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





                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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



                                   FORM 10-QSB


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



           |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                For the quarterly period ended September 30, 2000

                                       OR

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

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



                         Commission file number 0-23766


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
             Organized pursuant to the Laws of the State of Maryland

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



        Internal Revenue Service - Employer Identification No. 52-1388957

                 11200 Rockville Pike, Rockville, Maryland 20852

                                 (301) 468-9200

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





Indicate by check mark whether the registrant (1) has filed all reports required
to be  filed by  Section  13 or 15(d) of the  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  |_|

The total number of shares of the  registrant's  Common  Stock,  outstanding  on
September 30, 2000, is not applicable.



--------------------------------------------------------------------------------
<PAGE>



                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                              INDEX TO FORM 10-QSB

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2000


                                                                           Page


PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

           Consolidated Balance Sheets
              - September 30, 2000 and December 31, 1999....................  1

           Consolidated Statements of Operations and Accumulated Losses
              - for the three and nine months ended September 30, 2000
                and 1999 ...................................................  2

           Consolidated Statements of Cash Flows
              - for the nine months ended September 30, 2000 and 1999.......  3

           Notes to Consolidated Financial Statements
              - September 30, 2000 and 1999.................................  4

Item 2.    Management's Discussion and Analysis
              of Financial Condition and Results of Operations..............  9


PART II - OTHER INFORMATION

Item 3.    Defaults upon Senior Securities.................................. 11

Item 5.    Other Information................................................ 11

Item 6.    Exhibits and Reports on Form 8-K................................. 11

Signature        ........................................................... 12

Exhibit Index............................................................... 13



<PAGE>


PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS


<TABLE>
<CAPTION>
                                                                                 September 30,      December 31,
                                                                                     2000              1999
                                                                                 -------------      ------------
                                                                                  (Unaudited)
<S>                                                                              <C>                <C>
Investments in and advances to partnerships                                      $   581,062        $   585,343
Cash and cash equivalents                                                          8,425,417          8,086,701
Acquisition fees, principally paid to related parties,
  net of accumulated amortization of $112,390 and $106,606, respectively             118,965            124,749
Property purchase costs,
  net of accumulated amortization of $102,641 and $97,422, respectively              106,120            111,339
Other assets                                                                           2,758                 --
                                                                                 -----------        -----------

      Total assets                                                               $ 9,234,322        $ 8,908,132
                                                                                 ===========        ===========



                        LIABILITIES AND PARTNERS' DEFICIT


Due on investments in partnerships                                               $ 2,522,600        $ 2,522,600
Accrued interest payable                                                           8,598,573          7,643,493
Accounts payable and accrued expenses                                                 91,222            127,126
                                                                                 -----------        -----------

      Total liabilities                                                           11,212,395         10,293,219
                                                                                 -----------        -----------


Commitments and contingencies

Partners' capital (deficit):

  Capital paid in:
    General Partners                                                                   2,000              2,000
    Limited Partners                                                              21,202,500         21,202,500
                                                                                 -----------        -----------

                                                                                  21,204,500         21,204,500

  Less:
    Accumulated distributions to partners                                         (4,908,656)        (4,908,656)
    Offering costs                                                                (2,570,535)        (2,570,535)
    Accumulated losses                                                           (15,703,382)       (15,110,396)
                                                                                 -----------        -----------

      Total partners' deficit                                                     (1,978,073)        (1,385,087)
                                                                                 -----------        -----------

      Total liabilities and partners' deficit                                    $ 9,234,322        $ 8,908,132
                                                                                 ===========        ===========

</TABLE>



                          The accompanying notes are an
                       integral part of these consolidated
                              financial statements.

