<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549



                                   FORM 10-Q



             [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED MARCH 31, 2000
                                                         --------------



                         Commission File Number 1-9648
                                                ------



                             NATIONAL REALTY, L.P.
            -------------------------------------------------------
            (Exact Name of Registrant as Specified in Its Charter)



           Delaware                                           75-2163175
--------------------------------                         --------------------
 (State or Other Jurisdiction of                           (I.R.S. Employer
  Incorporation or Organization)                          Identification No.)



     10670 North Central Expressway, Suite 300, Dallas, Texas       75231
   ------------------------------------------------------------------------
          (Address of Principal Executive Office)                (Zip Code)


                                (214) 692-4700
                        ------------------------------
                        (Registrant's Telephone Number,
                              Including Area Code)



Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes  X .  No    .
    ---      ---


Units of Limited Partner Interest                6,321,522
---------------------------------    --------------------------------
         (Class)                      (Outstanding at April 28, 2000)

                                       1
<PAGE>

                        PART I - FINANCIAL INFORMATION


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

The accompanying Consolidated Financial Statements have not been audited by
independent certified public accountants, but in the opinion of the management
of National Realty, L.P. ("NRLP"), all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of consolidated results of
operations, consolidated financial position and consolidated cash flows at the
dates and for the periods indicated, have been included.

                             NATIONAL REALTY, L.P.
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                      March 31,    December 31,
                                                        2000          1999
                                                    ------------   ------------
                                                       (dollars in thousands)
<S>                                                 <C>            <C>
                         Assets
                         ------

Notes and interest receivable
  Performing (including $152,103 in 2000 and
   $149,980 in 1999 from affiliates)................  $ 162,423     $ 165,155
  Nonperforming (including $1,365 in 2000 and
   $1,353 in 1999 from affiliate)...................      1,769         2,909
                                                      ---------     ---------
                                                        164,192       168,064

 Less - allowance for estimated losses..............     (1,910)       (1,910)
                                                      ---------     ---------
                                                        162,282       166,154

Real estate held for investment
  Land..............................................     41,555        39,842
  Buildings and improvements........................    278,172       282,521
                                                      ---------     ---------
                                                        319,727       322,363

 Less - accumulated depreciation....................   (141,277)     (146,534)
                                                      ---------     ---------
                                                        178,450       175,829

Foreclosed real estate, held for sale...............      7,633         7,633

Cash and cash equivalents...........................      1,259         2,066
Accounts receivable (including $20,257 in 2000 and
  $489 in 1999 from affiliates).....................     21,223         2,873
Prepaid expenses....................................      1,698         1,324
Escrow deposits and other assets (including
  $1,244 in 1999 from affiliates)...................      7,082         6,796
Marketable equity securities of affiliate, (at
  market)...........................................      3,181         3,327
Deferred financing costs............................      8,583         9,279
                                                      ---------     ---------
                                                      $ 391,391     $ 375,281
                                                      ---------     ---------
</TABLE>

  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       2
<PAGE>

                             NATIONAL REALTY, L.P.
                    CONSOLIDATED BALANCE SHEETS - Continued

<TABLE>
<CAPTION>

                                                      March 31,   December 31,
                                                         2000        1999
                                                    ------------ ------------
                                                      (dollars in thousands)
<S>                                                 <C>          <C>
    Liabilities and Partners' Equity
    --------------------------------

Liabilities
 Notes and interest payable........................  $ 274,638  $ 277,734
 Accrued property taxes............................      3,587      3,660
 Tenant security deposits..........................      1,938      2,033
 Accounts payable and other liabilities
   (including $90 in 2000 and $345 in 1999
   to affiliates)..................................        295      2,168
                                                      --------  --------
                                                       280,458    285,595

Commitments and contingencies

Partners' equity
 General Partner...................................      2,517      2,076
 Limited Partners (6,321,522 units in 2000 and
   1999)...........................................    105,505     84,552
  Unrealized gain on marketable equity securities
   of affiliate....................................      2,911      3,058
                                                      --------   --------
                                                       110,933     89,686
                                                      --------   --------
                                                     $ 391,391  $ 375,281
                                                      ========   ========
</TABLE>

  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       3
<PAGE>

                             NATIONAL REALTY, L.P.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                      For the Three Months
                                                         Ended March 31,
                                                    ----------------------
                                                      2000          1999
                                                    --------      --------
                                                     (dollars in thousands,
                                                        except per unit)
<S>                                                 <C>           <C>
Property revenue
 Rents.............................................  $   17,025  $    24,025

Property expense
 Property taxes and insurance......................       1,945        2,406
 Utilities.........................................       1,807        2,353
 Property-level payroll costs......................       1,044        1,420
 Repairs and maintenance...........................       3,239        5,041
 Other operating expenses..........................         726        1,187
 Property management fees..........................         812        1,192
                                                     ----------   ----------
                                                          9,573       13,599
                                                     ----------   ----------

  Operating income.................................       7,452       10,426

Other income
 Interest (including $4,308 in 2000 and $1,996 in
 1999 from affiliates).............................       5,924        3,791
 Gain on sale of real estate.......................      18,083       15,667
                                                     ----------   ----------
                                                         24,007       19,458

Other expense
 Interest..........................................       5,797        7,086
 Depreciation......................................       1,926        2,067
 General and administrative........................       1,552        1,843
 General partner incentive fee.....................        --            948
                                                     ----------   ----------
                                                          9,275       11,944
                                                     ----------   ----------

