UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2008

or

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

For the transition period from                                to

Commission File Number   000-51868

CORNERSTONE REALTY FUND, LLC

(Exact name of registrant as specified in its charter)

CALIFORNIA	33-0827161
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1920 MAIN STREET, SUITE 400, IRVINE, CA	92614
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)	(ZIP CODE)

949-852-1007

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

T Yes o No

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

Large accelerated filer £ Accelerated filer £ Non-accelerated filer £ Smaller Reporting Company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

o Yes o No

PART I.	FIFINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007	3
	Condensed Statements of Operations for the Three and Nine months ended September 30, 2008 (unaudited) and September 30, 2007 (unaudited)	4
	Condensed Statement of Members’ Capital for the Nine months ended September 30, 2008 (unaudited)	5
	Condensed Statements of Cash Flows for the Nine months ended September 30, 2008 (unaudited) and September 30, 2007 (unaudited)	6
	Notes to Condensed Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	13
Item 4(T).	Controls and Procedures	13
PART II.	OTHER INFORMATION
Item 1A.	Risk Factors	13
Item 6.	Exhibits	14
SIGNATURES		15

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

CONDENSED BALANCE SHEETS

	September 30, 2008		December 31, 2007
	(unaudited)		(a)
ASSETS
Cash and cash equivalents	$	2,637,000	$	4,201,000
Investments in real estate
Land		11,779,000		11,779,000
Buildings and improvements, net		21,297,000		21,689,000
Intangible lease assets, net		393,000		424,000
Intangible in-place lease asset, net		109,000		195,000
		33,578,000		34,087,000
Tenant and other receivables, net		265,000		289,000
Prepaid expenses and other assets		30,000		65,000
Leasing commissions, less accumulated amortization of $367,000 as of September 30, 2008 and $269,000 as of December 31, 2007		174,000		188,000
Total assets	$	36,684,000	$	38,830,000
LIABILITIES AND MEMBERS’ CAPITAL
Liabilities
Accounts payable, accrued and other liabilities	$	256,000	$	338,000
Real estate taxes payable		371,000		228,000
Tenant security deposits		298,000		316,000
Intangible lease liability, net		39,000		61,000
Total liabilities		964,000		943,000
Members’ capital (100,000 units authorized as of September 30, 2008 and December 31, 2007;  99,445 and 99,720 units outstanding as of September 30, 2008 and December 31, 2007, respectively)		35,720,000		37,887,000
Total liabilities and members’ capital	$	36,684,000	$	38,830,000

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

(a) Derived from the audited financial statements as of December 31 2007.

3

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,				Nine months Ended September 30,
	2008		2007		2008		2007
Revenues
Rental revenues	$	837,000	$	859,000	$	2,541,000	$	2,511,000
Tenant reimbursements and other income		169,000		163,000		519,000		479,000
		1,006,000		1,022,000		3,060,000		2,990,000
Expenses
Property operating and maintenance		245,000		238,000		759,000		644,000
Property taxes		130,000		152,000		419,000		443,000
General and administrative		65,000		97,000		218,000		331,000
Depreciation and amortization		262,000		259,000		792,000		788,000
		702,000		746,000		2,188,000		2,206,000
Interest and other income		54,000		45,000		87,000		102,000
Income from continuing operations		358,000		321,000		959,000		886,000
Discontinued operations
Income from discontinued operations		-		-		-		45,000
Gain on sale of real estate		-		-		-		320,000
Net income	$	358,000	$	321,000	$	959,000	$	1,251,000
Net income allocable to managing member	$	36,000	$	32,000	$	96,000	$	125,000
Net income allocable to unit holders
Continuing operations	$	322,000	$	289,000	$	863,000	$	798,000
Discontinued operations		-		-		-		328,000
	$	322,000	$	289,000	$	863,000	$	1,126,000
Per unit amounts
Basic and diluted income from continuing operations allocable to unit holders	$	3.24	$	2.89	$	8.67	$	7.98
Basic and diluted income from discontinued operations allocable to unit holders		-		-		-		3.28
Basic and diluted income allocable to unit holders	$	3.24	$	2.89	$	8.67	$	11.26
Basic and diluted weighted average units outstanding		99,498		100,000		99,583		100,000

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

4

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

CONDENSED STATEMENT OF MEMBERS’ CAPITAL

(Unaudited)

