<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 JUNE 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.)

     P.O. Box 9507, 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114
     -----------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (617) 570-4600
              (Registrant's telephone number, including area code)

                   Five Cambridge Center, Cambridge, MA 02142
         (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 August 13, 2001, there were 1,263,189 shares of common stock outstanding.

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

<PAGE>



                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 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
<TABLE>
<CAPTION>

                                                                                            Page
                                                                                            -----
<S>                                                                                       <C>
   Part I.  Financial Information
   Item 1. Financial Statements:

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

        Statements of Operations - Three and Six Months Ended
          June 30, 2001 and 2000...........................................................    4

        Statement of Equity - Six Months Ended June 30, 2001...............................    5

        Statements of Cash Flows - Six Months Ended June 30, 2001 and 2000.................    6

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

   Item 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations............................................   13

   Item 3.  Quantitative and Qualitative Disclosure about Market Risk......................   17


   Part II. Other Information:

   Item 4.  Submission of Matters to a Vote of Securityholders.............................   18

   Item 6.  Exhibits and Reports on Form 8-K...............................................   18

   Signatures..............................................................................   19

</TABLE>


                                       2
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 30, 2001

                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                        JUNE 30, 2001           DECEMBER 31, 2000
                                                        -------------           -----------------
                                                         [UNAUDITED]
<S>                                                   <C>                      <C>
ASSETS

Real estate - net                                      $  31,414,546             $  31,385,741
Cash and cash equivalents                                 14,903,336                13,229,944
Other assets                                               3,182,481                 3,040,423
Receivables - net                                            237,483                   216,573
                                                       -------------             -------------
                                                       $  49,737,846              $ 47,872,681
                                                       =============              ============


LIABILITIES AND EQUITY

Accounts payable and accrued expenses                   $  1,028,290               $   781,936
Due to affiliates                                                 --                   396,320
                                                       -------------               -----------
                                                           1,028,290                 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                                             624,027                        -

Limited partners' equity (400,010 units
   issued and outstanding)                                          -                44,358,754
General partners' equity                                            -                 2,335,671
                                                       --------------            --------------
                                                           48,709,556                46,694,425
                                                       --------------            --------------
                                                         $ 49,737,846              $ 47,872,681
                                                       ==============            ==============

</TABLE>






                       See notes to financial statements.




                                       3
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 30, 2001

                            STATEMENTS OF OPERATIONS
                                   [UNAUDITED]


<TABLE>
<CAPTION>

                                                FOR THE THREE MONTHS ENDED           FOR THE SIX MONTHS ENDED
                                                         JUNE 30,                            JUNE 30,
                                                ---------------------------          --------------------------
<S>                                            <C>                <C>              <C>                 <C>

                                                     2001               2000             2001                2000
                                                     ----               -----            ----                ----

Rental Revenue                                   $ 2,432,586        $ 2,216,883      $ 5,492,411         $ 5,099,110
                                                 -----------        -----------      -----------         -----------

Costs and Expenses:

     Operating expenses                              835,568            713,743        1,652,443           1,541,746
     Depreciation and amortization                   359,938            343,678          741,999             689,166
     Asset management fee                            267,524            172,519          531,094             345,038
     Administrative expenses                         275,325            298,761          737,548             587,045
     Property management fee                          77,043             81,360          164,684             169,104
                                                  ----------         ----------        ----------          ---------
                                                   1,815,398          1,610,061        3,827,768           3,332,099
                                                  ----------         ----------        ----------          ---------

Income before interest and other income              617,188            606,822        1,664,643           1,767,011

     Interest income                                 149,440            123,163          332,522             217,819

     Other income                                      2,320              9,500           17,966               9,500
                                                  ----------         ----------        ----------          ---------

Net income                                         $ 768,948          $ 739,485      $ 2,015,131          $1,994,330
                                                  ==========          =========      ===========          ==========

Earnings Per Share - Basic and Diluted

Net income per common share                         $    .61           $    .59         $   1.60            $   1.58
                                                    ========           ========         ========            ========

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 10-Q - JUNE 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                              -               -              -                -      624,027          624,027
                                  ------------   ------------      ----------    ------------    ---------      -----------
Balance, June 30, 2001            $        -    $          -       $ 12,632      $ 48,072,897    $624,027     $ 48,709,556
                                   ===========  =============      ===========   ============    ========      ============
</TABLE>


















                       See notes to financial statements.



