UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark one)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

or

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

For the transition period from _________to _________

Commission file number 0-14187

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

(Exact name of registrant as specified in its charter)

55 Beattie Place, PO Box 1089

Greenville, South Carolina 29602

(Address of principal executive offices)

Registrant's telephone number, including area code (864) 239-1000

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Units of Limited Partnership Interest

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes  [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

State the aggregate market value of the voting and non-voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were last sold, or the average bid and asked price of such partnership interests, as of the last business day of the registrant’s most recently completed second fiscal quarter.  No market exists for the partnership interests of the Registrant, and, therefore, no aggregate market value can be determined.

DOCUMENTS INCORPORATED BY REFERENCE

None

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Annual Report contains or may contain information that is forward-looking within the meaning of the federal securities laws, including, without limitation, statements regarding the effect of redevelopments, the Partnership’s future financial performance, including the Partnership’s ability to maintain current or meet projected occupancy and rent levels, and the effect of government regulations. Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors some of which are beyond the Partnership’s control including, without limitation: financing risks, including the availability and cost of financing and the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; natural disasters and severe weather such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect the Partnership’s properties and interpretations of those regulations; the competitive environment in which the Partnership operates; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for residents in such markets; insurance risk, including the cost of insurance; development risks; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the Partnership. Readers should carefully review the Partnership’s financial statements and the notes thereto, as well as the other documents the Partnership files from time to time with the Securities and Exchange Commission.

PART I

Item 1.     Business

Consolidated Capital Institutional Properties/3 (the “Partnership” or “Registrant”) was organized on May 23, 1984, as a limited partnership under the California Uniform Limited Partnership Act. Commencing July 23, 1985, the Partnership offered 800,000 Units of Limited Partnership Interests (the "Units") at a purchase price of $250 per Unit pursuant to a Registration Statement filed with the Securities and Exchange Commission. The Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The sale of Units terminated on May 15, 1987, with 383,033 Units sold for an aggregate of approximately $95,758,000. Since its initial offering, the Partnership has not received, nor are limited partners required to make, additional capital contributions.

The general partner of the Partnership is ConCap Equities, Inc. ("CEI" or the "General Partner"), a Delaware corporation.  The General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2015 unless terminated prior to such date. The Partnership Agreement also provides that the term of the Partnership cannot be extended beyond the termination date.

On October 2, 2008, the Partnership changed its domicile from California to Delaware by merging with and into Consolidated Capital Institutional Properties/3, LP, a Delaware limited partnership, with the Delaware partnership as the surviving entity in the merger. The merger was undertaken pursuant to an Agreement and Plan of Merger, dated as of August 29, 2008, by and between the California partnership and the Delaware partnership. All references herein to the Partnership shall mean Consolidated Capital Institutional Properties/3, a California limited partnership, for all periods prior to October 2, 2008 and Consolidated Capital Institutional Properties/3, LP, a Delaware limited partnership, for all periods from and after October 2, 2008.

Under the merger agreement, each unit of limited partnership interest in the California partnership was converted into an identical unit of limited partnership interest in the Delaware partnership and the general partnership interest in the California partnership previously held by the general partner was converted into a general partnership interest in the Delaware partnership. All interests in the Delaware partnership outstanding immediately prior to the merger were cancelled in the merger.

The voting and other rights of the limited partners provided for in the partnership agreement were not changed as a result of the merger. In the merger, the partnership agreement of the California partnership was adopted as the partnership agreement of the Delaware partnership, with the following changes: (i) references therein to the California Uniform Limited Partnership Act were amended to refer to the Delaware Revised Uniform Limited Partnership Act; (ii) a description of the merger was added; (iii) the name of the partnership was changed to “Consolidated Capital Institutional Properties/3, LP” and (iv) a provision was added that gives the general partner authority to establish different designated series of limited partnership interests that have separate rights with respect to specified partnership property, and profits and losses associated with such specified property.

The Partnership is engaged in the business of operating and holding real estate properties for investment. The Partnership was formed for the benefit of its Limited Partners (herein so called and together with the General Partner shall be called the "Partners") to lend funds to ConCap Equity Partners/3, ConCap Equity Partners/4, and ConCap Equity Partners/5 ("EP/3", "EP/4" and "EP/5", respectively). EP/3, EP/4 and EP/5 represent California limited partnerships in which certain of the partners were former shareholders and former management of Consolidated Capital Equities Corporation ("CCEC"), the former corporate general partner of the Partnership.

Through December 31, 1994, the Partnership had made twelve specific loans against a Master Loan agreement and advanced a total of $67,300,000 (the "Master Loan"). EP/3 used $17,300,000 of the loaned funds to purchase two apartment complexes and one office building. EP/4 used $34,700,000 of the loaned funds to purchase four apartment complexes and one office building, which was subsequently sold in 1989. EP/5 used $15,300,000 of the loaned funds to purchase two apartment complexes and two office buildings. Through a series of transactions, the Partnership has acquired all of EP/3, EP/4 and EP/5's properties in full settlement of their liability under the Master Loan. For a brief description of the properties owned by the Partnership refer to "Item 2. Properties".

Upon the Partnership's formation in 1984, CCEC, a Colorado corporation, was the corporate general partner. In 1988, through a series of transactions, Southmark Corporation ("Southmark") acquired controlling interest in CCEC.  In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan, CEI acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships (the "Affiliated Partnerships") and CEI replaced CCEC as managing general partner in all 16 partnerships.  The selection of CEI as the sole managing general partner was approved by a majority of the limited partners in the Partnership and in each of the Affiliated Partnerships pursuant to a solicitation of the Limited Partners dated August 10, 1990.  As part of this solicitation, the Limited Partners also approved an amendment to the Partnership Agreement to limit changes of control of the Partnership. As of December 31, 2008, AIMCO IPLP, L.P. an affiliate of AIMCO, owned 100% of the outstanding stock of CEI.

The Partnership has no employees. Management and administrative services are provided by the General Partner and by agents retained by the General Partner. An affiliate of the General Partner provides such property management services at the Partnership’s properties. 

A further description of the Partnership's business is included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K.

Item 2.     Properties

The following table sets forth the Partnership's investment in properties:

(1)   The Partnership has determined that its investment property, Sienna Bay Apartments, met the held for sale criteria at December 31, 2009, and accordingly, the assets and liabilities of the property have been classified as held for sale on the balance sheets at December 31, 2009 and 2008 and the operations of the property have been shown as loss from discontinued operations in the statements of operations for the years ended December 31, 2009 and 2008.

On September 30, 2009, the Partnership sold Williamsburg Manor Apartments to a third party for a gross sales price of $10,350,000. The net proceeds realized by the Partnership were approximately $10,170,000 after payment of closing costs. The Partnership used approximately $4,871,000 of the net proceeds to repay the mortgage encumbering the property. The Partnership realized a gain on sale of discontinued operations of approximately $6,342,000 during the year ended December 31, 2009 as a result of the sale. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $492,000 during the year ended December 31, 2009, which is included in loss from discontinued operations, due to the write-off of unamortized loan costs and the payment of a prepayment penalty associated with the payment of the mortgage of approximately $465,000.

On June 6, 2008, the Partnership sold Park Capitol Apartments to a third party for a gross sales price of $12,250,000. The net proceeds realized by the Partnership were approximately $11,904,000 after payment of closing costs. The Partnership used approximately $4,738,000 of the net proceeds to repay the mortgage encumbering the property. The Partnership realized a gain on sale of discontinued operations of approximately $9,924,000 during the year ended December 31, 2008 as a result of the sale. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $383,000 during the year ended December 31, 2008, which is included in loss from discontinued operations, due to the write-off of unamortized loan costs and the payment of a prepayment penalty associated with the payment of the mortgage of approximately $315,000.

Subsequent to December 31, 2009, the Partnership sold Sienna Bay Apartments to a third party for a gross sales price of $16,850,000. The net proceeds realized by the Partnership were approximately $3,468,000 after payment of closing costs of approximately $296,000, the assumption of the mortgage of approximately $10,586,000 by the purchaser and financing of $2,500,000 provided by the Partnership. The Partnership expects to recognize a gain from sale of discontinued operations of approximately $7,689,000 during the first quarter of 2010 as a result of the sale and a loss on extinguishment of debt of approximately $44,000 due to the write-off of unamortized loan costs. In connection with the sale of Sienna Bay Apartments, the Partnership provided $2,500,000 in partial financing to the purchaser (the “Seller Loan”). Monthly payments of interest only commence May 1, 2010 through the Seller Loan’s October 10, 2012 maturity, which is consistent with the maturity of the senior mortgage loan encumbering Sienna Bay Apartments that was assumed by the purchaser in connection with the sale. Interest on the Seller Loan will be payable at a rate of 5.0% each year until maturity.

Schedule of Properties

Set forth below for each of the Partnership's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis.

See "Note A" of the Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for a description of the Partnership's capitalization and depreciation policies.

The gross carrying value, accumulated depreciation and Federal tax basis of Sienna Bay Apartments, which are shown as assets held for sale at December 31, 2009, were approximately $18,637,000, $9,935,000 and $9,106,000, respectively.

Schedule of Property Indebtedness

The following table sets forth certain information relating to the loans encumbering the Partnership's properties.

(1)   Fixed rate mortgages.

(2)   See "Item 8. Financial Statements and Supplementary Data – Note C" for information with respect to the Partnership's ability to prepay the loans and other specific details about the loans.

The principal balance of the fixed rate mortgage encumbering Sienna Bay Apartments at December 31, 2009 is approximately $10,630,000 and is included in liabilities related to assets held for sale. In connection with the sale of Sienna Bay Apartments in March 2010 the mortgage loan was assumed by the buyer.

On March 31, 2009, the Partnership obtained a second mortgage loan in the principal amount of $4,030,000 on Cedar Rim Apartments. The second mortgage bears interest at a fixed interest rate of 6.45% per annum and requires monthly payments of principal and interest of approximately $25,000 beginning May 1, 2009 through the August 1, 2021 maturity date.  The second mortgage has a balloon payment of approximately $3,209,000 due at maturity. The Partnership may prepay the second mortgage at any time with 30 days written notice to the lender subject to a prepayment penalty. As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain non-recourse carve-out obligations of the Partnership with respect to the new mortgage financing. In connection with the new loan, the Partnership incurred loan costs of approximately $78,000, which were capitalized during the year ended December 31, 2009 and are included in other assets.