Balance, December 31, 2007	$	37,887,000
Cash distributions to unit holders		(2,866,000	)
Cash distributions to managing member		(141,000	)
Units repurchased and retired		(119,000	)
Net income		959,000
Balance, September 30, 2008	$	35,720,000

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

5

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months Ended September 30,
	2008			2007
OPERATING ACTIVITIES
Net income	$	959,000		$	1,251,000
Adjustments to reconcile net income to net cash provided by operating activities:
Net gain on sale of real estate		-			(320,000	)
Provision for bad debt		87,000			-
Depreciation and amortization		792,000			788,000
Changes in operating assets and liabilities
Other assets		(134,000	)		(58,000	)
Accounts payable, accrued and other liabilities		43,000			(59,000	)
Net cash provided by operating activities		1,747,000			1,602,000
INVESTING ACTIVITIES
Investments in real estate		(185,000	)		(158,000	)
Net proceeds received from sale of real estate		-			2,939,000
Net cash (used in) provided by investing activities		(185,000	)		2,781,000
FINANCING ACTIVITIES
Cash distributions to unit holders		(2,866,000	)		(1,870,000	)
Cash distributions to managing member		(141,000	)		-
Units repurchased and retired		(119,000	)		-
Net cash used in financing activities		(3,126,000	)		(1,870,000	)
Net (decrease) increase  in cash		(1,564,000	)		2,513,000
Cash and cash equivalents at beginning of period		4,201,000			2,249,000
Cash and cash equivalents at end of period	$	2,637,000		$	4,762,000

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

6

CORNERSTONE REALTY FUND, LLC

(a California Limited Liability Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Business

Cornerstone Realty Fund, LLC, a California limited liability company (the “Fund”), was formed in October of 1998 to invest in multi-tenant business parks catering to small business tenants.  As used in this report, “we,” “us” and “our” refer to Cornerstone Realty Fund, LLC except where the context otherwise requires.  Our properties are located in major metropolitan areas in the United States and are owned on an all cash basis without debt financing.

Our managing member is Cornerstone Industrial Properties, LLC (“CIP”), a California limited liability company.  Cornerstone Ventures, Inc is the managing member of CIP.  Cornerstone Ventures, Inc. is an experienced real estate operating company specializing in the acquisition, operation and repositioning of multi-tenant industrial business parks catering to small business tenants.

Our interim unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission.  As permitted by the Securities and Exchange Commission filing requirements for Form 10-Q, the condensed financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  The condensed financial statements included herein should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2007.

The interim unaudited condensed financial statements have been prepared in accordance with our customary accounting practices.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a presentation in accordance with accounting principles generally accepted in the United States have been included.  Operating results for the nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

Each member’s liability is limited pursuant to the provisions of the Beverly-Killea Limited Liability Company Act.  The term of the Fund shall continue until December 31, 2010, unless terminated sooner pursuant to the operating agreement or extended by a majority vote of unit holders.

The operating agreement, as amended and restated, provides, among other things, for the following:

— Our managing member generally has complete and exclusive discretion in the management and control of our operations; however, unit holders holding the majority of all outstanding and issued units have certain specified voting rights which include the removal and replacement of the managing member.

— Net Cash Flow from Operations, as defined, will be distributed 90% to the unit holders and 10% to the managing member until the unit holders have received either an 8% or 12% cumulative, non-compounded annual return on their Invested Capital Contributions, as defined.  The 12% return applies to specified early investors for the twelve-month period subsequent to the date of their Invested Capital Contributions and is in lieu of the 8% return during that period.

— Net Sales Proceeds, as defined, will be distributed first, 100% to the unit holders in an amount equal to their Invested Capital Contributions; then, 90% to the unit holders and 10% to the managing member until the unit holders have received an amount equal to the unpaid balance of their aggregate cumulative, non-compounded annual return on their Invested Capital Contributions; and thereafter, 50% to the unit holders and 50% to the managing member.

— Net Income, as defined, is allocated first, 10% to the managing member and 90% to the unit holders until Net Income allocated equals cumulative Net Losses, as defined, previously allocated in such proportions; second, in proportion to and to the extent of Net Cash Flow from Operations and Net Sales Proceeds previously distributed to the members, exclusive of distributions representing a return of Invested Capital Contributions; and then 50% to the managing member and 50% to the unit holders.

