**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 September 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-10Acquired
                  Lease Intangibles
              F-10Notes
                  Payable
              F-10Concentrations
              F-11Related
                  Party Transactions
              F-11Real
                  Estate Acquisitions and Dispositions
              F-11Commitments
                  and Contingencies
              F-112
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              1-63
              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
              7Signatures
              8







*Table
          of
          Contents*


**PART
      I – FINANCIAL INFORMATION**




**ITEM** **1.**                 
      **FINANCIAL STATEMENTS**




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


**CONSOLIDATED
      BALANCE SHEETS**


September
      30, 2007 and December 31, 2006


(in
      thousands)





**September
                30,**
            
            
            **December
                31,****2007**
            
            
            **2006****ASSETS**
            
            
            (unaudited)Real
                estate investments at cost:Land
            
            
            $
            18,446
            
            
            $
            18,446Buildings
            
            
            47,049
            
            
            
            46,452Tenant
                improvements
            
            
            872
            
            
            
            78466,367
            
            
            
            65,682Less
                accumulated depreciation and amortization
            
            
            (2,664
            )
            
            
            (1,184
            )63,703
            
            
            
            64,498Investment
                in non-consolidated entities
            
            
            19,234
            
            
            
            15,382Intangible
                lease cost, net
            
            
            3,452
            
            
            
            4,226Net
                real estate investments
            
            
            86,389
            
            
            
            84,106Cash
                and cash equivalents
            
            
            8,649
            
            
            
            23,128Tenant
                receivables, net
            
            
            794
            
            
            
            526Accounts
                receivable
            
            
            57
            
            
            
            6Accounts
                receivable - related party
            
            
            2,274
            
            
            
            742Notes
                receivable
            
            
            3,001
            
            
            
            -Notes
                receivable - related party
            
            
            7,035
            
            
            
            7,035Deferred
                costs, net
            
            
            681
            
            
            
            545Other
                assets
            
            
            1,223
            
            
            
            886TOTAL
                ASSETS
            
            $
            110,103
            
            
            $
            116,974**LIABILITIES
                AND PARTNERS' CAPITAL**Liabilities:Notes
                payable
            
            $
            50,874
            
            
            $
            50,977Notes
                payable - related party
            
            
            -
            
            
            
            1,144Accounts
                payable
            
            
            1,579
            
            
            
            1,648Accounts
                payable - related party
            
            
            291
            
            
            
            160Below
                market leases, net
            
            
            756
            
            
            
            949Security
                deposits
            
            
            119
            
            
            
            119TOTAL
                LIABILITIES
            
            
            53,619
            
            
            
            54,997Minority
                interest
            
            
            2,156
            
            
            
            2,235Partners'
                capital:General
                partner
            
            
            -
            
            
            
            -Limited
                partners, 2,844 units outstanding
            
            
            54,328
            
            
            
            59,742TOTAL
                PARTNERS' CAPITAL
            
            
            54,328
            
            
            
            59,742TOTAL
                LIABILITIES AND PARTNERS' CAPITAL
            
            $
            110,103
            
            
            $
            116,974









~F-1~
 *Table
            of
            Contents*




AmREIT
      MONTHLY INCOME & GROWTHFUND III, LTD. AND
      SUBSIDIARIES


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(in
      thousands)


(unaudited)




**Three
                months ended September 30,**
            **Nine
                months ended September 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenues:Rental
                income from operating leases
            
            $
            1,706
            
            
            $
            1,178
            
            
            $
            5,285
            
            
            $
            3,035Total
                revenues
            
            
            1,706
            
            
            
            1,178
            
            
            
            5,285
            
            
            
            3,035Expenses:General
                and administrative
            
            
            201
            
            
            
            15
            
            
            
            315
            
            
            
            34Asset
                management fees - related party
            
            
            154
            
            
            
            95
            
            
            
            463
            
            
            
            204Property
                expense
            
            
            519
            
            
            
            314
            
            
            
            1,472
            
            
            
            712Property
                management fees - related party
            
            
            62
            
            
            
            49
            
            
            
            183
            
            
            
            112Legal
                and professional
            
            
            250
            
            
            
            44
            
            
            
            418
            
            
            
            196Depreciation
                and amortization
            
            
            900
            
            
            
            459
            
            
            
            2,203
            
            
            
            1,034Total
                expenses
            
            
            2,086
            
            
            
            976
            
            
            
            5,054
            
            
            
            2,292Operating
                income (loss)
            
            
            (380
            )
            
            
            202
            
            
            