In connection with the second mortgage loan, the Partnership also agreed to certain modifications on the existing mortgage loan encumbering Cedar Rim Apartments. The modification includes a fixed interest rate of 7.49% per annum and monthly payments of principal and interest of approximately $27,000, commencing May 1, 2009 through the August 1, 2021 maturity date, at which time a balloon payment of approximately $3,189,000 is due. Total loan costs associated with the modification of the existing mortgage were approximately $20,000 for the year ended December 31, 2009, and are included in general and administrative expenses.  The previous terms were a fixed interest rate of 7.49% per annum and monthly payments of principal and interest of approximately $40,000 through the August 1, 2021 maturity date, at which date the mortgage was scheduled to be fully amortized. The Partnership may prepay the first mortgage loan at any time subject to a prepayment penalty.  As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain non-recourse carve-out obligations of the Partnership with respect to the modified loan.

On October 5, 2009, the Partnership obtained a second mortgage loan in the principal amount of $2,600,000 on Tamarac Village Apartments.  The second mortgage bears interest at a fixed interest rate of 6.48% per annum and requires monthly payments of principal and interest of approximately $16,000, beginning December 1, 2009 through the July 1, 2021 maturity date. The second mortgage has a balloon payment of approximately $2,113,000 due at maturity. The Partnership may prepay the second mortgage at any time with 30 days written notice to the lender subject to a prepayment penalty. As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain non-recourse carve-out obligations of the Partnership with respect to the new mortgage financing. In connection with the new loan, the Partnership incurred loan costs of approximately $79,000, which were capitalized during the year ended December 31, 2009 and are included in other assets.

In connection with the second mortgage loan, the Partnership also agreed to certain modifications on the existing mortgage loan encumbering Tamarac Village Apartments. The modification includes a fixed interest rate of 7.45% per annum and monthly payments of principal and interest of approximately $110,000, commencing December 1, 2009, through the maturity date of July 1, 2021, at which time a balloon payment of approximately $13,201,000 is due. Total loan costs associated with the modification of the existing mortgage were approximately $12,000 for the year ended December 31, 2009, and are included in general and administrative expenses. The previous terms were a fixed interest rate of 7.45% per annum and monthly payments of principal and interest of approximately $169,000 through the July 1, 2021 maturity date, at which date the mortgage was scheduled to be fully amortized. The Partnership may prepay the first mortgage loan at any time subject to a prepayment penalty. As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain non-recourse carve-out obligations of the Partnership with respect to the modified loan.

Schedule of Rental Rates and Occupancy

Average annual rental rates and occupancy for 2009 and 2008 for each property were as follows:

(1)      The General Partner attributes the increase in occupancy at Cedar Rim Apartments to the completion of the redevelopment of the property during the fourth quarter of 2008.

(2)      The General Partner attributes the decrease in occupancy at Lamplighter Park Apartments and Tamarac Village Apartments to poor economic conditions in the local areas.

The real estate industry is highly competitive. All of the Partnership's properties are subject to competition from other residential apartment complexes in the area. The General Partner believes that all of the properties are adequately insured. The properties are apartment complexes which lease units for terms of one year or less. No tenant leases 10% or more of the available rental space. The properties are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age.

Schedule of Real Estate Taxes and Rates

Real estate taxes and rates for each property were as follows:

Capital Improvements

Cedar Rim Apartments

During the year ended December 31, 2009, the Partnership completed approximately $321,000 of capital improvements at the property consisting primarily of building improvements, electrical upgrades and furniture replacements.  These improvements were funded from operating cash flow. During 2006, the Partnership began a major redevelopment project at Cedar Rim Apartments in order to become more competitive with other properties in the area in an effort to increase occupancy at the property.  The redevelopment was completed as of December 31, 2008 at a total cost of approximately $14,428,000, of which approximately $3,547,000 was completed during the year ended December 31, 2008. During the year ended December 31, 2009, the Partnership reversed approximately $259,000 of costs that were previously accrued and capitalized as part of the redevelopment due to the settlement of a vendor dispute. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2010. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

Lamplighter Park Apartments

During the year ended December 31, 2009, the Partnership completed approximately $339,000 of capital improvements at the property consisting primarily of building improvements, common area painting, floor covering and appliance replacements, lighting, fire safety upgrades and construction related to the casualties discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These improvements were funded from operating cash flow and insurance proceeds. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated in 2010. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

Tamarac Village Apartments

During the year ended December 31, 2009, the Partnership completed approximately $492,000 of capital improvements at the property consisting primarily of floor covering and appliance replacements, kitchen and bath resurfacing, structural improvements, fire safety, elevator and heating unit upgrades and construction related to the casualty discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These improvements were funded from operating cash flow and insurance proceeds. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated in 2010. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

Williamsburg Manor Apartments

During the year ended December 31, 2009, the Partnership completed approximately $150,000 of capital improvements at the property consisting primarily of air conditioning unit upgrades and floor covering replacement. These improvements were funded from operating cash flow. This property was sold during September 2009.

Sienna Bay Apartments

During the year ended December 31, 2009, the Partnership completed approximately $153,000 of capital improvements at the property consisting primarily of floor covering and furniture replacements and kitchen and bath resurfacing. These improvements were funded from operating cash flow. This property is classified as held for sale at December 31, 2009 and was sold during the first quarter of 2010.

Capital expenditures will be incurred only if cash is available from operations, Partnership reserves or advances from AIMCO Properties, L.P., although AIMCO Properties, L.P. is not obligated to fund such advances. To the extent that capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term.

Item 3.     Legal Proceedings

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”).  The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company (“the Defendants”) failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”).  In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions.  In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel.  As a result, the lawsuits asserted in the 22 Federal courts have been dismissed.  During the fourth quarter of 2008, the Partnership paid approximately $5,000 for settlement amounts for alleged unpaid overtime to employees who had worked at the Partnership’s investment properties. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The parties have selected six “on-call” claims that will proceed forward through the arbitration process and have selected arbitrators. After those arbitrations have been completed, the parties will revisit settling the on-call claims. The first two arbitrations took place in December 2009 and the Defendants received a defense verdict against the first two claimants, and plaintiffs dismissed the claims of the next two claimants. The remaining two arbitrations will take place in April 2010. The General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.

                                       PART II

Item 5.     Market for the Registrant's Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities

The Partnership, a publicly held limited partnership, sold 383,033 limited partnership units (the "Units") aggregating approximately $95,758,000. The Partnership currently has 6,725 holders of record owning an aggregate of 382,983.8 Units. Affiliates of the General Partner owned 239,212 units or 62.46% at December 31, 2009. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future.

The Partnership made no distributions during the years ended December 31, 2009 and 2008. Subsequent to December 31, 2009, the Partnership paid a distribution of approximately $1,673,000 (approximately $1,657,000 or $4.32 per limited partnership unit) from proceeds from the March 5, 2009 sale of Sienna Bay Apartments. Future cash distributions will depend on the levels of cash generated from operations, and the timing of debt maturities, property sales and/or refinancings. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after required capital improvement expenditures, to permit any additional distributions to its partners in 2010 or subsequent periods. See "Item 2. Properties – Capital Improvements" for information relating to anticipated capital expenditures at the properties.

In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 239,212 Units in the Partnership representing 62.46% of the outstanding Units at December 31, 2009. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 62.46% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder.

Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations

This item should be read in conjunction with the financial statements and other items contained elsewhere in this report.

The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment properties, interest rates on mortgage loans, costs incurred to operate the investment properties, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, the General Partner may use rental concessions and rental rate reductions to offset softening market conditions, accordingly, there is no guarantee that the General Partner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnership’s financial results.

Results of Operations

The Partnership’s net income was approximately $1,031,000 and $5,189,000 for the years ended December 31, 2009 and 2008, respectively. The statement of operations for the year ended December 31, 2008 has been restated to reflect the operations of Williamsburg Manor Apartments and Sienna Bay Apartments as discontinued operations as a result of the sale of Williamsburg Manor Apartments in September 2009 and Sienna Bay Apartments being classified as held for sale at December 31, 2009. The Partnership entered into a sale contract on August 14, 2009 to sell Sienna Bay Apartments to a third party. The sale was completed during the first quarter of 2010. The operations of these two properties are included in loss from discontinued operations for the year ended December 31, 2009. The statement of operations for the year ended December 31, 2008 also includes the operations of Park Capitol Apartments as discontinued operations as a result of its sale during June 2008. The respective assets and liabilities of Sienna Bay Apartments are classified as held for sale at December 31, 2009 and the balance sheet as of December 31, 2008 has been restated to reflect the classification of the respective assets and liabilities of both Williamsburg Manor Apartments and Sienna Bay Apartments as held for sale at December 31, 2008. Included in loss from discontinued operations for the years ended December 31, 2009 and 2008 are (loss) income and revenues as noted in the table below.

The following table presents summarized results of operations related to the Partnership’s discontinued operations for the years ended December 31, 2009 and 2008 (in thousands):

On August 14, 2009, the Partnership entered into a sale contract with a third party relating to the sale of Sienna Bay Apartments. The sale was completed during the first quarter of 2010. In connection with the sale of Sienna Bay Apartments, the Partnership agreed to provide partial seller financing to the buyer in the amount of $2,500,000 and will accrue interest at a rate of 5% each year until maturity. The Partnership determined that the held for sale criteria were met at December 31, 2009 and has classified the assets and liabilities of Sienna Bay Apartments as held for sale and its respective operations as discontinued operations for the years ended December 31, 2009 and 2008. In connection with the sale contract, the Partnership received a non-refundable sale deposit of $1,000,000 during the year ended December 31, 2009 which is included as deferred revenue in liabilities related to assets held for sale at December 31, 2009. Subsequent to December 31, 2009, the Partnership received an additional non-refundable sale deposit of $1,500,000 – see “Item 8. Financial Statements and Supplementary Data – Note J”.

On September 30, 2009, the Partnership sold Williamsburg Manor Apartments to a third party for a gross sales price of $10,350,000. The net proceeds realized by the Partnership were approximately $10,170,000 after payment of closing costs. The Partnership used approximately $4,871,000 of the net proceeds to repay the mortgage encumbering the property. The Partnership realized a gain on sale of discontinued operations of approximately $6,342,000 as a result of the sale, which was recognized during the year ended December 31, 2009. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $492,000 during the year ended December 31, 2009, which is included in loss from discontinued operations, due to the write-off of unamortized loan costs and the payment of a prepayment penalty associated with the payment of the mortgage of approximately $465,000.

On June 6, 2008, the Partnership sold Park Capitol Apartments to a third party for a gross sales price of $12,250,000. The net proceeds realized by the Partnership were approximately $11,904,000 after payment of closing costs. The Partnership used approximately $4,738,000 of the net proceeds to repay the mortgage encumbering the property. The Partnership realized a gain on sale of discontinued operations of approximately $9,924,000 as a result of the sale, which was recognized during the year ended December 31, 2008. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $383,000 during the year ended December 31, 2008, which is included in loss from discontinued operations, due to the write-off of unamortized loan costs and the payment of a prepayment penalty associated with the payment of the mortgage of approximately $315,000.