Net income.........................................  $   22,184     $ 17,940
                                                     ==========   ==========
Earnings per unit
  Net income.......................................  $     3.44   $     2.78
                                                     ==========   ==========


Weighted average units of limited partner interest
  used in computing earnings per unit..............   6,321,522    6,321,527
                                                     ==========   ==========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       4
<PAGE>

                             NATIONAL REALTY, L.P.
                   CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
                   FOR THE THREE MONTHS ENDED MARCH 31, 2000

<TABLE>
<CAPTION>



                                                                                              Other          Accumulated
                                                        General          Limited          Comprehensive        Partners'
                                                        Partner          Partners            Income             Equity
                                                       ---------        ----------        -------------      -----------
                                                                          (dollars in thousands, except per unit)
<S>                                                    <C>              <C>               <C>                <C>
Balance, January 1, 2000.........................      $   2,076        $   84,552        $   3,058          $    89,686

Comprehensive income

  Unrealized (loss) on marketable equity
     securities of affiliate.....................            -                 -               (147)                (147)

  Net income.....................................            441            21,743              -                 22,184
                                                                                                             -----------
                                                                                                                  22,037

Distributions ($.125 per unit)...................            -                (790)             -                   (790)
                                                       ---------       -----------       ----------          -----------

Balance, March 31, 2000..........................      $   2,517       $   105,505       $    2,911          $   110,933
                                                       =========       ===========       ==========          ===========
</TABLE>


  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       5
<PAGE>

                             NATIONAL REALTY, L.P.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


                                                  For the Three Months
                                                     Ended March 31,
                                                 ----------------------
                                                     2000       1999
                                                 ----------  ----------
                                                 (dollars in thousands)
<S>                                              <C>         <C>
Cash Flows From Operating Activities
 Rents collected..................................  $ 16,951  $ 24,322
 Payments for property operations.................   (11,743)  (13,936)
 Interest collected...............................     3,234     2,555
 Interest paid....................................    (5,137)   (6,557)
 General and administrative expenses paid.........    (1,493)   (2,614)
   Other..........................................        49       206
                                                    --------  --------
    Net cash provided by operating activities.....     1,861     3,976


Cash Flows From Investing Activities
   Proceeds from sales of real estate.............     9,168    27,578
 Real estate improvements.........................    (2,318)     (457)
   Construction and development...................    (4,177)     --
   Funding of notes receivable....................    (1,436)  (39,067)
   Collections on notes receivable................     4,996    11,912
                                                    --------  --------
  Net cash provided by (used in) investing
     activities...................................     6,233       (34)


Cash Flows From Financing Activities
   Proceeds from notes payable....................    13,014     2,600
 Payments on notes payable........................    (2,414)   (1,368)
   Refund of deposits on pending financings and
    acquisitions..................................      --       2,233
   Escrow deposit.................................      --     (18,806)
   Advances (to)/payments from affiliate..........   (18,711)    4,692
   Deferred financing costs.......................      --         (96)
   Distributions to unitholders...................      (790)     (790)
   Distributions to general partner...............      --        (327)
                                                    --------  --------
Net cash (used in) financing activities...........    (8,901)  (11,862)
                                                    --------  --------

  Net (decrease) in cash and cash equivalents.....      (807)   (7,920)

Cash and cash equivalents at beginning of period..     2,066     9,025
                                                    --------  --------
Cash and cash equivalents at end of period........  $  1,259  $  1,105
                                                    ========  ========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                       6
<PAGE>

                             NATIONAL REALTY, L.P.
               CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
<TABLE>
<CAPTION>

                                                          For the Three Months
                                                              Ended March 31,
                                                         ----------------------
                                                            2000         1999
                                                         ----------  ----------
                                                          (dollars in thousands)
<S>                                                      <C>         <C>
Reconciliation of net income to net cash
 provided by operating activities
Net income......................................          $ 22,184    $ 17,940
 Adjustments to reconcile net income to net
   cash provided by operating activities
 Gain on sale of real estate...............                (18,083)    (15,667)
 Depreciation..............................                  1,926       2,067
 Amortization of deferred financing costs..                    505         506
 (Increase) decrease in other assets.......                   (108)        568
 (Increase) in interest receivable.........                 (2,677)     (1,236)
 Increase in interest payable...................               155          23
 (Decrease) in other liabilities................            (2,041)       (225)
                                                          --------    --------
   Net cash provided by operating activities....          $  1,861    $  3,976
                                                          ========    ========

Schedule of noncash financing activities

  Unrealized (loss) gain on marketable equity
    securities of affiliate.................              $   (147)       (147)
  Notes payable assumed by buyer on sale of
    real estate.............................                14,067         --
  Acquisition of real estate in satisfaction of
    note receivable.........................                (2,989)        --
</TABLE>


The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                       7
<PAGE>

                             NATIONAL REALTY, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  BASIS OF PRESENTATION
------------------------------

The accompanying Consolidated Financial Statements have been prepared in
conformity with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.  Dollar amounts in tables are in thousands, except per unit amounts.
Certain balances for 1999 have been reclassified to conform to the 2000
presentation.

Operating results for the three month period ended March 31, 2000, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.  For further information, refer to the Consolidated Financial
Statements and Notes thereto included in the Partnership's Annual Report on Form
10-K for the year ended December 31, 1999 (the "1999 Form 10-K").