                                       5
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 30, 2001


                           STATEMENTS OF CASH FLOWS
                                   [UNAUDITED]

<TABLE>
<CAPTION>
                                                                         FOR THE SIX MONTHS ENDED JUNE 30,
                                                                     --------------------- --------------------
<S>                                                                      <C>                   <C>
                                                                            2001                    2000
                                                                            ----                    ----

Cash Flows From Operating Activities:

     Net income                                                            $2,015,131               $1,994,330
     Adjustments to reconcile net income
     to net cash provided by operating activities:
         Depreciation and amortization                                        741,999                  689,166
         Straight-line adjustment for stepped
           lease rentals                                                       22,309                   21,673
     Changes in assets and liabilities:
         Accounts payable and accrued expenses                                246,352                (227,771)
         Receivables                                                         (20,910)                 (95,075)
         Due to affiliates                                                  (396,320)                  106,193
         Other assets                                                       (312,844)                 (92,247)
                                                                           ----------               ----------
     Net cash provided by operating activities                              2,295,717                2,396,269
                                                                           ----------               ----------

Cash Flows From Investing Activities:

     Improvements to real estate                                            (622,325)
                                                                           ----------               ----------
                                                                                                     (141,757)

Increase In Cash And Cash Equivalents                                       1,673,392                2,254,512

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

Cash And Cash Equivalents, End of Quarter                                 $14,903,336              $10,775,882
                                                                          ===========              ===========


</TABLE>










                       See notes to financial statements.



                                       6
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 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 six months ended June 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 dictated. 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 10-Q - JUNE 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
         Statement of Financial Accounting Standards "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 will not affect the Company's financial statements.



                                       8
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 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 will not have
         a material effect on the Company's financial statements.

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.

         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.



                                       9
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 30, 2001

                          NOTES TO FINANCIAL STATEMENTS
                                   [UNAUDITED]

3.       RELATED PARTY TRANSACTIONS (CONTINUED)

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

                                              Six Months Ended
                                      June 30, 2001              June 30, 2000
                                      -------------               -------------
                                                    Shelbourne
                                General Partners    Management  General Partners

         Expense Reimbursement       $ 44,583        $ 30,417         $ 75,000
         Asset Management Fee        $314,102        $216,992         $345,038

         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 June 30, 2000, Resources Supervisory was entitled
         to receive $81,360 of which $77,930 was paid to unaffiliated management
         companies for property management services with the balance being
         retained by Resources Supervisory. For the sixth months ended June 30,
         2000, Resources Supervisory was entitled to receive $169,104 of which
         $154,478 was paid to unaffiliated management companies for property
         management services with the balance being retained by Resources
         Supervisory.

         Effective October 2000, Kestrel Management L.P. ("Kestrel"), an
         affiliate of the agent began performing all property management
         services directly for the Partnership and, effective April 18, 2001,
         the Company. For the quarter ended June 30, 2001, Kestrel earned
         $77,043. For the sixth months ended June 30, 2001, Kestrel earned
         $164,684.

         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.




                                       10
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 30, 2001

                          NOTES TO FINANCIAL STATEMENTS
                                   [UNAUDITED]


4.       REAL ESTATE

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

<TABLE>
<CAPTION>

                                                             JUNE 30, 2001    DECEMBER 31, 2000
                                                             -------------    ----------------
<S>                                                         <C>                <C>
                                                               [UNAUDITED]

         Land                                                 $ 10,370,965        $ 10,370,965
         Building and improvements                              38,493,961          37,871,636
                                                              ------------         ------------
                                                                48,864,926          48,242,601
         Less: Accumulated depreciation                        (17,450,380)        (16,856,860)
                                                              ------------         ------------

                                                              $ 31,414,546         $ 31,385,741
                                                              ============         ============

5.       DUE TO AFFILIATES

                                                             JUNE 30, 2001      DECEMBER 31, 2000
                                                              ------------      -----------------
                                                              [UNAUDITED]

         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
         quarters.

6.       FEDERAL INCOME TAX CONSIDERATIONS

         As of April 18, 2001, the Partnership was converted into a corporation
         that will elect 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.




                                       11
<PAGE>


                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 30, 2001

                          NOTES TO FINANCIAL STATEMENTS
                                   [UNAUDITED]

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.

         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 Company is listed on the American Stock Exchange under
         the symbol HXD.


                                       12
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 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 in 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 $14,903,336 in cash and cash equivalents at June 30,
         2001. Cash and cash equivalents are temporarily invested in short-term
         instruments. The Company's level of liquidity




                                       13
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 30, 2001

          based upon cash and cash equivalents increased by $1,673,392 for the
          six months ended June 30, 2001 as compared to December 31, 2000. The
          increase is due to $2,295,717 of cash provided by operating activities
          that was partially offset by $622,325 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 received from tenants that amounted to $2,432,586 for the three
          months ended June 30, 2001 and $5,492,411 for the six months ended
          June 30, 2001. In addition, to the extent the Company acquires
          additional assets, its cash flow from operations would 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 six months ended June 30, 2001, the Company made
          $204,183 and $622,325 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 and sidewalk configuration at Southport Shopping Center. 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 the costs associated with the damage.

          The budgeted expenditures for capital improvements and capitalized
          tenant procurement cost in 2001is an aggregate $2,505,000. These costs
          are expected to be incurred in 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 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.




