SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                   FORM 10-Q
(Mark One)

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

For the quarterly period ended September 30, 1997
                               ------------------
                                      OR

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----
     EXCHANGE ACT OF 1934.

For the transition period from              to             
                               ------------    ------------
Commission file number 0-14348
                       -------

                      BALCOR EQUITY PENSION INVESTORS-III
                      A REAL ESTATE LIMITED PARTNERSHIP         
            -------------------------------------------------------
            (Exact name of registrant as specified in its charter)

          Illinois                                      36-3354308    
-------------------------------                     -------------------
(State or other jurisdiction of                      (I.R.S. Employer  
incorporation or organization)                      Identification No.)

2355 Waukegan Road
Bannockburn, Illinois                                     60015    
----------------------------------------            ------------------- 
(Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code (847) 267-1600
                                                   --------------

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     
    -----     -----
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                                 BALANCE SHEETS
                   September 30, 1997 and December 31, 1996
                                  (Unaudited)

                                     ASSETS

                                                 1997             1996
                                           ---------------  --------------
Cash and cash equivalents                  $   30,236,562   $  35,523,271
Accounts and accrued interest receivable          916,379       1,202,372
Prepaid expenses                                  179,462         469,833
Deferred expenses, net of accumulated
  amortization of $384,914 in 1996                                131,377
                                           ---------------  --------------
                                               31,332,403      37,326,853
                                           ---------------  --------------
Investment in real estate:
  Land                                          1,443,898       7,925,685
  Buildings and improvements                   14,333,489      49,748,165
                                           ---------------  --------------
                                               15,777,387      57,673,850
  Less accumulated depreciation                10,616,549      25,600,858
                                           ---------------  --------------
Investment in real estate, net of
  accumulated depreciation                      5,160,838      32,072,992
                                           ---------------  --------------
Investment in joint ventures with
  affiliates                                                    2,072,443
                                           ---------------  --------------
                                           $   36,493,241   $  71,472,288
                                           ===============  ==============

                       LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                           $      175,274   $     389,388
Due to affiliates                                 128,375         119,215
Accrued liabilities                                               106,625
Security deposits                                  18,871         175,080
                                           ---------------  --------------
    Total liabilities                             322,520         790,308
                                           ---------------  --------------

Commitments and contingencies

Limited Partners' capital (683,204
  Interests issued and outstanding)            36,725,605      71,279,934
                                                             
General Partner's deficit                        (554,884)       (597,954)
                                           ---------------  --------------
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                                 BALANCE SHEETS
                   September 30, 1997 and December 31, 1996
                                  (Unaudited)
                                  (Continued)

                       LIABILITIES AND PARTNERS' CAPITAL

                                                1997             1996
                                           ---------------  --------------
    Total partners' capital                    36,170,721      70,681,980
                                           ---------------  --------------
                                           $   36,493,241   $  71,472,288
                                           ===============  ==============



The accompanying notes are an integral part of the financial statements.
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                       STATEMENTS OF INCOME AND EXPENSES
             for the nine months ended September 30, 1997 and 1996
                                  (Unaudited)


                                                1997             1996
                                           ---------------  --------------
Income:
  Rental                                   $    4,308,283   $   8,342,326
  Service                                       1,454,893       1,701,716
  Participation in income of joint
    ventures with affiliates                                    1,508,207
  Interest on short-term investments              646,656         960,208
                                           ---------------  --------------
    Total income                                6,409,832      12,512,457
                                           ---------------  --------------

Expenses:
  Depreciation                                  1,125,335       1,979,370
  Amortization of deferred expenses               131,377          54,795
  Property operating                            2,343,944       4,029,526
  Real estate taxes                               692,432       1,135,656
  Property management fees                        267,709         478,822
  Administrative                                  710,085         825,915
  Provision for investment property
    writedowns                                  2,255,673
                                           ---------------  --------------
    Total expenses                              7,526,555       8,504,084
                                           ---------------  --------------
(Loss) income before gain on sales of
  properties and seller's participation in 
  joint venture                                (1,116,723)      4,008,373
Gain on sales of properties                     6,086,360      14,608,840
Seller's participation in income from
  joint venture                                  (162,500)
                                           ---------------  --------------
Net income                                 $    4,807,137   $  18,617,213
                                           ===============  ==============

Net income allocated to General Partner    $      627,675   $     769,352
                                           ===============  ==============
Net income allocated to Limited Partners   $    4,179,462   $  17,847,861
                                           ===============  ==============
Net income per Limited Partnership Interest
  (683,204 issued and outstanding)         $         6.12   $       26.12
                                           ===============  ==============
Distributions to General Partner           $      584,605   $     728,446
                                           ===============  ==============
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                       STATEMENTS OF INCOME AND EXPENSES
             for the nine months ended September 30, 1997 and 1996
                                  (Unaudited)
                                  (Continued)