NOTE 2.  ORGANIZATION
---------------------

NRLP is a Delaware limited partnership which commenced operations on September
18, 1987, when through National Operating, L.P. ("NOLP") it acquired all of the
assets and assumed all of the liabilities of 35 public and private limited
partnerships.

NRLP is the sole limited partner of NOLP and owns 99% of the beneficial interest
in NOLP.  The general partner and owner of 1% of the beneficial interest in each
of NRLP and NOLP is NRLP Management Corp. ("NMC"), a wholly-owned subsidiary of
American Realty Trust, Inc. ("ART"), a publicly held real estate company.  As of
April 28, 2000, ART owned approximately 55.4% of NRLP's outstanding units of
limited partner interest.

In November 1992, NOLP, to facilitate the refinancing of 52 of its apartments
and a wraparound mortgage note receivable, with a financial institution,
transferred those assets to Garden Capital, L.P. ("GCLP"), a limited
partnership.  NOLP is the sole limited partner with a 99.3% limited partner
interest in GCLP.  GCLP transferred the acquired net apartment assets in
exchange for a 99% limited partner interest in single asset limited partnerships
which were formed for the purpose of operating, refinancing and holding title to
the apartments.  The single asset limited partnerships have no significant
assets other than an apartment encumbered by mortgage debt.  Garden National
Realty, Inc. ("GNRI"), a wholly-owned subsidiary of ART, is the .7% general
partner of GCLP and 1% general partner of the single asset partnerships.

Proposed Transaction with American Realty Investors, Inc.  On November 3, 1999,
NRLP and ART jointly announced their agreement to combine, in a tax free
exchange, under the ownership of a new company to be named American Realty
Investors, Inc. ("ARI").  ARI will distribute shares of

                                       8
<PAGE>

                             NATIONAL REALTY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 2.  ORGANIZATION (Continued)
---------------------

its common stock to ART stockholders and NRLP unitholders.  NRLP unitholders,
except for ART, will receive one share of ARI common stock for each NRLP unit
held.  ART stockholders will receive .91 shares of ARI common stock for each
share of ART common stock held.  ART preferred stock will convert into one share
of preferred stock of ARI, having substantially the same rights as ART's
preferred stock.  The share exchange and merger were subject to a vote of
stockholders/unitholders of both entities.  Approval required the vote of the
unitholders holding a majority of NRLP's outstanding units, and the vote of the
stockholders holding a majority of ART's outstanding shares of common and
preferred stock.  At special meetings held on March 21, 2000, NRLP unitholders
and ART stockholders approved the merger proposal.  The merger is expected to be
completed in the second quarter of 2000.

NOTE 3.  EARNINGS PER UNIT
--------------------------

Income per unit of limited partner interest is presented in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share".
Income per unit is computed by multiplying NRLP's net income by 98.01% and
dividing the result by the weighted average number of units outstanding during
each period.

NOTE 4.  NOTES RECEIVABLE
-------------------------

In January 2000, a $365,000 note receivable was collected in full, including
accrued but unpaid interest.  In March 2000, a $942,000 note receivable was
collected in full, including accrued but unpaid interest.

In August 1999, a $2.6 million loan was funded to JNC Enterprises, Inc. ("JNC").
The loan was subsequently split into two pieces.  The loans were secured by
second liens on a 3.5 acre and a 1.2561 acre parcel of land in Dallas, Texas,
the guarantee of the borrower and the personal guarantees of its shareholders.
The loans bore interest at 16.0% per annum and matured in February 2000.  All
principal and interest were due at maturity.  In March 2000, the $2.0 million
loan secured by the 3.5 acre land parcel was collected in full, including
accrued but unpaid interest.  In April 2000, the remaining loan, with a
principal balance of $600,000, was collected in full, including accrued but
unpaid interest.

In September 1999, in conjunction with the sale of two apartments, NRLP provided
$2.1 million in purchase money financing secured by limited partnership
interests in two limited partnerships owned by the buyer. The financing bore
interest at 16.0% per annum, required monthly payments of interest only at 6.0%,
beginning in February 2000 and a $200,000 principal paydown in December 1999,
which was not received, and matured in August 2000.  NRLP had the option to
obtain the buyer's general and limited partnership interests in the collateral
partnerships in full satisfaction of the financing.  In March 2000, NRLP agreed
to

                                       9
<PAGE>

                             NATIONAL REALTY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 4.  NOTES RECEIVABLE (Continued)
-------------------------

forbear foreclosing on the collateral securing the note, and released one of the
partnership interests, in exchange for payment of $250,000 and executed deeds of
trusts on certain properties owned by the borrower.  In March 2000, the borrower
made a $1.1 million payment, upon receipt of which NRLP returned the deeds of
trust and terminated the option agreement.  The borrower executed a replacement
promissory note for the remaining note balance of $1.0 million, which is
unsecured, non-interest bearing and matures in April 2003.  In April 2000, NRLP
funded a $100,000 loan to the borrower.  The loan is secured by five second lien
deeds of trust, is non-interest bearing and matures in September 2001.

In December 1999, a note with a principal balance of $1.2 million and secured by
a pledge of partnership interest in a partnership which owns real estate in
Addison, Texas, matured.  The maturity date was extended to April 2000, in
exchange for an increase in the interest rate to 14.0% per annum.  All other
terms remained the same.  Negotiations are in process to further modify and
extend the loan.