                                       -1-

<PAGE>


PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             AND ACCUMULATED LOSSES

                                   (Unaudited)



<TABLE>
<CAPTION>
                                                                For the three months ended            For the nine months ended
                                                                       September 30,                         September 30,
                                                               -----------------------------        -----------------------------
                                                                   2000              1999               2000             1999
                                                               ------------      ------------       ------------     ------------
<S>                                                            <C>               <C>                <C>              <C>
Share of income from partnerships                              $    156,900      $    374,663       $    247,465     $    734,299
                                                               ------------      ------------       ------------     ------------


Other revenue and expenses:

  Revenue:
    Interest                                                        132,764            84,270            374,968          256,273
                                                               ------------      ------------       ------------     ------------


  Expenses:
    Interest                                                        324,284           288,445            972,851          861,335
    General and administrative                                       37,592            23,555            110,849          104,790
    Management fee                                                   24,483            24,483             73,447           73,447
    Professional fees                                                16,136            18,779             47,269           53,060
    Amortization of deferred costs                                    3,668             3,667             11,003           11,976
                                                               ------------      ------------       ------------     ------------

                                                                    406,163           358,929          1,215,419        1,104,608
                                                               ------------      ------------       ------------     ------------

      Total other revenue and expenses                             (273,399)         (274,659)          (840,451)        (848,335)
                                                               ------------      ------------       ------------     ------------


(Loss) income before gain on disposition
  of investments in partnerships                                   (116,499)          100,004           (592,986)        (114,036)

Gain on disposition of investments in partnerships                       --         3,481,140                 --        9,604,879
                                                               ------------      ------------       ------------     ------------

Net (loss) income                                                  (116,499)        3,581,144           (592,986)       9,490,843

Accumulated losses, beginning of period                         (15,586,883)      (18,540,133)       (15,110,396)     (24,449,832)
                                                               ------------      ------------       ------------     ------------

Accumulated losses, end of period                              $(15,703,382)     $(14,958,989)      $(15,703,382)    $(14,958,989)
                                                               ============      ============       ============     ============


Net (loss) income allocated to General Partners (1.51%)        $     (1,759)     $     54,075       $     (8,954)    $    143,312
                                                               ============      ============       ============     ============


Net (loss) income allocated to Initial
  and Special Limited Partners (2.49%)                         $     (2,901)     $     89,170       $    (14,765)    $    236,322
                                                               ============      ============       ============     ============


Net (loss) income allocated to BAC Holders (96%)               $   (111,839)     $  3,437,899       $   (569,267)    $  9,111,209
                                                               ============      ============       ============     ============


Net (loss) income per BAC based on 21,158 BACs
  outstanding                                                  $      (5.29)     $     162.49       $     (26.91)    $     430.63
                                                               ============      ============       ============     ============
</TABLE>




                          The accompanying notes are an
                       integral part of these consolidated
                              financial statements.

                                       -2-

<PAGE>


PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)



<TABLE>
<CAPTION>
                                                                                                    For the nine months ended
                                                                                                          September 30,
                                                                                                   ----------------------------
                                                                                                      2000             1999
                                                                                                   -----------      -----------
<S>                                                                                                <C>              <C>
Cash flows from operating activities:
  Net (loss) income                                                                                $  (592,986)     $ 9,490,843

  Adjustments to reconcile  net (loss)  income to net cash provided by operating
    activities:
    Share of income from partnerships                                                                 (247,465)        (734,299)
    Amortization of deferred costs                                                                      11,003           11,976
    Gain on disposition of investments in partnerships                                                      --       (9,604,879)

    Changes in assets and liabilities:
      Increase in accrued interest receivable on advances to
        partnerships                                                                                   (17,719)         (17,719)
      (Increase) decrease in other assets                                                               (2,758)          55,663
      Increase in accrued interest payable                                                             972,851          861,335
      Payment of purchase money note interest                                                          (17,771)              --
      (Decrease) increase in accounts payable and accrued expenses                                     (35,904)          67,956
                                                                                                   -----------      -----------

        Net cash provided by operating activities                                                       69,251          130,876
                                                                                                   -----------      -----------


Cash flows from investing activities:
  Receipt of distributions from partnerships                                                           269,465          600,739
  Proceeds from disposition of investments in partnerships                                                  --        6,370,090
                                                                                                   -----------      -----------

        Net cash provided by investing activities                                                      269,465        6,970,829
                                                                                                   -----------      -----------


Cash flow used in financing activities:
  Distribution to BAC Holders                                                                               --       (2,496,644)
                                                                                                   -----------      -----------


Net increase in cash and cash equivalents                                                              338,716        4,605,061

Cash and cash equivalents, beginning of period                                                       8,086,701        2,154,057
                                                                                                   -----------      -----------

Cash and cash equivalents, end of period                                                           $ 8,425,417      $ 6,759,118
                                                                                                   ===========      ===========
</TABLE>





                          The accompanying notes are an
                       integral part of these consolidated
                              financial statements.

