<PAGE>
================================================================================


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
                                               ------------------

                         Commission file number 0-16345
                                                -------

                          SHELBOURNE PROPERTIES I, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                                           04-3502384
           --------                                           ----------
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                            Identification No.)

                  527 Madison Avenue, New York, New York 10022
                  --------------------------------------------
                    (Address of principal executive offices)

                                 (212) 319-3400
               ---------------------------------------------------
               (Registrant's telephone number, including area code)

     P.O. Box 9507, 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114
     -----------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                               Yes [X]    No [ ]

As of November 1, 2001, there were 1,263,189 shares of common stock outstanding.

================================================================================



<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

The financial information contained in this Form 10-Q for the periods prior to
April 18, 2001 are those of Shelbourne Properties I, Inc.'s predecessor in
interest, Integrated Resources High Equity Partners, Series 85, A California
Limited Partnership (the "Partnership"). On April 18, 2001, the Partnership was
merged with and into Shelbourne Properties I, LP, a limited partnership wholly
owned, directly and indirectly, by Shelbourne Properties I, Inc.

                                      INDEX

                                                                          Page
                                                                          ----
Part I.  Financial Information

  Item 1. Financial Statements:

       Balance Sheets - September 30, 2001 and December 31, 2000 .......   3

       Statements of Operations - Three and Nine Months Ended
         September 30, 2001 and 2000 ...................................   4

       Statement of Equity - Nine Months Ended September 30, 2001 ......   5

       Statements of Cash Flows - Nine Months Ended
        September 30, 2001 and 2000 ....................................   6

       Notes to Financial Statements ...................................   7

  Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations .........................  14

  Item 3.  Quantitative and Qualitative Disclosure about Market Risk ...  18


Part II. Other Information:

  Item 6.  Exhibits and Reports on Form 8-K ............................  19

  Signatures ...........................................................  20


                                       2

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001


                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        SEPTEMBER 30, 2001        DECEMBER 31, 2000
                                                                        ------------------        -----------------
                                                                           (UNAUDITED)
<S>                                                                     <C>                      <C>
ASSETS
------

Real estate - net ......................................................   $31,442,875               $31,385,741
Cash and cash equivalents ..............................................    15,802,620                13,229,944
Other assets ...........................................................     3,062,398                 3,040,423
Receivables - net ......................................................       315,040                   216,573
                                                                           -----------               -----------
                                                                           $50,622,933               $47,872,681
                                                                           ===========               ===========
LIABILITIES AND EQUITY
----------------------

Accounts payable and accrued expenses ..................................   $ 1,164,706               $   781,936
Due to affiliates ......................................................             -                   396,320
                                                                           -----------               -----------
                                                                             1,164,706                 1,178,256
                                                                           -----------               -----------
Equity:

Common Stock:
$.01 Par Value per share; Authorized 2,500,000 shares; issued
and outstanding 1,263,189 shares .......................................        12,632                         -
Additional Capital .....................................................    48,072,897                         -
Retained Earnings ......................................................     1,372,698                         -

Limited partners' equity (400,010 units
   issued and outstanding) .............................................             -                44,358,754
General partners' equity ...............................................             -                 2,335,671
                                                                           -----------               -----------
                                                                            49,458,227                46,694,425
                                                                           -----------               -----------
                                                                           $50,622,933               $47,872,681
                                                                           ===========               ===========
</TABLE>


                       See notes to financial statements.

                                        3

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                              FOR THE THREE MONTHS ENDED           FOR THE NINE MONTHS ENDED
                                                     SEPTEMBER 30,                       SEPTEMBER 30,
                                            ------------------------------      -------------------------------
                                                2001              2000             2001                2000
                                                ----              ----             ----                ----
<S>                                         <C>                <C>              <C>                 <C>
Rental Revenue                              $ 2,414,141        $ 2,444,132      $ 7,906,552         $ 7,543,242
                                            -----------        -----------      -----------         -----------
Costs and Expenses:

     Operating expenses                         928,904            919,204        2,637,555           2,460,950
     Depreciation and amortization              398,976            365,832        1,140,975           1,054,998
     Asset management fee                       268,799            222,226          799,893             567,264
     Administrative expenses                    123,921            186,993          805,259             774,038
     Property management fee                     71,572             52,538          236,256             221,642
                                            -----------        -----------      -----------         -----------
                                              1,792,172          1,746,793        5,619,938           5,078,892
                                            -----------        -----------      -----------         -----------
Income before interest and other income         621,969            697,339        2,286,614           2,464,350

     Interest income                            115,411            150,495          447,931             368,314

     Other income                                11,291             19,700           29,257              29,200
                                            -----------        -----------      -----------         -----------
Net income                                  $   748,671        $   867,534      $ 2,763,802         $ 2,861,864
                                            ===========        ===========      ===========         ===========
Earnings Per Share - Basic and Diluted
Net income per common share                 $       .59        $       .69      $      2.19         $      2.27
                                            ===========        ===========      ===========         ===========
Weighted average common shares                1,263,189          1,263,189        1,263,189           1,263,189
                                            ===========        ===========      ===========         ===========
</TABLE>


                       See notes to financial statements.