In June 1998, a $4.2 million loan was funded to Cuchara Partners, Ltd. and Ski
Rio Partners, Ltd., affiliates of JNC.  The loan was secured by (1) a first lien
on approximately 450 acres of land in Huerfano County, Colorado, known as
Cuchara Valley Mountain Ski Resort; (2) an assignment of a $2.0 million
promissory note which is secured by approximately 2,623 acres of land in Taos
County, New Mexico, known as Ski Rio Resort; and (3) a pledge of all related
partnership interests. The loan bore interest at 16.0% per annum and had an
extended maturity of March 2000. All principal and interest were due at
maturity. In the fourth quarter of 1998, $109,000 was received on the sale of 11
parcels of the collateral property in Taos, New Mexico. In August and September
1999, paydowns totaling $3.3 million were received.  The loan had a principal
balance of $1.6 million at March 31, 2000.  In April 2000, the loan was
collected in full, including accrued but unpaid interest.

In August 1998, a $635,000 loan was funded to La Quinta Partners, LLC. The loan
was secured by interest bearing accounts prior to being used as escrow deposits
toward the purchase of a total of 956 acres of land in La Quinta, California and
the personal guarantee of the manager of the borrower.  The loan had an extended
maturity of November 1999.  All principal and interest were due at maturity.  In
November and December 1998, $250,000 in principal paydowns were received.  In
the second quarter of 1999, the loan was modified, increasing the interest rate
to 15.0% per annum and extending the maturity date to November 1999. Accrued but
unpaid interest was added to the principal balance, increasing it by $42,000 to
$402,000.  In the fourth quarter of 1999, an additional $2,000 was funded,
increasing the loan's principal balance to $404,000 at March 31, 2000. In March
2000, $25,000 in interest was collected and the loan's maturity was extended to
April 2000.  Negotiations are in process to further modify and extend the loan.

                                       10
<PAGE>

                             NATIONAL REALTY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 4.  NOTES RECEIVABLE (Continued)
-------------------------

In October 1998, a $2.1 million loan was funded to Frisco Panther Partners,
Ltd., an affiliate of JNC.  The loan was secured by a second lien on 408.23
acres of land in Frisco, Texas, the guaranty of the borrower and the personal
guarantees of its partners.  The loan bore interest at 16.0% per annum and had
an extended maturity of March 2000. All principal and interest were due at
maturity.  In April 2000, the loan was collected in full, including accrued but
unpaid interest.

In December 1998, $3.3 million of a $5.0 million loan commitment was funded to
JNC.  In January 1999, a $1.3 million paydown was received and subsequently in
1999 an additional $3.0 million was funded, increasing the loan balance to $5.0
million.  The loan was secured by a second lien on 1,791 acres of land in Denton
County, Texas, and a second lien on 91 acres of land in Collin County, Texas.
The loan bore interest at 16.0% per annum, and had an extended maturity of March
2000.  All principal and interest were due  at maturity.  At March 31, 2000, the
loan had a principal balance of $5.0 million.  In April 2000, the loan was
collected in full, including accrued but unpaid interest.  In conjunction with
the April 2000 JNC loan payoffs, described above, NRLP paid off $5.0 million in
mortgage debt secured by the notes.

Related Party.  GCLP has funded $124.4 million of a $125.0 million loan
commitment to ART.  The loan is secured  by second liens on six ART properties
in Minnesota, Mississippi, and Texas, by the stock of ART Holdings, Inc., a
wholly-owned subsidiary of ART that owns 3,349,535 NRLP limited partner units,
by the stock of NMC, also a wholly-owned subsidiary of ART and the general
partner of NRLP, a pledge of 678,475 NRLP limited partner units owned by BCM and
a pledge of 283,034 NRLP limited partner units owned by ART.  The loan bears
interest at 12.0% per annum, required monthly payments of interest only and
matures in November 2003.  In March 2000, ART sold 3.254 acres of improved land
in Farmers Branch, Texas, adjacent to NRLP's Centura Tower Office Building, to
NRLP for its carrying cost of $3.0 million, with sales price being applied as a
paydown on the loan.  In April 2000, an additional $3.2 million was funded.  No
interest payments have been received in 2000.

At March 31, 2000, approximately $139.2 million, including accrued interest, of
the $162.3 million in notes receivable, is due from ART. At the effective date
of the pending combination of ART and NRLP, this receivable, and any unpaid
interest, will be eliminated without payment. See NOTE 2. "ORGANIZATION -
Proposed Transaction with American Realty Investors, Inc."

In 1998, a loan commitment of $1.8 million was funded to Warwick of Summit, Inc.
("Warwick").  The loan was secured by a second lien on a shopping center in
Rhode Island, by 100% of the stock of the borrower and by the personal guarantee
of the principal shareholder of the borrower. The loan bears interest at 14.0%
per annum and has an extended

                                       11
<PAGE>

                             NATIONAL REALTY, L.P.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 4.  NOTES RECEIVABLE (Continued)
-------------------------

maturity of December 2000. All principal and interest are due at maturity. In
December 1999, the borrower sold the collateral property. NRLP received $810,000
of the net proceeds of the sale, of which $386,000 was applied to accrued
interest and the remaining $424,000 was applied to principal.  NRLP is to
receive escrowed monies in 2000. Through April 30, 2000, $50,000 has been
received.  The loan is currently unsecured.  Richard D. Morgan, a Warwick
shareholder, is a Director of NMC, the general partner of NRLP.

