UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2011

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)

(864) 239-1000

(Registrant’s telephone number, including area code)

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.

[X] Yes  [ ] 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 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 Exchange Act). [ ] Yes  [X] No

PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements.

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

BALANCE SHEETS

 (in thousands)

Note: The balance sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

See Accompanying Notes to Financial Statements

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per unit data)

See Accompanying Notes to Financial Statements

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

STATEMENT OF CHANGES IN PARTNERS' DEFICIT

(Unaudited)

(in thousands, except unit data)

See Accompanying Notes to Financial Statements

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

Included in property improvements and replacements for the three months ended March 31, 2011 and 2010 are approximately $27,000 and $31,000 of property improvements and replacements, respectively, which were included in accounts payable at December 31, 2010 and 2009, respectively.

See Accompanying Notes to Financial Statements

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note A – Basis of Presentation

The accompanying unaudited financial statements of Consolidated Capital Institutional Properties/3, LP (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of ConCap Equities, Inc. (the "General Partner"), which is wholly owned by Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011. For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

The Partnership Agreement provides that the Partnership is to terminate on December 31, 2015 unless terminated prior to that date. The Partnership Agreement also provides that the term of the Partnership cannot be extended beyond the termination date.

The Partnership’s management evaluated subsequent events through the time this Quarterly Report on Form 10-Q was filed.

Certain reclassifications have been made to the 2010 balances to conform to the 2011 presentation.

The accompanying statement of operations for the three months ended March 31, 2010 reflects the operations of Sienna Bay Apartments as discontinued operations as a result of the sale of the property in March 2010. The following table presents summarized results of operations related to the Partnership’s discontinued operations for the three months ended March 31, 2010 (in thousands):

On March 21, 2011, the Partnership entered into a sale contract with a third party to sell Lamplighter Park Apartments for a purchase price of approximately $25,100,000 which is expected to close during the second quarter of 2011. The Partnership has determined that certain held for sale criteria were not met at March 31, 2011 and therefore continues to report the assets and liabilities of the investment property as held for investment and its respective operations as continuing operations.

Organization:

On May 9, 2011, the General Partner amended the Partnership’s certificate of limited partnership and the Partnership Agreement to establish and convert the Partnership’s existing partnership interests into two separate series of partnership interests that have separate rights with respect to specified Partnership property.  Effective as of the close of business on May 9, 2011 (the “Establishment Date”), each then outstanding interest of the General Partner of the Partnership was converted into one Series A GP Interest and one Series B GP Interest and each then outstanding unit of limited partnership interest in the Partnership was converted into one Series A Unit and one Series B Unit.  The Series A GP Interest and the Series A Units are collectively referred to as the “Series A Interests”, and the Series B GP Interest and the Series B Units are collectively referred to as the “Series B Interests”. Except as described below, the Series A Interests and the Series B Interests entitle the holders thereof to the same rights as the holders of partnership interests had prior to the Establishment Date.

From and after the Establishment Date, the Series A Interests will be entitled to all of the Partnership’s interests in any entity in which the Partnership owns an interest, other than the Series B Interests (as defined below), including, but not limited to, all profits, losses and distributions from such entities.

From and after the Establishment Date, the Series B Interests will be entitled to all of the Partnership’s interest in Lamplighter Park Apartments (the “Series B Interests”), including, but not limited to, all profits, losses and distributions from Lamplighter Park Apartments.

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 $106,000 and $141,000 for the three months ended March 31, 2011 and 2010, respectively, which is included in operating expense and loss from discontinued operations.

Affiliates of the General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $50,000 and $77,000 for the three months ended March 31, 2011 and 2010, respectively, which is included in general and administrative expenses, investment properties and gain on sale of discontinued operations. The portion of these reimbursements included in investment properties and gain on sale of discontinued operations for the three months ended March 31, 2011 and 2010 are construction management services provided by an affiliate of the General Partner of approximately $9,000 and $16,000, respectively.

During the three months ended March 31, 2010, the Partnership repaid AIMCO Properties, L.P., an affiliate of the General Partner, approximately $620,000 which included approximately $6,000 of accrued interest, with proceeds from the sale of Sienna Bay Apartments – see “Note D – Sale of Investment Property”. There were no repayments made by the Partnership during the three months ended March 31, 2011. There were no new advances received by the Partnership during the three months ended March 31, 2011 and 2010. 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. Interest expense on outstanding advance balances was approximately $1,000 for the three months ended March 31, 2010. There was no such interest charged during the three months ended March 31, 2011. There were no outstanding advances or accrued interest owed at March 31, 2011 and December 31, 2010. Subsequent to March 31, 2011, the Partnership received an advance of approximately $63,000 to fund real estate taxes at Cedar Rim Apartments. 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. 