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— Net Loss is allocated first, 50% to the managing member and 50% to the unit holders, until Net Loss allocated equals cumulative Net Income previously allocated in such proportions; then remaining Net Loss is allocated 10% to the managing member and 90% to the unit holders.

— All allocations and distributions to the unit holders are to be pro rata in proportion to their ownership shares.

— Effective February 22, 2007, our operating agreement was amended to permit repurchase of units on such terms and conditions as the managing member may determine.

2. Summary of Significant Accounting Policies

Use of Estimates

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amount of revenue and expenses during the reporting period.  Actual results could differ materially from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of interest-bearing investments with original maturities of 90 days or less at the date of purchase.  We place our cash with major financial institutions.  At times, cash balances may be in excess of amounts insured by Federal agencies.

Investments in Real Estate

Investments in real estate are stated at cost and include land, buildings and building improvements.  Expenditures for ordinary maintenance and repairs are expensed to operations as incurred.  Significant replacements, betterments and tenant improvements which improve or extend the useful lives of the buildings are capitalized.  Depreciation of the buildings and building improvements is computed on a straight-line basis over their estimated useful lives of 39 years.  Tenant improvements are depreciated over the lesser of their useful life or the related lease term.

We evaluate the carrying value for investments in real estate in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”(“SFAS 144”).  SFAS 144 requires that when events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable, companies should evaluate the need for an impairment write-down.  When an impairment write-down is required, the related assets are adjusted to their estimated fair value. No assets were deemed to be impaired at September 30, 2008.

In accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations", we allocated the purchase price of acquired properties to land, buildings and improvements and identified tangible and intangible assets and liabilities associated with in-place leases (including tenant improvements, unamortized leasing commissions, value of above and below-market leases, acquired in-place lease values, and tenant relationships, if any) based on their respective estimated fair values.

The fair value of the tangible assets of the acquired properties considers the value of the properties as if vacant as of the acquisition date.  Management must make significant assumptions in determining the value of assets and liabilities acquired.  Amounts allocated to land are derived from comparable sales of land within the same region.  Amounts allocated to buildings and improvements, tenant improvements and unamortized leasing commissions are based on current market replacement costs and other market rate information.

Acquired above and below market leases are valued based on the present value of the difference between prevailing market rates and the in-place rates over the remaining lease term.  The value of acquired above and below market leases is amortized over the remaining non-cancelable terms of the respective leases as an adjustment to rental revenue on our statement of operations.

The amount allocated to acquired in-place leases is determined based on management’s assessment of lost revenue and costs incurred for the period required to lease the “assumed vacant” property to the occupancy level when purchased.  The amount allocated to acquire in-place leases is included in intangible assets — in-place leases in the balance sheet and amortized to expense over the remaining non-cancelable term of the respective leases.

Estimated amortization associated with the intangible lease assets, in-place lease assets and intangible lease liability for October 1, 2008 through December 31, 2008 and each of the four subsequent years is as follows:

8

	Lease Intangibles
October 1, 2008 to December 31, 2008	$	28,000
2009		91,000
2010		45,000
2011		42,000
2012		42,000
Thereafter		215,000
Total	$	463,000

As of September 30, 2008, accumulated depreciation and amortization related to investments in real estate and related lease intangibles were as follows:

	Land		Buildings and Improvements			Intangible Lease Assets			In-Place Lease Assets			Intangible Lease Liability
Investments in Real Estate and related lease intangibles	$	11,779,000	$	23,726,000		$	550,000		$	894,000		$	(155,000	)
Less: accumulated depreciation and amortization from continuing operations		—		(2,429,000	)		(157,000	)		(785,000	)		116,000
Net Investments in Real Estate, Real estate assets held-for sale, and related lease intangibles	$	11,779,000	$	21,297,000		$	393,000		$	109,000		$	(39,000	)

As of December 31, 2007, accumulated depreciation and amortization related to investments in real estate and related lease intangibles were as follows:

	Land		Buildings and Improvements			Intangible Lease Assets			In-Place Lease Assets			Intangible Lease Liability
Investments in Real Estate and related lease intangibles	$	11,779,000	$	23,541,000		$	550,000		$	894,000		$	(155,000	)
Less: accumulated depreciation and amortization from continuing operations		—		(1,852,000	)		(126,000	)		(699,000	)		94,000
Net Investments in Real Estate, Real estate assets held-for sale, and related lease intangibles	$	11,779,000	$	21,689,000		$	424,000		$	195,000		$	(61,000	)

Depreciation and amortization related to investments in real estate and related lease intangibles for the three months ended September 30, 2008 and 2007 were $224,000 and $218,000, respectively.  Depreciation and amortization related to investments in real estate and related lease intangibles for the nine months ended September 30, 2008 and 2007 were $672,000 and $643,000, respectively.