                                       -3-

<PAGE>


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999

                                   (Unaudited)


1.       BASIS OF PRESENTATION

         In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying   unaudited   consolidated   financial   statements   reflect   all
adjustments,  consisting  of normal  recurring  accruals,  necessary  for a fair
presentation of the financial  position of Capital Realty  Investors-85  Limited
Partnership  (the  Partnership) as of September 30, 2000, and the results of its
operations for the three and nine months ended  September 30, 2000 and 1999, and
its cash  flows for the nine  months  ended  September  30,  2000 and 1999.  The
results of operations for the interim  periods ended September 30, 2000, are not
necessarily indicative of the results to be expected for the full year.

         The accompanying  unaudited consolidated financial statements have been
prepared in conformity  with  accounting  principles  generally  accepted in the
United States and with the instructions to Form 10-QSB.  Certain information and
accounting  policies and  footnote  disclosures  normally  included in financial
statements prepared in conformity with accounting  principles generally accepted
in  the  United  States  have  been  condensed  or  omitted   pursuant  to  such
instructions.  These condensed  consolidated financial statements should be read
in  conjunction  with the  consolidated  financial  statements and notes thereto
included in the Partnership's annual report on Form 10-KSB at December 31, 1999.


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

a.       Due on investments in partnerships and accrued interest payable
         ---------------------------------------------------------------

                              Purchase money notes

         The Partnership's  obligations with respect to its investments in Local
Partnerships,  in the form of purchase money notes having an aggregate principal
balance of  $2,348,000  plus  aggregate  accrued  interest of  $8,523,173  as of
September  30,  2000,  are  payable  in full upon the  earliest  of: (1) sale or
refinancing of the respective Local Partnership's  rental property;  (2) payment
in full of the respective Local Partnership's permanent loan; or (3) maturity. A
purchase money note in the principal  amount of $230,000  matured on January 30,
1996 but has not been  paid or  extended,  as  discussed  below.  The  remaining
purchase money notes mature in 2001 and 2003.

         Interest  expense on the  Partnership's  purchase  money  notes for the
three and nine month periods ended September 30, 2000 was $324,284 and $972,851,
respectively,  and $288,445  and  $861,335 for the three and nine month  periods
ended  September 30, 1999,  respectively.  The accrued  interest  payable on the
purchase  money notes of $8,523,173  and $7,568,093 as of September 30, 2000 and
December 31, 1999, respectively,  is due on the respective maturity dates of the
purchase money notes or earlier,  in some instances,  if (and to the extent of a
portion thereof) the related Local  Partnership has distributable net cash flow,
as defined in the relevant Local Partnership agreement.

         The purchase money notes, which are nonrecourse to the Partnership, are
generally  secured  by  the  Partnership's  interest  in  the  respective  Local
Partnerships.  There is no assurance  that the underlying  properties  will have
sufficient appreciation and equity to enable the Partnership to pay

                                       -4-

<PAGE>


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999

                                   (Unaudited)