The Partnership recognized a loss from continuing operations of approximately $4,010,000 and $3,682,000 for the years ended December 31, 2009 and 2008, respectively. The increase in loss from continuing operations for the year ended December 31, 2009 is due to a decrease in total revenues and an increase in total expenses, partially offset by an increase in casualty gain.

Total revenues decreased for the year ended December 31, 2009 due to decreases in both rental and other income. Rental income decreased due to a decrease in occupancy at Tamarac Village Apartments and Lamplighter Park Apartments, a decrease in average rental rates at Lamplighter Park Apartments and an increase in bad debt expense at all properties, partially offset by an increase in occupancy at Cedar Rim Apartments and an increase in average rental rates at Tamarac Village Apartments and Cedar Rim Apartments. Other income decreased primarily due to a decrease in tenant utility reimbursements as a result of lower heating costs at Tamarac Village Apartments, partially offset by an increase in lease cancellation fees and other administrative fees at Lamplighter Park Apartments as a result of turnover of apartments due to layoffs in the local area.

Total expenses increased for the year ended December 31, 2009 due to increases in operating, depreciation, and property tax expenses, partially offset by decreases in interest and general and administrative expenses. Operating expense increased due to a decrease in payroll costs capitalized associated with mold abatement and redevelopment during 2008 at Cedar Rim Apartments and an increase in contract services primarily at Lamplighter Park Apartments as a result of cleaning and painting apartments due to an increase in lease cancellations, partially offset by decreases in administrative fees primarily at Lamplighter Park Apartments due to the property no longer accepting credit cards and a reduction of common area cleaning costs as a result of changing vendors. Depreciation expense increased due to assets being placed into service primarily at Cedar Rim Apartments as a result of the completion of the redevelopment. Property tax expense increased due to increases in the assessed values at Lamplighter Park Apartments, Tamarac Village Apartments and Cedar Rim Apartments and a decrease in capitalized taxes at Cedar Rim Apartments. Interest expense decreased primarily due to a decrease in interest on advances from AIMCO Properties, L.P., an affiliate of the General Partner, as a result of payments made on the advances during 2008 and 2009, partially offset by an increase in interest expense as a result of the second mortgages obtained on Cedar Rim Apartments during March 2009 and Tamarac Village Apartments during October 2009 and a decrease in capitalized interest at Cedar Rim Apartments related to the redevelopment project.

General and administrative expense decreased for the year ended December 31, 2009 due to a decrease in management reimbursements to the General Partner as allowed under the Partnership Agreement as a result of a decrease in reimbursement costs and the sale of a property during 2008, partially offset by an increase in costs incurred by the Partnership associated with communications to regulatory agencies and investors and costs incurred with the modification of the first mortgage at Cedar Rim Apartments during March 2009 and the modification of the first mortgage at Tamarac Village Apartments during October 2009. Also included in general and administrative expenses for the years ended December 31, 2009 and 2008 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement.

During September 2007, one of the Partnership’s investment properties, Williamsburg Manor Apartments, sustained fire damage.  During the year ended December 31, 2007, the Partnership received approximately $25,000 in insurance proceeds and recognized a casualty gain of approximately $8,000 as a result of the write off of undepreciated damaged assets of approximately $17,000.  During the year ended December 31, 2008, the Partnership received approximately $38,000 in additional insurance proceeds and recognized an additional casualty gain of approximately $33,000, which is included in loss from discontinued operations, as a result of an additional write off of undepreciated damaged assets of approximately $5,000.  The Partnership does not expect to receive any further insurance proceeds related to this casualty.

During December 2007, one of the Partnership’s investment properties, Lamplighter Park Apartments, sustained flood damage to several of its apartment units of approximately $70,000. The casualty gain recognized by the Partnership as of December 31, 2008 was approximately $60,000 as a result of receiving approximately $108,000 in insurance proceeds during the year ended December 31, 2008, including approximately $38,000 for emergency expenses, and the write off of undepreciated assets of approximately $10,000. The Partnership does not expect to receive any further insurance proceeds related to this casualty.

During June 2008, one of the Partnership’s investment properties, Lamplighter Park Apartments, sustained damage from a fire of approximately $24,000. During the year ended December 31, 2009, the Partnership received approximately $14,000 in insurance proceeds and recognized a casualty gain of approximately $11,000 as a result of the write off of undepreciated damaged assets of approximately $3,000 during the year ended December 31, 2009.

During August 2008, one of the Partnership’s investment properties, Lamplighter Park Apartments, sustained damage from a fire of approximately $30,000 which included clean-up costs of approximately $9,000. During the year ended December 31, 2008, the Partnership removed approximately $2,000 of undepreciated damaged assets and recorded a corresponding receivable for the estimated insurance proceeds. During the year ended December 31, 2009, the Partnership received approximately $20,000 in insurance proceeds and recognized a casualty gain of approximately $18,000 as a result of the write off of undepreciated assets of approximately $2,000 during the year ended December 31, 2009.

During August 2009, one of the Partnership’s investment properties, Tamarac Village Apartments, sustained water damage from excessive rainfall of approximately $123,000. The casualty gain recognized by the Partnership was approximately $68,000 as a result of receiving approximately $113,000 in insurance proceeds, including approximately $4,000 for lost rents and approximately $35,000 for emergency expenses, and the write off of undepreciated assets of approximately $6,000 during the year ended December 31, 2009.

Liquidity and Capital Resources

At December 31, 2009, the Partnership had cash and cash equivalents of approximately $196,000 compared to approximately $367,000 at December 31, 2008. The decrease in cash and cash equivalents of approximately $171,000 is due to approximately $10,222,000 of cash used in financing activities, partially offset by approximately $9,458,000 and $593,000 of cash provided by investing and operating activities, respectively.  Cash used in financing activities consisted of repayment of advances from affiliates, repayment of the debt encumbering Williamsburg Manor Apartments, a prepayment penalty, loan costs paid and payments on mortgage notes payable, partially offset by proceeds from the second mortgage notes payable and advances from affiliates. Cash provided by investing activities consisted of proceeds from the sale of Williamsburg Manor Apartments, proceeds related to the Sienna Bay Apartments sale deposits and insurance proceeds received, partially offset by property improvements and replacements and deposits to restricted escrow.

During the year ended December 31, 2009, AIMCO Properties, L.P., an affiliate of the General Partner advanced the Partnership approximately $53,000 to cover expenses related to operations at each of the Partnership’s properties and approximately $81,000 for a refinance commitment fee at Cedar Rim Apartments. During the year ended December 31, 2008, AIMCO Properties, L.P., advanced the Partnership approximately $1,970,000 to cover expenses related to operations at each of the Partnership’s properties and approximately $4,416,000 to cover redevelopment costs at Cedar Rim Apartments. During the year ended December 31, 2009, the Partnership repaid AIMCO Properties, L.P. approximately $11,762,000 which included approximately $1,435,000 of accrued interest, with proceeds from the mortgage debt financings at Cedar Rim Apartments and Tamarac Village Apartments, as discussed below, proceeds from the sale of Williamsburg Manor Apartments, the sale deposit related to Sienna Bay Apartments and operating cash flow. During the year ended December 31, 2008, the Partnership repaid AIMCO Properties, L.P. approximately $6,431,000, which included approximately $205,000 of accrued interest, with proceeds from the sale of Park Capitol Apartments. AIMCO Properties, L.P. charges interest on advances under the terms permitted by the Partnership Agreement. The interest rates charged on the outstanding advances made to the Partnership range from the prime rate to a variable rate based on the prime rate plus a market rate adjustment for similar type loans.  Affiliates of the General Partner review the market rate adjustment quarterly.  The interest rate on outstanding advances at December 31, 2009 is 3.94%. Interest expense on outstanding advance balances was approximately $421,000 and $945,000 for the years ended December 31, 2009 and 2008, respectively. Total advances and accrued interest of approximately $619,000 and $11,826,000 were unpaid and are owed to AIMCO Properties, L.P. at December 31, 2009 and December 31, 2008, respectively, and are included in due to affiliates. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.  Subsequent to December 31, 2009, the Partnership repaid AIMCO Properties, L.P. approximately $621,000, which included approximately $7,000 of accrued interest, with proceeds from additional deposits received in advance of the sale of Sienna Bay Apartments.

On March 31, 2009, the Partnership obtained a second mortgage loan in the principal amount of $4,030,000 on Cedar Rim Apartments. The second mortgage bears interest at a fixed interest rate of 6.45% per annum and requires monthly payments of principal and interest of approximately $25,000 beginning May 1, 2009 through the August 1, 2021 maturity date.  The second mortgage has a balloon payment of approximately $3,209,000 due at maturity. The Partnership may prepay the second mortgage at any time with 30 days written notice to the lender subject to a prepayment penalty. As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain non-recourse carve-out obligations of the Partnership with respect to the new mortgage financing. In connection with the new loan, the Partnership incurred loan costs of approximately $78,000, which were capitalized during the year ended December 31, 2009 and are included in other assets.

In connection with the second mortgage loan, the Partnership also agreed to certain modifications on the existing mortgage loan encumbering Cedar Rim Apartments. The modification includes a fixed interest rate of 7.49% per annum and monthly payments of principal and interest of approximately $27,000, commencing May 1, 2009 through the August 1, 2021 maturity date, at which time a balloon payment of approximately $3,189,000 is due. Total loan costs associated with the modification of the existing mortgage were approximately $20,000 for the year ended December 31, 2009, and are included in general and administrative expenses. The previous terms were a fixed interest rate of 7.49% per annum and monthly payments of principal and interest of approximately $40,000 through the August 1, 2021 maturity date, at which date the mortgage was scheduled to be fully amortized. The Partnership may prepay the first mortgage loan at any time subject to a prepayment penalty.  As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain non-recourse carve-out obligations of the Partnership with respect to the modified loan.

On October 5, 2009, the Partnership obtained a second mortgage loan in the principal amount of $2,600,000 on Tamarac Village Apartments.  The second mortgage bears interest at a fixed interest rate of 6.48% per annum and requires monthly payments of principal and interest of approximately $16,000, beginning December 1, 2009 through the July 1, 2021 maturity date. The second mortgage has a balloon payment of approximately $2,113,000 due at maturity. The Partnership may prepay the second mortgage at any time with 30 days written notice to the lender subject to a prepayment penalty. As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain non-recourse carve-out obligations of the Partnership with respect to the new mortgage financing. In connection with the new loan, the Partnership incurred loan costs of approximately $79,000, which were capitalized during the year ended December 31, 2009 and are included in other assets.

