MCNEIL REAL ESTATE FUND XXIII LP, 10-K405, 1999-03-31

MCNEIL REAL ESTATE FUND XXIII LP
10-K405, 1999-03-31
REAL ESTATE

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K405

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

For the fiscal year ended December 31, 1998
------------------------------------------------

[ ] 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 0-15459
--------

McNEIL REAL ESTATE FUND XXIII, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

California 33-0139793
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code (972) 448-5800
-----------------------------

Securities registered pursuant to Section 12(b) of the Act: None
- ----------------------------------------------------------

Securities registered pursuant to Section 12(g) of the Act:
Current Income Limited Partnership Units
Growth/Shelter Limited Partnership Units

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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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 ]

11,487,696 of the Registrant's 11,492,696 limited partnership units are held by
non-affiliates. The aggregate market value of units held by non-affiliates is
not determinable since there is no public trading market for limited partnership
units and transfers of units are subject to certain restrictions.

Documents Incorporated by Reference: See Item 14, Page 31

TOTAL OF 33 PAGES
<PAGE>
PART I

ITEM 1. BUSINESS
- ------- --------

ORGANIZATION
- ------------

McNeil Real Estate Fund XXIII, L.P. (the "Partnership"), formerly known as
Southmark Realty Partners III, Ltd. was organized on March 4, 1985 as a limited
partnership under the provisions of the California Uniform Limited Partnership
Act to acquire and operate residential properties. The general partner of the
Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited
partnership, an affiliate of Robert A. McNeil ("McNeil"). The General Partner
was elected at a meeting of limited partners on March 30, 1992, at which time an
amended and restated partnership agreement (the "Amended Partnership Agreement")
was adopted. Prior to March 30, 1992, the general partner of the Partnership was
Southmark Investment Group 85, Inc. (the "Original General Partner"), a Nevada
corporation and a wholly-owned subsidiary of Southmark Corporation
("Southmark"). The principal place of business for the Partnership and the
General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.

On February 25, 1986, the Partnership registered with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 33-1620)
and commenced a public offering for the sale of $45,000,000 of limited
partnership units. Two classes of limited partnership units were offered,
designated as Current Income Units and Growth/Shelter Units (referred to
collectively as "Units"). 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 closed on
February 24, 1987, with 16,204,041 Units (9,461,580 Current Income Units and
6,742,461 Growth/Shelter Units) sold at $1 each, or gross proceeds of
$16,204,041. The Partnership subsequently filed a Form 8-A Registration
Statement with the SEC and registered its Units under the Securities Exchange
Act of 1934 (File No. 0-15459). In 1991, 76,000 Units were rescinded and in
1994, 20,000 Units were relinquished. On January 1, 1996, pursuant to the
Partnership's bankruptcy reorganization plan, the Partnership redeemed 4,485,345
Units for cash consideration equal to 1/1,000th of a dollar per Unit redeemed.
110,000 and 20,000 Units were relinquished in 1997 and 1998, respectively,
leaving 11,492,696 Units (6,631,985 Current Income Units and 4,860,711
Growth/Shelter Units) outstanding at December 31, 1998.

SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER
- --------------------------------------------------

On July 14, 1989, Southmark filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, the General
Partner nor the Original General Partner were included in the filing.
Southmark's reorganization plan became effective August 10, 1990. Under the
plan, most of Southmark's assets, which included Southmark's interests in the
Original General Partner, were sold or liquidated for the benefit of creditors.

In accordance with Southmark's reorganization plan, Southmark, McNeil and
various of their affiliates entered into an asset purchase agreement on October
12, 1990, providing for, among other things, the transfer of control of 34
limited partnerships (including the Partnership) in the Southmark portfolio to
McNeil or his affiliates.

<PAGE>

On February 14, 1991, pursuant to the asset purchase agreement as amended on
that date, McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of
McNeil, acquired the assets relating to the property management and partnership
administrative business of Southmark and its affiliates and commenced management
of the Partnership's properties pursuant to an assignment of the existing
property management agreements from the Southmark affiliates.

On March 30, 1992, the limited partners approved a restructuring proposal that
provided for (i) the replacement of the Original General Partner with a new
general partner, McNeil Partners, L.P.; (ii) the adoption of the Amended
Partnership Agreement which substantially alters the provisions of the original
partnership agreement relating to, among other things, compensation,
reimbursement of expenses and voting rights; (iii) the approval of an amended
property management agreement with McREMI, the Partnership's property manager;
and (iv) the approval to change the Partnership's name to McNeil Real Estate
Fund XXIII, L.P. Under the Amended Partnership Agreement, the Partnership began
accruing an asset management fee, retroactive to February 14, 1991, which is
payable to the new General Partner. For a discussion of the methodology for
calculating the asset management fee, see Item 13 Certain Relationships and
Related Transactions. The proposals approved at the March 30, 1992, meeting were
implemented as of that date.

Concurrent with the approval of the restructuring, the General Partner acquired
from Southmark and its affiliates, for aggregate consideration of $350,466 (i)
the right to receive payment on the advances owing from the Partnership to
Southmark and its affiliates in the amount of $4,375,661, and (ii) the general
partner interest of the Original General Partner. The General Partner owns in
the aggregate less than 1% of the Units.

CURRENT OPERATIONS
- ------------------

General:

The Partnership is engaged in diversified real estate activities, including the
ownership, operation and management of residential real estate. At December 31,
1998, the Partnership owned one income-producing property as described in Item 2
- - Properties.

The Partnership filed for protection under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") on June 30, 1994. The Partnership's
reorganization plan was confirmed by the Bankruptcy Court on May 17, 1995. See
Chapter 11 Reorganization below.

The Partnership does not directly employ any personnel. The General Partner
conducts the business of the Partnership directly and through its affiliates.
The Partnership reimburses affiliates of the General Partner for such services
rendered in accordance with the Amended Partnership Agreement. See Item 8 - Note
3 "Transactions with Affiliates."

The business of the Partnership to date has involved only one industry segment.
See Item 8 - Financial Statements and Supplementary Data. The Partnership has no
foreign operations. The business of the Partnership is not seasonal.

Chapter 11 Reorganization:

On June 30, 1994, the Partnership filed a voluntary petition for Chapter 11
reorganization with the United States Bankruptcy Court - Northern District of
Texas, Dallas Division (the "Bankruptcy Court"). The Partnership continued to
conduct its affairs as a debtor-in-possession, subject to the jurisdiction and
supervision of the Bankruptcy Court. Concurrent with the Chapter 11 filing, the
General Partner contributed to the Partnership $4,375,661 of advances and
$704,482 of accrued interest on advances that were payable by the Partnership to
the General Partner. The Partnership's financial statements include the accounts
of Beckley Associates ("Beckley"). Beckley, which owns Harbour Club II
Apartments, is 99.99% owned by the Partnership. Beckley was excluded from the
Chapter 11 filing.

<PAGE>
Woodbridge Apartments, one of the Partnership's former properties, was
encumbered by two mortgage notes payable. The first lien mortgage note payable
was co-insured by the Federal Housing Administration and was, therefore,
regulated by the United States Department of Housing and Urban Development
("HUD"). The second lien mortgage note payable was payable in monthly
installments of interest only. Such payments were limited to "surplus cash" as
defined by HUD and as calculated at June 30 and December 31 of each year. No
"surplus cash" was available to make the interest payments on the second lien;
therefore, the Partnership ceased making such payments in April 1994. The
Partnership was unsuccessful in attempting to negotiate a restructuring of the
mortgage, and the second lienholder was expected to initiate foreclosure
proceedings. The Chapter 11 proceeding was filed to prevent the foreclosure
proceedings.

The Partnership's First Amended Plan of Reorganization (the "Reorganization
Plan"), which contemplated a sale of Woodbridge Apartments, was submitted to the
Bankruptcy Court on February 13, 1995. The Partnership's Disclosure Statement of
Debtor-in-Possession (the "Disclosure Statement") was approved by the Bankruptcy
Court on February 14, 1995.

The Partnership's Reorganization Plan and Disclosure Statement were submitted
February 20, 1995 to a vote of the impaired creditors, as defined. The impaired
creditors included a class of creditors who had filed a judgment lien against
Woodbridge Apartments in connection with an Illinois rescission suit. The
judgment lien creditors filed objections to confirmation of the Reorganization
Plan. On April 18, 1995, the Bankruptcy Court did grant an order to sell
Woodbridge Apartments but denied confirmation of the Reorganization Plan. The
Partnership filed an appeal of the Bankruptcy Court's ruling and, in the
meantime, attempted to settle the matter with the judgment lien creditors which
would allow for confirmation of the Reorganization Plan. On May 10, 1995, the
Reorganization Plan was amended to provide for full payment to the judgment lien
creditors. The Reorganization Plan, as amended, was subsequently confirmed by
the Bankruptcy Court on May 17, 1995.