            231
            
            
            
            743Other
                income (expense):Interest
                income - related party
            
            
            133
            
            
            
            135
            
            
            
            394
            
            
            
            262Interest
                and other income
            
            
            225
            
            
            
            54
            
            
            
            709
            
            
            
            169Interest
                expense
            
            
            (783
            )
            
            
            (449
            )
            
            
            (2,341
            )
            
            
            (1,250
            )Loss
                from non-consolidated entities
            
            
            (131
            )
            
            
            (97
            )
            
            
            (330
            )
            
            
            (197
            )Minority
                interest in loss of consolidated subsidiaries
            
            
            14
            
            
            
            27
            
            
            
            79
            
            
            
            80Total
                other income (expense)
            
            
            (542
            )
            
            
            (330
            )
            
            
            (1,491
            )
            
            
            (936
            )Loss
                before discontinued operations
            
            
            (922
            )
            
            
            (128
            )
            
            
            (1,260
            )
            
            
            (193
            )Loss
                from discontinued operations:Loss
                from real estate operations
            
            
            -
            
            
            
            (21
            )
            
            
            -
            
            
            
            (21
            )Loss
                from discontinued operations
            
            
            -
            
            
            
            (21
            )
            
            
            -
            
            
            
            (21
            )Net
                Loss
            
            $
            (922
            )
            
            $
            (149
            )
            
            $
            (1,260
            )
            
            $
            (214
            )




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
      nine months ended September 30, 2007


(in
      thousands)


(unauditied)


GP
            
            
            LP
            
            
            Total**Balance
                at December 31, 2006**
            
            $
            -
            
            
            $
            59,742
            
            
            $
            59,742Contributions,
                net of offering costs
            
            
            -
            
            
            
            (99
            )
            
            
            (99
            )Net
                loss (1)
            
            
            40
            
            
            
            (1,300
            )
            
            
            (1,260
            )Distributions
            
            
            (40
            )
            
            
            (4,015
            )
            
            
            (4,055
            )**Balance
                at September 30, 2007**
            
            $
            -
            
            
            $
            54,328
            
            
            $
            54,328


(1)
        The
        allocation of net loss includes a curative allocation to increase the GP
        capital
        account by $85,000.  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)




**Nine
                    months ended September 30,****2007**
                
                
                **2006**Cash
                    flows from operating activities:Net
                    loss
                
                
                $
                (1,260
                )
                
                $
                (214
                )Adjustments
                    to reconcile net loss to net cashprovided
                    by (used in) operating activities:Loss
                    from non-consolidated entities
                
                
                330
                
                
                
                197Depreciation
                    and amortization
                
                
                2,129
                
                
                
                993Minority
                    interest in loss of consolidated subsidiaries
                
                
                (79
                )
                
                
                (80
                )Increase
                    in escrow deposits
                
                
                -
                
                
                
                (895
                )Increase
                    in tenant receivables
                
                
                (268
                )
                
                
                (206
                )Increase
                    in accounts receivable
                
                
                (51
                )
                
                
                (128
                )(Increase)
                    decrease in accounts receivable - related party
                
                
                (1,631
                )
                
                
                832Increase
                    in deferred costs
                
                
                (108
                )
                
                
                (9
                )(Increase)
                    decrease in other assets
                
                
                (337
                )
                
                
                42(Decrease)
                    increase in accounts payable
                
                
                (69
                )
                
                
                1,117Increase
                    (decrease) in accounts payable - related party
                
                
                131
                
                
                
                (305
                )Increase
                    in security deposits
                
                
                -
                
                
                
                93Net
                    cash (used in) provided by operating activities
                
                
                (1,213
                )
                
                
                1,437Cash
                    flows from investing activities:Improvements
                    to real estate
                
                
                (685
                )
                
                
                (13
                )Acquisition
                    of investment properties
                
                
                -
                
                
                
                (34,756
                )Increase
                    in notes receivable
                
                
                (3,001
                )
                
                
                -Increase
                    in notes receivable - related party
                
                
                -
                
                
                
                (7,035
                )Investment
                    in non-consolidated entities
                
                
                (4,083
                )
                
                
                (1,796
                )Net
                    cash used in investing activities
                
                
                (7,769
                )
                
                
                (43,600
                )Cash
                    flows from financing activities:Proceeds
                    from notes payable
                
                
                -
                
                
                
                13,440Payments
                    on notes payable
                
                
                (103
                )
                
                
                (97
                )Payments
                    on notes payable - related party
                
                
                (1,144
                )
                