                                                1997             1996
                                           ---------------  --------------
Distributions to Limited Partners          $   38,733,791   $   6,556,008
                                           ===============  ==============
Distributions per Limited Partnership 
  Interest:
    Taxable                                $         5.90   $        7.35
                                           ===============  ==============
    Tax-Exempt                             $        60.63   $        9.77
                                           ===============  ==============


The accompanying notes are an integral part of the financial statements.
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                       STATEMENTS OF INCOME AND EXPENSES
              for the quarters ended September 30, 1997 and 1996
                                  (Unaudited)


                                                1997             1996
                                           ---------------  --------------
Income:
  Rental                                   $      735,750   $   1,922,302
  Service                                         425,005         502,212
  Participation in income of joint                         
    ventures with affiliates                                      526,699
  Interest on short-term investments              367,554         687,657
                                           ---------------  --------------
    Total income                                1,528,309       3,638,870
                                           ---------------  --------------

Expenses:
  Depreciation                                    243,260         498,887
  Amortization of deferred expenses                68,948          18,265
  Property operating                              619,440       1,197,134
  Real estate taxes                               134,580         300,938
  Property management fees                         55,704         127,535
  Administrative                                  176,097         320,528
  Provision for investment property
    writedown                                   1,650,516
                                           ---------------  --------------
    Total expenses                              2,948,545       2,463,287
                                           ---------------  --------------
(Loss) income before gain on sales of 
  properties                                   (1,420,236)      1,175,583

Gain on sales of properties                     5,316,015       9,760,837
                                           ---------------  --------------
Net income                                 $    3,895,779   $  10,936,420
                                           ===============  ==============
                                                           
Net income allocated to General Partner    $      282,734   $     274,140
                                           ===============  ==============
Net income allocated to Limited Partners   $    3,613,045   $  10,662,280
                                           ===============  ==============
Net income per Limited Partnership Interest
  (683,204 issued and outstanding)         $         5.29   $       15.60
                                           ===============  ==============
Distribution to General Partner            $       49,932   $     277,369
                                           ===============  ==============
Distribution to Limited Partners           $      449,395   $   2,496,319
                                           ===============  ==============
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                       STATEMENTS OF INCOME AND EXPENSES
              for the quarters ended September 30, 1997 and 1996
                                  (Unaudited)
                                  (Continued)


                                                1997             1996
                                           ---------------  -------------
Distribution per Limited Partnership 
  Interest:                                                
    Taxable                                $         0.50   $        2.80
                                           ===============  ==============
    Tax-Exempt                             $         0.67   $        3.72
                                           ===============  ==============
 

The accompanying notes are an integral part of the financial statements.
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                             STATEMENTS OF CASH FLOWS
             for the nine months ended September 30, 1997 and 1996
                                  (Unaudited)


                                                1997             1996
                                           ---------------  --------------
Operating activities:
  Net income                               $    4,807,137   $  18,617,213
  Adjustments to reconcile net income to
    net cash provided by operating
    activities:
      Gain on sales of properties              (6,086,360)    (14,608,840)
      Participation in income of joint
        ventures with affiliates                               (1,508,207)
      Seller's participation in income from
        joint venture                             162,500
      Depreciation of properties                1,125,335       1,979,370
      Amortization of deferred expenses           131,377          54,795
      Provision for investment property
        writedowns                              2,255,673
      Net change in:
        Accounts and accrued interest
          receivable                             (314,818)        541,317
        Prepaid expenses                          290,371          42,766
        Accounts payable                         (214,114)        (71,404)
        Due to affiliates                           9,160          54,761
        Accrued liabilities                      (106,625)          3,979
        Security deposits                        (156,209)       (169,454)
                                           ---------------  --------------
  Net cash provided by operating activities     1,903,427       4,936,296
                                           ---------------  --------------

Investing activities:
  Proceeds from sales of properties            32,412,530      43,850,000
  Payment of selling costs                     (1,175,271)     (1,202,530)
  Payment of leasing costs                     (1,018,942)
  Distributions from joint ventures
    with affiliates                             2,112,148       1,578,714
  Capital contribution to joint venture
    with affiliate                                (39,705)
  Improvements to property                                       (120,070)
                                           ---------------  --------------
  Net cash provided by investing activities    32,290,760      44,106,114
                                           ---------------  --------------
Financing activities:
  Distributions to Limited Partners           (38,733,791)     (6,556,008)
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                             STATEMENTS OF CASH FLOWS
             for the nine months ended September 30, 1997 and 1996
                                  (Unaudited)
                                  (Continued)