                                       4

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

                               STATEMENT OF EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                         PARTNERS' EQUITY                        SHAREHOLDERS' EQUITY
                                    ---------------------------  -------------------------------------------------------
                                      GENERAL       LIMITED        COMMON       ADDITIONAL      RETAINED
                                      PARTNERS      PARTNERS        STOCK        CAPITAL        EARNINGS         TOTAL
                                      --------      --------        -----        -------        --------         -----
<S>                                 <C>           <C>              <C>         <C>             <C>           <C>
Balance, January 1, 2001            $ 2,335,671   $ 44,358,754     $      -    $         -     $        -    $ 46,694,425

Net income through
April 18, 2001                           69,555      1,321,549            -              -              -       1,391,104

Conversion of partnership into
REIT                                 (2,405,226)   (45,680,303)      12,632     48,072,897              -               -

Net income subsequent
to conversion                                 -              -            -              -      1,372,698       1,372,698
                                    -----------   ------------     -------     ----------      ---------     ------------
Balance, September 30, 2001         $         -   $          -     $ 12,632    $48,072,897     $1,372,698    $ 49,458,227
                                    ===========   ============     ========    ===========     ==========    ============

</TABLE>


                       See notes to financial statements.


                                       5

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                        FOR THE NINE MONTHS ENDED SEPTEMBER 30,
                                                        ---------------------------------------
                                                            2001                     2000
                                                            ----                     ----
<S>                                                     <C>                      <C>
Cash Flows From Operating Activities:

     Net income                                          $ 2,763,802             $ 2,861,864
     Adjustments to reconcile net income
     to net cash provided by operating activities:
         Depreciation and amortization                     1,140,975               1,054,998
         Straight-line adjustment for stepped
           lease rentals                                      23,395                (12,500)
     Changes in assets and liabilities:
         Accounts payable and accrued expenses               382,770               (202,253)
         Receivables                                        (98,467)                (89,752)
         Due to affiliates                                 (396,320)                 152,472
         Other assets                                      (278,352)               (116,470)
                                                         -----------             -----------
     Net cash provided by operating activities             3,537,803               3,648,359
                                                         -----------             -----------
Cash Flows From Investing Activities:

     Improvements to real estate                           (965,127)               (106,809)
                                                         -----------             -----------

Increase In Cash And Cash Equivalents                      2,572,676               3,541,550

Cash And Cash Equivalents, Beginning of Year              13,229,944               8,521,370
                                                         -----------             -----------

Cash And Cash Equivalents, End of Quarter                $15,802,620             $12,062,920
                                                         ===========             ===========
</TABLE>

                       See notes to financial statements.



                                       6

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

L.       GENERAL

         The accompanying financial statements, notes and discussions should be
         read in conjunction with the financial statements, related notes and
         discussions contained in the Annual Report on Form 10-K of Integrated
         Resources High Equity Partners, Series 85, A California Limited
         Partnership (the "Partnership") for the year ended December 31, 2000.
         Effective April 18, 2001, the Partnership was merged with and into
         Shelbourne Properties I, LP (the "Operating Partnership"), a limited
         partnership wholly owned, directly and indirectly, by Shelbourne
         Properties I, Inc. (together with the Operating Partnership, the
         "Company"). See Note 7.

         The financial information contained herein is unaudited; however, in
         the opinion of management, all adjustments (consisting only of normal
         recurring adjustments) necessary for a fair presentation of such
         financial information have been included. Results of operations for the
         three and nine months ended September 30, 2001 are not necessarily
         indicative of the results to be expected for the entire year.


2.       SIGNIFICANT ACCOUNTING POLICIES

         Investment in Joint Ventures
         ----------------------------

         Certain properties are owned in joint ventures with Shelbourne
         Properties II, LP and/or Shelbourne Properties III, LP, affiliated
         partnerships that are under common control with the Company. The
         Company owns, and the Partnership owned, an undivided interest in the
         assets owned by these joint ventures and is and was severally liable
         for indebtedness it incurred in connection with its ownership interest
         in those properties. Therefore, the Company's financial statements
         present the assets, liabilities, revenues and expenses of the joint
         ventures on a pro rata basis in accordance with the Company's
         percentage of ownership.