In connection with the second mortgage loan, the Partnership also agreed to certain modifications on the existing mortgage loan encumbering Tamarac Village Apartments. The modification includes a fixed interest rate of 7.45% per annum and monthly payments of principal and interest of approximately $110,000, commencing December 1, 2009, through the maturity date of July 1, 2021, at which time a balloon payment of approximately $13,201,000 is due. Total loan costs associated with the modification of the existing mortgage were approximately $12,000 for the year ended December 31, 2009, and are included in general and administrative expenses. The previous terms were a fixed interest rate of 7.45% per annum and monthly payments of principal and interest of approximately $169,000 through the July 1, 2021 maturity date, at which date the mortgage was scheduled to be fully amortized. The Partnership may prepay the first mortgage loan at any time subject to a prepayment penalty. As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain non-recourse carve-out obligations of the Partnership with respect to the modified loan.

The Partnership's assets are thought to be generally sufficient for near-term needs (exclusive of capital improvements and repayment of amounts due to affiliates) of the Partnership. The mortgage indebtedness encumbering the Partnership’s properties of approximately $36,823,000 requires monthly payments until the loans mature between July 2019 and August 2021 and have balloon payments totaling approximately $30,275,000 due at maturity. The General Partner may attempt to refinance such indebtedness and/or sell the properties prior to termination of the Partnership.

The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. The General Partner monitors developments in the area of legal and regulatory compliance. The Partnership regularly evaluates the capital improvement needs of its properties. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated in 2010. Such capital expenditures will depend on the physical condition of the properties as well as anticipated cash flow generated by the properties. Capital expenditures will be incurred only if cash is available from operations, Partnership reserves or advances from AIMCO Properties, L.P., although AIMCO Properties, L.P. is not obligated to fund such advances. To the extent that capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term.

The Partnership made no distributions during the years ended December 31, 2009 and 2008. Subsequent to December 31, 2009, the Partnership paid a distribution of approximately $1,673,000 (approximately $1,657,000 or $4.32 per limited partnership unit) from proceeds from the March 5, 2009 sale of Sienna Bay Apartments. Future cash distributions will depend on the levels of cash generated from operations, and the timing of debt maturities, property sales and/or refinancings. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after required capital improvement expenditures, to permit any additional distributions to its partners in 2010 or subsequent periods. See "Item 2. Properties – Capital Improvements" for information relating to anticipated capital expenditures at the properties.

In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 239,212 Units in the Partnership representing 62.46% of the outstanding Units at December 31, 2009. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 62.46% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder.

Critical Accounting Policies and Estimates

A summary of the Partnership’s significant accounting policies is included in "Note A – Organization and Summary of Significant Accounting Policies" which is included in the financial statements in "Item 8. Financial Statements and Supplementary Data". The General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the financial statements with useful and reliable information about the Partnership’s operating results and financial condition. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnership’s accounting policies in many areas. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

Impairment of Long-Lived Assets

Investment properties are recorded at cost, less accumulated depreciation, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property.   If the carrying amount exceeds the estimated aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.

Real property investment is subject to varying degrees of risk.  Several factors may adversely affect the economic performance and value of the Partnership’s investment properties.  These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing; and changes in interest rates and the availability of financing. Any adverse changes in these and other factors could cause an impairment of the Partnership’s assets.

Capitalized Costs Related to Redevelopment and Construction Projects

The Partnership capitalizes costs incurred in connection with capital expenditure activities, including redevelopment and construction projects. Costs including interest, property taxes and operating costs associated with redevelopment and construction projects are capitalized during periods in which redevelopment and construction projects are in progress. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level. 

Revenue Recognition

The Partnership generally leases apartment units for twelve-month terms or less.  The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area.  Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease.  The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.

Assets Held for Sale

The Partnership classifies long-lived assets as held for sale in the period in which all of the following criteria are met: management, having the authority to approve the action, commits to a plan to sell the asset; the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; the sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year; the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Depreciation is not recorded during the period in which the long-lived asset is classified as held for sale.  When the asset is designated as held for sale, the related results of operations are presented as discontinued operations.

Item 8.     Financial Statements and Supplementary Data

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

LIST OF FINANCIAL STATEMENTS

      Report of Independent Registered Public Accounting Firm

      Balance Sheets - December 31, 2009 and 2008

      Statements of Operations - Years ended December 31, 2009 and 2008

Statements of Changes in Partners' Deficit - Years ended December 31, 2009 and 2008

      Statements of Cash Flows - Years ended December 31, 2009 and 2008

      Notes to Financial Statements

Report of Independent Registered Public Accounting Firm

The Partners

Consolidated Capital Institutional Properties/3, LP

We have audited the accompanying balance sheets of Consolidated Capital Institutional Properties/3, LP as of December 31, 2009 and 2008, and the related statements of operations, changes in partners' deficit, and cash flows for each of the two years in the period ended December 31, 2009. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Consolidated Capital Institutional Properties/3, LP as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

/s/ERNST & YOUNG LLP

Greenville, South Carolina

April 9, 2010

                 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

                                   BALANCE SHEETS

                          (in thousands, except unit data)

See Accompanying Notes to Financial Statements

                 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

                              STATEMENTS OF OPERATIONS

                        (in thousands, except per unit data)

See Accompanying Notes to Financial Statements

                 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

                     STATEMENTS OF CHANGES IN PARTNERS' DEFICIT

                          (in thousands, except unit data)

See Accompanying Notes to Financial Statements

      CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

STATEMENTS OF CASH FLOWS

 (in thousands)

At December 31, 2007, accounts payable included approximately $2,156,000 of property improvements and replacements which are included in property improvements and replacements at December 31, 2008. Approximately $259,000 of property improvements and replacements which were included in accounts payable at December 31, 2008 were reversed during the year ended December 31, 2009 due to the settlement of a vendor dispute.

See Accompanying Notes to Financial Statements

                 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

                            NOTES TO FINANCIAL STATEMENTS

                                  December 31, 2009

Note A - Organization and Summary of Significant Accounting Policies

Organization: Consolidated Capital Institutional Properties/3 (the “Partnership” or “Registrant”), a California limited partnership, was formed on May 23, 1984, to lend funds through non-recourse notes with participation interests (the "Master Loan"). The loans were made to, and the real properties that secure the Master Loan were purchased and owned by, ConCap Equity Partners/3, ConCap Equity Partners/4, and ConCap Equity Partners/5, ("EP/3", "EP/4", and "EP/5", respectively), California limited partnerships, in which certain of the partners were former shareholders and former management of Consolidated Capital Equities Corporation ("CCEC"). The Partnership entered into a Master Loan Agreement with EP/3, EP/4, and EP/5, pursuant to which the aggregate principal would not exceed the net amount raised by the Partnership's offering of approximately $96,000,000. Through a series of transactions, the Partnership has acquired all of EP/3, EP/4 and EP/5's properties in full settlement of their liability under the Master Loan.

Upon the Partnership's formation in 1984, CCEC, a Colorado corporation, was the corporate general partner. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). In 1990, as part of CCEC's reorganization plan, ConCap Equities, Inc., a Delaware corporation (the "General Partner" or "CEI") acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships and replaced CCEC as managing general partner in all 16 partnerships. The General Partner is an affiliate of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2015 unless terminated prior to such date. The Partnership Agreement also provides that the term of the Partnership cannot be extended beyond the termination date.

On October 2, 2008, the Partnership changed its domicile from California to Delaware by merging with and into Consolidated Capital Institutional Properties/3, LP, a Delaware limited partnership, with the Delaware partnership as the surviving entity in the merger. The merger was undertaken pursuant to an Agreement and Plan of Merger, dated as of August 29, 2008, by and between the California partnership and the Delaware partnership. All references herein to the Partnership shall mean Consolidated Capital Institutional Properties/3, a California limited partnership, for all periods prior to October 2, 2008 and Consolidated Capital Institutional Properties/3, LP, a Delaware limited partnership, for all periods from and after October 2, 2008.

Under the merger agreement, each unit of limited partnership interest in the California partnership was converted into an identical unit of limited partnership interest in the Delaware partnership and the general partnership interest in the California partnership previously held by the general partner was converted into a general partnership interest in the Delaware partnership. All interests in the Delaware partnership outstanding immediately prior to the merger were cancelled in the merger.

The voting and other rights of the limited partners provided for in the partnership agreement were not changed as a result of the merger. In the merger, the partnership agreement of the California partnership was adopted as the partnership agreement of the Delaware partnership, with the following changes: (i) references therein to the California Uniform Limited Partnership Act were amended to refer to the Delaware Revised Uniform Limited Partnership Act; (ii) a description of the merger was added; (iii) the name of the partnership was changed to “Consolidated Capital Institutional Properties/3, LP” and (iv) a provision was added that gives the general partner authority to establish different designated series of limited partnership interests that have separate rights with respect to specified partnership property, and profits and losses associated with such specified property.

The Partnership operates four apartment properties as of December 31, 2009, located throughout the United States, one of which is held for sale.

Basis of Presentation: The accompanying statement of operations for the year ended December 31, 2008 has been restated to reflect the operations of Williamsburg Manor Apartments and Sienna Bay Apartments as discontinued operations as a result of the sale of Williamsburg Manor Apartments in September 2009 and Sienna Bay Apartments being classified as held for sale at December 31, 2009. The Partnership entered into a sale contract on August 14, 2009 to sell Sienna Bay Apartments to a third party. The sale was completed during the first quarter of 2010. The operations for the year ended December 31, 2009 of these two properties are included in loss from discontinued operations. The accompanying statement of operations for the year ended December 31, 2008 also includes the operations of Park Capitol Apartments as discontinued operations as a result of its sale during June 2008. The respective assets and liabilities of Sienna Bay Apartments are classified as held for sale at December 31, 2009 and the balance sheet as of December 31, 2008 has been restated to reflect the classification of the respective assets and liabilities of both Williamsburg Manor Apartments and Sienna Bay Apartments as held for sale at December 31, 2008. Included in loss from discontinued operations for the years ended December 31, 2009 and 2008 are (loss) income and revenues as noted in the table below.

The following table presents summarized results of operations related to the Partnership’s discontinued operations for the years ended December 31, 2009 and 2008 (in thousands):

Reclassifications: Certain reclassifications have been made to the 2008 balances to conform to the 2009 presentation.

Subsequent Events: The Partnership’s management evaluated subsequent events through the time this Annual Report on Form 10-K was filed.