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 three months ended March 31, 2011, the Partnership was charged by AIMCO and its affiliates approximately $91,000 for hazard insurance coverage and fees associated with policy claims administration. Additional charges will be incurred by the Partnership during 2011 as other insurance policies renew later in the year.  The Partnership was charged by AIMCO and its affiliates approximately $135,000 for insurance coverage and fees associated with policy claims administration during the year ended December 31, 2010.

Note C – Casualty Event

During December 2010, one of the Partnership’s investment properties, Lamplighter Park Apartments, sustained flood damage from a broken sump pump of approximately $25,000. During the three months ended March 31, 2011, the Partnership received insurance proceeds of approximately $15,000, including approximately $2,000 for rental loss. The Partnership recognized a casualty gain of approximately $13,000 during the three months ended March 31, 2011 as a result of the receipt of insurance proceeds of approximately $15,000, net of the rental loss of approximately $2,000 and the write off of undepreciated damaged assets of less than $1,000.

Note D – Sale of Investment Property

On March 5, 2010, 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 (see “Note E – Note Receivable”). In connection with the sale, the Partnership received a non-refundable sale deposit of $1,000,000 from the purchaser during the year ended December 31, 2009. The sale deposit was released during the three months ended March 31, 2010 and is included with the net proceeds realized by the Partnership (as discussed above). As a result of the sale, the Partnership recognized a gain on sale of discontinued operations of approximately $7,708,000 during the year ended December 31, 2010, of which approximately $7,690,000 was recognized during the three months ended March 31, 2010. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $44,000 during the three months ended March 31, 2010 due to the write-off of unamortized loan costs, which is included in loss from discontinued operations.

Note E – Note Receivable

In connection with the sale of Sienna Bay Apartments, the Partnership provided $2,500,000 in financing to the purchaser (the “Seller Loan”). Monthly payments of interest only commenced May 1, 2010 and will continue 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 is payable at a rate of 5.0% each year until maturity. At the date of the sale, the fair value of the note receivable was approximately $2,389,000 and accordingly the Partnership recorded a discount of approximately $111,000 which was calculated using a rate of 7%. The discount is being amortized over the term of the note. During the three months ended March 31, 2011 and 2010, the Partnership recognized related interest income of approximately $42,000 and $9,000, respectively, which is included in other income. At March 31, 2011 and December 31, 2010, the discount on the note receivable was approximately $71,000 and $82,000, respectively. At March 31, 2011, the Partnership believes the carrying amount of the note receivable approximates its fair value.

Note F – Fair Value of Financial Instruments

Financial Accounting Standards Board Accounting Standards Codification 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 mortgage notes payable) approximates their fair value due to the short-term maturity of these instruments. The Partnership estimates the fair value of its note receivable as described in Note E above. The Partnership estimates the fair value of its mortgage notes payable by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term, mortgage notes payable. At March 31, 2011, the fair value of the Partnership's mortgage notes payable at the Partnership's incremental borrowing rate was approximately $40,874,000.

Note G – Distributions

The Partnership distributed the following amounts during the three months ended March 31, 2011 and 2010 (in thousands, except per unit data).

(1) Proceeds from the March 2010 sale of Sienna Bay Apartments.

Note H – Contingencies

The Partnership is unaware of any pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.

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 potentially hazardous materials  present on a property, including lead-based paint, asbestos, polychlorinated biphenyls, petroleum-based fuels, and other miscellaneous materials. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such materials. The presence of, or the failure to manage or remedy properly, these materials 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 improper management of these materials 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 these materials through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of these materials 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 responsible for environmental liabilities or costs associated with its properties.

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

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Quarterly Report contains or may contain information that is forward-looking within the meaning of the federal securities laws, including, without limitation, statements regarding the Partnership’s ability to maintain current or meet projected occupancy, rental rates and property operating results and the effect of redevelopments. 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, including the pace of job growth and the level of unemployment; 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; 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.