Leasing Commissions

Leasing commissions are stated at cost and amortized on a straight-line basis over the related lease term.  As of September 30, 2008 and December 31, 2007, we had recorded approximately $540,000 and $457,000 in leasing commissions, respectively. Amortization expense for the three months ended September 30, 2008 and 2007 was approximately $31,000 and $30,000, respectively. Amortization expense for the nine months ended September 30, 2008 and 2007 was approximately $98,000 and $106,000, respectively.

9

Revenue Recognition

Rental revenues are recorded on an accrual basis as they are earned over the lives of the respective tenant leases on a straight-line basis.  Included in this calculation are contractual rent increases and amounts paid to tenants as tenant improvement allowances.  Rental receivables are periodically evaluated for collectability.

Accounts Receivable

The Fund periodically evaluates the collectability of amounts due from tenants and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. The Fund exercises judgment in establishing these allowances and considers payment history and current credit status of its tenants in developing these estimates.

Fair Value of Financial Instruments

We believe that the recorded values of all financial instruments approximate their fair values.

Income Tax Matters

It is our intent that we be treated as a partnership for income tax purposes.  As a limited liability company, we are subject to certain taxes and fees, including state income taxes on limited liability companies; however, income taxes on the income or losses we realize are generally the obligation of the members.

Concentration of Credit Risk

We maintain some of our cash in money market accounts which, at times, may exceed federally insured limits.  No losses have been experienced related to such amounts.

Impact of New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures required for fair value measurements under GAAP. SFAS 157 emphasizes that fair value is a market-based measurement, as opposed to a transaction-specific measurement. On February 8, 2008, the FASB issued Staff Position No. SFAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (“FSP 157-1”). FSP 157-1, which is effective upon the initial adoption of SFAS 157, excludes SFAS Statement No. 13, "Accounting for Leases" (“SFAS 13”), as well as other accounting pronouncements that address fair value measurements on lease classification or measurement under SFAS 13, from the scope of SFAS 157.  On February 12, 2008, the FASB issued Staff Position No. SFAS 157-2 (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS 157 for all nonrecurring nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008.  Accordingly, FSP 157-2 will be effective beginning January 1, 2009, and all other aspects of SFAS 157 were effective as of January 1, 2008.  We adopted SFAS 157 and FSP 157-1 on January 1, 2008 and the adoption had no material impact on our financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  Although the Company adopted SFAS 159 as of January 1, 2008, the Company has not yet elected the fair value option for any items permitted under SFAS 159.

In December 2007, FASB issued SFAS No.  160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”), an amendment to Accounting Research Board No. 51.  SFAS 160’s objective is to improve the relevance, comparability and transparency of financial information that a reporting entity provides in its consolidated financial statements.  The key aspects of SFAS 160 are (i) the minority interests in subsidiaries should be presented in the consolidated balance sheet within equity of the consolidated group, separate from the parent’s shareholders’ equity, (ii) acquisitions or dispositions of non-controlling interests in a subsidiary that do not result in a change of control should be accounted for as equity transactions, (iii) a parent recognizes a gain or loss in net income when a subsidiary is deconsolidated, measured using the fair value of the non-controlling equity investment, (iv) the acquirer should attribute net income and each component of other comprehensive income between controlling and non-controlling interests based on any contractual arrangements or relative ownership interests, and (v) a reconciliation of beginning to ending total equity is required for both controlling and non-controlling interests. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008, with early adoption permitted, and it is to be applied prospectively.  The adoption of this standard is not expected to have a material effect on our financial statements.

10

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141(R)”).  In summary, SFAS 141(R) requires the acquirer of a business combination to measure at fair value the assets acquired, the liabilities assumed, and any non-controlling interest in the acquired entity at the acquisition date, with limited exceptions.  The standard is effective for fiscal years beginning on or after December 15, 2008, and is to be applied prospectively, with no earlier adoption permitted.  The adoption of this standard is not expected to have a material effect on our financial statements.