Recent Accounting Pronouncement: In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162, or SFAS No. 168, which is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  Upon the effective date of SFAS No. 168, the FASB Accounting Standards Codification, or the FASB ASC, became the single source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission, or SEC, under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB ASC superseded all then-existing non-SEC accounting and reporting standards, and all other non-grandfathered non-SEC accounting literature not included in the FASB ASC is now non-authoritative.  Subsequent to the effective date of SFAS No. 168, the FASB will issue Accounting Standards Updates that serve to update the FASB ASC. 

Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $20,000 and $80,000 at December 31, 2009 and 2008, respectively, that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts.

Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease, and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged the space and is current on rental payments.

Investment Properties: Investment properties consist of three apartment complexes and are stated at cost, less accumulated depreciation, unless the carrying amount of the asset is not recoverable. The Partnership capitalizes costs incurred in connection with capital expenditure activities, including redevelopment and construction projects, other tangible property improvements and replacements of existing property components. Costs including interest, property taxes and operating costs associated with redevelopment and construction projects are capitalized during periods in which redevelopment and construction projects are in progress. Costs incurred in connection with capital projects are capitalized where the costs of the project will exceed $250. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level. During the years ended December 31, 2009 and 2008, the Partnership capitalized interest of approximately $7,000 and $141,000, property taxes of approximately $1,000 and $8,000 and operating costs of approximatelyzero and $19,000, respectively.  Capitalized costs are depreciated over the useful life of the asset.  Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred.

If events or circumstances indicate that the carrying amount of a property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property.   If the carrying amount exceeds the estimated aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property. No adjustments for impairment of value were necessary for the years ending December 31, 2009 and 2008.

Abandoned Units: During 2009 and 2008, the number of limited partnership units decreased by 13.3 and 4.0 units, respectively, due to limited partners abandoning their units. In abandoning his or her partnership units, a limited partner relinquishes all right, title and interest in the Partnership as of the date of the abandonment.

Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment properties and related personal property. For Federal income tax purposes, the modified accelerated cost recovery method is used for depreciation of (1) real property over 27 ½ years and (2) personal property additions over 5 years.

Leases: The Partnership generally leases apartment units for twelve-month terms or less.  The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area.  Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease.  The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.

Deferred Costs: At December 31, 2009 and 2008, loan costs of approximately $1,269,000 and $1,112,000, respectively, less accumulated amortization of approximately $602,000 and $527,000 at December 31, 2009 and 2008, respectively, are included in other assets. Loan costs of approximately $119,000 and $182,000, less accumulated amortization of approximately $72,000 and $84,000, respectively, are included in assets held for sale at December 31, 2009 and 2008, respectively. Prior to October 1, 2009, the loan costs were amortized over the terms of the related loan agreements.  As of October 1, 2009, the Partnership changed its estimate of the useful life of the loan costs to better reflect the remaining useful life of these assets.  The Partnership term expires December 31, 2015, which is prior to the maturity of the mortgage notes payable.  The General Partner unsuccessfully pursued extending the Partnership term. Therefore, the Partnership determined that the loan costs should be amortized over the remaining life of the Partnership.   Prior to the change in estimate, the loan costs would have been fully amortized in 2021, the date the mortgage notes payable mature.  The effect of this change did not have a material effect on the Partnership’s financial condition or results of operations. Amortization expense was approximately $99,000 and $103,000 for the years ended December 31, 2009 and 2008, respectively, and is included in interest expense and loss from discontinued operations. Amortization expense is expected to be approximately $110,000 for each of the years 2010 through 2014.

Leasing commissions and other direct costs incurred in connection with successful leasing efforts are deferred and amortized over the terms of the related leases.  Amortization of these costs is included in operating expenses and loss from discontinued operations.

Allocation of Net Income and Net Loss: The Partnership Agreement provides for net income and net losses for both financial and tax reporting purposes to be allocated 99% to the Limited Partners and 1% to the General Partner.

Fair Value of Financial Instruments: FASB ASC Topic 825, “Financial Instruments”, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amount of its financial instruments (except for long-term debt) approximates their fair value due to the short-term maturity of these instruments. The Partnership estimates the fair value of its long-term debt by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term, long-term debt. At December 31, 2009, the fair value of the Partnership's long-term debt, including long-term debt included in liabilities related to assets held for sale, at the Partnership's incremental borrowing rate was approximately $50,424,000.

Restricted Escrow: A replacement reserve account is maintained for Tamarac Village Apartments, which was established in connection with the additional mortgage obtained during October 2009. The balance of this account at December 31, 2009 was approximately $209,000.  There were no such restricted escrows at December 31, 2008.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Segment Reporting: FASB ASC Topic 280-10, “Segment Reporting”, established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. FASB ASC Topic 280-10 also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in FASB ASC Topic 280-10, the Partnership has only one reportable segment.

Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expenses of approximately $258,000 and $348,000 for the years ended December 31, 2009 and 2008, respectively, were charged to operating expense and loss from discontinued operations.

Note B – Transactions with Affiliated Parties

The Partnership has no employees and depends on the General Partner and its affiliates for the management and administration of all Partnership activities.  The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.

Affiliates of the General Partner receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership was charged by such affiliates approximately $627,000 and $696,000 for the years ended December 31, 2009 and 2008, respectively, which is included in operating expense and loss from discontinued operations. At December 31, 2008, approximately $8,000 of these amounts were unpaid and included in due to affiliates. There were no such amounts unpaid at December 31, 2009.

Affiliates of the General Partner charged the Partnership reimbursement of accountable administrative expenses amounting to approximately $264,000 and $902,000 for the years ended December 31, 2009 and 2008, respectively, which is included in general and administrative expenses, investment properties, assets held for sale, and gain on sale of discontinued operations.  The portion of these reimbursements included in investment properties, assets held for sale and gain on sale of discontinued operations for the years ended December 31, 2009 and 2008 are redevelopment and construction management services provided by an affiliate of the General Partner of approximately $92,000 and $504,000, respectively. At December 31, 2008, approximately $198,000 of these reimbursements were payable to affiliates of the General Partner and were included in due to affiliates. There were no such amounts unpaid at December 31, 2009.

During the year ended December 31, 2009, AIMCO Properties, L.P., an affiliate of the General Partner advanced the Partnership approximately $53,000 to cover expenses related to operations at each of the Partnership’s properties and approximately $81,000 for a refinance commitment fee at Cedar Rim Apartments. During the year ended December 31, 2008, AIMCO Properties, L.P., advanced the Partnership approximately $1,970,000 to cover expenses related to operations at each of the Partnership’s properties and approximately $4,416,000 to cover redevelopment costs at Cedar Rim Apartments. During the year ended December 31, 2009, the Partnership repaid AIMCO Properties, L.P. approximately $11,762,000 which included approximately $1,435,000 of accrued interest, with proceeds from the mortgage debt financings at Cedar Rim Apartments and Tamarac Village Apartments – see “Note C – Mortgage Notes Payable”, proceeds from the sale of Williamsburg Manor Apartments, the sale deposit related to Sienna Bay Apartments, see “Note H – Sale of Investment Properties”, and operating cash flow. During the year ended December 31, 2008, the Partnership repaid AIMCO Properties, L.P. approximately $6,431,000, which included approximately $205,000 of accrued interest, with proceeds from the sale of Park Capitol Apartments. AIMCO Properties, L.P. charges interest on advances under the terms permitted by the Partnership Agreement. The interest rates charged on the outstanding advances made to the Partnership range from the prime rate to a variable rate based on the prime rate plus a market rate adjustment for similar type loans.  Affiliates of the General Partner review the market rate adjustment quarterly.  The interest rate on outstanding advances at December 31, 2009 is 3.94%. Interest expense on outstanding advance balances was approximately $421,000 and $945,000 for the years ended December 31, 2009 and 2008, respectively. Total advances and accrued interest of approximately $619,000 and $11,826,000 were unpaid and are owed to AIMCO Properties, L.P. at December 31, 2009 and December 31, 2008, respectively, and are included in due to affiliates. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.  Subsequent to December 31, 2009, the Partnership repaid AIMCO Properties, L.P. approximately $621,000, which included approximately $7,000 of accrued interest, with proceeds from additional deposits received in advance of the sale of Sienna Bay Apartments – see “Note H – Sale of Investment Properties”.

The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers’ compensation, property casualty, general liability and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the years ended December 31, 2009 and 2008, the Partnership was charged by AIMCO and its affiliates approximately $216,000 and $291,000, respectively, for insurance coverage and fees associated with policy claims administration.

In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 239,212 limited partnership units (the “Units”) in the Partnership representing 62.46% of the outstanding Units at December 31, 2009. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 62.46% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder.

Note C - Mortgage Notes Payable

The terms of the mortgage notes payable are as follows:

(1)   Maturity dates of the mortgage notes payable extend beyond the termination date of the Partnership which is December 31, 2015.

On March 31, 2009, the Partnership obtained a second mortgage loan in the principal amount of $4,030,000 on Cedar Rim Apartments. The second mortgage bears interest at a fixed interest rate of 6.45% per annum and requires monthly payments of principal and interest of approximately $25,000 beginning May 1, 2009 through the August 1, 2021 maturity date.  The second mortgage has a balloon payment of approximately $3,209,000 due at maturity. The Partnership may prepay the second mortgage at any time with 30 days written notice to the lender subject to a prepayment penalty. As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain non-recourse carve-out obligations of the Partnership with respect to the new mortgage financing. In connection with the new loan, the Partnership incurred loan costs of approximately $78,000, which were capitalized during the year ended December 31, 2009 and are included in other assets.

In connection with the second mortgage loan, the Partnership also agreed to certain modifications on the existing mortgage loan encumbering Cedar Rim Apartments. The modification includes a fixed interest rate of 7.49% per annum and monthly payments of principal and interest of approximately $27,000, commencing May 1, 2009 through the August 1, 2021 maturity date, at which time a balloon payment of approximately $3,189,000 is due. Total loan costs associated with the modification of the existing mortgage were approximately $20,000 for the year ended December 31, 2009, and are included in general and administrative expenses.  The previous terms were a fixed interest rate of 7.49% per annum and monthly payments of principal and interest of approximately $40,000 through the August 1, 2021 maturity date, at which date the mortgage was scheduled to be fully amortized. The Partnership may prepay the first mortgage loan at any time subject to a prepayment penalty.  As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain non-recourse carve-out obligations of the Partnership with respect to the modified loan.