         Real Estate
         -----------

         Real Estate is carried at cost, net of adjustments for impairment.
         Repairs and maintenance are charged to expense as incurred. Replacement
         and betterments are capitalized. The Partnership evaluated, and the
         Company will evaluate, the recoverability of the net carrying value of
         its real estate and related assets at least annually, and more often if
         circumstances dictate. If this review indicates that the carrying value
         of a property might not be recoverable, the Partnership prepared, and
         the Company will prepare, estimates of the future undiscounted cash
         flows expected to result from the use of the property and its eventual
         disposition, generally over a five-year holding period. In performing
         this review, management takes into account, among other things, the
         existing occupancy, the expected leasing prospects of the property and
         the economic situation in the region where the property was located.


                                       7

<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

2.       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Real Estate (continued)
         -----------------------

         If the sum of the expected future cash flows, undiscounted, was less
         than the carrying amount of the property, the Partnership recognized,
         and the Company will recognize, an impairment loss, and reduced the
         carrying amount of the property to its estimated fair value. Fair value
         is the amount at which the property could be bought or sold in a
         current transaction between willing parties, that is, other than in a
         forced or liquidation sale. Management estimated, and will continue to
         estimate, fair value using discounted cash flows or market comparables
         as most appropriate for each property. Independent certified appraisers
         were utilized to assist management when warranted.

         Impairment write-downs recorded by the Partnership prior to April 18,
         2001 did not affect the tax basis of the assets and were not included
         in the determination of taxable income or loss. No write-downs have
         been recorded since the effective date of the merger.

         Because the expected cash flows used to evaluate the recoverability of
         the property and their fair values were based upon projections of
         future economic events, such as property occupancy rates, rental rates,
         operating cost inflation and market capitalization rates, the amounts
         ultimately realized at disposition may differ materially from the net
         carrying values at the balance sheet dates. The cash flows and market
         comparables used in this process were based on good faith estimates and
         assumptions developed by management. Unanticipated events and
         circumstances may occur and some assumptions may not materialize;
         therefore, actual results may vary materially from the estimates. The
         Company may in the future provide additional write-downs, which could
         be material, if real estate markets or local economic conditions
         change.

         Recently Issued Accounting Pronouncements
         -----------------------------------------

         Effective January 1, 2001, the Statement of Financial Accounting
         Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
         Hedging Activities" was adopted by the Partnership. Because the
         Partnership did not utilize derivatives or engage in hedging
         activities, this standard did not have a material effect on the
         Partnership's financial statements and is not expected to have a
         material effect on the Company's financial statements.

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
         SFAS No. 141 "Business Combinations". SFAS No. 141 requires that all
         business combinations be accounted for under the purchase method of
         accounting. SFAS No. 141 also changes the criteria for the separate
         recognition of intangible assets acquired in a business combination.
         SFAS No. 141 is effective for all business combinations initiated
         after June 30, 2001. This statement is not expected to have a material
         effect on the Company's financial statements.


                                       8

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

2.       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Recently Issued Accounting Pronouncements (continued)
         -----------------------------------------------------

         In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other
         Intangible Assets". SFAS no. 142 addresses accounting and reporting for
         intangible assets acquired, except for those acquired in a business
         combination. SFAS No. 142 presumes that goodwill and certain intangible
         assets have indefinite useful lives. Accordingly, goodwill and certain
         intangibles will not be amortized but rather will be tested at least
         annually for impairment. SFAS No. 142 also addresses accounting and
         reporting for goodwill and other intangible assets subsequent to their
         acquisition. SFAS No. 142 is effective for fiscal years beginning after
         December 15, 2001. This statement is not expected to have a material
         effect on the Company's financial statements.

         In August 2001, the FASB issued SFAS No. 144, "Accounting for the
         Impairment or Disposal of Long-Lived Assets," which addresses financial
         accounting and reporting for the impairment or disposal of long-lived
         assets. This statement supersedes SFAS No. 121, "Accounting for the
         Impairment of Long-Lived Assets and for Long-Lived Assets to be
         Disposed Of" and the accounting and reporting provisions of APB Opinion
         No. 30, "Reporting the Results of Operations -Reporting the Effects of
         a Disposal of a Business and Extraordinary, Unusual and Infrequently
         Occurring Events and Transactions," for the disposal of a segment of a
         business. This Statement also amends ARB No. 51, "Consolidated
         Financial Statements," to eliminate the exception to consolidation for
         a subsidiary for which control is likely to be temporary. SFAS No. 144
         is effective for fiscal years beginning after December 15, 2001, and
         interim periods within those fiscal years. The provisions of this
         Statement generally are to be applied prospectively. The Company has
         not evaluated the effect of this statement, however, it is not expected
         that this statement will have a material effect on the Company's
         results of operations.


