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



                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


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



                                   FORM 10-QSB


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



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

                For the quarterly period ended September 30, 2001


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



                         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


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




Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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>



                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                              INDEX TO FORM 10-QSB

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2001



                                                                         Page


Part I - FINANCIAL INFORMATION

Item 1.  Financial Statements

           Balance Sheets
              - September 30, 2001 and December 31, 2000.................   1

           Statements of Operations and Accumulated Losses
              - for the three and nine months ended
                September 30, 2001 and 2000 .............................   2

           Statements of Cash Flows
              - for the nine months ended September 30, 2001 and 2000....   3

           Notes to  Financial Statements
              - September 30, 2001 and 2000..............................   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..............................   12

Signature     ...........................................................   13





<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                                 BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>
                                                                                           September 30,   December 31,
                                                                                               2001           2000
                                                                                           ------------    -----------
                                                                                            (Unaudited)
<S>                                                                                        <C>             <C>
Investments in and advances to partnerships ............................................   $  1,012,073    $    588,661
Cash and cash equivalents ..............................................................      3,842,849       8,501,288
Acquisition fees, principally paid to related parties,
  net of accumulated amortization of $120,101 and $114,318, respectively ...............        111,254         117,037
Property purchase costs,
  net of accumulated amortization of $109,599 and $104,380 respectively ................         99,162         104,381
Other assets ...........................................................................            826           3,444
                                                                                           ------------    ------------

      Total assets .....................................................................   $  5,066,164    $  9,314,811
                                                                                           ============    ============



                   LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)


Due on investments in partnerships .....................................................   $  1,047,600    $  2,522,600
Accrued interest payable ...............................................................      1,393,167       8,923,271
Accounts payable and accrued expenses ..................................................         75,142          78,324
                                                                                           ------------    ------------

      Total liabilities ................................................................      2,515,909      11,524,195
                                                                                           ------------    ------------

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 .................................................................    (11,175,054)    (15,934,693)
                                                                                           ------------    ------------

      Total partners' capital (deficit) ................................................      2,550,255      (2,209,384)
                                                                                           ------------    ------------

      Total liabilities and partners' capital (deficit) ................................   $  5,066,164    $  9,314,811
                                                                                           ============    ============
</TABLE>

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

                                       -1-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS

                             AND ACCUMULATED LOSSES

                                   (Unaudited)


<TABLE>
<CAPTION>

                                                     For the three months ended      For the nine months ended
                                                            September 30,                   September 30,
                                                    ----------------------------    ----------------------------
                                                        2001            2000             2001           2000
                                                    ------------    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>             <C>
Share of income from partnerships ...............   $    129,782    $    156,900    $    434,717    $    247,465
                                                    ------------    ------------    ------------    ------------

Other revenue and expenses:

  Revenue:
    Interest ....................................         67,564         132,764         256,971         374,968
                                                    ------------    ------------    ------------    ------------

  Expenses:
    Interest ....................................        201,050         324,284         934,926         972,851
    General and administrative ..................         29,236          37,592          98,212         110,849
    Management fee ..............................         24,480          24,483          73,440          73,447
    Professional fees ...........................         17,138          16,136          51,413          47,269
    Amortization of deferred costs ..............          3,668           3,668          11,003          11,003
                                                    ------------    ------------    ------------    ------------

                                                         275,572         406,163       1,168,994       1,215,419
                                                    ------------    ------------    ------------    ------------

      Total other revenue and expenses ..........       (208,008)       (273,399)       (912,023)       (840,451)
                                                    ------------    ------------    ------------    ------------

Loss before extraordinary gain
  from extinguishment of debt ...................        (78,226)       (116,499)       (477,306)       (592,986)

Extraordinary gain from extinguishment of debt ..      5,190,030            --         5,236,945            --
                                                    ------------    ------------    ------------    ------------

Net income (loss) ...............................      5,111,804        (116,499)      4,759,639        (592,986)

Accumulated losses, beginning of period .........    (16,286,858)    (15,586,883)    (15,934,693)    (15,110,396)
                                                    ------------    ------------    ------------    ------------

Accumulated losses, end of period ...............   $(11,175,054)   $(15,703,382)   $(11,175,054)   $(15,703,382)
                                                    ============    ============    ============    ============


Net income (loss) allocated
  to General Partners (1.51%) ...................   $     77,188    $     (1,759)   $     71,871    $     (8,954)
                                                    ============    ============    ============    ============

Net income (loss) allocated
  to Initial and Special Limited Partners (2.49%)   $    127,284    $     (2,901)   $    118,515    $    (14,765)
                                                    ============    ============    ============    ============