On October 5, 2009, the Partnership obtained a second mortgage loan in the principal amount of $2,600,000 on Tamarac Village Apartments.  The second mortgage bears interest at a fixed interest rate of 6.48% per annum and requires monthly payments of principal and interest of approximately $16,000, beginning December 1, 2009 through the July 1, 2021 maturity date. The second mortgage has a balloon payment of approximately $2,113,000 due at maturity. The Partnership may prepay the second mortgage at any time with 30 days written notice to the lender subject to a prepayment penalty. As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain non-recourse carve-out obligations of the Partnership with respect to the new mortgage financing. In connection with the new loan, the Partnership incurred loan costs of approximately $79,000, which were capitalized during the year ended December 31, 2009 and are included in other assets.

In connection with the second mortgage loan, the Partnership also agreed to certain modifications on the existing mortgage loan encumbering Tamarac Village Apartments. The modification includes a fixed interest rate of 7.45% per annum and monthly payments of principal and interest of approximately $110,000, commencing December 1, 2009, through the maturity date of July 1, 2021, at which time a balloon payment of approximately $13,201,000 is due. Total loan costs associated with the modification of the existing mortgage were approximately $12,000 for the year ended December 31, 2009, and are included in general and administrative expenses. The previous terms were a fixed interest rate of 7.45% per annum and monthly payments of principal and interest of approximately $169,000 through the July 1, 2021 maturity date, at which date the mortgage was scheduled to be fully amortized. The Partnership may prepay the first mortgage loan at any time subject to a prepayment penalty. As a condition of the loan, the lender required AIMCO Properties, L.P., an affiliate of the Partnership, to guarantee certain non-recourse carve-out obligations of the Partnership with respect to the modified loan.

The mortgage notes payable are fixed rate mortgages that are non-recourse and are secured by a pledge of the Partnership’s rental properties and by a pledge of revenues from the respective rental properties. The mortgage notes payable include prepayment penalties if repaid prior to maturity. Further, the properties may not be sold subject to existing indebtedness.

While the Partnership termination date is December 31, 2015, scheduled principal payments of mortgage notes payable subsequent to December 31, 2009 are as follows (in thousands):

The principal balance of the fixed rate mortgage encumbering Sienna Bay Apartments at December 31, 2009 and 2008 is approximately $10,630,000 and $10,799,000 and is included in liabilities related to assets held for sale. In connection with the sale of Sienna Bay Apartments in March 2010 the mortgage loan was assumed by the buyer.

Note D - Investment Properties and Accumulated Depreciation

Reconciliation of "Investment Properties and Accumulated Depreciation":

The aggregate cost of the real estate for Federal income tax purposes at December 31, 2009 and 2008 is approximately $76,136,000 and $84,245,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 2009 and 2008 is approximately $38,983,000 and $37,568,000, respectively.

Sienna Bay Apartments, which is classified as held for sale at December 31, 2009, is excluded from the December 31, 2009 schedules above. The gross carrying value, accumulated depreciation and Federal tax basis of Sienna Bay Apartments at December 31, 2009 was approximately $18,637,000, $9,935,000 and $9,106,000, respectively.

Note E - Income Taxes

The Partnership is classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners.

The following is a reconciliation of reported net income and Federal taxable income (in thousands, except per unit data):

1) For 2009 and 2008, allocation under Internal Revenue Code Section 704(b) results in the limited partners being allocated a non-pro rata amount of taxable income.

The following is a reconciliation at December 31, 2009 and 2008, between the Partnership's reported amounts and Federal tax basis of net liabilities (in thousands):

Note F – Casualty Events

During September 2007, one of the Partnership’s investment properties, Williamsburg Manor Apartments, sustained fire damage.  During the year ended December 31, 2007, the Partnership received approximately $25,000 in insurance proceeds and recognized a casualty gain of approximately $8,000 as a result of the write off of undepreciated damaged assets of approximately $17,000.  During the year ended December 31, 2008, the Partnership received approximately $38,000 in additional insurance proceeds and recognized an additional casualty gain of approximately $33,000, which is included in loss from discontinued operations, as a result of an additional write off of undepreciated damaged assets of approximately $5,000.  The Partnership does not expect to receive any further insurance proceeds related to this casualty.

During December 2007, one of the Partnership’s investment properties, Lamplighter Park Apartments, sustained flood damage to several of its apartment units of approximately $70,000. The casualty gain recognized by the Partnership as of December 31, 2008 was approximately $60,000 as a result of receiving approximately $108,000 in insurance proceeds during the year ended December 31, 2008, including approximately $38,000 for emergency expenses, and the write off of undepreciated assets of approximately $10,000. The Partnership does not expect to receive any further insurance proceeds related to this casualty.

During June 2008, one of the Partnership’s investment properties, Lamplighter Park Apartments, sustained damage from a fire of approximately $24,000. During the year ended December 31, 2009, the Partnership received approximately $14,000 in insurance proceeds and recognized a casualty gain of approximately $11,000 as a result of the write off of undepreciated damaged assets of approximately $3,000 during the year ended December 31, 2009.

During August 2008, one of the Partnership’s investment properties, Lamplighter Park Apartments, sustained damage from a fire of approximately $30,000 which included clean-up costs of approximately $9,000. During the year ended December 31, 2008, the Partnership removed approximately $2,000 of undepreciated damaged assets and recorded a corresponding receivable for the estimated insurance proceeds. During the year ended December 31, 2009, the Partnership received approximately $20,000 in insurance proceeds and recognized a casualty gain of approximately $18,000 as a result of the write off of undepreciated assets of approximately $2,000 during the year ended December 31, 2009.

During August 2009, one of the Partnership’s investment properties, Tamarac Village Apartments, sustained water damage from excessive rainfall of approximately $123,000. The casualty gain recognized by the Partnership was approximately $68,000 as a result of receiving approximately $113,000 in insurance proceeds, including approximately $4,000 for lost rents and approximately $35,000 for emergency expenses, and the write off of undepreciated assets of approximately $6,000 during the year ended December 31, 2009.

Note G – Redevelopment

During 2005, the Partnership began a major redevelopment project at Sienna Bay Apartments in order to become more competitive with other properties in the area in an effort to increase occupancy at the property. As of December 31, 2008 the redevelopment was complete. The total cost of the redevelopment was approximately $6,780,000, of which approximately $5,000 was completed during the year ended December 31, 2008.

During 2006, the Partnership began a major redevelopment project at Cedar Rim Apartments in order to become more competitive with other properties in the area in an effort to increase occupancy at the property. As of December 31, 2008 the redevelopment was complete. The total cost of the redevelopment was approximately $14,428,000, of which approximately $3,547,000 was completed during the year ended December 31, 2008. Included in these construction costs are capitalized construction period interest of approximately $141,000, construction period property taxes of approximately $8,000, and other construction period operating costs of approximately $19,000 for the year ended December 31, 2008.

Note H – Sale of Investment Properties

On June 6, 2008, the Partnership sold Park Capitol Apartments to a third party for a gross sales price of $12,250,000. The net proceeds realized by the Partnership were approximately $11,904,000 after payment of closing costs. The Partnership used approximately $4,738,000 of the net proceeds to repay the mortgage encumbering the property. The Partnership realized a gain on sale of discontinued operations of approximately $9,924,000 as a result of the sale, which was recognized during the year ended December 31, 2008. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $383,000 during the year ended December 31, 2008, which is included in loss from discontinued operations, due to the write-off of unamortized loan costs and the payment of a prepayment penalty associated with the payment of the mortgage of approximately $315,000.

On September 30, 2009, the Partnership sold Williamsburg Manor Apartments to a third party for a gross sales price of $10,350,000. The net proceeds realized by the Partnership were approximately $10,170,000 after payment of closing costs. The Partnership used approximately $4,871,000 of the net proceeds to repay the mortgage encumbering the property. The Partnership realized a gain on sale of discontinued operations of approximately $6,342,000 as a result of the sale, which was recognized during the year ended December 31, 2009. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $492,000 during the year ended December 31, 2009, which is included in loss from discontinued operations, due to the write-off of unamortized loan costs and the payment of a prepayment penalty associated with the payment of the mortgage of approximately $465,000.

On August 14, 2009, the Partnership entered into a sale contract with a third party relating to the sale of Sienna Bay Apartments. The sale was completed during the first quarter of 2010 (see Note J – Subsequent Events). In connection with the sale of Sienna Bay Apartments, the Partnership agreed to provide partial seller financing to the buyer in the amount of $2,500,000 and will accrue interest at a rate of 5% each year until maturity. The Partnership determined that the held for sale criteria were met at December 31, 2009 and has classified the assets and liabilities of Sienna Bay Apartments as held for sale and its respective operations as discontinued operations for the years ended December 31, 2009 and 2008. In connection with the sale contract, the Partnership received a non-refundable sale deposit of $1,000,000 during the year ended December 31, 2009 which is included as deferred revenue in liabilities related to assets held for sale at December 31, 2009. Subsequent to December 31, 2009, the Partnership received an additional non-refundable sale deposit of $1,500,000 – see “Note J – Subsequent Events”.

Note I – Contingencies

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”).  The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company (“the Defendants”) failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”).  In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions.  In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel.  As a result, the lawsuits asserted in the 22 Federal courts have been dismissed.  During the fourth quarter of 2008, the Partnership paid approximately $5,000 for settlement amounts for alleged unpaid overtime to employees who had worked at the Partnership’s investment properties. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The parties have selected six “on-call” claims that will proceed forward through the arbitration process and have selected arbitrators. After those arbitrations have been completed, the parties will revisit settling the on-call claims. The first two arbitrations took place in December 2009 and the Defendants received a defense verdict against the first two claimants, and plaintiffs dismissed the claims of the next two claimants. The remaining two arbitrations will take place in April 2010. The General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.

Environmental

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property, including lead-based paint. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its properties. 

Mold

The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements.  The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure.  Affiliates of the General Partner have implemented policies, procedures, third-party audits and training and the General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents.  To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure. During the year ended December 31, 2008, the Partnership incurred approximately $88,000 related to mold abatement conditions that occurred at Cedar Rim Apartments. There were no such costs incurred during the year ended December 31, 2009.  The mold abatement is a direct result of extremely wet and rainy weather conditions which occurred during the redevelopment work to several buildings which required exterior walls and windows to be removed prior to replacement.  Because the law regarding mold is unsettled and subject to change the General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s financial condition or results of operations.

Note J – Subsequent Events

Subsequent to December 31, 2009, the Partnership sold Sienna Bay Apartments to a third party for a gross sales price of $16,850,000. The net proceeds realized by the Partnership were approximately $3,468,000 after payment of closing costs of approximately $296,000, the assumption of the mortgage of approximately $10,586,000 by the purchaser and financing of $2,500,000 provided by the Partnership. The Partnership expects to recognize a gain from sale of discontinued operations of approximately $7,689,000 during the first quarter of 2010 as a result of the sale and a loss on extinguishment of debt of approximately $44,000 due to the write-off of unamortized loan costs. In connection with the sale of Sienna Bay Apartments, the Partnership provided $2,500,000 in partial financing to the purchaser (the “Seller Loan”). Monthly payments of interest only commence May 1, 2010 through the Seller Loan’s October 10, 2012 maturity, which is consistent with the maturity of the senior mortgage loan encumbering Sienna Bay Apartments that was assumed by the purchaser in connection with the sale. Interest on the Seller Loan will be payable at a rate of 5.0% each year until maturity.