3.       RELATED PARTY TRANSACTIONS

         Until April 18, 2001, the general partners of the Partnership were
         entitled to receive certain fees and reimbursement for expenses as
         permitted under the terms of the Partnership's partnership agreement.
         Effective April 18, 2001, the Company entered into a contract with
         Shelbourne Management, LLC ("Shelbourne Management"), which contract
         has a term of 10 years, pursuant to which Shelbourne Management is to
         provide the Company with all management, advisory and property
         management services. Shelbourne Management is owned by Presidio Capital
         Investment Company, LLC ("PCIC"), an entity controlled and principally
         owned by affiliates of the senior management of the Company. For
         providing these services, Shelbourne Management will receive (1) an
         annual asset management fee, payable quarterly, equal to 1.25% of the
         gross asset value of Shelbourne as of the last day of each year, (2)
         property management fees of up to 6% of property revenues, (3) $150,000
         for non-accountable expenses and (4) reimbursement of expenses incurred
         in connection with the performance of its services.


                                       9

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

3.       RELATED PARTY TRANSACTIONS (CONTINUED)

         The fees payable to the general partners prior to April 18, 2001 and to
         Shelbourne Management from and after April 18, 2001 consist of (i) a
         maximum non-accountable expense reimbursement of $150,000 per year,
         (ii) an annual management fee of 1.25% of the Gross Asset Value of the
         Partnership/Company (as defined), (iii) property management fees of up
         to 6% of property revenues, and (iv) reimbursement of expenses incurred
         in connection with the performance of its services. Gross Asset Value
         is the gross asset value of all assets owned by the Operating
         Partnership based on the latest appraisal of real estate assets by an
         independent appraiser of national reputation selected by the advisor
         and the amount of other assets as reflected on the balance sheet. Since
         the asset management fee is based on gross assets, the amount payable
         to Shelbourne Management will increase to the extent the Company
         acquires new investments, whether for cash, or by causing the Company
         to incur indebtedness or otherwise.

         The following table indicates the amounts paid to general partners and
         Shelbourne Management on account of such fees for the nine-month
         periods ended September 30, 2001 and September 30, 2000.

<TABLE>
<CAPTION>
                                                    Nine Months Ended
                                    September 30, 2001        September 30, 2000
                                    ------------------        ------------------
                                        (unaudited)               (unaudited)
                                        -----------               -----------
                                   General      Shelbourne          General
                                  Partners      Management          Partners
                                  --------      ----------          --------
        <S>                       <C>            <C>                <C>
        Expense Reimbursement     $44,583        $67,917            $112,500
        Asset Management Fee      $314,102       $485,791           $567,264
</TABLE>

         Prior to October 2000, the Partnership had a property management
         services agreement with Resources Supervisory Management Corp.
         ("Resources Supervisory"), an affiliate of the general partners, to
         perform certain functions relating to the management of the properties
         of the Partnership. A portion of the property management fees were paid
         to unaffiliated management companies which were engaged for the purpose
         of performing the management functions for certain properties.

         For the quarter ended September 30, 2000, Resources Supervisory was
         entitled to receive $52,538 of which $48,114 was paid to Kestrel
         Management L.P. ("Kestrel"), an entity controlled by former executive
         officers and a director of the Company, for property management
         services with the balance being retained by Resources Supervisory. For
         the nine months ended September 30, 2000, Resources Supervisory was
         entitled to receive $221,642 of which $137,022 was paid to Kestrel and
         $78,652 was paid to unaffiliated management companies for property
         management services with the balance being retained by Resources
         Supervisory.


                                       10

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

3.       RELATED PARTY TRANSACTIONS (CONTINUED)

         Effective October 2000, Kestrel began performing all property
         management services directly for the Partnership and, effective April
         18, 2001, the Company. For the quarter ended September 30, 2001,
         Kestrel earned $71,572. For the nine months ended September 30, 2001,
         Kestrel earned $236,256.

         In connection with the merger, the units of limited partnership
         interest held by affiliates of the general partners, including those
         acquired in tender offers made in connection with the settlement of a
         class action lawsuit were converted into shares of common stock of the
         Company. In this regard, affiliates of PCIC received 360,744 shares of
         common stock of the Company representing 28.6% of the total outstanding
         shares. In addition, pursuant to the terms of the merger, the general
         partners received an aggregate of 63,159 shares. See Note 7.