Woodbridge Apartments was sold on May 25, 1995 and, in accordance with the
Reorganization Plan, the first and second mortgage notes payable and the related
outstanding accrued interest were paid. The Partnership also utilized $156,566
of the proceeds from the sale to pay the settlement and legal fees to the
judgment lien creditors, as discussed above.

On September 11, 1995, the Bankruptcy Court entered an Order Regarding
Objections to Claims that allowed the Partnership to pay outstanding
pre-petition claims totaling approximately $12,000 in October 1995.

As outlined in the Reorganization Plan, any payments of advances and fees owed
to affiliates of the General Partner were limited to remaining cash, after the
pre-petition and reorganization related costs were paid. The Partnership had
$37,228 of such cash available to distribute to affiliate creditors. The
remaining amounts owed to affiliates of the General Partner as of May 17, 1995
were discharged resulting in an extraordinary gain of $1,435,024.

On August 15, 1995, the Partnership sent an election form to each limited
partner which allowed them to choose whether to redeem their interest in the
Partnership. The redemption price was 1/1,000th of a dollar per Unit. The
limited partners were required to respond within 30 days, and at the close of
the 30 day period, 311 limited partners had elected to redeem 4,485,345 Units.
In connection with the redemption, the partnership obtained a "no-action" letter
from the SEC that provided that (1) the redemption could be accomplished without
compliance with Rule 13e-3 of the Securities Exchange Act of 1934, and (2) the
SEC did not intend to pursue an enforcement action if the Reorganization Plan
was consummated. Redemption of the affected Units was effective on January 1,
1996.

On November 18, 1995, the Partnership submitted to the Bankruptcy Court a
request for an Application to Close Case, which was entered on December 11,
1995, and was approved on February 15, 1996.

<PAGE>
Expenses incurred by the Partnership in connection with its Chapter 11 filing
have been expensed as "reorganization expenses" in the accompanying Statements
of Operations.

Business Plan:

As previously announced, the Partnership has retained PaineWebber, Incorporated
("PaineWebber") as its exclusive financial advisor to explore alternatives to
maximize the value of the Partnership, including, without limitation, a
transaction in which limited partnership interests in the Partnership are
converted into cash. The Partnership, through PaineWebber, provided financial
and other information to interested parties as part of an auction process and
until early March 1999 was conducting discussions with one bidder in an attempt
to reach a definitive agreement with respect to a sale transaction. In early
March 1999, because the Partnership had been unable to conclude negotiations for
a transaction with such bidder, the Partnership terminated such discussions and
commenced discussions with respect to a sale transaction with another
well-financed bidder who had been involved in the original auction process.
During the last full week of March, the Partnership entered into a 45 day
exclusivity agreement with such party. It is possible that the General Partner
and its affiliates will receive non-cash consideration for their ownership
interests in connection with any such transaction. There can be no assurance
regarding whether any such agreement will be reached nor the terms thereof.

Competitive Conditions:

Since the principal business of the Partnership is to own and operate real
estate, the Partnership is subject to all of the risks incident to ownership of
real estate and interests therein, many of which relate to the illiquidity of
this type of investment. These risks include changes in general or local
economic conditions, changes in supply or demand for competing properties in an
area, changes in interest rates and availability of permanent mortgage funds
which may render the sale or refinancing of a property difficult or
unattractive, changes in real estate and zoning laws, increases in real property
tax rates and Federal or local economic or rent controls. The illiquidity of
real estate investments generally impairs the ability of the Partnership to
respond promptly to changed circumstances. The Partnership competes with
numerous established companies, private investors (including foreign investors),
real estate investment trusts, limited partnerships and other entities (many of
which have greater resources than the Partnership) in connection with the sale,
financing and leasing of properties. The impact of these risks on the
Partnership, including losses from operations and foreclosure of the
Partnership's property, is described in Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations. For a detailed
discussion of the competitive conditions for the Partnership's property see Item
2 - Properties.

Forward-Looking Information:

Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after December 31, 1998. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
historical and involve risks and uncertainties. The Partnership's actual
occupancy trends, financial condition, results of operations, and cash flows for
future periods may differ materially due to several factors. These factors
include, but are not limited to, the Partnership's ability to control costs,
make necessary capital improvements, negotiate the sale or refinancing of its
property and respond to changing economic and competitive factors.

<PAGE>
Environmental Matters:

Environmental laws create potential liabilities that may affect property owners.
The environmental laws of Federal and certain state governments, for example,
impose liability on current and certain past owners of property from which there
is a release or threat of release of hazardous substances. This liability
includes costs of investigation and remediation of the hazardous substances and
natural resource damages. Liability for costs of investigation and remediation
is strict and may be imposed irrespective of whether the property owner was at
fault, although there are a number of defenses. Both governments and third
parties may seek recoveries under these laws.

Third parties also may seek recovery under the common law for damages to their
property or person, against owners of property from which there has been a
release of hazardous and other substances.

The presence of contamination or the failure to remediate contaminations may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral.

Various buildings at properties do or may contain building materials that are
the subject of various regulatory programs intended to protect human health.
Such building materials include, for example, asbestos, lead-based paint, and
lead plumbing components. The Company has implemented programs to deal with the
presence of those materials, which include, as appropriate, reduction of
potential exposure situations. The Company does not believe that the costs of
such programs are likely to have a material adverse effect. Failure to implement
such programs can result in regulatory violations or liability claims resulting
from alleged exposure to such materials.

In connection with the proposed sale transaction as more fully described above,
Phase I environmental site assessments have been completed for each property
owned by the Partnership. Such environmental assessments performed on the
properties have not revealed any environmental liability that the Partnership
believes would have a material adverse effect on the Partnership's business,
assets, or results of operations. The Partnership has not been notified by any
governmental authority of any non-compliance, liability or other claim in
connection with any of its properties. There can be no assurances, however, that
environmental liabilities have not developed since such environmental
assessments were prepared, or that future uses or conditions (including, without
limitation, changes in applicable environmental laws and regulations) will not
result in imposition of environmental liability.

<PAGE>
ITEM 2. PROPERTIES
- ------- ----------

The following table sets forth the investment portfolio of the Partnership at
December 31, 1998. The buildings and the land on which the property is located
are owned by the Partnership in fee, subject to a first lien deed of trust as
described more fully in Item 8 - Note 6 - "Mortgage Note Payable." See also Item
8 - Note 5 - "Real Estate Investment" and Schedule III - "Real Estate Investment
and Accumulated Depreciation." In the opinion of management, the property is
adequately covered by insurance.

<TABLE>
<CAPTION>
Net Basis of 1998 Date
Property Description Property Debt Property Taxes Acquired
- -------- ----------- ------------- ------ -------------- --------
Harbour Club II (1) Apartments
<S> <C> <C> <C> <C> <C>
Belleville, MI 220 units $3,286,043 $ 3,692,420 $ 110,109 6/86
</TABLE>

(1) Harbour Club II Apartments is owned by Beckley Associates which is 99.99%
owned by the Partnership.

The following table sets forth the property's occupancy rate and rent per square
foot for the last five years:

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- -------------- ------------- ------------
Harbour Club II
<S> <C> <C> <C> <C> <C>
Occupancy Rate............ 94% 89% 92% 92% 86%
Rent Per Square Foot...... $7.36 $6.99 $6.60 $6.55 $5.96
</TABLE>

Occupancy rate represents all units leased divided by the total number of units
of the property as of December 31 of the given year. Rent per square foot
represents all revenue, except interest, derived from the property's operations
divided by the leasable square footage of the property. No residential tenant
leases 10% or more of the available rental space.

<PAGE>
Competitive conditions
- ----------------------

Harbour Club II Apartments, located in Belleville, Michigan, was built in 1971
as a part of a four-phase apartment complex. The property offers a complete
package of amenities including a golf course, clubhouse, exercise room, tanning
beds, tennis courts, saunas, boat docks and launch, and playgrounds. Average
occupancy rates in the Belleville market increased in 1998 to an average of 94%.
Harbour Club II's closest competitor has rental rates approximately $50 per
month above Harbour Club II's rates. The lack of capital improvements at Harbour
Club II Apartments has constricted the property's ability to increase rental
rates to the levels charged by competitors. The property has a large amount of
deferred maintenance and has been unable to generate cash to meet its capital
improvement needs. The property's ability to compete effectively in its market
will be determined by the amount of capital dollars spent to upgrade the
property to market standards.

ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------

The Partnership is not party to, nor are any of the Partnership's properties the
subject of, any material pending legal proceedings, other than ordinary, routine
litigation incidental to the Partnership's business, except for the following:

James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund
XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund
XXVII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and
Regency North Associates, L.P., - Superior Court of the State of California for
the County of Los Angeles, Case No. BC133799 (Class and Derivative Action
Complaint).

The action involves purported class and derivative actions brought by limited
partners of each of the limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.

On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.

<PAGE>
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing for Final Approval of
Settlement, initially scheduled for December 17, 1998, has been continued to May
25, 1999.

Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil
Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of
the transaction contemplated in the settlement and Plaintiffs claim that an
effort should be made to sell the McNeil Partnerships, Plaintiffs have included
allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow
Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P.
in the third consolidated and amended complaint.

Plaintiff's counsel intends to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------

None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND
- ------- ------------------------------------------------------------
RELATED SECURITY HOLDER MATTERS
-------------------------------

(A) There is no established public trading market for limited partnership units,
nor is one expected to develop.

(B) Title of Class Number of Record Unit Holders

Limited partnership units 779 as of February 1, 1999

(C) No distributions were made to the partners during 1998 or 1997 and none
are anticipated in 1999. See Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations and Item 8 - Note 1 -
"Organization and Summary of Significant Accounting Policies -
Distributions."

<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------

The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in Item 8 - Financial
Statements and Supplementary Data.

<TABLE>
<CAPTION>
Statements of Years Ended December 31,
Operations 1998 1997 1996 1995 1994
- ------------------ ------------- ------------- -------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Rental revenue ............... $ 1,476,246 $ 1,398,644 $ 1,324,331 $ 1,591,118 $ 1,894,443
Write-down for impairment
of real estate .............. -- -- -- -- (661,921)
Gain on disposition of real
estate ...................... -- -- -- 554,047 --
Income (loss) before
extraordinary items ......... (146,178) (92,549) (180,141) 14,174 (1,465,830)
Extraordinary items .......... -- -- -- 1,435,024 --
Net income (loss) ............ (146,178) (92,549) (180,141) 1,449,198 (1,465,830)

Net income (loss) per thousand
limited partnership units:
Income (loss) before
extraordinary items:
Current Income Units ........ $ (1.98) $ (1.25) $ (2.43) $ 28.89 $ (14.01)
Growth/Shelter Units ........ (27.07) (17.14) (32.81) (38.59) (197.23)
Extraordinary items:
Current Income Units ........ -- -- -- 88.20 --
Growth/Shelter Units ........ -- -- -- 88.20 --

Net income (loss):
Current Income Units ........ (1.98) (1.25) (2.43) 117.09 (14.01)
Growth/Shelter Units ........ (27.07) (17.14) (32.81) 49.61 (197.23)

</TABLE>
<TABLE>
<CAPTION>
As of December 31,
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Real estate investment, net $ 3,286,043 $ 3,302,956 $ 3,354,442 $ 3,428,097 $ 3,546,322
Asset held for sale ....... -- -- -- -- 2,373,130
Total assets .............. 3,709,811 3,722,868 3,701,423 3,825,824 6,520,408
Mortgage note payable, net 3,692,420 3,726,154 3,758,380 3,787,802 3,814,667
Liabilities subject to
compromise ............. -- -- -- -- 4,184,977
Partners' deficit ......... (714,117) (567,939) (475,390) (290,769) (1,739,967)
</TABLE>

See Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
<PAGE>

Woodbridge Apartments was sold on May 25, 1995. This property was placed on the
market for sale during 1994 and was classified as an asset held for sale at
December 31, 1994.

As a result of its Chapter 11 proceeding, the realization of assets and
liquidation of liabilities attributable to the Partnership were subject to
significant uncertainties. The Partnership's balance sheet as of December 31,
1994, reflects the liabilities that were deferred under the Chapter 11
proceeding as "Liabilities subject to compromise."

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------

FINANCIAL CONDITION
- -------------------

The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. At the end of 1998, the
Partnership owned one apartment property, Harbour Club II Apartments, located in
Belleville, Michigan. Harbour Club II Apartments is subject to mortgage
indebtedness.

RESULTS OF OPERATIONS
- ---------------------

1998 compared to 1997

The Partnership's rental revenue increased $77,602 or 5.5% in 1998 as compared
to 1997. The Partnership increased base rental rates 3.1% at the beginning of
1998. In addition, vacancy and other rental losses decreased $27,178 or 14.9%
for 1998 as compared to 1997. Harbour Club II Apartments was 94% occupied at the
end of December 1998, an increase from the 89% occupancy rate at the end of
1997.

The Partnership recorded a $6,201 gain on involuntary conversion in 1998 as a
result of a fire that destroyed one apartment unit and damaged two adjacent
units and a hallway. No such gain was recorded in 1997.

Expenses:

Partnership expenses increased $141,283 or 9.4% in 1998 as compared to 1997.
Significant increases were reported in personnel expenses, repairs and
maintenance, and general and administrative expenses.

Personnel expenses increased 9.5% in 1998 as compared to 1997. The Partnership
increased wage and salary rates and benefits in order to retain property
personnel in a competitive job market. Retention of a stable work force is one
factor that promotes stable property operations and increased tenant
satisfaction.

Repair and maintenance expenses increased 9.6% in 1998 as compared to 1997. The
Partnership increased expenditures in 1998 for replacement of interior fixtures
such as countertops and ceiling fans, as well as for landscaping and grounds
maintenance.

General and administrative expenses increased $65,902 to $106,337 in 1998. The
increase is due to costs incurred to explore alternatives to maximize the value
of the Partnership (see Liquidity and Capital Resources).

<PAGE>
1997 compared to 1996

Revenue:

Rental revenue at Harbour Club II Apartments increased $74,313 or 5.6% for 1997
as compared to 1996. Management was able to implement small increases in base
rental rates at Harbour Club II Apartments during 1997. Average occupancy rates
and other rental losses were essentially unchanged in 1997 as compared to 1996.

Interest income increased $3,084 or 38% for 1997 as compared to 1996. The
increase is the result of increased levels of Partnership cash and cash
equivalents invested in interest-earning accounts.

Expenses:

Total Partnership expenses decreased $10,195 or 0.7% for 1997 as compared to
1996. Decreases in interest expense and other property operating expenses were
partially offset by increased repair and maintenance expenses.

Interest expense decreased $22,850 or 6.2% for 1997 because the Partnership is
no longer required to pay mortgage insurance premiums. The former holder of the
mortgage note, the Department of Housing and Urban Development ("HUD"), required
mortgage insurance premiums be paid with the scheduled monthly debt service
payments. Early in 1997, HUD sold its interest in the mortgage note to another
unaffiliated holder. The new holder does not require mortgage insurance
premiums. This change in debt service requirements accounts for $20,026 of the
decrease in interest expense in 1997 compared to 1996.

<PAGE>
Other property operating expenses decreased $18,029 or 23% for 1997 as compared
to 1996. Approximately 50% of the decrease is attributable to decreased expenses
for audits and other regulatory compliance costs associated with the mortgage
note held by HUD. The new mortgage note holder does not require the Partnership
to adhere to the restrictive government reporting standards that were required
when the mortgage note was held by HUD. The Partnership also experienced a
decrease in bad debt losses in 1997 compared to 1996.

Repair and maintenance expenses increased $21,166 or 13.5% for 1997 as compared
to 1996. Expenditures for floor covering replacements met the Partnership's
criteria for capitalization in 1996. However, such expenditures were expensed in
1997 as the amount of expenditures was not large enough to qualify for
capitalization.

LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------

Cash flows from operations decreased $97,338 to $297,687 in 1998. Increases in
cash paid to suppliers, cash paid to affiliates, and cash paid for property
taxes exceeded the increase in cash received from tenants.

The Partnership has increased its expenditures for capital improvements over the
past four years. Capital improvements have increased from $124,698 in 1995 to
$301,749 in 1998. Continued funding of capital improvements is critical to the
long-term success of Harbour Club II Apartments. The Partnership has lacked the
resources to complete all the capital improvements that management would like to
complete. Until these capital improvements are completed, the property will be
unlikely to realize rental rates that are achieved by its competitors in the
Belleville market. Capital improvements for 1998 were funded by cash flow from
operations and the Partnership's cash reserves. Cash flow from operations were
also used to repay $53,733 of mortgage indebtedness through regularly scheduled
debt service payments.