                                                1997             1996
                                           ---------------  --------------
  Distributions to General Partner               (584,605)       (728,446)
  Distribution to joint venture 
    partner - seller                             (162,500)
                                           ---------------  --------------
  Cash used in financing activities           (39,480,896)     (7,284,454)
                                           ---------------  --------------

Net change in cash and cash equivalents        (5,286,709)     41,757,956
Cash and cash equivalents at beginning                     
  of period                                    35,523,271      11,280,395
                                           ---------------  --------------
Cash and cash equivalents at end of period $   30,236,562   $  53,038,351
                                           ===============  ==============
                                              
                                         
The accompanying notes are an integral part of the financial statements.
<PAGE>
                      BALCOR EQUITY PENSION INVESTORS-III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                         NOTES TO FINANCIAL STATEMENTS

1. Accounting Policies:

(a) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the profit and loss percentages in the
Partnership Agreement. In order for the capital accounts of the General Partner
and Limited Partners to appropriately reflect their remaining economic
interests as provided for in the Partnership Agreement, the income allocations
between the partners have been adjusted for financial statement purposes in
1997.

(b) In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the nine months
and quarter ended September 30, 1997, and all such adjustments are of a normal
and recurring nature.

2. Partnership Termination:

The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Partnership sold two properties and the three
properties in which the Partnership held minority joint venture interests. The
majority of the proceeds from the sales of these properties were distributed to
Tax-Exempt Limited Partners in October 1996 and January 1997. During February
1997, the Partnership sold the Ammendale Technology Park - Phase II office
buildings. The available proceeds from the sale of this property were
distributed to Tax-Exempt Limited Partners in April 1997. During July 1997, the
Partnership sold the Bingham Farms Office Plaza - Phase IV and during August
1997, the Partnership sold the Belmont Apartments and the Erindale Centre
shopping center.  The available proceeds from the sales of these properties
were distributed to Tax-Exempt Limited Partners in October 1997.  During
October 1997, the Partnership sold its remaining property, the Arborland
Consumer Mall.  The available proceeds from the sale of this property will be
distributed to Tax-Exempt Limited Partners in January 1998.  The Partnership
has retained a portion of the cash to satisfy obligations of the Partnership,
as well as establish a reserve for contingencies.  The timing of the
termination of the Partnership and final distribution of cash will depend upon
the nature and extent of liabilities and contingencies which exist or may
arise. Such contingencies may include legal and other fees and costs stemming
from litigation involving the Partnership including, but not limited to, the
lawsuits discussed in Note 6 of Notes to Financial Statements. In the absence
of any contingency, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency continues to exist or arises,
reserves may be held by the Partnership for a longer period of time.

3. Transactions with Affiliates:

Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1997 are:
<PAGE>
                                           Paid
                                    ----------------------
                                    Nine Months    Quarter      Payable
                                    ------------  ---------    ----------     

   Reimbursement of expenses to
     the General Partner, at cost   $159,659       $66,350    $128,375

4. Property Sales:

(a) In February 1997, the Partnership sold the Ammendale Technology Park -
Phase II office buildings in an all cash sale for $5,768,000. From the proceeds
of the sale, the Partnership paid $289,417 in selling costs. The basis of the
property was $4,708,238 which is net of accumulated depreciation of $426,041.
For financial statement purposes, the Partnership recognized a gain of $770,345
from the sale of the property.

(b) In July 1997, the Partnership sold the Bingham Farms Office Plaza - Phase
IV in an all cash sale for $12,700,000.  In connection with the sale, leasing
costs in the amount of $3,000,412 were incurred related to the renewal of the
lease of the largest tenant in the building.  Of these costs, $1,018,942 was
paid by the Partnership prior to the sale of the property and the purchaser
received a credit for $1,981,470.  From the proceeds of the sale, the
Partnership paid $393,328 in selling costs. In connection with the sale, the
Partnership wrote off $600,811 of accounts receivable related to rental
abatements and scheduled rent increases. The basis of the property was
$10,325,202 which is net of accumulated depreciation of $6,597,332. For
financial statement purposes, the Partnership recognized a $605,157 provision
for investment property writedown during the quarter ended June 30, 1997 and no
gain or loss was recognized on the sale of the property.
  
(c) In August 1997, the Partnership sold the Belmont Apartments in an all cash
sale for $7,676,000. From the proceeds of the sale, the Partnership paid
$244,852 in selling costs.  The basis of the property was $5,284,309 which is
net of accumulated depreciation of $3,411,823. For financial statement
purposes, the Partnership recognized a gain of $2,146,839 from the sale of the
property.
   