                
                -Contributions
                
                
                
                -
                
                
                
                37,922Issuance
                    costs
                
                
                (99
                )
                
                
                (4,299
                )Loan
                    acquisition costs
                
                
                (96
                )
                
                
                (210
                )Distributions
                
                
                
                (4,055
                )
                
                
                (1,401
                )Net
                    cash (used in) provided by financing activities
                
                
                (5,497
                )
                
                
                45,355Net
                    (decrease) increase in cash and cash equivalents
                
                
                (14,479
                )
                
                
                3,192Cash
                    and cash equivalents, beginning of period
                
                
                23,128
                
                
                
                2,948Cash
                    and cash equivalents, end of period
                
                $
                8,649
                
                
                $
                6,140**Supplemental
                    schedule of cash flow information:**Cash
                    paid during the year for interest
                
                $
                2,420
                
                
                $
                1,205
  Supplemental
          schedule of noncash investing and financing activities:
 In
            2007,
            we incurred reimbursable transaction costs of $99,000 related to our
            5433
            Westheimer project.  Such costs had not been reimbursed by our affiliate as
            of year-end and were recorded to our investment in non-consolidated
            entities.
 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**


**September
      30, 2007**


(unaudited)





**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 September 30, 2007, we directly owned
      three properties comprising 225,000 square feet of gross leasable area and
      owned
      an investment interest in seven other properties comprising 1.2 million square
      feet of gross leasable area.





Our
      Units
      were sold in reliance on an exemption from the registration requirements
      of the Securities Act of 1933, as amended , and are not currently
      listed on a national exchange.  No public market currently exists for the
      Units.  The Units may not be sold or transferred unless we register the
      Units under applicable laws or if the sale qualifies for exemption from such
      laws.  We do not expect to register the Units; therefore, 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 nine months ended September 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 nine months ended September 30, 2007
      and 2006, we recognized lease termination fees of $0 and $150,000,
      respectively.


~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 nine months ended September 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 the 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 September 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 had a loss from
      discontinued operations of $0 and $21,000 for the nine months ended September
      30, 2007 and 2006, respectively.




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 nine months
      ended September 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
      9).  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 September 30,
      2007 and December 31, 2006, we had an allowance for uncollectible accounts
      related to our tenant receivables of $19,000 and $0, respectively.





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– Included in notes receivable is a loan made related to a real
      estate project in which we have no equity interest.  The note is
      uncollateralized and carries an interest rate of 15% per annum.  The
      note matures on August 21, 2010.  The note was collected subsequent to
      September 30, 2007.




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
      London Interbank Offer Rate (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 but had not been paid as
      of September 30, 2007.  We have agreed to extend the term of the
      note on an interim basis at substantially the same terms as were in effect
      as of December 31, 2006, although the borrower has not executed a new
      note.  We intend to refinance the property with a
      third-party loan during the fourth quarter of 2007.  We
      anticipate that the note will be repaid to us in conjunction with the
      refinancing of the property.




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 acquisition costs as
      of September 30, 2007 and December 31, 2006 totaled $103,000 and $46,000,
      respectively.  Accumulated amortization related to deferred leasing
      costs as of September 30, 2007 and December 31, 2006, totaled $12,000 and
      $1,000, respectively.







~F-7~
 *Table
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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 nine months ended September 30, 2007, we recorded
      a provision for Texas Margin Tax of $45,000.  No provision was
      recorded during the nine months ended September 30, 2006 as the amount was
      considered immaterial.





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 September 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 $51.0 million
      and $50.6 million as of September 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 September
      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
      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 currently do not plan to measure any eligible financial
      assets and liabilities at fair value under the provisions of SFAS No.
      159.


~F-8~
 *Table
          of
          Contents*




DISCONTINUED
      OPERATIONS




The
      following is a summary of our discontinued operations for the nine months ended
      September 30, ($ in thousands):






2007
              
              
              2006Rental
                  income from operating leases
              
              $
              -
              
              
              $
              11Total
                  revenues
              
              
              -
              
              
              
              11General
                  and administrative
              
              
              -
              
              
              
              (2
              )Property
                  expense
              
              
              -
              
              
              
              (1
              )Depreciation
                  and amortization
              
              
              -
              
              
              
              (29
              )Total
                  expenses
              
              
              -
              
              
              
              (32
              )Income
                  from discontinued operations
              
              
              -
              
              
              
              (21
              )Loss
                  from discontinued operations
              
              $
              -
              
              
              $
              (21
              )





OFFERING
      COSTS





The
      General Partner funded all of the organization and offering costs on the
      Partnership’s behalf.  As of September 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 7.)