Of the $301,749 of capital improvements funded during 1998, $34,385 was expended
to restore and repair damage caused by a December 1997 fire that destroyed one
unit and damaged two adjacent units and a hallway. During 1998, the Partnership
received $13,375 of proceeds from its insurance carrier to reimburse the
Partnership for these costs. The Partnership expects to receive an additional
$11,010 of insurance reimbursements in 1999.

Short-term liquidity:

The Partnership's balance of cash and cash equivalents amounted to $263,851 at
December 31, 1998, a decrease of $44,420 from the balance of cash and cash
equivalents at December 31, 1997. The General Partner considers the
Partnership's cash reserves adequate for normal operating expenses, for debt
service payments, and for limited capital improvements in 1999. However, Harbour
Club II Apartments is in need of extensive capital improvements to enable the
property to compete effectively in the local market. Projected cash flows from
operations will not be adequate to fund such extensive capital improvements. To
date, the Partnership has been unable to secure financing for the needed capital
improvements. The Partnership has no established lines of credit from outside
sources.

<PAGE>
In the past, the General Partner, at its discretion, has advanced funds to the
Partnership to fund working capital requirements. Such advances were discharged
as a result of the Chapter 11 proceedings. The General Partner is not obligated
to advance funds to the Partnership and there is no assurance that the
Partnership will receive any additional funds.

Long-term liquidity:

The long-term operating viability of Harbour Club II Apartments is dependent on
the Partnership's ability to fund substantial capital improvements to the
property. If the Partnership does not liquidate, as contemplated below, it will
seek to obtain additional financing to allow the completion of the extensive
capital improvements, which will enable the Partnership to raise rental rates at
the property to market rates.

Harbour Club II Apartments is part of a four-phase apartment complex located in
Belleville, Michigan. Phases I and III of the complex are owned by partnerships
in which the General Partner is the general partner; while Phase IV is owned by
an unaffiliated entity. McREMI managed all four phases of the complex until
December 1992, when the property management agreement between McREMI and Phase
IV was canceled.

Distributions

To maintain adequate cash balances of the Partnership, distributions to Current
Income Unit holders were suspended in 1988. There have been no distributions to
Growth/Shelter Unit holders. Distributions to Unit holders will remain suspended
for the foreseeable future. The General Partner will continue to monitor the
cash reserves and working capital needs of the Partnership to determine when
cash flows will support distributions to the Unit holders.

YEAR 2000 DISCLOSURE
- --------------------

State of readiness
- ------------------

The year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in major systems failure or
miscalculations.

<PAGE>
Management has assessed its information technology ("IT") infrastructure to
identify any systems that could be affected by the year 2000 problem. The IT
used by the Partnership for financial reporting and significant accounting
functions was made year 2000 compliant during recent systems conversions. The
software utilized for these functions are licensed by third party vendors who
have warranted that their systems are year 2000 compliant.

Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management has inventoried all
such systems and queried suppliers, vendors and manufacturers to determine year
2000 compliance. Management will complete assessment of findings by May 1, 1999.
In circumstances of non-compliance management will work with the vendor to
remedy the problem or seek alternative suppliers who will be in compliance.
Management believes that the remediation of any outstanding year 2000 conversion
issues will not have a material or adverse effect on the Partnership's
operations. However, no estimates can be made as to the potential adverse impact
resulting from the failure of third party service providers and vendors to be
year 2000 compliant.

Cost
- ----

The cost of IT and embedded technology systems testing and upgrades is not
expected to be material to the Partnership. Because all the IT systems have been
upgraded over the last three years, all such systems were compliant, or made
compliant at no additional cost by third party vendors. Management anticipates
the costs of assessing, testing, and if necessary replacing embedded technology
components will be less than $50,000. Such costs will be funded from operations
of the Partnership.

Risks
- -----

Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures the Partnership undertakes, but also on the way in which
the year 2000 issue is addressed by government agencies and entities that
provide services or supplies to the Partnership. Management has not determined
the most likely worst case scenario to the Partnership. As management studies
the findings of its property systems assessment and testing, management will
develop a better understanding of what would be the worst case scenario.
Management believes that progress on all areas is proceeding and that the
Partnership will experience no adverse effect as a result of the year 2000
issue. However, there is no assurance that this will be the case.

Contingency plans
- -----------------

Management is developing contingency plans to address potential year 2000
non-compliance of IT and embedded technology systems. Management believes that
failure of any IT system could have an adverse impact on operations. However,
management believes that alternative systems are available that could be
utilized to minimize such impact. Management believes that any failure in the
embedded technology systems could have an adverse impact on that property's
performance. Management will assess these risks and develop plans to mitigate
possible failures by June, 1999.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- ----------------------------------------------------------

Not Applicable.
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------

<TABLE>
<CAPTION>
Page
Number
--------
INDEX TO FINANCIAL STATEMENTS
- -----------------------------

Financial Statements:

<S> <C>
Report of Independent Public Accountants....................................... 14

Balance Sheets at December 31, 1998 and 1997................................... 15

Statements of Operations for each of the three years in the period
ended December 31, 1998........................................................ 16

Statements of Partners' Equity (Deficit) for each of the three years
in the period ended December 31, 1998.......................................... 17

Statements of Cash Flows for each of the three years in the period
ended December 31, 1998........................................................ 18

Notes to Financial Statements.................................................. 20

Financial Statement Schedule -

Schedule III - Real Estate Investment and Accumulated
Depreciation............................................................. 27

</TABLE>

All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of McNeil Real Estate Fund XXIII, L.P.:

We have audited the accompanying balance sheets of McNeil Real Estate Fund
XXIII, L.P. (a California limited partnership), as of December 31, 1998 and
1997, and the related statements of operations, partners' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and the schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as 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 McNeil Real Estate Fund XXIII,
L.P. as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.

/s/ Arthur Andersen LLP

Dallas, Texas
March 19, 1999

<PAGE>

McNEIL REAL ESTATE FUND XXIII, L.P.

BALANCE SHEETS

December 31,
--------------------------------
1998 1997
------------ ------------
ASSETS
- -------

Real estate investment:
<S> <C> <C>
Land ................................................. $ 239,966 $ 239,966
Buildings and improvements ........................... 6,534,417 6,260,613
----------- -----------
6,774,383 6,500,579
Less: Accumulated depreciation ...................... (3,488,340) (3,197,623)
----------- -----------
3,286,043 3,302,956

Cash and cash equivalents ............................... 263,851 308,271
Cash segregated for security deposits ................... 47,679 43,947
Accounts receivable and other assets .................... 20,971 16,818
Escrow deposits ......................................... 91,267 50,876
----------- -----------

$ 3,709,811 $ 3,722,868
=========== ===========

LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------

Mortgage note payable, net .............................. $ 3,692,420 $ 3,726,154
Accounts payable and accrued expenses ................... 100,291 66,691
Accrued property taxes .................................. 47,083 44,676
Payable to affiliates - General Partner ................. 521,770 402,922
Deferred gain on involuntary conversion ................. 5,106 --
Security deposits and deferred rental revenue ........... 57,258 50,364
----------- -----------
4,423,928 4,290,807
----------- -----------

Partners' equity (deficit):
Limited partners - 45,000,000 Units authorized;
11,492,696 and 11,512,696 Units outstanding at
December 31, 1998 and 1997, respectively .......... (6,631,985
and 6,651,985 Current Income Units outstanding at
December 31, 1998 and 1997, respectively; 4,860,711
Growth/Shelter Units outstanding at December 31,
1998 and 1997) ..................................... (5,564,190) (5,419,474)
General Partner ...................................... 4,850,073 4,851,535
----------- -----------
(714,117) (567,939)
----------- -----------
$ 3,709,811 $ 3,722,868
=========== ===========
</TABLE>

See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------
1998 1997 1996
----------- ----------- -----------
Revenue:
<S> <C> <C> <C>
Rental revenue .............................. $ 1,476,246 $ 1,398,644 $ 1,324,331
Interest .................................... 15,104 11,253 8,169
Gain on involuntary conversion .............. 6,201 -- --
----------- ----------- -----------
Total revenue ............................. 1,497,551 1,409,897 1,332,500
----------- ----------- -----------

Expenses:
Interest .................................... 339,968 343,306 366,156
Depreciation ................................ 305,584 282,201 267,079
Property taxes .............................. 110,109 104,476 101,291
Personnel expenses .......................... 206,209 188,365 193,887
Utilities ................................... 96,979 91,947 97,183
Repairs and maintenance ..................... 194,855 177,753 156,587
Property management fees - affiliates ....... 73,718 70,248 65,869
Other property operating expenses ........... 68,086 59,813 77,842
General and administrative .................. 106,337 40,435 36,825
General and administrative - affiliates ..... 141,884 143,902 144,560
Reorganization expenses ..................... -- -- 5,362
----------- ----------- -----------
Total expenses ............................ 1,643,729 1,502,446 1,512,641
----------- ----------- -----------

Net loss ....................................... $ (146,178) $ (92,549) $ (180,141)
=========== =========== ===========

Net loss allocated to limited partners -
Current Income Units ........................ $ (13,156) $ (8,330) $ (16,213)
Net loss allocated to limited partners -
Growth/Shelter Units ........................ (131,560) (83,294) (162,127)
Net loss allocated to General Partner .......... (1,462) (925) (1,801)
----------- ----------- -----------
Net loss ....................................... $ (146,178) $ (92,549) $ (180,141)
=========== =========== ===========

Net loss per thousand limited partnership units:
Current Income Units:
Net loss .................................. $ (1.98) $ (1.25) $ (2.43)
=========== =========== ===========

Growth/Shelter Units:
Net loss .................................. $ (27.07) $ (17.14) $ (32.81)
=========== =========== ===========

</TABLE>

See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.