Beginning in 1997 and through January 1999, a $1.6 million loan commitment was
funded to Bordeaux Investments Two, L.L.C. ("Bordeaux"). The loan is secured by
(1) a 100% membership interest in Bordeaux, which owns a shopping center in
Oklahoma City, Oklahoma; (2) 100% of the stock of Bordeaux Investments One,
Inc., which owns 6.5 acres of undeveloped land in Oklahoma City, Oklahoma; and
(3) the personal guarantees of the Bordeaux members. The loan bears interest
at 14.0% per annum. In November 1998, the loan was modified to allow interest
payments based on monthly cash flow of the collateral property and the maturity
date was extended to December 1999.  In the second quarter of 1999, the loan was
again modified, increasing the loan commitment to $2.1 million and an additional
$33,000 was funded.  In the third quarter of 1999, an additional $213,000 was
funded.  The property has had no cash flow, therefore, NRLP ceased accruing
interest on the loan in the second quarter of 1999.  In October 1999, a $724,000
paydown was received, which was applied first to accrued but unpaid interest due
of $261,000, then to principal, reducing the loan balance to $1.4 million.
Negotiations are in process to further modify and extend the loan. Richard D.
Morgan, a Bordeaux member, is a Director of NMC, the general partner of NRLP.

In February 1999, a $5.0 million unsecured loan was funded to One Realco
Corporation which at March 31, 2000, owned approximately 15.8% of the
outstanding shares of ART's common stock.  The loan bears interest at 12.0% per
annum and originally matured in February 2000.  All principal and interest were
due at maturity.  The loan was guaranteed by Basic Capital Management, Inc.
("BCM"), an affiliate of NMC.  In March 2000, the note was modified and
extended, increasing the loan commitment to $11.0 million, and an additional
$1.2 million was funded.  The maturity date was extended to February 2002.  In
exchange for the modification and extension, the borrower paid all accrued but
unpaid interest and pledged collateral consisting of a $10.0 million promissory
note secured by the stock of World Trade Company, Ltd., which owns a hotel in
Bulgaria.

During 1998 and 1999, a total of $31.0 million of a $52.5 million loan
commitment was funded to Centura Tower, Ltd. ("Centura").  The loan was secured
by 2.244 acres of land and an office building under construction in Farmers
Branch, Texas.  In August 1999, NRLP exercised its option contained in the loan
agreement, and obtained a combined 80% general and limited partnership interest
in Centura in exchange for a $24.1 million

                                       12
<PAGE>

                             NATIONAL REALTY, L.P.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 4.  NOTES RECEIVABLE (Continued)
-------------------------

capital contribution through conversion of a portion of its note receivable to
an equity interest.  NRLP has contracted to purchase an additional 10.0% limited
partnership interest in both Centura and NLP/CH, Ltd., an affiliated partnership
that owns land adjacent to the office building, for a total of $1.3 million.
Through April 2000, $542,000 has been paid.  Through April 30, 2000, the
construction lender has advanced an additional $2.6 million to Centura.

NOTE 5.    REAL ESTATE
----------------------

In 2000, NRLP sold the following properties:

<TABLE>
<CAPTION>
                                                                           Net
                                                     Sales      Debt       Cash    Gain on
Property               Location      Units/Sq.Ft.    Price   Discharged  Received   Sale
------------------  ---------------  -------------  -------  ----------  --------  -------
<S>                 <C>              <C>            <C>      <C>         <C>       <C>
First Quarter
Apartments
Summerwind          Reseda, CA          172 units    $9,000    $5,568 *    $3,082   $7,351
Windtree            Reseda, CA          159 units     8,350     5,063 *     2,911    6,740
Whispering Pines    Canoga Park, CA     102 units     5,300     3,437 *     1,597    3,529

Shopping Center
Katella Plaza       Orange, CA       62,290 Sq.Ft.    1,814     1,188         283      463
</TABLE>

-------------

*  Debt assumed by purchaser.

NOTE 6.  NOTES AND INTEREST PAYABLE
-----------------------------------

In 2000, NRLP financed or obtained second mortgage financing on the following
properties:

<TABLE>
<CAPTION>
                                                               Net
                                                     Debt      Cash    Interest   Maturity
Property               Location       Acres/Units  Incurred  Received    Rate       Date
----------------  ------------------  -----------  --------  --------  ---------  --------
<S>               <C>                 <C>          <C>       <C>       <C>        <C>
First Quarter
Land
Centura, Clark
 and Woolley      Farmers Branch, TX  10.08 Acres    $7,150    $6,960     14.00%     03/03

Second Quarter
Apartments
Rockborough       Denver, CO          345 Units       2,222     1,942      8.37      11/10
</TABLE>

NOTE 7.    OPERATING SEGMENTS
-----------------------------

Significant differences among the accounting policies of the operating segments
as compared to the Consolidated Financial Statements principally involve the
calculation and allocation of general and administrative expenses.  Management
evaluates the performance of each of the operating segments and allocates
resources to each of them based on their operating income and cash flow.
Expenses that are not

                                       13
<PAGE>

                             NATIONAL REALTY, L.P.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



NOTE 7.  OPERATING SEGMENTS (Continued)
---------------------------

reflected in the segments are $1.6 million and $1.8 million of general and
administrative expenses for the three months ended March 31, 2000 and 1999,
respectively, and $948,000 in general partner incentive fees in 1999.  Excluded
from operating segment assets are assets of $42.9 million at March 31, 2000 and
$55.3 million at March 31, 1999, which are not identifiable with an operating
segment.  There are no intersegment revenues and expenses and all business is
conducted in the United States.

