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                               ADVISORY AGREEMENT

                                     BETWEEN

                        SHELBOURNE PROPERTIES III, INC.,

                       SHELBOURNE PROPERTIES III GP, INC.

                                       AND

                            SHELBOURNE MANAGEMENT LLC









                          Dated as of __________, 2000
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                               ADVISORY AGREEMENT


                  THIS AGREEMENT, made as of ____________, 2000, between
SHELBOURNE PROPERTIES III, INC., a Delaware corporation ("Company"), SHELBOURNE
PROPERTIES III GP, INC., a Delaware corporation (the "General Partner") and
SHELBOURNE MANAGEMENT LLC, a Delaware limited liability company (the "Advisor").

                  WHEREAS, pursuant to a merger (the "Merger"), High Equity
Partners - Series 88 ("HEP") was merged into Shelbourne Properties III L.P. (the
"Operating Partnership") and each partner of HEP received in exchange for their
partnership interests in HEP shares of common stock in the Company;

                  WHEREAS, the Operating Partnership is the surviving entity in
the Merger and now owns all of the properties formerly owned by HEP;

                  WHEREAS, the General Partner is the general partner of the
Operating Partnership;

                  WHEREAS, the Company is the sole member of the General Partner
and the Company intends to qualify as a real estate investment trust under the
Internal Revenue Code of 1986, as amended (the "Code");

                  WHEREAS, the Company and the General Partner desire to avail
themselves of the services of the Advisor as hereafter set forth.

                  NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, it is agreed as follows:


                                   ARTICLE I.

                              RETENTION OF ADVISOR

                  Subject to the terms and conditions hereinafter set forth, the
Company and the General Partner hereby each retain the Advisor to undertake the
duties and responsibilities hereinafter set forth. By its execution and delivery
of this Agreement, the Advisor represents and warrants that (i) it is duly
organized, validly existing, in good standing under the laws of the state of
Delaware and has all requisite power and authority to enter into and perform its
obligations under this Agreement and (ii) the person signing this Agreement for
the Advisor is duly authorized to execute this Agreement on the Advisor's
behalf.


                                  ARTICLE II.

                           RESPONSIBILITIES OF ADVISOR

                  2.01 General Responsibility. Subject to the supervision of the
Board of Directors of the Company and of the General Partner (the "Board"), the
Advisor shall use its best efforts to:


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                  (a) with respect to the Company:

                           (i) serve as the Company's investment and financial
                           advisor and recommend changes in the Company's
                           investment policies, when appropriate;

                           (ii) investigate and evaluate investment
                           opportunities and recommend them to the Board;

                           (iii) administer the day-to-day operations of the
                           Company;

                           (iv) investigate, select and conduct relations and
                           enter into appropriate contracts on behalf of the
                           Company with other individuals, corporations and
                           entities in furtherance of the investment activities
                           of the Company;

                           (v) acquire and dispose of investments and funds of
                           the Company, handle, prosecute and settle any claims
                           of the Company and handle, defend and settle claims
                           against the Company;

                           (vi)  invest and reinvest any money of the Company;

                           (vii) negotiate, as appropriate, on behalf of the
                           Company with investment banking firms, banks and
                           other institutions or investors for public or private
                           sales of securities of the Company or for other
                           financing on behalf of the Company;

                           (viii) conduct relations on behalf of the Company
                           with the Company's shareholders and with securities
                           exchanges and dealers making markets in the Company's
                           securities;

                           (ix) establish one or more bank accounts in the name
                           of the Company and deposit into and disburse from
                           such accounts any moneys on behalf of the Company,
                           provided that no funds in any such account shall be
                           commingled with funds of the Advisor, and the Advisor
                           shall as requested by the Board render appropriate
                           accountings of such deposits and payments to the
                           Board;

                           (x) administer such day-to-day bookkeeping and
                           accounting functions as are required for the proper
                           management of the assets of the Company and prepare
                           or cause to be prepared such reports (other than the
                           preparation and filing of tax returns) as may be
                           required by any governmental authority in connection
                           with the ordinary conduct of the Company's business,
                           including without limitation, periodic reports,
                           returns or statements required under the Securities
                           Exchange Act of 1934, as amended, the Code, the
                           securities and tax statutes of any jurisdiction in
                           which the Company is obligated to file reports or the
                           rules and regulations promulgated under any of the
                           foregoing; and


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                           (xi) from time to time, or at any time requested by
                           the officers and Directors of the Company, make
                           reports to the officers and directors of the Company
                           of its performance of the foregoing services.

         (b)  with respect to the General Partner:

                           (i) Administration and Management. The Advisor shall
         provide all management and administrative services required to be
         provided by the General Partner to the Operating Partnership under the
         terms of the Agreement of Limited Partnership of the Operating
         Partnership.

                           (ii) Property Management Services. The Advisor shall
         provide or arrange for the provision of property management services
         for each property owned by the Operating Partnership. The compensation
         for the performance of property management services shall be based on
         competitive rates in the area in which a property is located but shall
         not exceed 6% of gross revenues.