(d) In August 1997, the Partnership sold the Erindale Centre shopping center in
an all cash sale for $8,250,000. From the proceeds of the sale, the Partnership
paid $247,674 in selling costs.  The basis of the property was $4,833,150 which
is net of accumulated depreciation of $5,674,448. For financial statement
purposes, the Partnership recognized a gain of $3,169,176 from the sale of the
property.
 
5. Investment in Joint Ventures with Affiliates:

(a) The 1275 K Street office building was owned by a joint venture consisting
of the Partnership and an affiliate. During December 1996, the joint venture
sold the property. Pursuant to the sale agreement, $2,287,500 of the sale
proceeds was retained by the joint venture and was unavailable for distribution
until September 1997, at which time the funds were released in full. The
Partnership's share of these proceeds was $903,105.
<PAGE>
(b) The Westech 360 office building was owned by a joint venture consisting of
the Partnership and an affiliate. During December 1996, the joint venture sold
the property. Pursuant to the sale agreement, $1,395,000 of the sale proceeds
was retained by the joint venture and was unavailable for distribution until
September 1997, at which time the funds were released in full. The
Partnership's share of these proceeds was $604,035.

(c) The Perimeter 400 Office Center was owned by a joint venture consisting of
the Partnership and three affiliates. During December 1996, the joint venture
sold the property. Pursuant to the sale agreement, $1,750,000 of the sale
proceeds was retained by the joint venture and was unavailable for distribution
until September 1997, at which time the funds were released in full. The
Partnership's share of these proceeds was $384,126.

6. Contingencies:

(a) The Partnership is currently involved in a lawsuit whereby the Partnership,
the General Partner and certain third parties have been named as defendants
seeking damages relating to tender offers to purchase interests in the
Partnership and nine affiliated partnerships initiated by the third party
defendants in 1996. The defendants continue to vigorously contest this action.
The action has been dismissed with prejudice and plaintiffs have filed an
appeal. It is not determinable at this time whether or not an unfavorable
decision in this action would have a material adverse impact on the financial
position, operations, and liquidity of the Partnership. The Partnership
believes it has meritorious defenses to contest the claims.

(b)  The Partnership is currently involved in a lawsuit whereby the Partnership
and certain affiliates have been named as defendants alleging certain federal
securities law violations with regard to the adequacy and accuracy of
disclosures of information concerning, as well as the marketing efforts related
to, the offering of the Limited Partnership Interests of the Partnership. The
defendants continue to vigorously contest this action. A plaintiff class has
not yet been certified, and no determination of the merits have been made. It
is not determinable at this time whether or not an unfavorable decision in this
action would have a material adverse impact on the financial position,
operations, and liquidity of the Partnership. The Partnership believes it has
meritorious defenses to contest the claims.

7. Subsequent Events:

(a) In October 1997, the Partnership made a distribution of $26,757,936 ($42.20
per Tax-exempt Interest) to the holders of Tax-exempt Limited Partnership
Interests. This amount represents a special distribution of Net Cash Proceeds
from the 1997 sales of the Bingham Farms Office Plaza - Phase IV, the Belmont
Apartments and the Erindale Centre shopping center, and the release of sale
holdbacks from the 1996 sales of the Perimeter 400, 1275 K Street and Westech
360 office buildings.

(b) The Arborland Consumer Mall was owned by a joint venture consisting of the
Partnership and the seller of the property.  In October 1997, the joint venture
sold the property in an all cash sale for $7,000,000. In connection with the
sale, the purchaser received a credit of $1,625,000 to remedy certain
environmental issues at the property. From the proceeds of the sale, the joint
<PAGE>
venture paid $230,303 in selling costs.  The basis of the property at the date
of sale was $5,144,697.  For financial statement purposes, the Partnership
recognized a $1,650,516 provision for investment property writedown during the
quarter ended September 30, 1997 and will recognize no gain or loss from the
sale of the property during the fourth quarter of 1997.  The seller did not
receive any sale proceeds and will not be allocated any gain or loss for
financial statement purposes.   
<PAGE>
                         BALCOR EQUITY PENSION INVESTORS-III
                          A REAL ESTATE LIMITED PARTNERSHIP
                          (An Illinois Limited Partnership)

                        MANAGEMENT'S DISCUSSION AND ANALYSIS

Balcor Equity Pension Investors-III A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1985 to make first mortgage
loans and to invest in and operate income-producing real property. The
Partnership raised $170,801,000 through the sale of Limited Partnership
Interests. The Partnership funded four first mortgage loans, two of which were
jointly funded with affiliates, and acquired five real property investments and
a minority joint venture interest with an affiliate in another real property
investment. All four properties collateralized by the Partnership's mortgage
loans were acquired through foreclosure, including the loans funded jointly
with affiliates, which were reclassified to investment in joint ventures with
affiliates. The Partnership sold two properties and the three properties in
which the Partnership held a minority joint venture interest during 1996. The
Partnership sold one property during February 1997, one property during July
1997, two properties during August 1997 and its remaining property in October
1997.  Currently, the Partnership has no loans outstanding or properties
remaining in its portfolio.

Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1996 for a more complete understanding of
the Partnership's financial position.

Operations
----------
Summary of Operations
---------------------

The Partnership recognized gains in connection with the 1997 sales of the
Ammendale Technology Park - Phase II office buildings, the Belmont Apartments
and the Erindale Centre shopping center.  The gains from the sales of these
properties were less than the gains recognized in connection with the 1996
sales of the Westlake Meadows Apartments and the Green Trails Apartments, which
was the primary reason for the decrease in net income for the nine months and
quarter ended September 30, 1997 as compared to the same periods in 1996.  In
addition, the Partnership recognized provisions for investment property
writedowns in 1997 related to the Bingham Farms Office Plaza - Phase IV and the
Arborland Consumer Mall.  The properties sold in 1996 and 1997 and the three
properties owned through joint ventures with affiliates, which were all sold in
1996, were generating income prior to their sales and as a result, income
before gain on sales decreased during 1997 as compared to 1996.  Further
discussion of the Partnership's operations is summarized below.

1997 Compared to 1996
---------------------

Unless otherwise noted, discussions of fluctuations between 1997 and 1996 refer
to both the nine months and quarters ended September 30, 1997 and 1996.
<PAGE>
The Partnership sold the Westlake Meadows and Green Trails apartment complexes
during 1996 and sold the Ammendale Technology Park - Phase II office buildings,
the Belmont Apartments, the Erindale Centre shopping center and the Bingham
Farms Office Plaza - Phase IV during the nine months ended September 30, 1997.
As a result, rental income, service income, depreciation, property operating
expenses, real estate taxes, and property management fees decreased during 1997
when compared to 1996.

The Partnership participated in the income generated by the operations of the
1275 K Street, Westech 360 and Perimeter 400 office buildings, in which it held
minority joint venture interests, prior to their sales in 1996. As a result of
these sales, the Partnership's participation in income of joint ventures with
affiliates ceased.

The Partnership had higher average cash balances available for investment
during 1996 due to the timing of the proceeds received from 1996 property sales
and the subsequent distribution to Partners.  As a result, interest income on
short-term investments decreased during 1997 as compared to 1996.

In connection with the sales of the Ammendale Technology Park - Phase II office
buildings and the Bingham Farms Office Plaza - Phase IV, the Partnership
wrote-off the remaining unamortized deferred leasing commissions on the
properties. As a result, amortization of deferred expenses increased during
1997 as compared to 1996.

Administrative expenses decreased during 1997 as compared to 1996 primarily due
to professional fees incurred in 1996 related to the valuation of the
Partnership's real estate assets and higher printing, postage and investor
processing costs incurred in 1996 relating to the Partnership's response to a
tender offer.

Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its properties. Determinations of fair
value are made periodically on the basis of assessments of property operations
and the property's estimated sales price less closing costs. Determinations of
fair value represent estimates based on many variables which affect the value
of real estate, including economic and demographic conditions.  During the
quarter ended June 30, 1997, the Partnership recognized a provision for
investment property writedown of $605,157 related to the Bingham Farms Office
Plaza - Phase IV.  During the quarter ended September 30, 1997, the Partnership
recognized a provision for investment property writedown of $1,650,516 related
to the Arborland Consumer Mall. 

The Partnership sold the Westlake Meadows and Green Trails apartment complexes
in 1996 and recognized gains totaling $14,608,840 on these property sales. The
Partnership sold the Ammendale Technology Park - Phase II office buildings, the
Belmont Apartments and the Erindale Centre shopping center in 1997, and
recognized gains totaling $6,086,360 on these property sales. See Note 4 of
Notes to Financial Statements for additional information.

As of September 30, 1997, the Arborland Consumer Mall was owned by a joint
venture between the Partnership and the seller. The seller received a cash flow
distribution during 1997 pursuant to the joint venture agreement.  
<PAGE>
The amount is recognized as seller's participation in income from joint venture
on the income statement.