Net income (loss) allocated
  to BAC Holders (96%) ..........................   $  4,907,332    $   (111,839)   $  4,569,253    $   (569,267)
                                                    ============    ============    ============    ============

Net income (loss) per BAC
  based on 21,158 BACs outstanding ..............   $     231.94    $      (5.29)   $     215.96    $     (26.91)
                                                    ============    ============    ============    ============
</TABLE>


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

                                       -2-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements


                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                   For the nine months ended
                                                                                          September 30,
                                                                                   --------------------------
                                                                                      2001           2000
                                                                                   -----------    -----------
<S>                                                                                <C>            <C>
Cash flows from operating activities:
  Net income (loss) ............................................................   $ 4,759,639    $  (592,986)

  Adjustments to reconcile  net income  (loss) to net cash provided by operating
    activities:
    Share of income from partnerships ..........................................      (434,717)      (247,465)
    Amortization of deferred costs .............................................        11,003         11,003
    Extraordinary gain from extinguishment of debt .............................    (5,236,945)          --

    Changes in assets and liabilities:
      Increase in accrued interest receivable on advances to partnerships ......       (17,719)       (17,719)
      Decrease (increase) in other assets ......................................         2,618         (2,758)
      Increase in accrued interest payable .....................................       934,926        972,851
      Payment of purchase money note interest ..................................          --          (17,771)
      Decrease in accounts payable and accrued expenses ........................        (3,182)       (35,904)
                                                                                   -----------    -----------

        Net cash provided by operating activities ..............................        15,623         69,251
                                                                                   -----------    -----------


Cash flows from investing activities:
  Additional investment in partnership .........................................      (575,000)          --
  Receipt of distributions from partnerships ...................................       650,938        269,465
                                                                                   -----------    -----------

        Net cash provided by investing activities ..............................        75,938        269,465
                                                                                   -----------    -----------

Cash flow used in financing activities:
  Payoff of purchase money note and related interest ...........................    (4,750,000)          --
                                                                                   -----------    -----------

Net (decrease) increase in cash and cash equivalents ...........................    (4,658,439)       338,716

Cash and cash equivalents, beginning of period .................................     8,501,288      8,086,701
                                                                                   -----------    -----------

Cash and cash equivalents, end of period .......................................   $ 3,842,849    $ 8,425,417
                                                                                   ===========    ===========


Supplemental disclosure of cash flow information:
  Cash paid during the period for interest .....................................   $ 3,275,000    $    17,771
                                                                                   ===========    ===========
</TABLE>

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

                                       -3-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2001 and 2000

                                   (Unaudited)


1.   BASIS OF PRESENTATION

     In the opinion of C.R.I.,  Inc. (CRI), the Managing  General  Partner,  the
accompanying unaudited 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, 2001,  and the results of its operations for the three and nine
months ended September 30, 2001 and 2000, and its cash flows for the nine months
ended  September 30, 2001 and 2000.  The results of  operations  for the interim
periods ended September 30, 2001, are not necessarily  indicative of the results
to be expected for the full year.

     The  accompanying  unaudited  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  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, 2000.


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  $873,000  plus  aggregate  accrued  interest  of  $1,317,767  as of
September  30,  2001,  are  payable  in full upon the  earliest  of: (i) sale or
refinancing of the respective Local Partnership's rental property;  (ii) payment
in full of the respective Local Partnership's permanent loan; or (iii) maturity.
The  purchase  money note  related to the Paradise  Associates,  L.P.  (Paradise
Foothills) property, in the principal amount of $230,000, matured on January 30,
1996, but has not been paid or extended,  as discussed below. In September 2001,
the two  purchase  money notes  related to Willow  Creek II Limited  Partnership
(Willow Creek II), in the aggregate  principal  amount of $1,475,000,  were paid
off at a discount,  as discussed  below. The purchase money note related to Mesa
Partners Limited  Partnership (The Pointe), in the principal amount of $643,000,
matures in 2003.

     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.

                                       -4-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2001 and 2000

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     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 matured or 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 matured or 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.  However,  if these notes
remain  unpaid,  the  noteholders  may  have  the  right  to  foreclose  on  the
Partnership's  interest  in the  related  Local  Partnership.  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  38.6%.  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.

     Interest  expense on the  Partnership's  purchase money notes for the three
and nine month  periods  ended  September  30, 2001 was $201,050  and  $934,926,
respectively,  and $324,284  and  $972,851 for the three and nine month  periods
ended  September 30, 2000,  respectively.  The accrued  interest  payable on the
purchase  money notes of $1,317,767  and $8,847,871 as of September 30, 2001 and
December 31, 2000, 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.