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

the purchase money notes' principal and accrued interest when due. If a purchase
money note is not paid in accordance with its terms, the Partnership will either
have to  renegotiate  the terms of  repayment  or risk  losing  its  partnership
interest in the respective Local Partnership. The Partnership's inability to pay
certain of the purchase money note principal and accrued interest  balances when
due,  and  the  resulting  uncertainty  regarding  the  Partnership's  continued
ownership interest in the related Local Partnerships,  does not adversely impact
the  Partnership's  financial  condition  because the  purchase  money notes are
nonrecourse  and  secured  solely by the  Partnership's  interest in the related
Local  Partnerships.  Therefore,  should  the  investment  in any  of the  Local
Partnerships with maturing purchase money notes not produce  sufficient value to
satisfy the related purchase money notes, the Partnership's  exposure to loss is
limited  because  the  amount  of the  nonrecourse  indebtedness  of each of the
maturing  purchase money notes exceeds the carrying amount of the investment in,
and advances to, each of the related Local  Partnerships.  Thus, even a complete
loss of the Partnership's  interest in one of these Local Partnerships would not
have a material adverse impact on the financial condition of the Partnership.

                               Paradise Foothills

         The  Partnership  defaulted  on its  purchase  money note  relating  to
Paradise Associates,  L.P. (Paradise Foothills) when the note matured on January
30, 1996 and was not paid.  The default  amount  included  principal and accrued
interest  of  $230,000  and  $371,464,  respectively.  As of  November  2, 2000,
principal and accrued  interest  totaling  $230,000 and $716,687,  respectively,
were due. The  Managing  General  Partner  proposed an extension of the purchase
money note maturity date until May 31, 2003,  coterminous with the expiration of
the related Local  Partnership's  provisional  workout  agreement related to its
mortgage loan. As of November 2, 2000, the Managing  General Partner is awaiting
a response from the purchase  money  noteholder.  There is no assurance that the
Managing  General  Partner  will  reach  an  agreement  of  any  kind  with  the
noteholder.   Should  the  noteholder  begin  foreclosure   proceedings  on  the
Partnership's  interest in the Local  Partnership,  the Managing General Partner
intends to contest such action vigorously.  Due to a possible foreclosure by the
noteholder,  there  can be no  assurance  that the  Partnership  will be able to
retain its interest in the Local  Partnership.  The  uncertainty  regarding  the
continued  ownership  of  the  Partnership's   interest  in  the  related  Local
Partnership does not adversely impact the Partnership's  financial condition, as
discussed  above.  In the event of a foreclosure,  the excess of the nonrecourse
indebtedness  over the carrying  amount of the  Partnership's  investment in the
related Local Partnership would be deemed  cancellation of indebtedness  income,
which would be taxable to Limited Partners at a federal tax rate of up to 39.6%.
Additionally,  in the event of a  foreclosure,  the  Partnership  would lose its
investment in the Local Partnership and, likewise,  its share of any future cash
flow distributed by the Local Partnership from rental operations,  mortgage debt
refinancings,  or the sale of the real estate.  The  Partnership did not receive
any  distributions  from Paradise  Foothills during the nine month periods ended
September 30, 2000 and 1999,  and its aggregate  share of income from this Local
Partnership  was $0 for the three and nine month  periods  ended  September  30,
2000, respectively,  and $0 for the three and nine month periods ended September
30, 1999, respectively.

         The amount due to a local  general  partner of  Paradise  Foothills  of
$174,600,  plus accrued  interest of $75,400 at September 30, 2000, will be paid
upon the occurrence of specified  events,  as outlined in the  respective  Local
Partnership's partnership agreement.


                                       -5-

<PAGE>


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999

                                   (Unaudited)


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

b.       Advances to Local Partnership

                                   The Pointe

         Mesa Partners  Limited  Partnership  (The Pointe),  located in El Paso,
Texas,  modified its mortgage loan in 1987. In connection with the mortgage loan
modification,  the  Partnership  advanced  $262,500 to the Local  Partnership in
1987.  Repayment of this loan, with simple interest at 9% per annum, is expected
to occur upon sale or refinancing of the property.  As of September 30, 2000 and
December 31, 1999, accrued interest was $310,782 and $293,063, respectively.

c.       Property matters

                           Devonshire and Springfield

         In June  1998,  the  local  managing  general  partners  of  Devonshire
Development Limited Partnership  (Devonshire) and Springfield Properties Limited
Partnership  (Springfield)  received  offers from third  parties to purchase the
respective  properties.  The local managing  general  partners of Devonshire and
Springfield  entered into contracts to sell the respective  properties to a real
estate  investment  trust  (REIT)  (in the case of  Springfield)  and the REIT's
affiliate  (in the  case of  Devonshire)  on or  before  January  15,  1999.  In
September  1998,  prior  to the  expiration  of the due  diligence  period,  the
purchaser, in accordance with its rights under the sale contract, terminated the
sale contract for Devonshire.