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

The cash position of the Partnership decreased by approximately $5,287,000 as
of September 30, 1997 when compared to December 31, 1996 primarily due to
special distributions of Net Cash Proceeds made to Tax-exempt Limited Partners
in January and April 1997 from proceeds received in connection with the 1996
and 1997 property sales and the sales of the three properties in which the
Partnership held minority joint venture interests.  This was partially offset
by the net proceeds received from the 1997 property sales and the distributions
from joint ventures with affiliates representing the Partnership's share of
holdbacks related to 1996 sales, which were released in 1997.  The Partnership
generated cash flow of approximately $1,903,000 from operating activities which
represents the operations of the Partnership's properties and interest income
on short-term investments, which were partially offset by the payment of
administrative expenses. Investing activities consisted of net proceeds
received from the sales of the Ammendale Technology Park - Phase II office
buildings, the Belmont Apartments, the Erindale Centre shopping center and the
Bingham Farms Office Plaza - Phase IV totaling approximately $31,237,000 and
net distributions received from joint ventures with affiliates of approximately
$2,072,000, less the payment of leasing costs related to the Bingham Farms
Office Plaza - Phase IV of approximately $1,019,000. Financing activities
consisted of distributions to the Partners of approximately $39,318,000 and a
distribution to the seller/joint venture partner on the Arborland Consumer Mall
of approximately $163,000.  In October 1997, the Partnership made a special
distribution to Tax-exempt Limited Partners of approximately $26,758,000
representing Net Cash Proceeds from the 1997 sales of the Belmont Apartments,
the Erindale Centre shopping center and the Bingham Farms Office Plaza - Phase
IV, and the release of sale holdbacks from the 1996 sales of the Perimeter 400,
1275 K Street and Westech 360 office buildings.

The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit. A deficit is
considered to be significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. The Partnership defines cash flow
generated from its properties as an amount equal to the property's revenue
receipts less property related expenditures. During the nine months ended
September 30, 1997 and 1996, the Arborland Consumer Mall generated positive
cash flow.  During the nine months ended September 30, 1996 and prior to their
sales in 1997, the Belmont Apartments, the Erindale Centre shopping center and
the Bingham Farms Office Plaza - Phase IV all generated positive cash flow.
The Ammendale Technology Park - Phase II office buildings generated positive
cash flow prior to its sale during 1997 and during 1996; however, significant
leasing costs were incurred at this property in 1997. These costs were not
included in classifying the cash flow performance of the property because they
are non-recurring expenditures. Had these non-recurring expenditures been
included, the property would have generated a marginal cash flow deficit prior
to its sale in 1997. The two properties sold in 1996 and the three properties
in which the Partnership held minority joint venture interests which were also
sold in 1996, all generated positive cash flow prior to their sales. As of
September 30, 1997, the occupancy rate of the Arborland Consumer Mall was 74%.
<PAGE>
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate.  The Partnership sold two properties and the three properties in
which the Partnership held minority joint venture interests in 1996. The
Partnership sold its five remaining properties in 1997 as described below.  The
Partnership has retained a portion of the cash to satisfy obligations of the
Partnership, as well as establish a reserve for contingencies.  The timing of
the termination of the Partnership and final distribution of cash will depend
upon the nature and extent of liabilities and contingencies which exist or may
arise. Such contingencies may include legal and other fees and costs stemming
from litigation involving the Partnership including, but not limited to, the
lawsuits discussed in Note 6 of Notes to Financial Statements. In the absence
of any contingency, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency continues to exist or arises,
reserves may be held by the Partnership for a longer period of time.

In February 1997, the Partnership sold the Ammendale Technology Park - Phase II
office buildings in an all cash sale for $5,768,000. From the proceeds of the
sale, the Partnership paid $289,417 in selling costs. Pursuant to the terms of
the sale, $170,904 of the proceeds will be held in escrow until November 1997.
The Partnership distributed the remaining available proceeds to the Tax-Exempt
Limited Partners in April 1997.

In July 1997, the Partnership sold the Bingham Farms Office Plaza - Phase IV in
an all cash sale for $12,700,000.  In connection with the sale, leasing costs
in the amount of $3,000,412 were incurred related to the renewal of the lease
of the largest tenant in the building.  Of these costs, $1,018,942 was paid by
the Partnership prior to the sale of the property and the purchaser received a
credit for $1,981,470.  From the proceeds of the sale, the Partnership paid
$393,328 in selling costs. The Partnership distributed the available proceeds
to the Tax-Exempt Limited Partners in October 1997. 
    
In August 1997, the Partnership sold the Belmont Apartments in an all cash sale
for $7,676,000. From the proceeds of the sale, the Partnership paid $244,852 in
selling costs. The Partnership distributed the available proceeds to the
Tax-Exempt Limited Partners in October 1997. 

In August 1997, the Partnership sold the Erindale Centre shopping center in an
all cash sale for $8,250,000. From the proceeds of the sale, the Partnership
paid $247,675 in selling costs. The Partnership distributed the available
proceeds to the Tax-Exempt Limited Partners in October 1997.   