4.       REAL ESTATE

         The following table is a summary of the Company's real estate as of:

<TABLE>
<CAPTION>
                                           SEPTEMBER 30, 2001   DECEMBER 31, 2000
                                           ------------------   -----------------
                                              (unaudited)
                                              -----------
         <S>                               <C>                 <C>
         Land                                 $ 10,370,965        $ 10,370,965
         Building and improvements              38,836,763          37,871,636
                                              ------------        ------------
                                                49,207,728          48,242,601
         Less: Accumulated depreciation        (17,764,853)        (16,856,860)
                                              ------------        ------------

                                              $ 31,442,875        $ 31,385,741
                                              ============        ============
</TABLE>


5.       DUE TO AFFILIATES

<TABLE>
<CAPTION>
                                                     SEPTEMBER 30, 2001     DECEMBER 31, 2000
                                                     ------------------     -----------------
                                                        (unaudited)
                                                        -----------
         <S>                                            <C>                    <C>
         Partnership management fee                      $       -              $ 358,820
         Non-accountable expense reimbursement                   -                 37,500
                                                         ----------             ---------
                  Total                                  $       -              $ 396,320
                                                         ==========             =========
</TABLE>


The amounts payable at December 31, 2000 were paid in the subsequent quarter.


                                       11

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                                   (UNAUDITED)


6.       FEDERAL INCOME TAX CONSIDERATIONS

         As of April 18, 2001, the Partnership was converted into a corporation
         that elected to be taxed as a real estate investment trust (REIT) under
         the provisions of the Internal Revenue Code. See Note 7. As a result,
         the shareholders of the REIT will be required to include their
         proportionate share of any distribution of taxable income on their
         returns. REITs are required to distribute at least 90% of their
         ordinary taxable income to shareholders and meet certain income, asset
         and shareholder ownership requirements.


7.       SETTLEMENT OF LAWSUIT

         In April 1999, the California Superior Court approved the terms of the
         settlement of a class action and derivative litigation involving the
         Partnership. Under the terms of the settlement, the general partners
         agreed to take the actions described below subject to first obtaining
         the consent of limited partners to amendments to the Agreement of
         Limited Partnership of the Partnership summarized below. The settlement
         became effective in August 1999 following approval of the amendments.

         As amended, the Partnership Agreement (a) provided for a Partnership
         Asset Management Fee equal to 1.25% of the Gross Asset Value of the
         Partnership (as defined) and (b) fixed the amount that the General
         Partners would be liable to pay to limited partners upon liquidation of
         the Partnership as repayment of fees previously received (the "Fee
         Give-Back Amount"). As of March 31, 2001, the Fee Give-Back Amount was
         $7.58 per Unit, subject to reduction by approximately $.98 per Unit for
         each full calendar year after 2000 in which liquidation did not occur.
         As amended, the Partnership Agreement provided that, upon a
         reorganization of the Partnership into a REIT or other public entity,
         the general partners would have no further liability to pay the Fee
         Give-Back Amount. As a result of the conversion of the Partnership into
         a REIT on April 18, 2001, as described below, the general partners
         liability to pay the Fee Give-Back Amount was extinguished.

         As required by the settlement, an affiliate of the general partners,
         Millennium Funding II, LLC, made a tender offer to limited partners to
         acquire up to 26,936 Units (representing approximately 6.7% of the
         outstanding Units) at a price of $114.60 per Unit. The offer closed in
         January 2000 and all 26,936 Units were acquired in the offer.

         The final requirement of the settlement obligated the general partners
         to use their best efforts to reorganize the Partnership into a REIT or
         other entity whose shares were listed on a national securities exchange
         or on the NASDAQ National Market System. A Registration Statement was
         filed with the Securities and Exchange Commission on February 11, 2000
         with respect to the restructuring of the Partnership into a publicly
         traded REIT. On or about February 15, 2001 a prospectus/consent
         solicitation statement was mailed to the limited partners of the
         Partnership seeking consent to the reorganization of the Partnership
         into a REIT.

                                       12

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)


7.       SETTLEMENT OF LAWSUIT (CONTINUED)

         The consent of limited partners was sought to approve the conversion of
         the Partnership into the Company. The consent solicitation expired
         April 16, 2001 and holders of a majority of the units approved the
         conversion.

         On April 18, 2001 the conversion was accomplished by merging the
         Partnership into the Operating Partnership. Pursuant to the merger,
         each limited partner of the Partnership received three shares of stock
         of the Company for each unit they owned and the general partners
         received an aggregate of 63,159 shares of stock in the Company in
         exchange for their general partner interests in the Partnership. The
         common stock of the Company is listed on the American Stock Exchange
         under the symbol HXD.