         On January 22, 1999,  pursuant to the  Springfield  sale contract,  the
Local Partnership sold Springfield Apartments,  located in Redmond,  Washington,
to ASN-Washington Holdings (1) Incorporated,  an affiliate of the REIT. The sale
resulted in a financial  statement gain of approximately $6.1 million, a federal
tax gain of approximately $10.2 million,  and net cash proceeds of approximately
$6.4 million to the Partnership.  As a result of the sale, CRICO of Springfield,
Inc., the managing general partner of the Local  Partnership and an affiliate of
the Managing General Partner, received an additional management fee of $636,789,
pursuant to the Local Partnership Agreement, all of which was paid in 1999.

         Following the termination of the sales contract for Devonshire, on June
28,  1999,  the Local  Partnership  entered  into a  contract  with a  different
unrelated third party to sell the property.  On September 30, 1999,  pursuant to
the Devonshire sale contract,  the Local Partnership sold Devonshire Apartments,
located in Kirkland, Washington, to Kirkland Rrestoration LLC. The sale resulted
in a financial  statement gain of approximately $3.5 million, a federal tax gain
of  approximately  $5.8  million,  and net cash proceeds of  approximately  $3.5
million  to the  Partnership,  which  net cash  proceeds  were  received  by the
Partnership  on October 1, 1999. As a result of the sale,  CRICO of  Devonshire,
Inc., the managing general partner of the Local  Partnership and an affiliate of
the Managing General Partner, received an additional management fee of $300,086,
of which  $269,485  was  paid in 1999 and  $30,601  was  paid in  January  2000,
pursuant to the Local Partnership Agreement.

                                       -6-

<PAGE>


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999

                                   (Unaudited)


2.       INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

d.       Summarized financial information

         Combined  statements of operations for the four Local  Partnerships  in
which the  Partnership  was invested as of September 30, 2000 and 1999,  follow.
The combined  statements  have been  compiled from  information  supplied by the
management agents of the projects and are unaudited.  The combined statements of
operations  for the three and nine months  ended  September  30,  1999,  include
information for Springfield and Devonshire through the dates of their respective
sales.

<TABLE>
<CAPTION>

                                         COMBINED STATEMENTS OF OPERATIONS
                                                    (Unaudited)

                                             For the three months ended          For the nine months ended
                                                    September 30,                       September 30,
                                            ------------------------------      -----------------------------
                                                2000               1999             2000             1999
                                            ------------       ------------     ------------     ------------
<S>                                         <C>                <C>              <C>              <C>
Revenue:
  Rental                                    $  1,448,590       $  1,723,966     $  4,369,317     $  5,270,489
  Other                                          104,717             98,654          307,621          288,724
                                            ------------       ------------     ------------     ------------

    Total revenue                              1,553,307          1,822,620        4,676,938        5,559,213
                                            ------------       ------------     ------------     ------------

Expenses:
  Operating                                      757,299            904,091        2,240,836        2,744,100
  Interest                                       513,072            628,081        1,539,221        1,935,657
  Depreciation and amortization                  271,229            266,683          813,691          815,554
                                            ------------       ------------     ------------     ------------

    Total expenses                             1,541,600          1,798,855        4,593,748        5,495,311
                                            ------------       ------------     ------------     ------------

Net income                                  $     11,707       $     23,765     $     83,190     $     63,902
                                            ============       ============     ============     ============

</TABLE>

         As  of  September  30,  2000  and  1999,  the  Partnership's  share  of
cumulative  losses  to date for  three  and  four,  respectively,  of the  Local
Partnerships  exceeded  the  amount  of  the  Partnership's  investments  in and
advances to those Local Partnerships by $6,697,888 and $7,284,054, respectively.
As the  Partnership  has no  further  obligation  to  advance  funds or  provide
financing to these Local Partnerships, the excess losses have not been reflected
in the accompanying consolidated financial statements.