STATEMENTS OF PARTNERS' EQUITY (DEFICIT)

For the Years Ended December 31, 1998, 1997 and 1996

Total
General Limited Partners'
Partner Partners Equity (Deficit)
-------------- --------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1995.............. $ 4,854,261 $ (5,145,030) $ (290,769)

Redemption of limited partner units:
Current Income Units................... -- (2,737) (2,737)
Growth/Shelter Units................... -- (1,743) (1,743)
------------- ------------- -------------
Total redemption.......................... -- (4,480) (4,480)
------------- ------------- -------------

Net loss:
General Partner........................ (1,801) -- (1,801)
Current Income Units................... -- (16,213) (16,213)
Growth/Shelter Units................... -- (162,127) (162,127)
------------- ------------- -------------
Total net loss............................ (1,801) (178,340) (180,141)
------------- ------------- -------------

Balance at December 31, 1996.............. 4,852,460 (5,327,850) (475,390)

Net loss:
General Partner........................ (925) -- (925)
Current Income Units................... -- (8,330) (8,330)
Growth/Shelter Units................... -- (83,294) (83,294)
------------- ------------- -------------
Total net loss............................ (925) (91,624) (92,549)
------------- ------------- -------------

Balance at December 31, 1997.............. 4,851,535 (5,419,474) (567,939)

Net loss:
General Partner........................ (1,462) -- (1,462)
Current Income Units................... -- (13,156) (13,156)
Growth/Shelter Units................... -- (131,560) (131,560)
------------- ------------- -------------
Total net loss............................ (1,462) (144,716) (146,178)
------------- ------------- -------------

Balance at December 31, 1998.............. $ 4,850,073 $ (5,564,190) $ (714,117)
============= ============= =============
</TABLE>

See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.

STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Cash received from tenants ........ $ 1,522,298 $ 1,415,663 $ 1,339,047
Cash paid to suppliers ............ (674,563) (530,303) (621,756)
Cash paid to affiliates ........... (96,754) (70,010) (65,865)
Reorganization costs paid, net .... -- -- (5,362)
Interest received ................. 15,104 11,253 8,169
Interest paid ..................... (320,305) (325,992) (349,610)
Property taxes paid and escrowed .. (148,093) (105,586) (99,871)
----------- ----------- -----------
Net cash provided by operating
activities ........................ 297,687 395,025 204,752
----------- ----------- -----------

Cash flows from investing activities:
Additions to real estate
investments ..................... (301,749) (230,715) (193,424)
Proceeds from insurance claim ..... 13,375 -- --
----------- ----------- -----------
Net cash used in investing activities (288,374) (230,715) (193,424)
----------- ----------- -----------

Cash flows from financing activities:
Principal payments on mortgage
notes payable ................... (53,733) (49,851) (46,258)
Redemption of limited partner units -- -- (4,480)
----------- ----------- -----------
Net cash used in financing activities (53,733) (49,851) (50,738)
----------- ----------- -----------

Net increase (decrease) in cash and
cash equivalents ................ (44,420) 114,459 (39,410)

Cash and cash equivalents at
beginning of year ............... 308,271 193,812 233,222
----------- ----------- -----------

Cash and cash equivalents at end
of year ......................... $ 263,851 $ 308,271 $ 193,812
=========== =========== ===========
</TABLE>

See discussion of noncash investing and financing activities in Note 3 -
"Transactions with Affiliates" and Note 7 - "Gain on Involuntary Conversion."

See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.

STATEMENTS OF CASH FLOWS

Reconciliation of Net Loss to Net Cash Provided by
Operating Activities

<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1998 1997 1996
---------- ---------- ----------

<S> <C> <C> <C>
Net loss ............................ $(146,178) $ (92,549) $(180,141)
--------- --------- ---------

Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation ..................... 305,584 282,201 267,079
Amortization of discounts on
mortgage notes payable ......... 19,999 17,625 16,836
Gain on involuntary conversion ... (6,201) -- --
Changes in assets and liabilities:
Cash segregated for security
deposits ..................... (3,732) (651) 11,625
Accounts receivable and
other assets ................. 6,857 (3,569) 5,039
Escrow deposits ................ (40,391) 45,748 (5,328)
Accounts payable and accrued
expenses ..................... 33,600 (6,888) (47,032)
Accrued property taxes ......... 2,407 1,157 377
Payable to affiliates - General
Partner ...................... 118,848 144,140 144,564
Security deposits and deferred
rental revenue ............... 6,894 7,811 (8,267)
--------- --------- ---------

Total adjustments .......... 443,865 487,574 384,893
--------- --------- ---------

Net cash provided by operating
activities ....................... $ 297,687 $ 395,025 $ 204,752
========= ========= =========

</TABLE>

See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------

Organization
- ------------

McNeil Real Estate Fund XXIII, L.P. (the "Partnership"), formerly known as
Southmark Realty Partners III, Ltd., was organized on March 4, 1985 as a limited
partnership under the provisions of the California Revised Limited Partnership
Act to acquire and operate residential properties. The general partner of the
Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited
partnership, an affiliate of Robert A. McNeil. The General Partner was elected
at a meeting of limited partners on March 30, 1992, at which time an amended and
restated partnership agreement (the "Amended Partnership Agreement") was
adopted. Prior to March 30, 1992, the general partner of the Partnership was
Southmark Investment Group 85, Inc. (the "Original General Partner"), a Nevada
corporation and a wholly-owned subsidiary of Southmark Corporation
("Southmark"). The principal place of business for the Partnership and the
General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.

The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential real estate and other real estate
related assets. At December 31, 1998, the Partnership owned one income-producing
property as described in Note 5 - "Real Estate Investment."

Basis of Presentation
- ---------------------

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

<PAGE>
The Partnership's financial statements include the accounts of Beckley
Associates ("Beckley"), a single asset limited partnership formed to accommodate
the refinancing of Harbour Club II Apartments. The Partnership is the general
partner of Beckley, and holds a 99.99% interest in Beckley. The Partnership
exercises effective control of Beckley. The minority interest is not presented
as it is both negative and immaterial.

Adoption of Recent Accounting Pronouncements
- ---------------------------------------------

The Partnership has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 requires an enterprise to report financial information about its
reportable operating segments, which are defined as components of a business for
which separate financial information is evaluated regularly by the chief
decision maker in allocating resources and assessing performance. The
Partnership does not prepare such information for internal use, since it
analyzes the performance of and allocates resources for each property
individually. The Partnership's management has determined that it operates one
line of business and it would be impracticable to report segment information.
Therefore, the adoption of SFAS 131 has no impact on the Partnership's financial
statements.

Real Estate Investment
- ----------------------

Real estate investments are generally stated at the lower of depreciated cost or
fair value. Real estate investments are reviewed for impairment whenever events
or changes in circumstances indicate that their carrying amounts may not be
recoverable in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". When the carrying value of a property exceeds the sum
of all estimated future cash flows, an impairment loss is recognized. At such
time, a write-down is recorded to reduce the basis of the property to its
estimated fair value.

Improvements and betterments are capitalized and expensed through depreciation
charges. Repairs and maintenance are charged to operations as incurred.

Depreciation
- ------------

Buildings and improvements are depreciated using the straight-line method over
the estimated useful lives of the assets, ranging from 5 to 25 years.

Cash and Cash Equivalents
- -------------------------

Cash and cash equivalents include cash on hand and cash on deposit in financial
institutions with original maturities of three months or less. Carrying amounts
for cash and cash equivalents approximate fair value.