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.





~F-9~
 *Table
          of Contents*




**3.
        INVESTMENT IN NON-CONSOLIDATED
        ENTITIES**
  Since
        inception, we made the following investments in four entities through which
        we
        own an interest in six properties:




·
            In
              August 2007, we acquired a 30% interest in Woodlake Square, LP which
              owns
              a multi-tenant retail property located in Houston, Texas with a combined
              gross leasable area of 206,000 square feet.  The remaining 70%
              is owned by AmREIT Monthly Income and Growth Fund IV, Ltd. (“MIG IV”)
              (40%) and AmREIT Realty Investment Corporation (30%), affiliated entities
              of ours. ·
            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 MIG IV.


·
            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 396,000 square
                feet.   The remaining 80% is owned by a third
                party.


·
            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.





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 nine months ended
      September 30, 2007 and 2006 is as follows ($ in thousands):





(In
                thousands)
            
            Nine
                months ended September 30,2007
            
            
            2006Revenue
            
            $
            10,028
            
            
            $
            1,653Income
                (loss) from continuing operations
            
            
            203
            
            
            
            (648
            )Net
                income (loss)
            
            
            203
            
            
            
            (648
            )





**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
      $1,500,000 and $723,000 at September 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 $722,000 and $367,000
      for
      the nine months ended September 30, 2007 and 2006, respectively.  The
      amortization of above-market leases, which was recorded as a reduction of rental
      income, was approximately $51,000 and $3,000 during the nine months ended
      September 30, 2007 and 2006, respectively.





Acquired
      lease intangible liabilities (below-market leases) are net of previously
      accreted minimum rent of approximately $410,000 and $216,000 at September 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 $193,000 and $179,000 during the nine
      months ended September 30, 2007 and 2006, respectively.  Such
      accretion is recorded as an increase to rental income.





**5.
      NOTES PAYABLE**





Our
      outstanding debt at September 30, 2007 and December 31, 2006 consists entirely
      of fixed-rate mortgage loans of approximately $50.9 million and $51.0 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 January 2036.




As
        of
        September 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 13.4
        years.  As of September 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
            
            $
            37
            
            
            $
            -
            
            
            $
            372008
            
            
            146
            
            
            
            -
            
            
            
            1462009
            
            
            156
            
            
            
            -
            
            
            
            1562010
            
            
            166
            
            
            
            -
            
            
            
            1662011
            
            
            175
            
            
            
            24,615
            
            
            
            24,790Beyond
                five years
            
            
            674
            
            
            
            24,905
            
            
            
            25,579Total
            
            $
            1,354
            
            
            $
            49,520
            
            
            $
            50,874







~F-10~
 *Table
          of Contents*




**6. 
CONCENTRATIONS**





As
      of
      September 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 nine months ended September 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 nine months ended
      September 30, ($ in thousands):





Nine
                months ended September 30,Tenant
            
            2007
            
            
            2006HEB
              Grocery
            
            $
            1,223
            
            
            $
            1,096DSW
            
            
            574
            
            
            
            573Rice
              Food Markets, Inc.
            
            
            219
            
            
            
            2Fidelity
              Investments
            
            
            217
            
            
            
            2Blockbuster
              Video
            
            
            215
            
            
            
            33Baubles
              & Beads
            
            
            150
            
            
            
            1$
            2,598
            
            
            $
            1,707


**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 and continue to provide services to us pursuant to various
      agreements.  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 nine months ended September
      30,
      2007 and 2006:





Nine
                months ended September 30,Type
                of Service
            
            2007
            
            
            2006Securities
                Commissions, Due Diligence and Marketing Reimbursements
            
            $
            -
            
            
            $
            4,139Organizational
                and Offering Cost Reimbursements
            
            
            99
            
            
            
            160Asset
                Management Fees
            
            
            463
            
            
            
            204Development
                and Acquisition Fees
            
            
            90
            
            
            
            1,005Property
                Management and Leasing
            
            
            289
            
            
            
            121Administrative
                Costs Reimbursements
            
            
            176
            
            
            
            -$
            1,117
            
            
            $
            5,629





See
      also
      Note 3 regarding investments in non-consolidated entities and Note 1 regarding
      notes receivable from related parties.