3.       RELATED PARTY TRANSACTIONS

         In  accordance  with  the  terms  of  the  Partnership  Agreement,  the
Partnership  is  obligated to reimburse  the  Managing  General  Partner for its
direct  expenses in connection  with managing the  Partnership.  The Partnership
paid $13,731 and $60,486 for the three and nine month  periods  ended  September
30,  2000,  respectively,  and  $15,909 and $74,743 for the three and nine month
periods ended September 30, 1999, respectively,  to the Managing General Partner
as direct reimbursement of expenses incurred on behalf of the Partnership.  Such
expenses are included in the accompanying  consolidated statements of operations
as general and administrative expenses.

                                       -7-

<PAGE>


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           September 30, 2000 and 1999

                                   (Unaudited)


3.       RELATED PARTY TRANSACTIONS - Continued

         In  accordance  with  the  terms  of  the  Partnership  Agreement,  the
Partnership is obligated to pay the Managing General Partner an annual incentive
management fee (Management  Fee) after all other expenses of the Partnership are
paid.  The  Partnership  paid the Managing  General  Partner a Management Fee of
$24,483 and $73,447 for each of the three and nine month periods ended September
30, 2000 and 1999, respectively.

         On January 22, 1999, Springfield Properties Limited Partnership, one of
the Local  Partnerships in which the Partnership has invested,  sold Springfield
Apartments. As a result of the successful sale, CRICO of Springfield,  Inc., the
local managing general partner of the Local Partnership (and an affiliate of the
Managing  General  Partner),  earned an additional  management  fee of $636,789,
pursuant to the Local Partnership Agreement, all of which was paid in 1999.

         On September 30, 1999, Devonshire Development Limited Partnership,  one
of the Local Partnerships in which the Partnership has invested, sold Devonshire
Apartments.  As a result of the successful sale, CRICO of Devonshire,  Inc., the
local managing general partner of the Local Partnership (and an affiliate of the
Managing  General  Partner),  earned an additional  management  fee of $300,086,
pursuant to the Local Partnership Agreement;  $269,485 was paid during 1999, and
the remainder was paid in 2000.

                                       -8-

<PAGE>



PART I.  FINANCIAL INFORMATION
Item 2.  Management's Discussion and Analysis
           of Financial Condition and Results of Operations


         Capital Realty  Investors-85  Limited  Partnership's  (the Partnership)
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations section contains  information that may be considered forward looking,
including  statements regarding the effect of governmental  regulations.  Actual
results  may differ  materially  from those  described  in the  forward  looking
statements and will be affected by a variety of factors  including  national and
local economic  conditions,  the general level of interest  rates,  governmental
regulations  affecting the Partnership and interpretations of those regulations,
the  competitive   environment  in  which  the  Partnership  operates,  and  the
availability of working capital.

                          Financial Condition/Liquidity

         The  Partnership's  liquidity,  with  unrestricted  cash  resources  of
$8,425,417  as of  September  30,  2000,  along  with  anticipated  future  cash
distributions  from Local  Partnerships,  is expected to be adequate to meet its
current and anticipated operating cash needs. As of November 2, 2000, there were
no material commitments for capital expenditures.

         The Partnership's  obligations with respect to its investments in Local
Partnerships,  in the form of purchase money notes having an aggregate principal
balance of  $2,348,000  plus  aggregate  accrued  interest of  $8,523,173  as of
September  30,  2000,  are  payable  in full upon the  earliest  of: (1) sale or
refinancing of the respective Local Partnership's  rental property;  (2) payment
in full of the respective Local Partnership's permanent loan; or (3) maturity. A
purchase money note in the principal  amount of $230,000  matured on January 30,
1996 and has not been paid or  extended.  The  remaining  purchase  money  notes
mature in 2001 and 2003. See the notes to the consolidated  financial statements
for additional information concerning these purchase money notes.