                               Paradise Foothills
                               ------------------

     The  Partnership  defaulted on its purchase money note relating to 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 October 31, 2001,  principal and accrued interest  totaling
$230,000 and  $810,787,  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 October 31,
2001,  the  Managing  General  Partner  continues  to await 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. The Partnership
did not receive any distributions  from Paradise Foothills during the nine month
periods  ended  September 30, 2001 and 2000,  and its aggregate  share of income
from this Local  Partnership  was $0 for the nine month periods ended  September
30, 2001 and 2000.

                                       -5-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2001 and 2000

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     The local managing  general  partner is exploring  options to refinance the
mortgage loan. As of October 31, 2001, the local  managing  general  partner has
not received a commitment for a refinancing.

     The  amount  due to a  local  general  partner  of  Paradise  Foothills  of
$174,600,  plus accrued  interest of $75,400 at September 30, 2001, will be paid
upon the occurrence of specified  events,  as outlined in the  respective  Local
Partnership's partnership agreement.

                                 Willow Creek II
                                 ---------------

     The Partnership defaulted on its two purchase money notes related to Willow
Creek II on  January  14,  2001 when the notes  matured  and were not paid.  The
default  amount  included  principal  and  accrued  interest of  $1,475,000  and
$7,583,743,  respectively. In September 2001, the Partnership paid off the notes
at a  discount.  The  discounted  payoff  resulted  in  extraordinary  gain from
extinguishment  of debt of $5,190,030  for financial  statement  purposes and in
cancellation  of  indebtedness  income of $5,190,030 for federal tax purposes in
2001.

b.   Additional investment in Local Partnership
     ------------------------------------------

     The Partnership has an investment in Sheridan West L.P. (Semper), the Local
Partnership which owns Semper Village Apartments in Westminster,  Colorado.  The
Local Partnership, in turn, was the maker of two purchase money notes related to
the acquisition of the property. The security for these two purchase money notes
included the  Partnership's  limited partner interest in Semper.  In conjunction
with the discounted  payoff of these two purchase money notes, in December 2000,
the Partnership agreed to make an additional  investment in Semper in the amount
of $574,000,  which amount was disbursed to Semper in January 2001.  Semper,  in
turn,  paid off the two purchase  money notes at a discount in January 2001. The
discounted  payoff of the purchase  money notes resulted in  extraordinary  gain
from extinguishment of debt of $46,915 for financial statement purposes in 2001.

     The  Partnership  also  agreed to  purchase  for $1,000  the 0.01%  general
partner  interest in Semper held by the  developer  and original  local  general
partner of Semper.  This agreement was made in December 2000, and the funds were
disbursed in January 2001. The Local Partnership has converted the 0.01% general
partner interest to a limited partner  interest,  so the Partnership now holds a
99.00% limited partner interest in Semper.

                                       -6-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2001 and 2000

                                   (Unaudited)


2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

c.   Advances to Local Partnership
     -----------------------------

     Mesa  Partners  Limited  Partnership  (The Pointe),  which owns  apartments
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, 2001 and  December 31,  2000,  accrued  interest was $334,407 and
$316,688, respectively.

d.   Property matters
     ----------------

     The local managing  general partner of The Pointe received a default notice
on May 25,  2001,  with  respect to a  subordinate  note which is secured by the
economic interests of the partners in the Pointe. The alleged default relates to
monthly debt service  payments out of surplus cash, and the alleged  overfunding
of the replacement  reserve account.  The Local Partnership resumed debt service
payments in June, and the local managing general partner is negotiating with the
holder of the subordinate note to obtain a retraction of the default notice.

e.   Summarized financial information
     --------------------------------

     Combined  statements of operations for the four Local Partnerships in which
the  Partnership  is invested as of  September  30, 2001 and 2000,  follow.  The
combined  statements  have  been  compiled  from  information  supplied  by  the
management agents of the projects and are unaudited.