**8.
      REAL ESTATE ACQUISITIONS AND
      DISPOSITIONS**





We
      did
      not make any property acquisitions or dispositions during the nine months ended
      September 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 investment activity since our inception 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-11~
 *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 nine months ended September 30, 2007 and 2006. As of September 30,
      2007, our properties were 92% leased and the debt leverage ratio of our
      portfolio was approximately 46%, 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.  Our Units were sold in reliance on an exemption from
      the registration requirments of the Securities Act of 1933, as amended, and
      are
      not currently listed on a national exchange.  No public market currently
      exists for the Units.  The Units may not be sold or transferred unless we
      register the Units under applicable laws or if the sale qualifies for exemption
      from such laws.  We do not expect to register the Units; therefore, we do
      not anticipate that any public market for the Units will develop.




As
      of
      September 30, 2007, we directly owned three properties comprising 225,000 square
      feet of gross leasable area and owned an interest in seven other properties
      comprising 1.2 million 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.





~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.








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**Recently
      Issued Accounting Pronouncements**





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 a
      direct interest in a property on September 30, 2005 and acquired an interest
      in
      another property on December 12, 2005 through a consolidated joint
      venture.  During 2006, we acquired direct interests in two more
      properties, one on June 30, 2006 and the other on September 29,
      2006.  In 2006, we also made investments in three joint ventures
      through which we obtained an ownership interest in five other properties. In
      2007, we made an investment in a joint venture which we obtained an ownership
      interest in an additional property.  At September 30, 2007, we
      directly owned three properties comprising 225,000 square feet of gross leasable
      area and owned an investment interest in seven other properties comprising
      1.2
      million 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.





*Nine
      Months Ended September 30, 2007 versus Nine Months Ended September 30,
      2006*





*Revenue.*Revenue
      increased approximately $2.3 million to approximately $5.3 million during the
      nine months ended September 30, 2007 compared to approximately $3.0 million
      for
      the nine months ended September 30, 2006.   This increase was
      primarily due to the acquisitions of Olmos Creek (June 30, 2006) and Lantern
      Lane (September 29, 2006) both of which generated less revenues during the
      2006
      period given the timing of the acquisitions.





*General
      & Administrative.*General and administrative expenses increased
      approximately $281,000 to approximately $315,000 during the nine months ended
      September 30, 2007 compared to approximately $34,000 for the nine months ended
      September 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 of $45,000 during 2007 for Texas Margin Tax which was enacted on January
      1, 2007 and reserved an amount for bad debt expense of $19,000 this
      year.





*Asset
      Management Fees.*Asset management fees increased approximately
      $259,000 to approximately $463,000 during the nine months ended September 30,
      2007 compared to approximately $204,000 for the nine months ended September
      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
      $760,000 to approximately $1.5 million during the nine months ended September
      30, 2007 compared to approximately $712,000 for the nine months ended September
      30, 2006.  This increase was primarily due to the acquisitions of
      Olmos Creek (June 30, 2006) and Lantern Lane (September 29, 2006) both of which
      incurred lower property expenses during the 2006 period given the timing of
      the
      acquisitions.


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*Property
      Management Fees – Related Party.*  Property management fees to our
      affiliate increased approximately $71,000 to approximately $183,000 during
      the
      nine months ended September 30, 2007 compared to approximately $112,000 for
      the
      nine months ended September 30, 2006.  This increase was primarily due
      to the acquisitions of Olmos Creek (June 30, 2006) and Lantern Lane (September
      29, 2006) both of which incurred lower property management fees during the
      2006
      period given the timing of the acquisitions.





*Legal
      and Professional Fees.*Legal and professional fees increased
      approximately $222,000 to approximately $418,000 during the nine months ended
      September 30, 2007 compared to approximately $196,000 for the nine months ended
      September 30, 2006.  The additional costs are attributable to the
      increased financial reporting requirements associated with being a public
      registrant.





*Depreciation
      and Amortization Expense.*Depreciation and amortization expense
      increased approximately $1.2 million to approximately $2.2 million during the
      nine months ended September 30, 2007 compared to approximately $1.0 million
      for
      the nine months ended September 30, 2006    This increase
      was primarily due to the acquisitions of Olmos Creek (June 30, 2006) and Lantern
      Lane (September 29, 2006) which were depreciated for only a portion of the
      year
      given the timing of the acquisitions.   During 2007, we adjusted
      the useful lives of certain real estate assets.  The cumulative effect
      of this adjustment was recorded in the third quarter of 2007 and was not
      material to our results of operations or financial position.