Escrow Deposits
- ---------------

The Partnership is required to maintain escrow accounts in accordance with the
terms of its mortgage indebtedness agreement. These escrow accounts are
controlled by the mortgagee and are used for payment of property taxes, hazard
insurance, capital improvements and/or property replacements. Carrying amounts
for escrow deposits approximate fair value.

<PAGE>
Discount on Mortgage Note Payable
- ---------------------------------

The discount on the mortgage note payable is amortized over the remaining term
of the mortgage note using the effective interest method. Amortization of the
discount on the mortgage note payable is included in interest expense on the
Statements of Operations.

Rental Revenue
- --------------

The Partnership leases its residential property under short-term operating
leases. Lease terms generally are less than one year in duration. Rental revenue
is recognized as earned.

Income Taxes
- ------------

No provision for Federal income taxes is necessary in the financial statements
of the Partnership because, as a partnership, it is not subject to Federal
income tax and the tax effect of its activities accrues to the partners.

Allocation of Net Income and Net Loss
- -------------------------------------

The Amended Partnership Agreement generally provides that net income (other than
net income arising from sales or refinancing) shall be allocated one percent
(1%) to the General Partner and ninety-nine percent (99%) to the limited
partners equally as a group, and net loss shall be allocated one percent (1%) to
the General Partner, nine percent (9%) to the limited partners owning Current
Income Units and ninety percent (90%) to the limited partners owning
Growth/Shelter Units.

For financial statement purposes, net income arising from sales or refinancings
shall be allocated 1% to the General Partner and 99% to the limited partners
equally as a group.

For tax reporting purposes, net income arising from sales or refinancing shall
be allocated as follows: (a) first, amounts of such net income shall be
allocated among the General Partner and limited partners in proportion to, and
to the extent of, the portion of such partner's share of the net decrease in
Partnership Minimum Gain determined under Treasury Regulations, (b) second, to
the General Partner and limited partners in proportion to, and to the extent of,
the amount by which their respective capital account balances are negative by
more than their respective remaining shares of the Partnership's Minimum Gain
attributable to property still owned by the Partnership and (c) third, 1% of
such net income shall be allocated to the General Partner and 99% of such net
income shall be allocated to the limited partners.

<PAGE>
Federal income tax law provides that the allocation of loss to a partner will
not be recognized unless the allocation is in accordance with a partner's
interest in the partnership or the allocation has substantial economic effect.
Internal Revenue Code Section 704(b) and accompanying Treasury Regulations
establish criteria for allocation of Partnership deductions attributable to
debt. The Partnership's tax allocations for 1998, 1997 and 1996 have been made
in accordance with these criteria.

Distributions
- -------------

At the discretion of the General Partner, distributable cash (other than cash
from sales or refinancings) shall be distributed 100% to the limited partners,
with such distributions first paying the Current Income Priority Return and then
the Growth/Shelter Priority Return. Also at the discretion of the General
Partner, the limited partners will receive 100% of distributable cash from sales
or refinancing with such distributions first paying the Current Income Priority
Return, then the Growth/Shelter Priority Return, then repayment of Original
Invested Capital, and of the remainder, 5.88% to limited partners owning Current
Income Units and 94.12% to limited partners owning Growth/Shelter Units. The
limited partners' Current Income and Growth/Shelter Priority Returns represent a
10% and 8%, respectively, cumulative return on their Adjusted Invested Capital
balance, as defined. No distributions of Current Income Priority Return have
been made since 1988, and no distributions of Growth/Shelter Priority Return
have been made since the Partnership began.

In connection with a Terminating Disposition, as defined, cash from sales or
refinancing and any remaining reserves shall be allocated among, and distributed
to, the General Partner and limited partners in proportion to, and to the extent
of, their positive capital account balances after the net income has been
allocated, except for positive balances created by amounts contributed by the
General Partner related to the bankruptcy, as discussed above.

Net Income (Loss) Per Thousand Limited Partnership Units
- --------------------------------------------------------

Net income (loss) per thousand limited partner Current Income and Growth/Shelter
units ("Units") is computed by dividing net income (loss) allocated to the
limited partners by the weighted average number of Units outstanding expressed
in thousands. Per thousand Unit information has been computed based on 6,632,
6,652 and 6,682 weighted average Current Income Units (in thousands) outstanding
in 1998, 1997 and 1996, respectively, and 4,861, 4,861 and 4,941 weighted
average Growth/Shelter Units outstanding in 1998, 1997 and 1996, respectively.

<PAGE>
NOTE 2 - CHAPTER 11 REORGANIZATION
- -----------------------------------

On June 30, 1994, the Partnership, excluding Beckley, filed a voluntary petition
for Chapter 11 reorganization. The Partnership continued to conduct its affairs
as a debtor-in-possession, subject to the jurisdiction and supervision of the
Bankruptcy Court.

Woodbridge Apartments, one of the Partnership's former properties, was
encumbered by two mortgage notes payable. The first lien mortgage note payable
was co-insured by the Federal Housing Administration and was, therefore,
regulated by the United States Department of Housing and Urban Development
("HUD"). The second lien mortgage note payable was payable in monthly
installments of interest only. Such payments were limited to "surplus cash," as
defined by HUD and as calculated at June 30 and December 31 of each year. No
"surplus cash" was available to make the interest payments on the second lien,
and therefore, the Partnership ceased making such payments in April 1994. The
Partnership was unsuccessful in attempting to negotiate a restructuring of the
mortgage, and the second lienholder was expected to initiate foreclosure
proceedings. The Chapter 11 proceeding was filed to prevent the foreclosure
proceedings.

The Partnership's Reorganization Plan, which contemplated a sale of Woodbridge
Apartments, was submitted to the Bankruptcy Court on February 13, 1995. The
Partnership's Disclosure Statement of Debtor-in-Possession (the "Disclosure
Statement") was approved by the Bankruptcy Court on February 14, 1995.

The Partnership's Reorganization Plan and Disclosure Statement were submitted
February 20, 1995, to a vote of the impaired creditors, as defined. The impaired
creditors included a class of creditors who had filed a judgment lien against
Woodbridge Apartments in connection with an Illinois rescission suit. The
judgment lien creditors filed objections to confirmation of the Reorganization
Plan. On April 18, 1995, the Bankruptcy Court granted an order to sell
Woodbridge Apartments but denied confirmation of the Reorganization Plan. The
Partnership filed an appeal of the Bankruptcy Court's ruling and, in the
meantime, attempted to settle the matter with the judgment lien creditors that
would allow for confirmation of the Reorganization Plan. On May 10, 1995, the
Reorganization Plan was amended to provide for full payment to the judgment lien
creditors. The Reorganization Plan, as amended, was subsequently confirmed by
the Bankruptcy Court on May 17, 1995. The Partnership sold Woodbridge Apartments
on May 25, 1995.

On August 15, 1995, the Partnership sent an election form to each limited
partner which allowed them to choose whether to redeem their interest in the
Partnership. The redemption price was 1/1000th of a dollar per Unit. The limited
partners were required to respond within 30 days, and at the close of the 30 day
period, 311 limited partners had elected to redeem 4,485,345 Units. In
connection with the redemption, the Partnership obtained a "no-action" letter
from the Securities and Exchange Commission ("SEC") that provided that (1) the
redemption could be accomplished without compliance with Rule 13e-3 of the
Securities Exchange Act of 1934, and (2) the SEC did not intend to pursue an
enforcement action if the Reorganization Plan was consummated. Redemption of the
affected Units was completed on January 1, 1996.

On November 18, 1995, the Partnership submitted to the Bankruptcy Court a
request for an Application to Close Case, which was entered on December 11,
1995, and approved on February 15, 1996.

<PAGE>
NOTE 3 - TRANSACTIONS WITH AFFILIATES
- -------------------------------------

The Partnership pays property management fees equal to 5% of the Partnership's
gross rental receipts to McNeil Real Estate Management, Inc. ("McREMI"), an
affiliate of the General Partner, for providing property management and leasing
services for the Partnership's residential properties.

The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.

Under the terms of the Amended Partnership Agreement, the Partnership incurs an
asset management fee payable to the General Partner. Through 1999, the asset
management fee is calculated as 1% of the Partnership's tangible asset value.
Tangible asset value is determined by using the greater of (i) an amount
calculated by applying a capitalization rate of 9% to the annualized net
operating income of each property or (ii) a value of $10,000 per apartment unit
for each property to arrive at the property tangible asset value. The property
tangible asset value is then added to the book value of all other assets
excluding intangible items. The fee percentage decreases to .75% in 2000, .50%
in 2001 and .25% thereafter.