Presented below is the operating income of each operating segment for the three
months ended March 31, and each segment's assets at March 31.


<TABLE>
<CAPTION>
                        Commercial
2000                    Properties  Apartments  Receivables   Total
                        ----------  ----------  -----------  --------
<S>                     <C>         <C>         <C>          <C>
Rents.................     $ 2,784     $14,241  $     --     $ 17,025
Property operating
    expenses..........       1,542       8,031           --     9,573
Interest income.......          --          --        5,911     5,911
Interest expense -
    notes receivable..          --          --          148       148
                           -------     -------     --------  --------
Segment operating
 income...............     $ 1,242     $ 6,210     $  5,763  $ 13,215
                           =======     =======     ========  ========

Depreciation..........     $   847     $ 1,079  $      --    $  1,926
Interest on debt......       1,247       4,343           --     5,590
Real estate
    improvements......       2,318          --           --     2,318
Construction
    expenditures......          --       4,177           --     4,177
Assets................      96,566      89,517      162,282   348,365

<CAPTION>

Property sales

                        Commercial
                        Properties  Apartments                Total
                        ----------  ----------               --------
<S>                     <C>         <C>                      <C>
Sales price...........     $ 1,814     $22,650               $ 24,464
Cost of sales.........       1,351       5,030                  6,381
                            ------     -------                -------
Gain on sale..........      $  463     $17,620                $18,083
                            ======     =======                =======
</TABLE>

                                       14
<PAGE>

                             NATIONAL REALTY, L.P.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 7.    OPERATING SEGMENTS (Continued)
-----------------------------

<TABLE>
<CAPTION>
                        Commercial
1999                    Properties  Apartments  Receivables   Total
                        ----------  ----------  -----------  --------
<S>                     <C>         <C>         <C>          <C>
Rents.................     $ 2,410    $ 21,615  $      --    $ 24,025
Property operating
    expenses..........         970      12,629           --    13,599
Interest income.......          --          --        3,757     3,757
Interest expense -
    notes receivable..          --          --          287       287
                           -------    --------     --------  --------
Segment operating
    income............     $ 1,440    $  8,986     $  3,470  $ 13,896
                           =======    ========     ========  ========

Depreciation..........     $   863    $  1,204  $      --    $  2,067
Interest on debt......         445       6,175           --     6,620
Real estate
    improvements......          86         371           --       457
Assets................      26,843     127,845      142,883   297,571
</TABLE>

<TABLE>
<CAPTION>
Property Sales                      Apartments                Total
                                    ----------               --------
<S>                                 <C>                      <C>
Sales price...........                $ 28,605               $ 28,605
Cost of sales.........                  12,938                 12,938
                                       -------                -------
Gain on sale..........                 $15,667               $ 15,667
                                       =======                =======
</TABLE>

NOTE 8.    INCOME TAXES
-----------------------

No federal or state income taxes have been provided for in the accompanying
Consolidated Statements of Operations as the partners include their share of
NRLP's income or loss in their respective tax returns.  For income or loss
allocation purposes, limited partners are allocated their proportionate share of
income or loss commencing with the calendar month subsequent to their entry into
NRLP.

NOTE 9.    LEGAL PROCEEDINGS
----------------------------

NRLP is involved in various lawsuits arising in the ordinary course of business.
In the opinion of management, the outcome of these lawsuits will not have a
material effect on NRLP's financial condition, results of operations or
liquidity.

                              -------------------


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


Introduction
------------

NRLP is a Delaware limited partnership formed on January 29, 1987, which owns
      and operates through NOLP, also a Delaware limited partnership, a
      portfolio of real estate and mortgage notes.  Most of NOLP's properties

                                       15
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------- ---------------------------------------------------------------
        RESULTS OF OPERATIONS (Continued)
        ---------------------

Introduction (Continued)
------------

were acquired in transactions consummated on September 18, 1987, when NOLP
acquired all of the assets and assumed all of the liabilities of 35 public and
private limited partnerships.

Proposed Transaction with American Realty Investors, Inc.  On November 3, 1999,
NRLP and ART jointly announced their agreement to combine, in a tax free
exchange, under the ownership of a new company to be named ARI.  ARI will
distribute shares of its common stock to ART stockholders and NRLP unitholders.
NRLP unitholders, except for ART, will receive one share of ARI common stock for
each unit of NRLP held.  ART stockholders will receive .91 shares of ARI common
stock for each share of ART common stock held.  ART preferred stock will convert
into one share of preferred stock of ARI, having substantially the same rights
as ART's preferred stock.  The share exchange and merger were subject to a vote
of stockholders/unitholders of both entities.  Approval required the vote of the
unitholders holding a majority of NRLP's outstanding units, and the vote of the
stockholders holding a majority of ART's outstanding shares of common and
preferred stock.  At special meetings held on March 21, 2000, the NRLP
unitholders and ART stockholders approved the merger proposal.  The merger is
expected to be completed in the second quarter of 2000.

Liquidity and Capital Resources
-------------------------------

Cash and cash equivalents totaled $1.3 million at March 31, 2000 compared to
$2.1 million at December 31, 1999.  The principal reasons for this decrease in
cash are discussed in the paragraphs below.