                                       13

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM
         ACT OF 1995. Statements contained herein may constitute
         "forward-looking statements" within the meaning of Section 27A of the
         Securities Act of 1933, as amended, and Section 21E of the Securities
         Exchange Act of 1934, as amended. Any statements contained herein which
         are not statements of historical facts and that address activities,
         events or developments that Shelbourne Properties I, Inc. expects,
         believes or anticipates will or may occur in the future shall be deemed
         to be forward-looking statements. Forward-looking statements are
         inherently subject to risks and uncertainties, many of which cannot be
         predicted with accuracy and some of which might not even be
         anticipated. Future events, actual results and performance financial
         and otherwise, could differ materially from those set forth in or
         contemplated by the forward-looking statements herein. Factors that
         could cause actual results to differ materially from those in
         forward-looking statements include the terms of future property sales,
         investments and financings, general economic and business conditions
         and various other risk factors listed in the registration statement of
         Shelbourne Properties I, Inc. filed with the Securities and Exchange
         Commission.

         This item should be read in conjunction with the financial statements
         and other items contained elsewhere in the report.

         On April 18, 2001, Integrated Resources High Equity Partners, Series
         85, A California Limited Partnership (the "Partnership was merged with
         and into Shelbourne Properties I, LP, a limited partnership wholly
         owned, directly and indirectly, by Shelbourne Properties I, Inc.
         Shelbourne Properties I, LP and Shelbourne Properties I, Inc. is
         collectively referred to as the "Company". Set below is a discussion
         and analysis of the financial condition of the Company and the
         historical operations of the Partnership.

         LIQUIDITY AND CAPITAL RESOURCES
         -------------------------------

         The Company uses its working capital reserves and any cash from
         operations as its primary source of liquidity. In addition to cash,
         unlike the Partnership which could not incur indebtedness or issue
         additional equity, the Company has as potential sources of liquidity,
         capital raised by either borrowing money on a long-term or short-term
         basis, or issuing additional equity securities. Due to the restrictions
         on debt incurrence by the Partnership and the resulting lack of
         mortgage debt on the properties, it is anticipated that the Company
         will have significantly enhanced capital resources as compared to the
         Partnership. The Company's use of these sources of capital may result
         in the encumbrance of its current and future assets with substantial
         amounts of indebtedness. As a result, the Company may have an increased
         risk of default on its obligations and thus a decrease in its long-term
         liquidity.

         The Company had $15,802,620 in cash and cash equivalents at September
         30, 2001. Cash and cash equivalents are temporarily invested in
         short-term instruments. The Company's level of liquidity based upon
         cash and cash equivalents increased by $2,572,676 for the nine months
         ended September 30, 2001 as compared to December 31, 2000. The increase
         is due to


                                       14

<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001


         $3,537,803 of cash provided by operating activities that was partially
         offset by $965,127 of improvements to real estate (investing
         activities). Currently, the Company's primary source of funds is cash
         flow from the operation of its properties, principally rents charged to
         tenants that amounted to $2,414,141 for the three months ended
         September 30, 2001 and $7,906,552 for the nine months ended September
         30, 2001. In addition, to the extent the Company acquires additional
         assets, its cash flow from operations would be derived from a larger,
         more diverse, and potentially riskier group of assets than currently
         owned. Likewise, the Company's ability to pay dividends may be affected
         by the leveraging of its assets and reinvestment of sale and financing
         proceeds for the acquisition of additional assets.

         For the three and nine months ended September 30, 2001, the Company
         made $342,802 and $965,127 respectively, in capital expenditures which
         were funded from cash flow and the Company's working capital reserves.
         In addition to tenant improvements at the properties, capital
         expenditures consisted of elevator repairs and water piping at Seattle
         Tower, sidewalk configuration at Southport Shopping Center and booster
         pumps for fire sprinklers at 568 Broadway. In February 2001, the
         Seattle area was hit with an earthquake. The damage to Seattle Tower
         did not effect its operations and it is expected that insurance will
         cover most of the costs associated with the damage.

         Although the Company budgeted an aggregate of $2,505,000 for capital
         improvements and capitalized tenant procurement costs in 2001, to date
         the Company has only spent $965,127 for these items. It is not expected
         that the full budgeted amount will be spent prior to year end and any
         additional expenditures are expected to be incurred during the normal
         course of business and funded from cash flow from the operation of the
         properties and working capital reserves that are temporarily invested
         in short-term money market instruments, as well as other sources of
         capital including financing proceeds and the issuance of additional
         equity. However, the actual amount of such remaining expenditures
         depends upon the level of leasing activity and other factors that
         cannot be predicted with certainty. Because it is possible that the
         Company will have mortgage indebtedness and a substantially larger pool
         of real estate assets, thereby increasing expenses, the risk that it
         may be unable to fund the necessary capital and tenant procurement
         costs at its properties will likely be increased.