The Arborland Consumer Mall was owned by a joint venture consisting of the
Partnership and the seller of the property.  In October 1997, the joint venture
sold the property in an all cash sale for $7,000,000. In connection with the
sale, the purchaser received a credit of $1,625,000 to remedy certain
environmental issues at the property. From the proceeds of the sale, the joint
venture paid $230,303 in selling costs.  Pursuant to the sale agreement,
$250,000 of the proceeds will be retained by the Partnership until the later of
90 days after the closing or the resolution of any claims brought by the
purchaser prior to 90 days after the closing.  The Partnership is entitled to
receive all of the net cash proceeds pursuant to the joint venture agreement.
The Partnership will distribute the remaining available proceeds to the
Tax-Exempt Limited Partners in January 1998.
<PAGE>
The 1275 K Street office building was owned by a joint venture consisting of
the Partnership and an affiliate. During December 1996, the joint venture sold
the property. Pursuant to the sale agreement, $2,287,500 of the sale proceeds
was retained by the joint venture and was unavailable for distribution until
September 1997, at which time the funds were released in full. The
Partnership's share of these proceeds was $903,105.  These proceeds were
distributed to Tax-exempt Limited Partners in October 1997.

The Westech 360 office building was owned by a joint venture consisting of the
Partnership and an affiliate. During December 1996, the joint venture sold the
property. Pursuant to the sale agreement, $1,395,000 of the sale proceeds was
retained by the joint venture and was unavailable for distribution until
September 1997, at which time the funds were released in full. The
Partnership's share of these proceeds was $604,035.  These proceeds were
distributed to Tax-exempt Limited Partners in October 1997.

The Perimeter 400 Office Center was owned by a joint venture consisting of the
Partnership and three affiliates. During December 1996, the joint venture sold
the property. Pursuant to the sale agreement, $1,750,000 of the sale proceeds
was retained by the joint venture and was unavailable for distribution until
September 1997, at which time the funds were released in full. The
Partnership's share of these proceeds was $384,126.  These proceeds were
distributed to Tax-exempt Limited Partners in October 1997.

In October 1997, the Partnership made a distribution of $26,757,936 ($42.20 per
Tax-exempt Interest) to the holders of Tax-exempt Limited Partnership
Interests. This amount represents a special distribution of Net Cash Proceeds
from the 1997 sales of the Bingham Farms Office Plaza - Phase IV, the Belmont
Apartments and the Erindale Centre shopping center, and the release of sale
holdbacks from the 1996 sales of the Perimeter 400, 1275 K Street and Westech
360 office buildings.  Including the October 1997 distribution, Limited
Partners have received Net Cash Receipts distributions of $103.70 per $250
Taxable Interest and $137.99 per Tax-exempt Interest, and Net Cash Proceeds of
$151.48 per $250 Tax-exempt Interest.  Taxable Limited Partners will not
receive aggregate distributions from the Partnership equal to their original
investment.  However, Taxable Limited Partners will receive amounts allocated
to the Repurchase Fund.
     
In accordance with the Partnership Agreement, Net Cash Proceeds from property
sales are being allocated to the Tax-exempt Limited Partners. Taxable and
Tax-exempt Limited Partners received quarterly distributions from Net Cash
Receipts. Since all of the Partnership's properties have been sold, the
Partnership discontinued Net Cash Receipts distributions beginning with the
third quarter of 1997.  Taxable and Tax-exempt Limited Partners are not
expected to receive further quarterly distributions. However, Tax-exempt
Limited Partners are expected to receive a Net Cash Proceeds distribution
primarily from the sale of the Arborland Consumer Mall, as described above. 

In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners.  

Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate.
<PAGE>
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
<PAGE>
                         BALCOR EQUITY PENSION INVESTORS-III
                          A REAL ESTATE LIMITED PARTNERSHIP
                          (An Illinois Limited Partnership)

                             PART II - OTHER INFORMATION


Item 5.  Other Information
--------------------------

Arborland Consumer Mall
-----------------------

As previously reported, on June 17, 1997, the limited partnership which owned
the Arborland Consumer Mall, Ann Arbor, Michigan (the "Limited Partnership")  
contracted to sell the property to an unaffiliated party, Fremont Arborland,
LLC, a Connecticut limited liability company, for a sale price of $7,000,000.
The Partnership and the seller of the property to the Partnership hold a 99%
and 1% interest in the Limited Partnership, respectively. The purchaser
assigned its rights under the agreement of sale to an affiliate, Arborland
L.L.C., a Michigan limited liability company, and the sale closed on October 7,
1997.  The purchaser received a credit against the sale price of $1,625,000
relating to certain environmental issues at the property, which includes
$700,000 relating to asbestos and underground storage tank removal.  From the
proceeds of the sale, the Limited Partnership paid $175,000 as a brokerage
commission to an affiliate of the third party providing property management
services for the Partnership and $55,303 in closing costs. The Limited
Partnership received the remaining sale proceeds of approximately $5,144,700.
Pursuant to the Limited Partnership's partnership agreement, the Partnership is
entitled to receive all of the net sale proceeds. Of such proceeds, $250,000 is
being retained by the Partnership and will not be available for use or
distribution by the Partnership until the later of 90 days after the closing or
the resolution of any claims brought by the purchaser prior to 90 days after
the closing.