NMC, the General Partner of NRLP, has discretion in determining methods of
obtaining funds for NRLP's operations.  NRLP's governing documents place no
limitation on the amount of leverage that NRLP may incur either in the aggregate
or with respect to any particular property or other investment.  At March 31,
2000, the aggregate loan-to-value ratio of NRLP's real estate portfolio was
58.0%, computed on the basis of the ratio of total property-related debt to
aggregate estimated current values as compared with a loan-to-value ratio of
41.1% at December 31, 1999.

NRLP's principal sources of cash have been and will continue to be from property
operations, collection of principal and interest on its mortgage notes
receivable and externally generated funds. Externally generated funds include
borrowings, proceeds from the sale of properties and other assets and proceeds
from borrowings secured by properties or mortgage notes receivable. Management
expects that NRLP's cash flow from property operations together with externally
generated funds will be sufficient to meet NRLP's various cash needs during the
remainder of 2000, including, but not limited to, funding of lending
commitments, distributions to unitholders, debt service obligations coming due
and property maintenance and improvements, as more fully discussed in the
paragraphs below.

                                       16
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
        OF OPERATIONS (Continued)
        -------------

Liquidity and Capital Resources (Continued)
-------------------------------

Cash from property operations (rents collected less payments for property
operating expenses) decreased to $5.2 million in the three months ended
March 31, 2000, from $10.4 million in the three months ended March 31, 1999. The
decrease was primarily due to the sale of three apartments and one commercial
property in the first quarter of 2000 and 14 apartments in 1999.

Interest collected on mortgage notes receivable increased to $3.2 million in the
three months ended March 31, 2000, from $2.6 million in 1999.  Of this increase,
$1.5 million was due to the collection of interest on the payoffs of three
mortgage loans and $1.7 million is due to the collection of interest on the
paydown of seven mortgage loans in 2000 for which interest was not due until the
loan's payoff or maturity. These increases were partially offset by a decrease
of $703,000 due to loans which were paid off in 1999, and a decrease of $1.8
million due to no interest payments being received from ART.

Interest paid decreased to $5.1 million in the three months ended March 31,
2000, from $6.6 million in 1999.  Of this decrease, $2.2 million was due to the
sale of 14 apartments in 1999 and three apartments and one commercial property
in 2000.  This decrease was partially offset by an increase of $939,000 due to
properties refinanced, where the debt balance was increased or unencumbered
properties financed in 1999 and $66,000 was due to properties acquired in 1999.

General and administrative expenses paid decreased to $1.5 million in the three
months ended March 31, 2000, from $1.8 million in 1999.  The decrease was due to
a decrease in legal and other expenses.

An incentive disposition fee of $948,000 was paid to NMC, NRLP's general partner
in the three months ended March 31, 1999, related to the sale of Mesa Ridge
Apartments.  No such fee was paid in 2000.

In the first quarter of 2000, NRLP received a total of $3.3 million on the
collection of three mortgage notes receivable and $4.7 million in partial
paydowns of four mortgage notes receivable.

In the first quarter of 2000, NRLP sold three apartments and one shopping center
for a total of $24.5 million, receiving net cash of $7.9 million, after the
payment of various closing costs and the payment of or the buyer's assumption of
$15.3 million in mortgage debt.  NRLP obtained new mortgage financing secured by
three parcels of unimproved land of $7.2 million, receiving net cash of $7.0
million after the payment of various closing costs.

In the second quarter of 2000, NRLP obtained second mortgage financing secured
by an apartment of $2.2 million, receiving net cash of $1.9 million after the
payment of various closing costs.

In the first quarter of 2000, NRLP paid distributions of $.125 per unit, or a
      total of $790,000.

                                       17
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
        OF OPERATIONS (Continued)
        -------------

Liquidity and Capital Resources (Continued)
-------------------------------

Management reviews the carrying values of NRLP's properties and mortgage notes
receivable at least annually and whenever events or a change in circumstances
indicate that impairment may exist.  Impairment is considered to exist if, in
the case of a property, the future cash flow from the property (undiscounted and
without interest) is less than the carrying amount of the property.  For notes
receivable impairment is considered to exist if it is probable that all amounts
due under the terms of the note will not be collected.  If impairment is found
to exist, a provision for loss is recorded by a charge against earnings.
Management's review of NRLP's mortgage note receivable includes an evaluation of
the collateral property securing such note.  The property review generally
includes (1) selective property inspections, (2) a review of the property's
current rents compared to market rents, (3) a review of the property's expenses,
(4) a review of maintenance requirements, (5) a review of the property's cash
flow, (6) discussions with the property manager, and (7) a review of properties
in the surrounding area.

Results of Operations
---------------------

NRLP reported net income of $22.2 million for the three months ended March 31,
2000, including gains on the sale of real estate of $18.1 million, compared to
net income of $17.9 million for the three months ended March 31, 1999, including
gains on the sale of real estate of $15.7 million.  The primary factors
affecting NRLP's operating results are discussed in the following paragraphs.

Rents decreased to $17.0 million in the three months ended March 31, 2000, from
$24.0 million in 1999.  $7.3 million of the decrease was due to the sale of
three apartments and one commercial property in 2000 and 14 apartments in 1999.
This decrease was partially offset by an increase of $325,000 due to increased
rental rates at NRLP's apartment and commercial properties.  Rents are expected
to continue to decrease during the remainder of 2000 as NRLP continues to
selectively sell properties.