         Except as discussed herein, management is not aware of any other
         trends, events, commitments or uncertainties that will have a
         significant impact on the Company's liquidity. If, however, real estate
         market conditions deteriorate in any areas where properties are
         located, there is substantial risk that future cash flow may be
         insufficient to fund the capital improvements and lease procurement
         costs of the properties. In that event, the Company would utilize its
         remaining working capital reserves, reduce distributions, raise
         additional capital through financing or the issuance of equity, or sell
         one or more properties.




                                       15
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

         RESULTS OF OPERATIONS
         ---------------------

         Nine months ended September 30, 2001 vs. September 30, 2000
         -----------------------------------------------------------

         The Company's net income experienced a decrease of $98,062 (3.4%) for
         the nine months ended September 30, 2001 as compared to the same period
         in the prior year. The decrease in net income for the comparable
         nine-month periods was due to an increase in costs and expenses of
         $541,046 (10.7%), partially offset by increases in rental revenue of
         $363,310 (4.8%), interest income of $79,617 (21.6%) and other income of
         $57 (slightly less than 1%).

         Costs and expenses increased by $541,046 during the nine months ended
         September 30, 2001 compared to the same period in 2000 due to increases
         in all expense categories. Operating expenses increased for the
         comparable periods due to increased real estate taxes, utility costs
         and repairs and maintenance. Depreciation and amortization increased
         due to tenant procurement costs associated with the leasing of vacant
         space at Southport Shopping Center and renewals at Southport and Loch
         Raven Plaza as well as significant improvements to real estate. Asset
         management fees increased for the nine months ended September 30, 2001
         as compared to the nine months ended September 30, 2000 as appraisals
         were conducted for each property in the second quarter of 2000 that
         significantly increased the Gross Asset Value of the portfolio owned by
         the Company along with the increased cash balance. Administrative
         expenses increased for the nine months ended September 30, 2001 as
         compared to the same period in 2000 primarily due to increased expenses
         associated with the conversion of the Partnership into the Company.
         Property management fees increase slightly during the comparable
         nine-month period due to higher revenue collections.

         Rental revenues increased during the nine months ended September 30,
         2001 compared to 2000 primarily due to increased income from common
         area maintenance & real estate tax recoveries along with increased
         rentals at 568 Broadway, Century Park, and Loch Raven.

         Interest income increased during the nine months ended September 30,
         2001 due to higher cash balances during the nine months of 2001 as
         compared to the comparable period in 2000. This is due to the
         suspension by the Partnership of distributions until the conditions of
         the settlement of the lawsuit were met. To the extent that dividends
         are made in excess of net income, it is expected that interest income
         will decline in subsequent quarters. Other income increased slightly
         during the nine months ended September 30, 2001 as compared to the same
         period in 2000.

         Three months ended September 30, 2001 vs. September 30, 2000
         ------------------------------------------------------------

         The Company's net income experienced a decrease of $118,863 (13.7%) for
         the three months ended September 30, 2001 as compared to the comparable
         period in 2000. The decrease in net income is due to an increase in
         costs and expenses of $45,379 (2.6%) a decrease in rental revenue of
         $29,991 (1.2%), interest income of $35,084 (23%) and other income of
         $8,409 (42.7%)

         Rental income decreased during the three-months ended September 30,
         2001 compared to the comparable period in 2000 due to a significant
         reduction in Southport Shopping Center's income. The property
         renegotiated a lease with Cinema Cafe in the 4th quarter of 2000 that
         significantly


                                       16
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

         reduced their rent. Also, the space previously occupied by Ruby Tuesday
         has been divided and leased to two tenants, World Savings Bank and
         Dollar Depot, whose rental terms have not commenced. While Southport
         has recently leased up some vacant suites that were unoccupied during
         the 3rd quarter of 2000, the property has not been able to lease up
         spaces that subsequently became vacant after the 3rd quarter 2000.

         On September 10, 2001, McCrory's Corporation, a tenant at Southport
         Shopping Center, filed for chapter 11 bankruptcy protection. At this
         time, McCrory's has not rejected the lease and is current on its
         post-petition rent payments.

         Interest income decreased during the three-months ended September 30,
         2001 due to lower yields available on cash investments during that time
         as compared to the same period ended September 30, 2000.

         Other income decreased for the three months ended September 30, 2001 as
         compared to the same period ended September 30, 2000 due to the
         decrease in transfer fee income.