The Partnership's investment properties consist of three apartment complexes. The following table sets forth the average occupancy of the properties for each of the three months ended March 31, 2011 and 2010:

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 loss was approximately $652,000 for the three months ended March 31, 2011 compared to net income of approximately $6,608,000 for the three months ended March 31, 2010. The statement of operations for the three months ended March 31, 2010 reflects the operations of Sienna Bay Apartments as discontinued operations as a result of the sale of the property in March 2010.

The following table presents summarized results of operations related to the Partnership’s discontinued operations for the three months ended March 31, 2010 (in thousands):

On March 5, 2010, 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. In connection with the sale, the Partnership received a non-refundable sale deposit of $1,000,000 from the purchaser during the year ended December 31, 2009. The sale deposit was released during the three months ended March 31, 2010 and is included with the net proceeds realized by the Partnership (as discussed above). As a result of the sale, the Partnership recognized a gain on sale of discontinued operations of approximately $7,708,000 during the year ended December 31, 2010, of which approximately $7,690,000 was recognized during the three months ended March 31, 2010. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $44,000 during the three months ended March 31, 2010 due to the write-off of unamortized loan costs, which is included in loss from discontinued operations. In connection with the sale of Sienna Bay Apartments, the Partnership provided $2,500,000 in financing to the purchaser (the “Seller Loan”). Monthly payments of interest only commenced May 1, 2010 and will continue 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 is payable at a rate of 5.0% each year until maturity.

On March 21, 2011, the Partnership entered into a sale contract with a third party to sell Lamplighter Park Apartments for a purchase price of approximately $25,100,000 which is expected to close during the second quarter of 2011. The Partnership has determined that certain held for sale criteria were not met at March 31, 2011 and therefore continues to report the assets and liabilities of the investment property as held for investment and its respective operations as continuing operations.

The Partnership recognized losses from continuing operations of approximately $652,000 and $972,000 for the three months ended March 31, 2011 and 2010, respectively. The decrease in loss from continuing operations is due to an increase in total revenues, the recognition of a casualty gain in 2011 and a decrease in total expenses.

Total revenues increased for the three months ended March 31, 2011 primarily due to an increase in rental income. Other income remained relatively constant. Rental income increased due to an increase in the average rental rate at both Tamarac Village Apartments and Lamplighter Park Apartments and increases in occupancy at all of the Partnership’s investment properties, partially offset by a decrease in the average rental rate at Cedar Rim Apartments.

Total expenses decreased for the three months ended March 31, 2011 due to decreases in operating, general and administrative, depreciation, property tax and interest expenses. Operating expense decreased primarily due to a decrease in salaries and related benefits at all of the Partnership’s investment properties due to a reduction in staffing and a transition of staff to part time. Depreciation expense decreased at all of the Partnership’s investment properties due to assets becoming fully depreciated during 2010. Property tax expense decreased primarily due to a decrease in the assessed value of Tamarac Village Apartments. Interest expense decreased as a result of scheduled payments made on the mortgages encumbering all of the Partnership’s investment properties which reduced the carrying value of the mortgages.

General and administrative expense decreased for the three months ended March 31, 2011 due to a decrease in management reimbursements to the General Partner as allowed under the Partnership Agreement. Also included in general and administrative expenses for the three months ended March 31, 2011 and 2010 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement.

During December 2010, one of the Partnership’s investment properties, Lamplighter Park Apartments, sustained flood damage from a broken sump pump of approximately $25,000. During the three months ended March 31, 2011, the Partnership received insurance proceeds of approximately $15,000, including approximately $2,000 for rental loss. The Partnership recognized a casualty gain of approximately $13,000 during the three months ended March 31, 2011 as a result of the receipt of insurance proceeds of approximately $15,000, net of the rental loss of approximately $2,000 and the write off of undepreciated damaged assets of less than $1,000.

Liquidity and Capital Resources

At March 31, 2011, the Partnership had cash and cash equivalents of approximately $298,000 compared to approximately $336,000 at December 31, 2010. The decrease in cash and cash equivalents of approximately $38,000 is due to approximately $178,000 and $409,000 of cash used in investing and financing activities, respectively, partially offset by approximately $549,000 of cash provided by operating activities. Cash used in investing activities consisted of property improvements and replacements, partially offset by insurance proceeds received and net withdrawals from a restricted escrow. Cash used in financing activities consisted of payments on mortgage notes payable and distributions to partners.

