributable to a reduction of $2.5 million in working
        capital cash flows which was driven primarily by an increase during the period
        of $1.5 million in receivables, coupled with a decrease in accounts payable
        during the period of $825,000.  This decrease was partially offset by
        an increase during 2007 of approximately $477,000 in our income before the
        effects of losses from non-consolidated entities, of depreciation and
        amortization expenses and of minority interest in consolidated
        subsidiaries.  This increase was driven by the increase in rental
        income as a result of the Olmos Creek (June 30, 2006) and Lantern Lane
        (September 29, 2006) acquisitions.
 
 Net
        cash
        used in investing activities decreased approximately $22.9 million to
        approximately $756,000 for the six months ended June 30, 2007 compared to
        approximately $23.6 million for the six months ended June 30,
        2006.  This decrease was primarily due to the Olmos Creek (June 30,
        2006) and 5433 Westheimer (March 31, 2006) acquisitions that occurred during
        the
        six months ended June 30, 2006.  We incurred various capital
        expenditures related to the redevelopment of Westside Plaza and other
        capital expenditures on Lantern Lane during the first six months of 2007,
        but
        had no property acquisitions during such period.
  Net
        cash
        flows from financing activities decreased approximately $26.3 million to
        net
        cash used in financing activities of approximately $4 million for the six
        months ended June 30, 2007 compared to net cash provided by financing activities
        of approximately $22.3 million for the six months ended June 30,
        2006.  This decrease was primarily attributable to us raising $21.1
        million (net of issuance costs) from the sales of our Units during
        2006.  We closed the offering of such Units in October 2006, and no
        further amounts were raised during 2007.  Additionally, we had an
        increase in distributions of approximately $2.0 million, which represented
        a
        return of capital, as a result of the increase in Units outstanding between
        the 2006 and 2007 periods.
 
 Until
        we
        acquire properties, we invest any excess cash in short-term investments or
        overnight funds.  This investment strategy allows us to offset a
        portion of the interest costs from our fixed-rate mortgage loans and provides
        us
        with the liquidity to acquire properties at such time as those suitable for
        acquisition are located.
 
 We
        believe that inflation has minimal effect on our income from
        operations.  We expect that increases in store sales volumes due to
        inflation, as well as increases in the consumer price index, may contribute
        to
        capital appreciation of our properties.  These factors, however, also
        may have an adverse impact on the operating margins of the tenants of the
        properties.
 
 **Off-Balance
        Sheet Arrangements**
  We
        have
        no off-balance sheet arrangements as of June 30, 2007.
   6
 *Table
            of
            Contents*
  **ITEM 3. CONTROLS
        AND PROCEDURES**
  **Evaluation
        of Disclosure Controls and Procedures.**
 
 Under
        the
        supervision and with the participation of our General Partner’s Chief Executive
        Officer and Chief Financial Officer, 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
        Securities Exchange Act of 1934) as of June 30, 2007.  Based on that
        evaluation, our General Partner’s CEO and CFO concluded that our disclosure
        controls and procedures were effective as of June 30, 2007.
 
 **Changes
        in Internal Controls**
 
 There
        has
        been no change to our internal control over financial reporting during the
        quarter ended June 30, 2007 that has materially affected, or is reasonably
        likely to materially affect, our internal control over financial
        reporting.
 
  **PART
        II– OTHER INFORMATION**
  **ITEM** **1.**                      **LEGAL
        PROCEEDINGS.**
  In
        the
        ordinary course of business, we may become subject to litigation or
        claims.  There are no material pending legal proceedings or
        proceedings known to be contemplated against us.
  **ITEM** **2.**                      **UNREGISTERED
        SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS.**
  None.
  **ITEM** **3.**                      **DEFAULTS
        UPON SENIOR SECURITIES.**
  None.
  **ITEM** **4.**                      **SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY
        HOLDERS.**
  None.
  **ITEM
        5.                      OTHER INFORMATION.**
  None.
  **ITEM
        6.                      EXHIBITS.**
  (a)  Exhibits
  Exhibit
        No.                      Exhibit
        Title
  31.1
              Certification
                  of H. Kerr Taylor pursuant to 18 U.S.C. Section 1350 as adopted
                  pursuant
                  to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2
              Certification
                  of Chad C. Braun pursuant to 18 U.S.C. Section 1350 as adopted
                  pursuant to
                  Section 302 of the Sarbanes-Oxley Act of
                  2002.
  32.1
              Certification
                  of H. Kerr Taylor pursuant to 18 U.S.C. Section 1350 as adopted
                  pursuant
                  to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2
              Certification
                  of Chad C. Braun pursuant to 18 U.S.C. Section 1350 as adopted
                  pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002.
  7
 *Table
            of
            Contents*
  **SIGNATURES**
 
 In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 By:
        AmREIT Monthly Income & Growth
        III Corporation, its
        General Partner
  
 Date:           August
                14, 2007
              By:
              /s/
                H. Kerr TaylorName:
              H.
                Kerr TaylorTitle:
              President,
                Chief Executive Officer and Director of the General PartnerDate:           August
                14, 2007
              By:
              /s/
                Chad C. BraunName:
              Chad
                C. BraunTitle:
              Executive
                Vice President, Chief Financial Officer,Treasurer and Secretary of
                the
                General Partner
   
 
 
  8