         The purchase money notes, which are nonrecourse to the Partnership, are
generally  secured  by  the  Partnership's  interest  in  the  respective  Local
Partnerships.  There is no assurance  that the underlying  properties  will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes'  principal and accrued  interest when due. If a purchase money note
is not paid in accordance with its terms,  the  Partnership  will either have to
renegotiate  the terms of repayment or risk losing its  partnership  interest in
the respective Local Partnership.  The Partnership's inability to pay certain of
the purchase  money note principal and accrued  interest  balances when due, and
the  resulting  uncertainty  regarding  the  Partnership's  continued  ownership
interest  in the  related  Local  Partnerships,  does not  adversely  impact the
Partnership's   financial   condition  because  the  purchase  money  notes  are
nonrecourse  and  secured  solely by the  Partnership's  interest in the related
Local  Partnerships.  Therefore,  should  the  investment  in any  of the  Local
Partnerships with maturing purchase money notes not produce  sufficient value to
satisfy the related purchase money notes, the Partnership's  exposure to loss is
limited  because  the  amount  of the  nonrecourse  indebtedness  of each of the
maturing  purchase money notes exceeds the carrying amount of the investment in,
and advances to, each of the related Local  Partnerships.  Thus, even a complete
loss of the Partnership's  interest in one of these Local Partnerships would not
have a material adverse impact on the financial condition of the Partnership.

         The Managing  General  Partner is  continuing to  investigate  possible
alternatives to reduce the Partnership's  debt obligations.  These  alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note  requirements,  paying off certain purchase money notes at a
discounted  price,  extending the due dates of certain  purchase money notes, or
refinancing   the  respective   properties'   underlying   debt  and  using  the
Partnership's  share of the  proceeds  to pay off or pay down  certain  purchase
money note obligations.

                                       -9-

<PAGE>


PART I.           FINANCIAL INFORMATION
Item 2.           Management's Discussion and Analysis
                    of Financial Condition and Results of Operations - Continued


         Included in due on  investments  in  partnerships  is $174,600 due to a
local general partner related to Paradise Associates,  L.P. (Paradise Foothills)
at both  September 30, 2000,  and December 31, 1999;  accrued  interest  payable
thereon was $75,400 at both  September  30, 2000,  and December 31, 1999.  These
amounts  will be paid  upon the  occurrence  of  certain  specified  events,  as
outlined in the respective Local Partnership's partnership agreement.

         The Partnership  closely monitors its cash flow and liquidity  position
in an  effort  to  ensure  that  sufficient  cash  is  available  for  operating
requirements.  For the nine month  periods  ended  September  30, 2000 and 1999,
operating  activities  provided  positive cash flow.  Cash and cash  equivalents
increased during the nine months ended September 30, 2000,  primarily due to the
receipt of distributions from partnerships,  in addition to net cash provided by
operating activities.

         During the periods covered by this report, on May 3, 1999, the Managing
General  Partner  distributed   $2,496,644  (or  $118  per  Beneficial  Assignee
Certificate  (BAC)) from the  proceeds  generated  from the sale of  Springfield
Properties Limited Partnership (Springfield), to the BAC holders of record as of
January 22, 1999. The Managing General Partner  currently  intends to retain all
of the Partnership's  remaining  undistributed cash for the possible  repayment,
prepayment or retirement of the Partnership's  outstanding  purchase money notes
related to the Local Partnerships.

                              Results of Operations

         The Partnership  recognized a net loss for the three month period ended
September 30, 2000, as compared to net income during the corresponding period in
1999  primarily due to the gain on  disposition  of  investment  in  partnership
related to the sale of Devonshire  Development Limited Partnership  (Devonshire)
in 1999.  Contributing  to the net loss were an increase in interest  expense on
purchase money notes due to the compounding of interest,  an increase in general
and  administrative  expenses related to higher reimbursed  payroll costs, and a
decrease  in share of  income  from  partnerships  as a result  of the  sales of
Springfield  and  Devonshire  in  January  and  September  1999,   respectively.
Offsetting  the net loss was an increase  in interest  income due to higher cash
and cash equivalents balances and generally higher interest rates.