*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 $132,000 to
      approximately $394,000 during the nine months ended September 30, 2007 compared
      to approximately $262,000 during the nine months ended September 30,
      2006.  The increase is attributable to our acquisition of 5433
      Westheimer on March 31, 2006, resulting in only six months of interest income
      being generated during the 2006 period versus nine months during the 2007
      period.





*Interest
      and Other Income.*  Interest and other income increased
      approximately $540,000 to approximately $709,000 during the nine months ended
      September 30, 2007 compared to approximately $169,000 for the nine months ended
      September 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 $1.1 million
      to approximately $2.3 million during the nine months ended September 30, 2007
      compared to approximately $1.2 million for the nine months ended September
      30,
      2006. This increase was primarily due to the acquisitions of Olmos Creek (June
      30, 2006) and Lantern Lane (September 29, 2006) both of which incurred less
      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 $133,000 to approximately $330,000 for the
      nine
      months ended September 30, 2007 compared to approximately $197,000 for the
      nine months ended September 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.





**Liquidity
      and Capital Resources**




We
      expect
      to meet our short-term liquidity requirements with cash on hand as well as
      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.




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At
      September 30, 2007 and December 31, 2006, our cash and cash equivalents totaled
      approximately $8.6 million and approximately $23.1 million, respectively. Cash
      flows provided by (used in) operating activities, investing activities and
      financing activities for the nine months ended September 30, 2007 and 2006
      are
      as follows (in thousands):





2007
            
            
            2006Operating
                activities
            
            $
            (1,213
            )
            
            $
            1,437Investing
                activities
            
            $
            (7,769
            )
            
            $
            (43,600
            )Financing
                activities
            
            $
            (5,497
            )
            
            $
            45,355





Net
      cash
      flows from operating activities decreased approximately $2.7 million to net
      cash
      used by operating activities of approximately $1.2 million for the nine months
      ended September 30, 2007 compared to net cash provided by operating activities
      of approximately $1.4 million for the nine months ended September 30,
      2006.  This decrease was primarily attributable to a reduction of $2.9
      million in working capital cash flows which was driven primarily by a decrease
      in receivables cash flows during the period of $2.4 million. The receivables
      cash flow decrease is primarily due to our funding of $1.1 million in
      development costs on behalf of one of our investors who subsequently reimbursed
      us in October 2007.  Additionally, there was an increase in accounts
      payable cash flows during the period of $749,000.  These working
      capital cash flow decreases were partially offset by an increase during 2007
      of
      approximately $222,000 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 Lantern Lane
      (September 29, 2006) acquisition.





Net
      cash
      used in investing activities decreased approximately $35.8 million to
      approximately $7.8 million for the nine months ended September 30, 2007 compared
      to approximately $43.6 million for the nine months ended September 30,
      2006.  This decrease was primarily due to significant acquisition
      activity in 2006 - Lantern Lane (September 29, 2006), Olmos Creek (June 30,
      2006) and 5433 Westheimer (March 31, 2006).  During 2007, we made no
      acquisitions and our investment activity was limited to initiating a loan to
      an
      unaffiliated third party with a 3 year term for $3.0 million and purchasing
      a
      30% interest in Woodlake Square, LP for approximately $3.9
      million.  We also incurred capital expenditures related to the
      redevelopment of Westside Plaza and various other capital expenditures during
      the first nine months of 2007.




Net
      cash
      flows from financing activities decreased approximately $50.9 million to net
      cash used in financing activities of approximately $5.5 million for the
      nine months ended September 30, 2007 compared to net cash provided by financing
      activities of approximately $45.4 million for the nine months ended September
      30, 2006.  This decrease was primarily attributable to us raising
      $33.7 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, the decrease
      was attributable to the $13.4 million in proceeds from the Lantern Lane notes
      payable during September 2006.  We also had an increase in
      distributions of approximately $2.6 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 September 30, 2007.




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**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 September 30, 2007.  Based on
      that evaluation, our General Partner’s CEO and CFO concluded that our disclosure
      controls and procedures were effective as of September 30, 2007.





**Changes
      in Internal Controls**





There
      has
      been no change to our internal control over financial reporting during the
      quarter ended September 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.
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**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,it's
              General PartnerDate:  November
              14, 2007
            By:
            /s/
              H. Kerr TaylorName:
            H.
              Kerr TaylorTitle:
            President,
              Chief Executive Officer and Director of the General PartnerDate:
              November 14, 2007
            By:
            /s/
              Chad C. BraunName:
            Chad
              C. BraunTitle:
            Executive
              Vice President, Chief Financial Officer, Treasurer and Secretary of
              the
              General Partner












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