                  2.02 REIT Qualification. The Advisor shall refrain from taking
any action which in its sole judgment made in good faith would adversely affect
the status of the Company as a real estate investment trust as defined under the
Code, except if such action shall be ordered by the Board, in which event the
Advisor shall promptly notify the Board of the Advisor's judgment that such
action would adversely affect such status and shall refrain from taking such
action pending further clarification or instructions from the Board.

                  2.03 Authority. The Advisor shall have full discretion and
authority pursuant to this Agreement to perform the duties and services
specified in Section 2.01 hereof in such manner as the Advisor reasonably
considers appropriate. In furtherance of the foregoing, the Company and the
General Partner each hereby designates and appoints the Advisor or its designee
as the agent and attorney-in-fact of the Company and the General Partner, with
full power and authority and without further approval of the Company or the
General Partner, for purposes of accomplishing on its behalf any of the
foregoing matters or any matters which are properly the subject matter of this
Agreement. The Advisor may execute, in the name and on behalf of the Company
and/or the General Partner and their respective affiliates (including the
Operating Partnership and any other partnership in which the Company, any of the
Company's affiliates or the General Partner is acting as a general partner), as
the case may be, all such documents and take all such other actions which the
Advisor reasonably considers necessary or advisable to carry out its duties
hereunder.


                                  ARTICLE III.

                                 INDEMNIFICATION

                  3.01 The Company's Indemnity. The Company shall indemnify and
hold harmless the Advisor, and its officers, directors, shareholders, agents and
employees, from and against any and all liability, claims, demands, expenses and
fees, fines, suits, losses and causes of action of any and every kind or nature
arising from or in any way connected with the


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performance by the Advisor of its obligations under this Agreement, other than
any liability, claim, demand, expense, fee, suit, loss or cause of action
arising from or in any way connected with (a) any acts of the Advisor, or its
officers, agents or employees, outside the scope of the authority of the Advisor
under this Agreement unless such person acted in good faith and reasonably
believed that his conduct was within the scope of authority of the Advisor under
this Agreement, or (b) the gross negligence, willful misconduct or material
breach of this Agreement by the Advisor, its officers, agents or employees.

                  3.02 Additional Costs; Survival. The obligation to indemnify
set forth in Section 3.01 above shall include the payment of reasonable
attorneys' fees and investigation costs, as well as other reasonable costs and
expenses incurred by the indemnified party in connection with any such claim. At
the option of, and upon receipt of notice from, the indemnified party, the
indemnifying party shall promptly and diligently defend any such claim, demand,
action or proceeding. The provisions of Sections 3.01 and 3.02 hereof shall
survive the expiration or earlier termination of this Agreement.


                                  ARTICLE IV.

                                  COMPENSATION

                  In addition to the compensation provided for under the
Supervisory Management Agreement, the Company agrees to pay to the Advisor, and
the Advisor agrees to accept from the Company, the following compensation as
full and complete consideration for all services to be rendered by the Advisor
pursuant to this Agreement:

                  4.01 Annual Asset Management Fee The Advisor shall be entitled
to receive an annual asset management fee equal to 1.25% of the Gross Asset
Value as of the last day of the period in respect of which the annual asset
management fee is payable (which amount shall be prorated for any partial year).
The annual asset management fee shall be paid quarterly. For purposes of this
Paragraph 4.01, the term "Gross Asset Value" on a particular date means the
gross asset value of all assets owned by the Company and the Operating
Partnership on that date, as determined by the most recent appraisal of such
assets by an independent appraiser of national reputation selected by the
General Partner.

                  4.02 Expense Reimbursement. Without regard to other
compensation received by the Advisor from the Company pursuant to this
Agreement, the Company shall:

                  (a) pay the Advisor $200,000 per annum as a non-accountable
                  expense reimbursement; and

                  (b) reimburse the Advisor for all out of pocket expenses
                  (including overhead expenses) incurred by the Advisor in
                  connection with the performance of its services hereunder. The
                  Advisor shall be entitled to be reimbursed for accountable
                  expenses to the same extent as the general partners of HEP
                  were previously entitled to be reimbursed prior to the Merger.


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                  4.03 Expenses of the Company and the Operating Partnership.
All expenses relating to the operation and management of the Company and the
Operating Partnership shall be paid by the Company and the Operating
Partnership. Such expenses include, without limitation:

                  (a) The cost of borrowed money;

                  (b) Taxes on income and taxes and assessments on real
                  property, if any, and all other taxes;

                  (c) Underwriting, brokerage, listing, reporting, registration
                  and other fees, and printing, engraving and other expenses and
                  taxes incurred in connection with the issuance, distribution,
                  transfer, trading, registration and securities exchange or
                  quotation system listing of the Company's securities;

                  (d) Fees and expenses paid to directors, independent advisors,
                  consultants, managers, local property managers or management
                  firms, and other agents employed by or on behalf of the
                  Company;

                  (e) Expenses directly connected with the acquisition,
                  disposition and ownership of real estate interests or other
                  property (including the costs of foreclosure, insurance
                  premiums, legal services, brokerage and sales commissions,
                  maintenance, repair, improvement and local management of
                  property);

                  (f) Expenses connected with payments of dividends or interest
                  or distributions in cash or any other form made to holders of
                  securities of the Company;

                  (g) All expenses connected with communications to holders of
                  securities of the Company and the other bookkeeping and
                  clerical work necessary in maintaining relations with holders
                  of securities and proxy solicitation materials and reports to
                  holders of the Company's securities;

                  (h) Transfer agent's, registrar's and indenture trustee's fees
                  and charges;

                  (i) Legal, accounting, auditing and tax return preparation
                  fees and expenses;

                  (j) All expenses in connection with shareholders meetings and
                  meetings of the Board; and

                  (k) All expenses relating to membership of the Company in any
                  trade or similar association.