During the three months ended March 31, 2010, the Partnership repaid AIMCO Properties, L.P., an affiliate of the General Partner, approximately $620,000 which included approximately $6,000 of accrued interest, with proceeds from the sale of Sienna Bay Apartments. There were no repayments made by the Partnership during the three months ended March 31, 2011. There were no new advances received by the Partnership during the three months ended March 31, 2011 and 2010. 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. Interest expense on outstanding advance balances was approximately $1,000 for the three months ended March 31, 2010. There was no such interest charged during the three months ended March 31, 2011. There were no outstanding advances or accrued interest owed at March 31, 2011 and December 31, 2010. Subsequent to March 31, 2011, the Partnership received an advance of approximately $63,000 to fund real estate taxes at Cedar Rim Apartments. 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.

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.  Capital improvements planned for each of the Partnership's properties are detailed below.

Cedar Rim Apartments

During the three months ended March 31, 2011, the Partnership completed approximately $8,000 of capital improvements at the property consisting primarily of floor covering replacements. These improvements were funded from operating cash flow. 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 the remainder of 2011. 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 three months ended March 31, 2011, the Partnership completed approximately $93,000 of capital improvements at the property consisting primarily of appliance and floor covering replacements, heating upgrades and construction related to the casualty discussed above. 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 during the remainder of 2011. 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 three months ended March 31, 2011, the Partnership completed approximately $118,000 of capital improvements at the property consisting primarily of water heater and floor covering replacements and heating upgrades. These improvements were funded from operating cash flow and replacement reserves. 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 the remainder of 2011. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

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's assets are thought to be generally sufficient for near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness encumbering the Partnership's properties of approximately $36,319,000 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 Partnership distributed the following amounts during the three months ended March 31, 2011 and 2010 (in thousands, except per unit data).

(1)  Proceeds from the March 2010 sale of Sienna Bay Apartments.

Future cash distributions will depend on the levels of cash generated from operations, 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 2011 or subsequent periods.

Other

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 62.47% of the outstanding Units at March 31, 2011. 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 62.47% 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

The financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions. 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 change 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.

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 4.     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.

(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 fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 6.     Exhibits.

See Exhibit Index Attached.

The agreements included as exhibits to this Form 10-Q 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-Q not misleading. Additional information about the Partnership may be found elsewhere in this Form 10-Q 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 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.

CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP

EXHIBIT INDEX

Exhibit Number   Description of Exhibit

3.1         Certificate of Limited Partnership of Registrant, dated August 29, 2008.

3.2         Amendment to Certificate of Limited Partnership of Registrant, dated May 9, 2011 (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, dated May 9, 2011).

3.3         Second Amended and Restated Limited Partnership Agreement of Registrant, dated May 22, 1984.

3.4         First Amendment to the Second Amended and Restated Limited Partnership Agreement of Registrant, dated October 23, 1990.

3.5         Second Amendment to the Second Amended and Restated Limited Partnership Agreement of Registrant, dated October 23, 1990.

3.6         Third Amendment to the Second Amended and Restated Limited Partnership Agreement of Registrant, dated October 12, 2006 (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2006).

3.7         Fourth Amendment to the Second Amended and Restated Limited Partnership Agreement of Registrant, dated August 29, 2008 (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).

3.8         Fifth Amendment to the Second Amended and Restated Limited Partnership Agreement of Registrant, dated May 9, 2011 (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, dated May 9, 2011).

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.

10.79       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 Delawarelimited 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 Delawarelimited 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.

10.96       Eleventh 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 February 16, 2010 and effective February 18, 2010. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated February 18, 2010.

10.97       Twelfth 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 February 23, 2010 and effective February 25, 2010. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated February 25, 2010.

10.98       Secured Promissory Note between DT Sienna Bay, LLC, a Delaware limited liability company, and CCIP/3 Sandpiper, LLC, a Delaware limited liability company, dated March 5, 2010. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 5, 2010.

10.99       Purchase and Sale Contract between Consolidated Capital Institutional Properties/3, LP, a Delaware limited partnership, and The Ezralow Company, LLC, a Delaware limited liability company, dated March 21, 2011. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 21, 2011.

10.100      First Amendment to Purchase and Sale Contract between Consolidated Capital Institutional Properties/3, LP, a Delaware limited partnership, and The Ezralow Company, LLC, a Delaware limited liability company, dated April 22, 2011. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated April 22, 2011.

10.101      Second Amendment to Purchase and Sale Contract between Consolidated Capital Institutional Properties/3, LP, a Delaware limited partnership, and The Ezralow Company, LLC, a Delaware limited liability company, dated May 4, 2011. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated May 4, 2011.

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.