                        COMBINED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                        For the three months ended        For the nine months ended
                                              September 30,                      September 30,
                                       ---------------------------       --------------------------
                                          2001             2000             2001             2000
                                       ----------       ----------       ----------       ----------
<S>                                    <C>              <C>              <C>              <C>
Revenue:
  Rental                               $1,545,730       $1,448,590       $4,633,868       $4,369,317
  Other                                    98,643          104,717          290,335          307,621
                                       ----------       ----------       ----------       ----------

     Total revenue                      1,644,373        1,553,307        4,924,203        4,676,938
                                       ----------       ----------       ----------       ----------

Expenses:
  Operating                               783,543          757,299        2,296,627        2,240,836
  Interest                                507,926          513,072        1,523,779        1,539,221
  Depreciation and amortization           277,160          271,229          831,487          813,691
                                       ----------       ----------       ----------       ----------

     Total expenses                     1,568,629        1,541,600        4,651,893        4,593,748
                                       ----------       ----------       ----------       ----------

Net income                             $   75,744       $   11,707       $  272,310       $   83,190
                                       ==========       ==========       ==========       ==========

</TABLE>


                                       -7-

<PAGE>
                 CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                           September 30, 2001 and 2000

                                   (Unaudited)

2.   INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

     As of September 30, 2001 and 2000,  the  Partnership's  share of cumulative
losses to date for two and three of the Local  Partnerships  exceeded the amount
of the Partnership's  investments in and advances to those Local Partnerships by
$6,724,934  and  $6,697,888,  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  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 $17,180 and
$69,012  for the  three  and  nine  month  periods  ended  September  30,  2001,
respectively, and $13,731 and $60,486 for the three and nine month periods ended
September  30, 2000,  respectively,  to the Managing  General  Partner as direct
reimbursement of expenses  incurred on behalf of the Partnership.  Such expenses
are  included  in the  accompanying  statements  of  operations  as general  and
administrative expenses.

     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 $24,480 and
$73,440  for the  three  and  nine  month  periods  ended  September  30,  2001,
respectively, and $24,483 and $73,447 for the three and nine month periods ended
September 30, 2000, respectively.



                                      # # #

                                       -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 $3,842,849
as of September 30, 2001, 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 October 31, 2001, 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  $873,000  plus  aggregate  accrued  interest  of  $1,317,767  as of
September  30,  2001,  are  payable  in full upon the  earliest  of: (i) sale or
refinancing of the respective Local Partnership's rental property;  (ii) payment
in full of the respective Local Partnership's permanent loan; or (iii) maturity.
The  purchase  money note  related to the Paradise  Associates,  L.P.  (Paradise
Foothills) property, in the principal amount of $230,000, matured on January 30,
1996,  but has not been paid or extended.  In September  2001,  the two purchase
money notes related to Willow Creek II Limited Partnership (Willow Creek II), in
the aggregate principal amount of $1,475,000,  were paid off at a discount.  The
purchase money note related to Mesa Partners  Limited  Partnership (The Pointe),
in the principal amount of $643,000, matures in 2003. See Note 2.a. of the notes
to financial  statements  contained in Part I, Item 1,  hereof,  for  additional
information  concerning  the  Partnership's  default on the purchase  money note
related to Paradise Foothills.

     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 matured or 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 matured or 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.  However,  if these notes
remain  unpaid,  the  noteholders  may  have  the  right  to  foreclose  on  the
Partnership's  interest  in the  related  Local  Partnership.  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

                                       -9-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
        ------------------------------------
          of Financial Condition and Results of Operations - Continued
          ------------------------------------------------

38.6%. 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  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.

     Included in due on investments in  partnerships  is $174,600 due to a local
general  partner  related to Paradise  Foothills at both September 30, 2001, and
December  31,  2000;  accrued  interest  payable  thereon  was  $75,400  at both
September 30, 2001,  and December 31, 2000.  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, 2001 and 2000,  cash provided by
operating  activities was adequate to support operating cash requirements.  Cash
and cash equivalents  decreased during the nine month period ended September 30,
2001, as cash used for payoff of a purchase money note and related interest, and
for an additional  investment in Sheridan West L.P. (Semper),  exceeded net cash
provided  by  operating   activities  and  the  receipt  of  distributions  from
partnerships.

     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, and for operating cash reserves.

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

     The Partnership  recognized net income for the three and nine month periods
ended September 30, 2001, compared to net loss for the corresponding  periods in
2000 primarily due to extraordinary gain from  extinguishment of debt related to
the discounted  payoff of the Willow Creek II purchase money notes, as discussed
in the notes to the  financial  statements.  An increase in share of income from
partnerships  contributed to net income for the nine month period as a result of
higher  operating  income at one property which had previously been excluded due
to accumulated  unallowable losses. Share of income from partnerships  decreased
in the three month period ended  September 30, 2001 as a result of  distribution
from one property  which had been  recognized in income in the 2000 period,  but
which was excluded  from income in the current  year due to positive  investment
basis.  Contributing  to net income for both periods were a decrease in interest
expense  due  to  lower  purchase  money  note  balances  as  a  result  of  the
extinguishment of debt and a decrease in general and administrative expenses due
to lower  costs  for  annual  reporting  and  lower  reimbursed  payroll  costs.
Offsetting the Partnership's  increase in net income were a decrease in interest
revenue due to lower cash and cash equivalent  balances and lower interest rates
in 2001, and an increase in professional fees related to legal and audit fees.