                                       14
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 30, 2001



         RESULTS OF OPERATIONS

         Six months ended June 30, 2001 vs. June 30, 2000
         ------------------------------------------------

         The Company's net income experienced an increase of $20,801 (slightly
         more than 1%) for the six months ended June 30, 2001 as compared to the
         same periods in the prior year. The increase in net income for the
         comparable six month periods was due to an increase in rental revenue
         of $393,301 (7.7%), interest income of $114,703 (52.7%) and other
         income of $8,466 (89.1%) partially offset by an increase in costs and
         expenses of $495,669 (14.9%).

         Rental revenues increased during the six months ended June 30, 2001
         compared to 2000 primarily due to increased income from common area
         maintenance & real estate tax recoveries along with the leasing of
         vacant spaces at Southport Shopping Center and lease renewals at
         current market rates at both Southport and Loch Raven Plaza.

         Interest income increased during the six months ended June 30, 2001 due
         to higher cash balances during the six 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 during the six months ended
         June 30, 2001 as compared to the same period in 2000 as a result of the
         increase in the amount of investor servicing transfer fees.

         Costs and expenses increased by $495,669 during the six months ended
         June 30, 2001 compared to the same period in 2000 due to increases in
         operating expenses, depreciation and amortization, management fees and
         administrative expenses. 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 six months ended June 30, 2001 as
         compared to the six months ended June 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. . Administrative expenses increased for the six months
         ended June 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 remained
         relatively constant for the comparable six month periods.

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

         The Company's net income experienced an increase of $29,463 (4%) for
         the three months ended June 30, 2001. The increase in net income for
         the comparable three month periods was due to an increase in rental
         revenue of $215,703 (9.7%) and interest income of $26,277 (21.3%) that
         was partially offset by a decrease in other income of $7,180 (75.6%),
         an increase in costs and expenses of $205,337 (12.8%).

         Rental income increased during the three-months ended June 30, 2001 due
         to the lease up of previously vacant suites at Southport Shopping
         Center as well as lease renewals at current market rates at Southport
         and Loch Raven Plaza.

                                       15
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 30, 2001

         Interest income increased during the three-months ended June 30, 2001
         due to higher cash balances during that time as compared to the same
         period ended June 30, 2000.

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

         Costs and expenses increased by $205,337 during the three months ended
         June 30, 2001 compared to the same period in 2000 primarily due to
         increased operating expenses and asset management fees partially offset
         by a decrease in general and administrative costs. Operating expenses
         increased due to increases in real estate taxes, utility costs and
         repairs and maintenance. 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. 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 expense due to real
         estate improvements. Property management fees 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.

         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.




                                       16
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 30, 2001

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

<TABLE>
<CAPTION>

                                                    Three Months Ended                     Six Months Ended
                                            June 30, 2001       June 30, 2000      June 30, 2001     June 30, 2000
                                            -------------       -------------      -------------     -------------

<S>                                        <C>                  <C>              <C>               <C>
    Net Income                                    $ 768,928            $ 739,485        $2,015,131        $1,994,330

    Plus:    Depreciation and
             amortization related to
             real estate                            359,958              343,678           741,999           689,167
                                                 ----------           ----------        ----------        ----------

    Funds From Operations                        $1,128,886           $1,083,163        $2,757,130        $2,683,497
                                                 ==========           ==========        ==========        ==========

</TABLE>

         OTHER MATTERS

         Effective August 15, 2001, Messrs. W. Edward Scheetz and David T.
         Hamamoto, directors of the Company, have been 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, will continue 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 is not expected to have an 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.


                                       17
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                            FORM 10-Q - JUNE 30, 2001



PART II. OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Securityholders

Commencing February 15, 2001, consents of the limited partners of the
Partnership were solicited to the conversion of the Partnership into a publicly
traded real estate investment trust. The consent solicitation period ended on
April 16, 2001. Holders of 246,723 units (61.63% of the outstanding units) voted
in favor of the conversion, holders of 27,523 units (6.88% of the outstanding
units) voted against the conversion and holders of 3,152 units (.79% of the
outstanding units) abstained. The conversion was consummated on April 18, 2001
and each outstanding limited partnership unit in the Partnership was converted
into three shares of common stock of the Company.


Item 6 - Exhibits and Reports on Form 8-K

     (a)      Exhibits:

              99.      Press Release dated August 14, 2001

     (a)      Reports on Form 8-K:

              No report on Form 8-K was filed during the period.




                                       18
<PAGE>




                                   SIGNATURES

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

                                      Shelbourne Properties I, Inc.

Dated:   August 14, 2001              By: /s/ Michael L. Ashner
                                          --------------------------------------
                                          Michael L. Ashner
                                          President and Director
                                          (Principal Executive Officer)


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




                                       19
<PAGE>





                                  EXHIBIT INDEX

No.         Exhibit                                           Page No.
---         -------                                           -------

99.         Press Release dated August 14, 2001                  21








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