Compensation and reimbursements paid to or accrued for the benefit of the
General Partner or its affiliates are as follows:

<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Property management fees - affiliates $ 73,718 $ 70,248 $ 65,869
Charged to general and
administrative - affiliates:
Partnership administration ....... 56,674 60,011 70,979
Asset management fee ............. 85,210 83,891 73,581
-------- -------- --------

$215,602 $214,150 $210,429
======== ======== ========
</TABLE>

<PAGE>
Payable to affiliates - General Partner at December 31, 1998 and 1997 consists
of property management fees, reimbursable costs and asset management fees that
are due and payable from current operations.

NOTE 4 - TAXABLE INCOME (LOSS)
- ------------------------------

McNeil Real Estate Fund XXIII, L.P. is a partnership and is not subject to
Federal and state income taxes. Accordingly, no recognition has been given to
income taxes in the accompanying financial statements of the Partnership since
the income or loss of the Partnership is to be included in the tax returns of
the individual partners. The tax returns of the Partnership are subject to
examination by Federal and state taxing authorities. If such examinations result
in adjustments to distributive shares of taxable income or loss, the tax
liability of the partners could be adjusted accordingly.

The Partnership's net assets and liabilities for tax reporting purposes exceeded
the net assets and liabilities for financial purposes by $2,343,520, $2,314,356
and $2,271,179 at December 31, 1998, 1997 and 1996, respectively.

NOTE 5 - REAL ESTATE INVESTMENT
- -------------------------------

The basis and accumulated depreciation of the Partnership's real estate
investment at December 31, 1998 and 1997, are set forth in the following table:

<TABLE>
<CAPTION>
Harbour Club II December 31,
Belleville, MI 1998 1997
----------------- ----------- -----------
<S> <C> <C>
Land ............................................... $ 239,966 $ 239,966
Building and improvements .......................... 6,534,417 6,260,613
---------- -----------
6,774,383 6,500,579
Accumulated depreciation ........................... (3,488,340) (3,197,623)
---------- -----------

Net book value ..................................... $ 3,286,043 $ 3,302,956
========== ===========
</TABLE>
<PAGE>
The Partnership's real estate investment is encumbered by a mortgage note as
discussed in Note 6 - "Mortgage Note Payable."

NOTE 6 - MORTGAGE NOTE PAYABLE
- ------------------------------

The following table sets forth the mortgage note payable of the Partnership at
December 31, 1998 and 1997. The mortgage note payable is secured by the
Partnership's real estate investment.

<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position(a) Rates % Maturity Date 1998 1997
- -------- ----------- ------- -------------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Harbour Club II First 7.50 $ 31,170 05/24 $ 4,241,468 $ 4,295,201
Discount (b) (549,048) (569,047)
---------- -----------

$ 3,692,420 $ 3,726,154
========== ===========
</TABLE>

(a) The debt is non-recourse to the Partnership.

(b) The discount for Harbour Club II mortgage note is based on an effective
interest rate of 9.13%.

Scheduled principal maturities of the mortgage note under the existing
agreement, excluding the $549,048 discount, are as follows:

1999............................. $ 57,891
2000............................. 62,385
2001............................. 67,229
2002............................. 72,448
2003............................. 78,072
Thereafter ...................... 3,903,443
----------

Total $ 4,241,468
==========

Based on borrowing rates currently available to the Partnership for a mortgage
loan with similar terms and average maturities, the fair value of the mortgage
note payable was approximately $4,238,000 and $4,387,000 at December 31, 1998
and 1997, respectively.
<PAGE>
NOTE 7 - GAIN ON INVOLUNTARY CONVERSION
- ----------------------------------------

On December 17, 1997, a fire destroyed one unit of Harbour Club II Apartments
and damaged two adjacent units and a hallway. The cost to repair the fire damage
was $34,385. The Partnership has received $13,375 of reimbursements from its
insurance carrier, and expects to receive an additional $11,010. The Partnership
will record an $11,307 gain on involuntary conversion equal to the insurance
proceeds received and expected to be received less the $13,078 adjusted basis of
the property damaged by the fire. Because all of the insurance proceeds have not
been received at December 31, 1998, only $6,201 of the gain on involuntary
conversion was recognized on the Statement of Operations for the year ended
December 31, 1998. The remaining $5,106 of the gain on involuntary conversion
was deferred and reported on the Partnership's December 31, 1998 Balance Sheet.
The $5,106 deferred gain on involuntary conversion will be recognized when the
Partnership receives the remainder of the insurance proceeds.

NOTE 8 - LEGAL PROCEEDINGS
- --------------------------

<PAGE>
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.

Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing for Final Approval of
Settlement, initially scheduled for December 17, 1998, has been continued to May
25, 1999.

NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------

Third parties also may seek recovery under the common law for damages to their
property or person, against owners of property from which there has been a
release of hazardous and other substances.

<PAGE>
The presence of contamination or the failure to remediate contaminations may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral.

In connection with the proposed sale transaction as more fully described in Note
1 - "Organization and Summary of Significant Accounting Policies", Phase I
environmental site assessments have been completed for each property owned by
the Partnership. Such environmental assessments performed on the properties have
not revealed any environmental liability that the Partnership believes would
have a material adverse effect on the Partnership's business, assets, or results
of operations. The Partnership has not been notified by any governmental
authority of any non-compliance, liability or other claim in connection with any
of its properties. There can be no assurances, however, that environmental
liabilities have not developed since such environmental assessments were
prepared, or that future uses or conditions (including, without limitation,
changes in applicable environmental laws and regulations) will not result in
imposition of environmental liability.

<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION
December 31, 1998

<TABLE>
<CAPTION>
Costs
Initial Cost (a) Cumulative Capitalized
Related Buildings and Write-down for Subsequent
Description Encumbrance (a) Land Improvements Impairment (b) To Acquisition
- ----------- --------------- ------ ------------- -------------- ---------------
APARTMENTS:

Harbour Club II (c)
<S> <C> <C> <C> <C> <C>
Belleville, MI $ 3,692,420 $ 311,119 $ 7,488,130 $ (2,104,290) $ 1,079,424
============= ============= ============= =========== ============
</TABLE>

(a) The initial cost and encumbrances reflect the present value of future loan
payments discounted, if appropriate, at a rate estimated to be the
prevailing interest rate at the date of acquisition.

(b) The carrying value of Harbour Club II Apartments was reduced by $1,783,702
in 1992 and $320,588 in 1989.

(c) For Federal income tax purposes, the property is depreciated over lives
ranging from 7-27.5 years using ACRS or MACRS methods. The aggregate cost
of the real estate investment for Federal income tax purposes was
$9,468,364 and accumulated depreciation was $6,279,390 at December 31,
1998.

See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION
December 31, 1998

<TABLE>
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Buildings and Accumulated
Description Land Improvements Total (c) Depreciation
- ----------- ---- ------------- --------- ------------
APARTMENT:

Harbour Club II (c)
<S> <C> <C> <C> <C>
Belleville, MI $ 239,966 $ 6,534,417 $ 6,774,383 $ (3,488,340)
============= ============= =============== =============

</TABLE>

See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION
December 31, 1998

Date of Date Depreciable
Description Construction Acquired lives (years)
- ----------- ------------ -------- -------------
APARTMENTS:

Harbour Club II (c)
<S> <C> <C> <C>
Belleville, MI 1971 6/86 5-25

</TABLE>

See accompanying notes to Schedule III.

<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.

Notes to Schedule III

Real Estate Investment and Accumulated Depreciation

A summary of activity for the Partnership's real estate investment and
accumulated depreciation is as follows:

<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------
1998 1997 1996
----------- ----------- -----------

Real estate investment:
<S> <C> <C> <C>
Balance at beginning of year..... $ 6,500,579 $ 6,269,864 $ 6,076,440

Improvements .................... 301,749 230,715 193,424

Assets replaced ................. (27,945) -- --
----------- ----------- -----------

Balance at end of year .......... $ 6,774,383 $ 6,500,579 $ 6,269,864
=========== =========== ===========

Accumulated depreciation:

Balance at beginning of year .... $ 3,197,623 $ 2,915,422 $ 2,648,343

Depreciation .................... 305,584 282,201 267,079

Assets replaced ................. (14,867) -- --
----------- ----------- -----------

Balance at end of year .......... $ 3,488,340 $ 3,197,623 $ 2,915,422
=========== =========== ===========

</TABLE>

<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------

Neither the Partnership nor the General Partner has any directors or executive
officers. The names and ages of, as well as the positions held by, the officers
and directors of McNeil Investors, Inc., the general partner of the General
Partner, are as follows:

Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------

Robert A. McNeil, 78 Mr. McNeil is also Chairman of the
Chairman of the Board and Director of McNeil Real Estate
Board and Director Management, Inc. ("McREMI") which is an
affiliate of the General Partner. He has
held the foregoing positions since the
formation of such an entity in 1990. Mr.
McNeil received his B.A. degree from
Stanford University in 1942 and his
L.L.B. degree from Stanford Law School
in 1948. He is a member of the State Bar
of California and has been involved in
real estate financing since the late
1940's and in real estate acquisitions,
syndications and dispositions since
1960. From 1986 until active operations
of McREMI and McNeil Partners, L.P.
began in February 1991, Mr. McNeil was a
private investor. Mr. McNeil is a member
of the International Board of Directors
of the Salk Institute, which promotes
research in improvements in health care.