                                      -10-

<PAGE>
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
        ------------------------------------
          of Financial Condition and Results of Operations - Continued
          ------------------------------------------------

     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, 2001 did not include  losses of $60,697
and $182,098, respectively,  compared to excluded losses of $80,796 and $242,391
for the three and nine month periods ended September 30, 2000, respectively.

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


Part II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities
        -------------------------------

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


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

     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.

                                  Tender offers
                                  -------------

     On January 26, 2001,  Equity Resources  Lexington Fund Limited  Partnership
(Lexington)  initiated an unregistered tender offer to purchase up to 994 of the
outstanding  BAC units at a price of $125 per unit;  the offer expired  February
26, 2001. On April 23, 2001, Lexington initiated an unregistered tender offer to
purchase up to 589 of the outstanding BAC units at a price of $150 per unit; the
offer  expired  May  22,  2001.  On  June  22,  2001,   Lexington  initiated  an
unregistered  tender offer to purchase up to 330 of the outstanding BAC units at
a price of $225  per  unit;  the  offer  expired  July 22,  2001.  Lexington  is
unaffiliated  with the Partnership or the Managing General  Partner.  The prices
offered  were  determined  solely  at the  discretion  of  Lexington  and do not
necessarily represent the fair market value of each BAC.

     On May 14,  2001,  Bond  Purchase,  L.L.C.  (Bond  Purchase)  initiated  an
unregistered  tender offer to purchase up to 1,000 of the  outstanding BAC units
at a price of $156 per unit;  the offer  expired  June 30,  2001.  On October 4,
2001, Bond Purchase initiated an unregistered tender offer to purchase up to 930
of the  outstanding  BAC  units at a price of $247 per unit;  the offer  expires
November 15, 2001.  (However,  transfers of BAC units due to sales  transactions
are not being  recognized by the Partnership  through December 31, 2001; see the
final  paragraph  of this  Item  5.)  Bond  Purchase  is  unaffiliated  with the
Partnership or the Managing General Partner.  The prices offered were determined
solely at the discretion of Bond Purchase and do not  necessarily  represent the
fair market value of each BAC.

     On June 8, 2001, Peachtree Partners  (Peachtree)  initiated an unregistered
tender  offer to  purchase a limited  number of the  outstanding  BAC units at a
price  of  $200  per  unit;  the  offer  expired  July  6,  2001.  Peachtree  in
unaffiliated  with the Partnership or 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.

                                      -11-

<PAGE>
Part II. OTHER INFORMATION
Item 5. Other Information - Continued
        -----------------

     Although  previously  the Managing  General  Partner had not  expressed any
opinion toward any offer for the purchase of BACs such as those described above,
on May 25, 2001, and July 9, 2001, the Managing  General Partner sent letters to
all BAC holders  recommending  that the May 14 tender offer by Bond Purchase and
the June 22 tender offer by Lexington be rejected as inadequate in price.

     During 2001, a number of investors sold their BAC units in the  Partnership
to other investors, as a result of unregistered tender offers. If more than five
percent of the total  outstanding  BAC units in the  Partnership are transferred
due to sale 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  could be taxed as a corporation  and, if so, the
income and losses from the  Partnership  would no longer be considered a passive
activity.  From January 1, 2001, through June 27, 2001, the Partnership received
sale transfer  requests for  approximately  4.6% of the  outstanding  BAC units.
Accordingly,  to remain within the five percent safe harbor,  effective June 27,
2001,  the Managing  General  Partner  halted  recognition of any transfers that
would exceed the safe harbor  limit  through  December  31,  2001.  As a result,
transfers of BAC units due to sales transactions are not being recognized by the
Partnership between June 28, 2001 and December 31, 2001. The halt will be lifted
effective January 1, 2002.


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

     a.   None

     b.   No reports of on Form 8-K were  filed with the  Commission  during the
          quarter ended September 30, 2001.

     All other items are not applicable.

                                      -12-

<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




October 31, 2001                    by:  /s/ Michael J. Tuszka
--------------------                     ---------------------------------------
DATE                                     Michael J. Tuszka
                                           Vice President
                                           and Chief Accounting Officer
                                           (Principal Financial Officer
                                           and Principal Accounting Officer)

                                      -13-