         Costs and expenses increased by $45,379 during the three months ended
         September 30, 2001 compared to the same period in 2000 primarily due to
         increased asset management fees. Asset management fees increased as
         appraisals were conducted for each property in the second quarter of
         2000 that significantly increased the Gross Asset Value of the
         portfolio owned by the Company along with an increased cash balance of
         Company. The reduction in general and administrative expenses is
         primarily due to the consummation of the conversion of the Company in
         April 2001 which reduced legal and other expenses associated therewith.
         The Company also experienced higher depreciation and amortization
         expenses due to real estate improvements and tenant procurement costs.
         Property management fees increased slightly due to higher collections
         during the 3rd quarter 2001 compared to the same period in 2000.
         Operating expenses remained relatively stable.

         Inflation is not expected to have a material impact on the operations
         or financial position of Shelbourne.

         FUNDS FROM OPERATIONS
         ---------------------

         Management believes that Funds From Operations ("FFO") is helpful to
         investors as a measure of the performance of an equity REIT because,
         along with cash flows from operating activities, financing activities
         and investing activities, it provides investors with an understanding
         of the ability of the Company to incur and service debt, to make
         capital expenditures and to fund other cash needs.

         FFO, which is a commonly used measurement of the performance of an
         equity REIT, as defined by the National Association of Real Estate
         Investment Trusts, Inc. ("NAREIT"), is net income (computed in
         accordance with accounting principles generally accepted in the United
         States), excluding gains (or losses) from debt restructurings, asset
         valuation provisions and sales of property, plus depreciation and
         amortization, and after adjustments for unconsolidated partnerships and
         joint ventures.


                                       17
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001


         The Company's FFO may not be comparable to FFO reported by other REITs
         that do not define the term in accordance with the current NAREIT
         definition or that interpret the NAREIT definition differently. FFO
         does not represent cash generated from operating activities determined
         in accordance with accounting principles generally accepted in the
         United States and should not be considered as an alternative to net
         income (determined in accordance with accounting principles generally
         accepted in the United States) as a measure of the Company's liquidity,
         nor is it indicative of funds available to fund the Company's cash
         needs, including its ability to make cash distributions.

         FFO for the three and nine month periods ended September 30, 2001 and
         2000 are summarized in the following table:

<TABLE>
<CAPTION>
                                                   Three Months Ended                    Nine Months Ended
                                           September 30,        September 30,     September 30,     September 30,
                                           -------------        -------------     -------------     -------------
                                               2001                 2000              2001              2000
                                               ----                 ----              ----              ----
    <S>                                    <C>                  <C>              <C>               <C>
    Net Income                               $ 748,671            $ 867,534        $2,763,802        $2,861,864

    Plus:    Depreciation and
             amortization related to
             real estate                       398,976              365,832         1,140,975         1,054,998
                                            ----------           ----------        ----------        ----------
    Funds From Operations                   $1,147,647           $1,233,366        $3,904,777        $3,916,862
                                            ==========           ==========        ==========        ==========
</TABLE>


         OTHER MATTERS
         -------------

         Effective August 15, 2001, Messrs. W. Edward Scheetz and David T.
         Hamamoto, directors of the Company, were appointed as Co-Chief
         Executive Officers of the Company and of its external adviser,
         Shelbourne Management LLC, in replacement of Mr. Michael L. Ashner, who
         resigned effective as of such date. Mr. Ashner is the Chief Executive
         Officer of Kestrel Management, L.P., the entity that, together with its
         affiliates, continues to perform administrative and property management
         services for the Company. The resignation of Mr. Ashner and the other
         officers of the Company who are employed by Kestrel Management has not
         had an adverse impact on the operations of the Company.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company does not have any debt instruments. As such, the Company
         does not have any market risk of interest rate volatility. However, to
         the extent that interest rates are lowered, interest income on the
         Company's cash reserves will, accordingly, decrease. The Company does
         not believe that it has any risk related to derivative financial
         instruments.




                                       18
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

PART II. OTHER INFORMATION


Item 6 - Exhibits and Reports on Form 8-K

         (a)      Exhibits:

                  None

         (b)      Reports on Form 8-K:

                  None



                                       19
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                           FORM 10Q-SEPTEMBER 30, 2001

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                     Shelbourne Properties I, Inc.

Dated: November 14, 2001             By: /s/ W. Edward Scheetz
                                         --------------------------------------
                                         W. Edward Scheetz
                                         President and Director
                                         (Principal Executive Officer)


Dated: November 14, 2001             By: /s/ Dallas E. Lucas
                                         ---------------------------------------
                                         Dallas E. Lucas
                                         Treasurer
                                         (Principal Financial and Accounting
                                         Officer)




                                       20