Subsequent to December 31, 2009, the Partnership paid a distribution of approximately $1,673,000 (approximately $1,657,000 or $4.32 per limited partnership unit) from proceeds from the March 5, 2009 sale of Sienna Bay Apartments.

ITEM 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A(T). Controls and Procedures

(a)   Disclosure Controls and Procedures

The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective. 

Management’s Report on Internal Control Over Financial Reporting

The Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the principal executive and principal financial officers of the General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, and effected by the Partnership’s management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·         pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets;

·         provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Partnership’s management; and

·         provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Partnership’s management assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2009.  In making this assessment, the Partnership’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on their assessment, the Partnership’s management concluded that, as of December 31, 2009, the Partnership’s internal control over financial reporting is effective.

This annual report does not include an attestation report of the Partnership’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by the Partnership’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only management’s report in this annual report.

(b)   Changes in Internal Control Over Financial Reporting

There has been no change in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2009 that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

Item 9B.    Other Information

None.

PART III

Item 10.    Directors, Executive Officers and Corporate Governance

Consolidated Capital Institutional Properties/3 (the “Partnership” or the “Registrant”) has no directors or officers.  ConCap Equities, Inc. (“CEI” or the “General Partner”) manages and controls the Partnership and has general responsibility and authority in all matters affecting its business.

The names and ages of, as well as the positions and offices held by, the present directors and officers of the General Partner are set forth below. There are no family relationships between or among any officers or directors.

Steven D. Cordes was appointed as a Director of the General Partner effective March 2, 2009.  Mr. Cordes has been a Senior Vice President of the General Partner and AIMCO since May 2007.  Mr. Cordes joined AIMCO in 2001 as a Vice President of Capital Markets with responsibility for AIMCO’s joint ventures and equity capital markets activity.  Prior to joining AIMCO, Mr. Cordes was a manager in the financial consulting practice of PricewaterhouseCoopers.  Effective March 2009, Mr. Cordes was appointed to serve as the equivalent of the chief executive officer of the Partnership.  Mr. Cordes brings particular expertise to the Board in the areas of asset management as well as finance and accounting.

John Bezzant was appointed as a Director of the General Partner effective December 16, 2009.  Mr. Bezzant has been a Senior Vice President of the General Partner and AIMCO since joining AIMCO in June 2006.   Prior to joining AIMCO, from 2005 to June 2006, Mr. Bezzant was a First Vice President at Prologis, a Denver, Colorado-based real estate investment trust, and from 1986 to 2005, Mr. Bezzant served as Vice President, Asset Management at Catellus Development Corporation, a San Francisco, California-based real estate investment trust.  Mr. Bezzant brings particular expertise to the Board in the areas of real estate finance, property operations, sales and development.

Timothy J. Beaudin was appointed President and Chief Operating Officer of AIMCO and the General Partner in February 2009.  He joined AIMCO and the General Partner as Executive Vice President and Chief Development Officer in October 2005 and was appointed Executive Vice President and Chief Property Operating Officer of the General Partner and AIMCO in October 2008.  Mr. Beaudin oversees conventional and affordable property operations, transactions, asset management, and redevelopment and construction services for AIMCO and the General Partner.  Prior to joining AIMCO and beginning in 1995, Mr. Beaudin was with Catellus Development Corporation.  During his last five years at Catellus, Mr. Beaudin served as Executive Vice President, with management responsibility for development, construction and asset management.

Ernest M. Freedman was appointed Executive Vice President and Chief Financial Officer of the General Partner and AIMCO in November 2009.   Mr. Freedman joined AIMCO in 2007 as Senior Vice President of Financial Planning and Analysis and has served as Senior Vice President of Finance since February 2009, responsible for financial planning, tax, accounting and related areas.  Prior to joining AIMCO, from 2004 to 2007, Mr. Freedman served as chief financial officer of HEI Hotels and Resorts.

Lisa R. Cohn was appointed Executive Vice President, General Counsel and Secretary of the General Partner and AIMCO in December 2007.  From January 2004 to December 2007, Ms. Cohn served as Senior Vice President and Assistant General Counsel of AIMCO.  Ms. Cohn joined AIMCO in July 2002 as Vice President and Assistant General Counsel.  Prior to joining AIMCO, Ms. Cohn was in private practice with the law firm of Hogan and Hartson LLP.

Paul Beldin joined AIMCO in May 2008 and has served as Senior Vice President and Chief Accounting Officer of AIMCO and the General Partner since that time.  Prior to joining AIMCO, Mr. Beldin served as controller and then as chief financial officer of America First Apartment Investors, Inc., a publicly traded multifamily real estate investment trust, from May 2005 to September 2007 when the company was acquired by Sentinel Real Estate Corporation.  Prior to joining America First Apartment Investors, Inc., Mr. Beldin was a senior manager at Deloitte and Touche LLP, where he was employed from August 1996 to May 2005, including two years as an audit manager in SEC services at Deloitte’s national office.

Stephen B. Waters was appointed Senior Director of Partnership Accounting of AIMCO and the General Partner in June 2009.  Mr. Waters has responsibility for partnership accounting with AIMCO and serves as the principal financial officer of the General Partner.  Mr. Waters joined AIMCO as a Director of Real Estate Accounting in September 1999 and was appointed Vice President of the General Partner and AIMCO in April 2004.  Prior to joining AIMCO, Mr. Waters was a senior manager at Ernst & Young LLP.

The Registrant is not aware of the involvement in any legal proceedings with respect to the directors and executive officers listed in this Item 10.

One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act.

The board of directors of the General Partner does not have a separate audit committee. As such, the board of directors of the General Partner fulfills the functions of an audit committee. The board of directors has determined that Steven D. Cordes meets the requirement of an "audit committee financial expert".

The directors and officers of the General Partner with authority over the Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a code of ethics that applies to such directors and officers that is posted on AIMCO's website (www.AIMCO.com). AIMCO's website is not incorporated by reference to this filing.

Item 11.    Executive Compensation

None of the directors or officers of the General Partner received any remuneration from the Partnership during the year ended December 31, 2009.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Certain Beneficial Owners

Except as provided below, as of December 31, 2009, no person was known to CEI to own of record or beneficially more than 5 percent of the Units of the Partnership:

AIMCO IPLP, L.P., Cooper River Properties, LLC and Madison River Properties, LLC are indirectly ultimately owned by AIMCO. Their business address is 55 Beattie Place, Greenville, South Carolina 29601.

AIMCO Properties, L.P., is also indirectly ultimately controlled by AIMCO. Its business address is 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237.

Beneficial Owners of Management

Except as described above, neither CEI nor any of the directors or officers of CEI own any Units of the Partnership of record or beneficially.

Beneficial Owners of CEI

As of December 31, 2009, the following persons were known to CEI to be the beneficial owners of more than 5 percent of its common stock:

AIMCO IPLP, L.P. is an affiliate of AIMCO (see "Item 1. Business").

Item 13.    Certain Relationships and Related Transactions, and Director Independence

The Partnership has no employees and depends on the General Partner and its affiliates for the management and administration of all Partnership activities.  The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.

Affiliates of the General Partner receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership was charged by such affiliates approximately $627,000 and $696,000 for the years ended December 31, 2009 and 2008, respectively, which is included in operating expense and loss from discontinued operations. At December 31, 2008, approximately $8,000 of these amounts were unpaid and included in due to affiliates. There were no such amounts unpaid at December 31, 2009.

Affiliates of the General Partner charged the Partnership reimbursement of accountable administrative expenses amounting to approximately $264,000 and $902,000 for the years ended December 31, 2009 and 2008, respectively, which is included in general and administrative expenses, investment properties, assets held for sale, and gain on sale of discontinued operations.  The portion of these reimbursements included in investment properties, assets held for sale and gain on sale of discontinued operations for the years ended December 31, 2009 and 2008 are redevelopment and construction management services provided by an affiliate of the General Partner of approximately $92,000 and $504,000, respectively. At December 31, 2008, approximately $198,000 of these reimbursements were payable to affiliates of the General Partner and were included in due to affiliates. There were no such amounts unpaid at December 31, 2009.

During the year ended December 31, 2009, AIMCO Properties, L.P., an affiliate of the General Partner advanced the Partnership approximately $53,000 to cover expenses related to operations at each of the Partnership’s properties and approximately $81,000 for a refinance commitment fee at Cedar Rim Apartments. During the year ended December 31, 2008, AIMCO Properties, L.P., advanced the Partnership approximately $1,970,000 to cover expenses related to operations at each of the Partnership’s properties and approximately $4,416,000 to cover redevelopment costs at Cedar Rim Apartments. During the year ended December 31, 2009, the Partnership repaid AIMCO Properties, L.P. approximately $11,762,000 which included approximately $1,435,000 of accrued interest, with proceeds from the mortgage debt financings at Cedar Rim Apartments and Tamarac Village Apartments, proceeds from the sale of Williamsburg Manor Apartments, the sale deposit related to Sienna Bay Apartments and operating cash flow. During the year ended December 31, 2008, the Partnership repaid AIMCO Properties, L.P. approximately $6,431,000, which included approximately $205,000 of accrued interest, with proceeds from the sale of Park Capitol Apartments. AIMCO Properties, L.P. charges interest on advances under the terms permitted by the Partnership Agreement. The interest rates charged on the outstanding advances made to the Partnership range from the prime rate to a variable rate based on the prime rate plus a market rate adjustment for similar type loans.  Affiliates of the General Partner review the market rate adjustment quarterly.  The interest rate on outstanding advances at December 31, 2009 is 3.94%. Interest expense on outstanding advance balances was approximately $421,000 and $945,000 for the years ended December 31, 2009 and 2008, respectively. Total advances and accrued interest of approximately $619,000 and $11,826,000 were unpaid and are owed to AIMCO Properties, L.P. at December 31, 2009 and December 31, 2008, respectively, and are included in due to affiliates. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.  Subsequent to December 31, 2009, the Partnership repaid AIMCO Properties, L.P. approximately $621,000, which included approximately $7,000 of accrued interest, with proceeds from additional deposits received in advance of the sale of Sienna Bay Apartments.