         The  Partnership  recognized a net loss for the nine month period ended
September 30, 2000, as compared to net income during the corresponding period in
1999 primarily due to the gain on  disposition  of  investments in  partnerships
related to the sales of Springfield and Devonshire in 1999.  Contributing to the
net loss were an increase in interest  expense and a decrease in share of income
from  partnerships,  both as  discussed  above.  Offsetting  the net loss was an
increase in interest income, also as discussed above.

         For financial reporting purposes, the Partnership, as a limited partner
in the Local Partnerships, does not record losses from the Local Partnerships in
excess of its  investment  to the  extent  that the  Partnership  has no further
obligation to advance funds or provide financing to the Local Partnerships. As a
result,  the  Partnership's  share of income from partnerships for the three and
nine month  periods ended  September 30, 2000 did not include  losses of $80,796
and $242,391, respectively,  compared to excluded losses of $99,894 and $299,690
for the three and nine month periods ended September 30, 1999, respectively.

         No other significant changes in the Partnership's operations have taken
place during this period.

                                      -10-

<PAGE>



PART II. OTHER INFORMATION
Item 3.  Defaults upon Senior Securities


         See Note 2.a. of the notes to consolidated financial statements
contained in Part I, Item 1, hereof, for information concerning the
Partnership's default on a purchase money note.


Item 5.  Other Information

         On April 5, 2000, Peachtree Partners (Peachtree) mailed an offer letter
to Beneficial Assignee  Certificate (BAC) holders of the Partnership.  The offer
letter indicated that Peachtree was willing to offer to purchase outstanding BAC
units at a price of $90 per unit;  the offer  expired in May 2000.  Peachtree is
unaffiliated with the Managing General Partner. The price offered was determined
solely at the  discretion  of Peachtree and does not  necessarily  represent the
fair market value of each BAC. There is no  established  market for the purchase
and sale of BACs, although various informal secondary market services exist. Due
to the limited  markets,  however,  investors may be unable to sell or otherwise
dispose of their BACs.

         If more than 5% of the total  outstanding  BAC units are transferred in
any one calendar year (not counting certain exempt  transfers),  the Partnership
could be taxed as a "publicly traded  partnership,"  with potentially severe tax
implications   for  the  Partnership  and  its  investors.   Specifically,   the
Partnership  would be taxed as a corporation  and the income and losses from the
Partnership  would no longer be considered a passive  activity.  From January 1,
2000 through April 28, 2000,  approximately  4.9% of outstanding  BAC units were
sold. Accordingly,  to remain within the 5% safe harbor,  effective May 5, 2000,
the General Partner of the Partnership  halted recognition of any transfers that
would exceed the safe harbor  limit  through  December  31,  2000.  As a result,
transfers of BAC units due to sales  transactions  will not be recognized by the
Partnership between May 5 and December 31, 2000.


Item 6.  Exhibits and Reports on Form 8-K

         a.       None

         b.       No reports on Form 8-K were filed with the Commission during
                  the quarter ended September 30, 2000.

         All other items are not applicable.

                                      -11-

<PAGE>



                                    SIGNATURE


         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



                                  CAPITAL REALTY INVESTORS-85 LIMITED
                                    PARTNERSHIP
                                  ----------------------------------------------
                                  (Registrant)

                                  by: C.R.I., Inc.
                                      ------------------------------------------
                                      Managing General Partner




November 2, 2000                      by: /s/ Michael J. Tuszka
----------------                          --------------------------------------
DATE                                      Michael J. Tuszka
                                          Vice President
                                            and Chief Accounting Officer
                                            (Principal Financial Officer
                                            and Principal Accounting Officer)

                                      -12-

<PAGE>


                                  EXHIBIT INDEX



Exhibit                                                Method of Filing
-------                                        --------------------------------

27          Financial Data Schedule             Filed herewith electronically





















                                      -13-