Interest income increased to $5.9 million in the three months ended March 31,
2000, from $3.8 million in 1999.  An increase of $3.5 million was attributable
to loans funded in 1999 and additional fundings on existing loans.  This
increase was partially offset by decreases of $659,000 due to loans paid off or
paid down during 1999, $331,000 due to loans converted to partnership interests
and $224,000 due to loans foreclosed in 1999.  Interest income is expected to
decrease during the remainder of 2000 due to loans paid off in 1999 and the
first and second quarters of 2000.

Interest expense decreased to $5.9 million in the three months ended March 31,
2000, from $7.1 million in 1999. A decrease of $2.2 million was due to the sale
of a total of 16 properties, subject to debt, in 1999 and 2000. This decrease
was partially offset by an increase of $939,000 due to interest expense recorded
on borrowings in 1999 and

                                       18
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
        OF OPERATIONS (Continued)
        -------------

Results of Operations (Continued)
---------------------

2000, secured by mortgages on three unencumbered apartments, three commercial
properties and three parcels of unimproved land and the refinancing of mortgages
in 1999 where the loan balance was increased. Interest expense is expected to
decline during the remainder of 2000 as NRLP continues to selectively sell
properties.

Depreciation, property taxes and insurance, utilities, property level payroll,
repairs and maintenance, other operating expenses and property management fees
in the three months ended March 31, 2000, all declined from 1999 due to the sale
of three apartments and a commercial property in 2000 and 14 apartments in 1999.
These costs are expected to continue to decrease during the remainder of 2000 as
NRLP continues to selectively sell properties.

General and administrative expenses decreased to $1.6 million in the three
months ended March 31, 2000, from $1.8 million in 1999.  The decrease is due to
a decrease in legal fees.

NMC, NRLP's general partner, earned a $948,000 incentive disposition fee in the
three months ended March 31, 1999, related to the sale of Mesa Ridge Apartments.
No such fee was earned in 2000.

In the three months ended March 31, 2000, gains on sale of real estate totaled
$18.1 million, including $7.4 million on the sale of Summerwind Apartments, $6.7
million on the sale of Windtree Apartments, $3.5 million on the sale of
Whispering Pines Apartments and $463,000 on the sale of Katella Plaza Shopping
Center.

In the three months ended March 31, 1999, gains on sale of real estate totaled
$15.7 million, including $2.7 million on the sale of Olde Towne Apartments, $1.3
million on the sale of Santa Fe Apartments and $11.7 million on the sale of
Mesa Ridge Apartments.

Tax Matters
-----------

NRLP is a publicly traded limited partnership and, for federal income tax
purposes, all income or loss generated by it is included in the income tax
returns of the individual partners.  Under Internal Revenue Service guidelines
generally applicable to publicly traded partnerships, a limited partner's use of
his or her share of partnership losses is subject to special limitations.

Inflation
---------

The effects of inflation on NRLP's operations are not quantifiable. Revenues
from property operations tend to fluctuate proportionately with inflationary
increases and decreases in housing costs. Fluctuations in the rate of inflation
also affect the sales values of properties and the ultimate gains to be realized
from property sales. To the extent that

                                       19
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
        OF OPERATIONS (Continued)
        -------------

Inflation (Continued)
---------

inflation affects interest rates, NRLP's earnings from short-term investments,
the cost of new financings as well as the cost of variable interest rate debt
will be affected.

Environmental Matters
---------------------

Under various federal, state and local environmental laws, ordinances and
regulations, NRLP may be potentially liable for removal or remediation costs, as
well as certain other potential costs relating to hazardous or toxic substances
(including governmental fines and injuries to persons and property) where
property-level managers have arranged for the removal, disposal or treatment of
hazardous or toxic substances.  In addition, certain environmental laws impose
liability for release of asbestos-containing materials into the air, and third
parties may seek recovery from NRLP for personal injury associated with such
materials.

Management is not aware of any environmental liability relating to the above
matters that would have a material adverse effect on NRLP's business, assets or
results of operations.

Year 2000
---------

Even though January 1, 2000, has passed and no adverse impact from the
transition to the year 2000 has been experienced, no assurance can be provided
that NRLP's suppliers and tenants have not been affected in a manner not yet
apparent. As a result, management will continue to monitor NRLP's year 2000
compliance and the year 2000 compliance of its suppliers and tenants.

                             ---------------------

                          PART II - OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------

(a) Exhibits:


Exhibit
Number                           Description
-------   -------------------------------------------------------------

 27.0     Financial Data Schedule


(b) Reports on Form 8-K:

     None.

                                       20
<PAGE>

                                SIGNATURE PAGE


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.



                                NATIONAL REALTY, L.P.

                                By its General Partner:

                                NRLP MANAGEMENT CORP.



Date:     May 15, 2000          By:    /s/ Karl L. Blaha
     -------------------------      -----------------------------------
                                    Karl L. Blaha
                                    President



Date:     May 15, 2000          By:    /s/ Thomas A. Holland
     -------------------------      -----------------------------------
                                    Thomas A. Holland
                                    Executive Vice President and
                                    Chief Financial Officer
                                    (Principal Financial and
                                     Accounting Officer)

                                       21
<PAGE>

                             NATIONAL REALTY, L.P.

                                  EXHIBITS TO

                         QUARTERLY REPORT ON FORM 10-Q

                     For the Quarter ended March 31, 2000



Exhibit                                                              Page
Number                      Description                             Number
-------    ---------------------------------------------------      ------

 27.0      Financial Data Schedule

                                       22