The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers’ compensation, property casualty, general liability and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the years ended December 31, 2009 and 2008, the Partnership was charged by AIMCO and its affiliates approximately $216,000 and $291,000, respectively, for insurance coverage and fees associated with policy claims administration.

In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 239,212 the Units in the Partnership representing 62.46% of the outstanding Units at December 31, 2009. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 62.46% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder.

Neither of the General Partner's directors is independent under the independence standards established for New York Stock Exchange listed companies as both directors are employed by the parent of the General Partner.

Item 14.    Principal Accounting Fees and Services

The General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for 2010. The aggregate fees billed for services rendered by Ernst & Young LLP for 2009 and 2008 are described below.

Audit Fees.  Fees for audit services totaled approximately $67,000 and $85,000 for 2009 and 2008, respectively. Fees for audit services also include fees for the reviews of the Partnership’s Quarterly Reports on Form 10-Q.

Tax Fees.  Fees for tax services totaled approximately $19,000 and $20,000 for 2009 and 2008, respectively.

PART IV

Item 15.    Exhibits, Financial Statement Schedules

(a)   The following financial statements of the Registrant are included in Item 8:

Balance Sheets at December 31, 2009 and 2008.

Statements of Operations for the years ended December 31, 2009 and 2008.

Statements of Changes in Partners' Deficit for the years ended December 31, 2009 and 2008.

Statements of Cash Flows for the years ended December 31, 2009 and 2008.

Notes to Financial Statements.

Schedules are omitted for the reason that they are inapplicable or equivalent information has been included elsewhere herein.

b)    Exhibits:

See Exhibit Index Attached.

The agreements included as exhibits to this Form 10-K contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

• should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

• have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

• may apply standards of materiality in a way that is different from what may be viewed as material to an investor; and

• were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Partnership acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-K not misleading. Additional information about the Partnership may be found elsewhere in this Form 10-K and the Partnership’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov. 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

EXHIBIT INDEX

Exhibit Number   Description of Exhibit

3.1         Certificate of Limited Partnership, as amended to date (Exhibit 3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, is incorporated herein by reference).

3.2         Third Amendment to Second Amended and Restated Limited Partnership Agreement of the Consolidated Capital Institutional Properties/3 dated October 13, 2006. (Incorporated by reference to the Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2006).

3.3         Fourth Amendment to the Second Amended and Restated Limited Partnership Agreement of Consolidated Capital Institutional Properties/3, LP dated August 29, 2008. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008).

10.55       Additional Mortgage Note dated August 31, 2005 between AIMCO Sandpiper, LLC, a Delaware limited liability company and New York Life Insurance Company (related to Sienna Bay Apartments) filed as Exhibit 10.55 to the Registrant’s Current Report on Form 8-K dated August 31, 2005, incorporated herein by reference.

10.56       Modification, Reinstatement and Consolidation of Notes dated August 31, 2005 between AIMCO Sandpiper, LLC, a Delaware limited liability company and New York Life Insurance Company (related to Sienna Bay Apartments) filed as Exhibit 10.56 to the Registrant’s Current Report on Form 8-K dated August 31, 2005, incorporated herein by reference.

10.57       Mortgage, Assignment of Leases and Rents and Security Agreement dated August 31, 2005 between AIMCO Sandpiper, LLC, a Delaware limited liability company and New York Life Insurance Company (related to Sienna Bay Apartments) filed as Exhibit 10.57 to the Registrant’s Current Report on Form 8-K dated August 31, 2005, incorporated herein by reference.

10.58       Guaranty dated August 31, 2005 between AIMCO Properties, L.P. for the benefit of New York Life Insurance Company (related to Sienna Bay Apartments) filed as Exhibit 10.58 to the Registrant’s Current Report on Form 8-K dated August 31, 2005, incorporated herein by reference.

10.63       Multifamily Note dated August 31, 2007 between Consolidated Capital Institutional Properties/3, a California limited partnership and Capmark Bank in reference to Lamplighter Park Apartments filed as Exhibit 10.63 to the Registrant’s Current Report on Form 8-K dated August 31, 2007, incorporated herein by reference.

10.64       Amended and Restated Multifamily Note dated August 31, 2007 between Consolidated Capital Institutional Properties/3, a California limited partnership and Capmark Bank in reference to Lamplighter Park Apartments filed as Exhibit 10.64 to the Registrant’s Current Report on Form 8-K dated August 31, 2007, incorporated herein by reference.

10.66       Multifamily Note, dated March 31, 2009, between Cedar Rim Apartments, LLC, a Delaware limited liability company and Capmark Bank, a Utah industrial bank. Incorporated by reference to the Registrant's Current Report on Form 8-K dated March 31, 2009.

10.67       Multifamily Deed of Trust, Assignment of Rents and Security Agreement, dated March 31, 2009, between Cedar Rim Apartments, LLC, a Delaware limited liability company and Capmark Bank, a Utah industrial bank. Incorporated by reference to the Registrant's Current Report on Form 8-K dated March 31, 2009.

10.68       Guaranty, dated March 31, 2009, between AIMCO Properties, L.P., a Delaware limited partnership, and Capmark Bank, a Utah industrial bank. Incorporated by reference to the Registrant's Current Report on Form 8-K dated March 31, 2009.

10.69       Amended and Restated Multifamily Note (Recast Transaction), dated March 31, 2009, between Cedar Rim Apartments, LLC, a Delaware limited liability company and Federal Home Loan Mortgage Corporation. Incorporated by reference to the Registrant's Current Report on Form 8-K dated March 31, 2009.

10.70       Amended and Restated Multifamily Deed of Trust, Assignment of Rents and Security Agreement (Recast Transaction), dated March 31, 2009, between Cedar Rim Apartments, LLC, a Delaware limited liability company and Federal Home Loan Mortgage Corporation. Incorporated by reference to the Registrant's Current Report on Form 8-K dated March 31, 2009.

10.71       Amended and Restated Guaranty (Recast Transaction), dated March 31, 2009, between AIMCO Properties, L.P., a Delaware limited partnership, and Federal Home Loan Mortgage Corporation. Incorporated by reference to the Registrant's Current Report on Form 8-K dated March 31, 2009.

10.77       Purchase and Sale Contract between CCIP/3 Williamsburg Manor, LLC, a Delaware limited liability company and The Embassy Group LLC, a New York limited liability company dated July 14, 2009. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 14, 2009.

10.78       First Amendment to the Purchase and Sale Contract between CCIP/3 Williamsburg Manor, LLC, a Delaware limited liability company and The Embassy Group LLC, a New York limited liability company, dated August 4, 2009. Incorporated by reference to the Registrant's Current Report on Form 8-K dated August 4, 2009.

10.79       Purchase and Sale Contract between CCIP/3 Sandpiper, LLC, a Delaware limited liability company and DT Group Development, Inc., a California corporation, dated August 14, 2009. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 14, 2009.

10.80       Multifamily Note, dated October 5, 2009, between Tamarac Village, LLC, a Delaware limited liability company and Capmark Bank, a Utah industrial bank. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 5, 2009.

10.81       Multifamily Deed of Trust, Assignment of Rents and Security Agreement, dated October 5, 2009, between Tamarac Village, LLC, a Delaware limited liability company and Capmark Bank, a Utah industrial bank. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 5, 2009.

10.82       Guaranty, dated October 5, 2009, between AIMCO Properties, L.P., a Delaware limited partnership, and Capmark Bank, a Utah industrial bank. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 5, 2009.

10.83       Amended and Restated Multifamily Note (Recast Transaction), dated October 5, 2009, between Tamarac Village, LLC, a Delaware limited liability company and Federal Home Loan Mortgage Corporation. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 5, 2009.

10.84       Amended and Restated Multifamily Deed of Trust, Assignment of Rents and Security Agreement (Recast Transaction), dated October 5, 2009, between Tamarac Village, LLC, a Delaware limited liability company and Federal Home Loan Mortgage Corporation. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 5, 2009.

10.85       Amended and Restated Guaranty (Recast Transaction), dated October 5, 2009, between AIMCO Properties, L.P., a Delaware limited partnership, and Federal Home Loan Mortgage Corporation. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 5, 2009.

10.86       First Amendment to Purchase and Sale Contract, dated October 8, 2009, between CCIP/3 Sandpiper, LLC, a Delaware limited liability company and DT Group Development, Inc., a California corporation. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 8, 2009.

10.87       Second Amendment to Purchase and Sale Contract, dated November 10, 2009, between CCIP/3 Sandpiper, LLC, a Delaware limited liability company and DT Group Development, Inc., a California corporation. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 10, 2009.

10.88       Third Amendment to Purchase and Sale Contract between CCIP/3 Sandpiper, LLC, a Delaware limited liability company and DT Group Development, Inc., a California corporation, dated November 12, 2009. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 12, 2009.

10.89       Fourth Amendment to Purchase and Sale Contract between CCIP/3 Sandpiper, LLC, a Delaware limited liability company and DT Group Development, Inc., a California corporation, dated November 25, 2009. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 11, 2009.

10.90       Fifth Amendment to Purchase and Sale Contract between CCIP/3 Sandpiper, LLC, a Delaware limited liability company and DT Group Development, Inc., a California corporation, dated December 11, 2009. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 11, 2009.

10.91       Sixth Amendment to Purchase and Sale Contract between CCIP/3 Sandpiper, LLC, a Delaware limited liability company and DT Group Development, Inc., a California corporation, dated December 28, 2009. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 28, 2009.

10.92                            Seventh Amendment to Purchase and Sale Contract between CCIP/3 Sandpiper, LLC, a Delaware limited liability company and DT Group Development, Inc., a California corporation, dated January 8, 2010. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 8, 2010.

10.93                            Eighth Amendment to Purchase and Sale Contract between CCIP/3 Sandpiper, LLC, a Delaware limited liability company and DT Group Development, Inc., a California corporation, dated January 12, 2010. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 8, 2010.

10.94       Ninth Amendment to Purchase and Sale Contract between CCIP/3 Sandpiper, LLC, a Delaware limited liability company and DT Group Development, Inc., a California corporation, dated January 19, 2010. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 19, 2010.

10.95       Tenth Amendment to Purchase and Sale Contract between CCIP/3 Sandpiper, LLC, a Delaware limited liability company and DT Group Development, Inc., a California corporation, dated January 28, 2010. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 28, 2010.

28.1        Fee Owner's General Partnership Agreement (Incorporated by reference to Registration Statement of Partnership (File No. 2-97664) filed July 23, 1985).

28.2        Fee Owner's Certificate of Partnership (Incorporated by reference to Registration Statement of Partnership (File No. 2-97664) filed July 23, 1985).

31.1        Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2        Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1        Certification of equivalent of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.