                                   ARTICLE V.

                         TERM OF AGREEMENT; TERMINATION

                  5.01 Term. This Agreement shall become effective on
___________, 2000 and shall, unless sooner terminated in accordance with the
terms of the Agreement, terminate on ___________, 2010.


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                  5.02 Right of Termination. Notwithstanding anything to the
contrary contained in this Agreement, the Company and/or the General Partner may
terminate this Agreement for cause upon thirty (30) days' prior written notice
to the Advisor. The occurrence of any of the following events shall be deemed
"cause" for termination by the Company of this Agreement:

                  (a) The Advisor's continuous and intentional failure to
                  perform its duties under this Agreement after written notice
                  from the Company and/or the General Partner to the Advisor of
                  such non-performance;

                  (b) Intentional misconduct by the Advisor which is materially
                  injurious to the Company or the General Partner, monetarily or
                  otherwise; or

                  (c) The material breach by the Advisor of any of the material
                  terms or conditions of this Agreement.

                  5.03 The Advisor's Right of Termination. The Advisor may
terminate this Agreement upon sixty (60) days' prior written notice to the
Company and the General Partner.

                  5.04 Continued Responsibility. Notwithstanding termination of
this Agreement as provided above, the Advisor agrees to use its best efforts in
the performance of its duties under this Agreement until the effective date of
the termination of this Agreement.

                  5.05 Responsibilities upon Termination. Upon termination of
this Agreement, the Advisor shall forthwith deliver the following to the Company
and/or the General Partner, as applicable, on the effective date of termination:

                  (a) A final accounting reflecting the balance of funds held on
                  behalf of the Company or the General Partner as of the date of
                  termination; and

                  (b) All files, records, documents and other property of any
                  kind relating to the Company or the General Partner,
                  including, but not limited to, computer records, contracts,
                  leases, warranties, bank statements, rent rolls, employment
                  records, plans and specifications, inventories,
                  correspondence, tenant records, receipts, paid and unpaid
                  bills or invoices, maintenance records.


                                  ARTICLE VI.

                            MISCELLANEOUS PROVISIONS

                  6.01 Other Activities of Advisor. Nothing herein shall prevent
the Advisor from engaging in other activities or businesses or from acting as
advisor to any other person or entity even though such person or entity has
investment policies and objectives similar to those of the Company or its
affiliates . Specifically, the Company acknowledges that the Advisor is
presently acting as advisor for Shelbourne Properties I, Inc. and Shelbourne
Properties II, Inc. under agreements substantially identical to this Agreement.


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                  6.02 Notice. Any notice required or permitted under this
Agreement shall be in writing and shall be given by being delivered to the
following addresses or fax numbers of the parties hereto:

                  To the Company:           Shelbourne Properties III, Inc.
                                            5 Cambridge Center, 9th Floor
                                            Cambridge, Massachusetts  02142
                                            Fax:  (617) 234-3346

                  To the General Partner:   Shelbourne Properties III GP, Inc.
                                            527 Madison Avenue
                                            New York, New York  10022
                                            Fax:  (212) 319-4557

                  To the Advisor:           Shelbourne Management LLC
                                            100 Jericho Quadrangle, Suite 214
                                            Jericho, New York  11753
                                            Fax:  (516) 433-2777


or to such other address or fax number as may be specified from time to time by
such party in writing.

                  6.03 Entire Agreement; Amendment. This Agreement contains the
entire agreement of the parties hereto with respect to the subject matter
hereof. This Agreement shall not be amended or modified in any respect unless
agreed to in writing by the Company, the General Partner and the Advisor.

                  6.04 Governing Law. This Agreement shall be construed,
interpreted and applied in accordance with, and shall be governed by, the laws
of the State of New York without reference to principles of conflicts of law.

                  6.05 Assignment This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties hereto;
provided, however, that the Advisor shall be permitted to assign this Agreement
or any of its rights hereunder, and delegate any and all of its responsibilities
and obligations hereunder, to any of its affiliates without the consent of the
other parties hereto.




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                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.

                                          SHELBOURNE PROPERTIES III, INC.



                                          By:
                                             ---------------------------------
                                               Name:
                                               Title:


                                          SHELBOURNE MANAGEMENT LLC



                                          By:
                                             ---------------------------------
                                               Name:
                                               Title:


                                          SHELBOURNE PROPERTIES III GP, INC.



                                          By:
                                             ---------------------------------
                                               Name:
                                               Title:







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