<PAGE>
Carole J. McNeil 55 Mrs. McNeil is Co-Chairman, with husband
Co-Chairman of the Robert A. McNeil, of McNeil Investors,
Board Inc. Mrs. McNeil has twenty years of
real estate experience, most recently as
a private investor from 1986 to 1993. In
1982, she founded Ivory & Associates, a
commercial real estate brokerage firm in
San Francisco, CA. Prior to that, she
was a commercial real estate associate
with the Madison Company and, earlier, a
commercial sales associate and analyst
with Marcus and Millichap in San
Francisco. In 1978, Mrs. McNeil
established Escrow Training Centers,
California's first accredited commercial
training program for title company
escrow officers and real estate agents
needing college credits to qualify for
brokerage licenses. She began in real
estate as Manager and Marketing Director
of Title Insurance and Trust in Marin
County, CA. Mrs. McNeil serves on the
International Board of Directors of the
Salk Institute.

Ron K. Taylor 41 Mr. Taylor is the President and Chief
President and Chief Executive Officer of McNeil Real Estate
Executive Officer Management which is an affiliate of the
General Partner. Mr. Taylor has been in
this capacity since the resignation of
Donald K. Reed on March 4, 1997. Prior
to assuming his current
responsibilities, Mr. Taylor served as a
Senior Vice President of McREMI. Mr.
Taylor has been in this capacity since
McREMI commenced operations in 1991.
Prior to joining McREMI, Mr. Taylor
served as an Executive Vice President
for a national syndication/property
management firm. In this capacity, Mr.
Taylor had the responsibility for the
management and leasing of a 21,000,000
square foot portfolio of commercial
properties. Mr. Taylor has been actively
involved in the real estate industry
since 1983.

Each director shall serve until his successor shall have been duly elected and
qualified.

<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------

No direct compensation was paid or payable by the Partnership to directors or
officers (since it does not have any directors or officers) for the year ended
December 31, 1998, nor was any direct compensation paid or payable by the
Partnership to directors or officers of the general partner of the General
Partner for the year ended December 31, 1998. The Partnership has no plans to
pay any such remuneration to any directors or officers of the General Partner in
the future.

See Item 13 - Certain Relationships and Related Transactions for amounts of
compensation and reimbursements paid by the Partnership to the General Partner
and its affiliates.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------

(A) Security ownership of certain beneficial owners.

No individual or group as defined by Section 13(d)(3) of the Securities
Exchange Act of 1934, known to the registrant is the beneficial owner
of more than 5 percent of the Partnership's Units.

(B) Security ownership of management.

The General Partner owns 5,000 limited partnership units at February 1,
1999, which represents less than 1% of the outstanding Units.

None.

<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- -----------------------------------------------

The amendments to the Partnership compensation structure included in the Amended
Partnership Agreement provide for an asset management fee to replace all other
forms of General Partner compensation other than property management fees and
reimbursements of certain costs. Through 1999, the asset management fee is
calculated as 1% of the Partnership's tangible asset value. Tangible asset value
is determined by using the greater of (i) an amount calculated by applying a
capitalization rate of 9% to the annualized net operating income of each
property or (ii) a value of $10,000 per apartment unit to arrive at the property
tangible asset value. The property tangible asset value is then added to the
book value of all other assets excluding intangible items. The fee percentage
decreases to .75% in 2000, .50% in 2001 and .25% thereafter. For the year ended
December 31, 1998, the Partnership accrued $85,210 of such asset management
fees. Total accrued but unpaid asset management fees of $294,998 were
outstanding at December 31, 1998.

The Partnership pays property management fees equal to 5% of the gross rental
receipts of its residential properties to McREMI, an affiliate of the General
Partner, for providing property management and leasing services. Additionally,
the Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs. For the year ended December 31, 1998,
the Partnership incurred $130,392 of such property management fees and
reimbursements.

<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------

See accompanying Index to Financial Statements at Item 8 - Financial Statements
and Supplementary Data.

(A) Exhibits

Exhibit
Number Description
-------- -----------
4. Amended and Restated Limited Partnership
Agreement dated March 30, 1992. (Incorporated
by reference to the Current Report of the
Registrant on Form 8-K dated March 30, 1992,
as filed on April 10, 1992).

10.1 Portfolio Services Agreement dated February
14, 1991, between Southmark Realty Partners
III, Ltd. and McNeil Real Estate Management,
Inc. (1)

10.2 Modification of Note and Mortgage dated
May 1, 1984, between Knoblinks Associates II
and Samuel R. Pierce, Jr., as Secretary of
Housing and Urban Development relating to
Harbour Club II. (1)

10.3 Property Management Agreement dated March
30, 1992, between McNeil Real Estate Fund
XXIII, L.P. and McNeil Real Estate Management,
Inc. (2)

10.4 Amendment of Property Management Agreement
dated March 5, 1993. (2)

10.6 Property Management Agreement dated March 30,
1992 between Beckley Associates and McNeil
Real Estate Management, Inc. (3)

10.7 Disclosure Statement of Debtor-in-Possession
pursuant to Section 1125 of the Bankruptcy
Code. (4)

10.8 Debtor's First Amended Plan of Reorganization
(as Modified), dated February 13, 1995. (5)

<PAGE>

Exhibit
Number Description
------- -----------

10.9 Order Confirming Plan, dated May 17, 1995. (5)

11. Statement regarding computation of net income
(loss) per limited partnership unit (see Note
1 to Financial Statements appearing in Item
8).

22. Following is a list of subsidiaries of the
Partnership:

Names Under
Jurisdiction Which It Is
Name of Subsidiary Incorporation Doing Business
------------------ ------------- --------------

Beckley Associates Michigan None

The Partnership has omitted certain documents pertaining to the
Partnership's Chapter 11 filing and other instruments with respect to
long-term debt where the total amount of the securities authorized
thereunder does not exceed 10% of the total assets of the Partnership.
The Partnership agrees to furnish a copy of each such instrument to the
Commission upon request.

(1) Incorporated by reference to the Quarterly
Report of the registrant, on Form 10-Q for
the period ended March 31, 1991, as filed on
May 14, 1991.

(2) Incorporated by reference to the Annual
Report of the registrant, on Form 10-K for
the period ended December 31, 1992, as filed
on March 30, 1993.

(3) Incorporated by reference to the Annual
Report of the registrant, on Form 10-K for
the period ended December 31, 1993, as filed
on March 30, 1994.

(4) Incorporated by reference to the Annual
Report of the registrant, on Form 10-K for
the period ended December 31, 1994, as filed
on March 30, 1995.

(5) Incorporated by reference to the Annual
Report of the registrant on Form 10-K for the
period ended December 31, 1995, as filed on
April 1, 1996.

(B) Reports on Form 8-K. There were no reports on Form 8-K filed by
the Partnership during the quarter ended December 31, 1998.

<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.

SIGNATURE PAGE

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.

McNEIL REAL ESTATE FUND XXIII, L.P.

By: McNeil Partners, L.P., General Partner

By: McNeil Investors, Inc., General Partner

March 31, 1999 By: /s/ Robert A. McNeil
- -------------- --------------------------------------------
Date Robert A. McNeil
Chairman of the Board and Director
Principal Executive Officer

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.

March 31, 1999 By: /s/ Ron K. Taylor
- -------------- --------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)

March 31, 1999 By: /s/ Carol A. Fahs
- -------------- --------------------------------------------
Date Carol A. Fahs
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 263,851
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,774,383
<DEPRECIATION> (3,488,340)
<TOTAL-ASSETS> 3,709,811
<CURRENT-LIABILITIES> 0
<BONDS> 3,692,420
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,709,811
<SALES> 1,476,246
<TOTAL-REVENUES> 1,497,551
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,303,761
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 339,968
<INCOME-PRETAX> (146,178)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (146,178)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>