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

(a) Exhibits:

(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 3
to the Registrant's Registration Statement on Form S-11 dated September 25,
1985 (Registration Statement No. 2-97579) and Form of Confirmation regarding
Interests in the Registrant set forth as Exhibit 4.2 to the Registrant's Report
on Form 10-Q for the quarter ended June 30, 1992 (Commission File No. 0-14348)
are incorporated herein by reference.

(10) Material Contracts:

(a)  Agreement of Sale and attachment thereto relating to the sale of the Green
Trails Apartment, Lisle, Illinois previously filed as Exhibit (2) to the
Registrant's Report on Form 8-K dated June 28, 1996 is incorporated herein by
reference.
<PAGE>
(b)  Agreement of Sale and attachment thereto relating to the sale of the 1275
K Street Office Building, Washington, D.C., previously filed as Exhibit (2) to
the Registrant's Report on Form 8-K dated November 29, 1996 is incorporated
herein by reference.

(c) (i) Agreement of Sale and attachment thereto relating to the sale of
Bingham Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously
filed as Exhibit (10)(d) to the Registrant's Report on Form 10-Q for the
quarter ended March 31, 1997 is incorporated herein by reference. 

(c) (ii) First Letter Amendment to Agreement of Sale relating to the sale of
Bingham Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously
filed as Exhibit (99)(b)(i) to the Registrant's Report on Form 8-K dated June
17, 1997, is incorporated herein by reference.

(c) (iii) Second Amendment to Agreement of Sale relating to the sale of Bingham
Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously filed as
Exhibit (99)(b)(ii) to the Registrant's Report on Form 8-K dated June 17, 1997,
is incorporated herein by reference.

(d) Agreement of Sale and attachment thereto relating to the sale of Belmont
apartments, Renton, Washington, previously filed as Exhibit (2) to the
Registrant's Report on Form 8-K dated May 16, 1997, is incorporated herein by
reference. 

(e)(i) Agreement of Sale and attachment thereto relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (2)(i) to the Registrant's Report on Form 8-K dated June 2, 1997, is
incorporated herein by reference.

(e)(ii) First Amendment to Agreement of Sale relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (2)(ii) to the Registrant's Report on Form 8-K dated June 2, 1997,
is incorporated herein by reference.

(e)(iii) Second Amendment to Agreement of Sale relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (99)(a) to the Registrant's Report on Form 8-K dated June 17, 1997,
is incorporated herein by reference.

(f)(i) Agreement of Sale and attachment thereto relating to the sale of
Arborland Consumer Mall, Ann Arbor, Michigan, previously filed as Exhibit
(2)(a) to the Registrant's Report on Form 8-K dated June 17, 1997, is
incorporated herein by reference.

(f)(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of the Arborland Consumer Mall, Ann Arbor, Michigan, previously filed
as Exhibit (2)(b) to the Registrant's Report on Form 8-K dated June 17, 1997,
is incorporated herein by reference.

(27) Financial Data Schedule of the Registrant for the nine month period ending
September 30, 1997 is attached hereto.
<PAGE>
(b) Reports on Form 8-K: A Current Report on Form 8-K dated June 17, 1997 was
filed reporting the Agreement of Sale relating to the sale of the Arborland
Consumer Mall, Ann Arbor, Michigan, the extension of the closing date of the
sale of the Erindale Centre Shopping Center, Colorado Springs, Colorado, and an
amendment to the Agreement of Sale relating to the sale of Bingham Farms Office
Plaza - Phase IV, Bingham Farms, Michigan. 
<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.


                        BALCOR EQUITY PENSION INVESTORS-III
                        A REAL ESTATE LIMITED PARTNERSHIP


                        By:  /s/Thomas E. Meador
                             ---------------------------------                
                             Thomas E. Meador
                             President and Chief Executive Officer (Principal 
                             Executive Officer) of Balcor Equity Partners - 
                             III, the General Partner


                        By:  /s/Jayne A. Kosik
                             -----------------------------------
                             Jayne A. Kosik
                             Managing Director and Chief Financial Officer 
                             (Principal Accounting Officer) of Balcor Equity 
                             Partners - III, the General Partner



Date: November 13, 1997
      -----------------
<PAGE>