In May 2008, the FASB issued SFAS No 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”).  In summary, SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the United States.  This statement shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board’s amendments to AU section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.  We are currently evaluating the impact of SFAS 162 on our financial statements, and the adoption of this statement is not expected to have a material effect on our financial statements.

Reclassification

Certain previously reported amounts have been reclassified to conform to the current period presentation.

3. Subsequent Event

In October 2008, we repurchased and retired 95 units for approximately $41,000.

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

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our financial statements and notes thereto contained elsewhere in this report.  Certain statements in this section and elsewhere contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements may relate to risks and other factors that may cause our future results of operations to be materially different than those expressed or implied herein.  Some of these risks and other factors include, but are not limited to: (i) no assurance that our properties will continue to experience the current level of occupancy; (ii) tenants may not be able to meet their financial obligations; (iii) rental revenues from the properties may not be sufficient to meet our cash requirements for operations, capital requirements and distributions; and (iv) adverse changes to the general economy may disrupt operations.  All forward-looking statements should be read in light of the risks identified in Part II, Item 1A herein and in Part I, Item 1A of our Annual Report on form 10-K for the year ended December 31, 2007.

Critical Accounting Policies

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amount of revenue and expenses during the reporting period.  Actual results could differ materially from those estimates.

There have been no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC.

Results of Operations

The current downturn in the economy may impact the success of our tenants’ retail operations and therefore the amount of rent and expense reimbursements we receive from our tenants.  Any reduction in our tenants’ ability to pay base rent, percentage rent or other charges, will adversely affect our financial condition and results of operations.  Further, our ability to re-lease vacant spaces may be negatively impacted by the current economic environment.  While we believe the locations of our centers and diverse tenant base should decrease the negative impact of the economic environment, we may see an increase in vacancy that could have a negative impact to our revenue.  We continue to monitor our tenants’ operating performance as well as trends evaluate any future impact.

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Continuing operations for the three and nine months ended September 30, 2008 and 2007 consists of six multi-tenant industrial business park properties in three major metropolitan areas.  The results of operations for the three and nine months ended September 30, 2008 and 2007 are discussed below.

Three months ended September 30, 2008 and 2007

Revenues for the third quarter of 2008 decreased to approximately $1,006,000 from approximately $1,022,000 for the comparable period of 2007.  The decrease was due to higher vacancies offset by the renewal of existing tenants, replacing tenants at a higher rental rate and an increase in tenant reimbursements.

Property operating and maintenance expenses for the third quarter of 2008 increased to approximately $245,000 from approximately $238,000 for the comparable period of 2007.  The increase was due primarily to higher bad debt expenses offset by a decrease in repairs and maintenance.  Property taxes for the third quarter of 2008 decreased to approximately $130,000 from approximately $152,000 for the comparable period of 2007.  The decrease was primarily due to the favorable reassessment of property values.

General and administrative expenses for the third quarter of 2008 decreased to approximately $65,000 from approximately $97,000 for the comparable period of 2007.  The decrease was due primarily to non-recurring consulting fees incurred in 2007.  Depreciation and amortization expenses in the third quarter of 2008 are comparable to same period of 2007.

Interest and other income for the third quarter of 2008 increased to approximately $54,000 from approximately $45,000 for the comparable period of 2007.  The increase was due primarily to a property tax refund received during third quarter of 2008 and offset by lower average cash balance resulting in less short term investments combined with lower interest rate during the third quarter of 2008.

 Nine months ended September 30, 2008 and 2007

Revenues for the first nine months of 2008 decreased to approximately $3,060,000 from approximately $2,990,000 for the comparable period of 2007.  The increase was primarily due to the renewal of existing tenants, replacing tenants at a higher rental rate and an increase in tenant reimbursements offset by lower occupancy.

Property operating and maintenance expenses increased to approximately $759,000 in the first nine months of 2008 from approximately $644,000 in the first nine months of 2007.  The increase is primarily due to higher snow removal and tree pruning costs at one property due to the extreme winter season, non-recurring professional fees and refurbishments to vacated units incurred in 2008 and an increase in the provision for bad debt.  Property taxes decreased to approximately $419,000 in 2008 from approximately $443,000 in 2007 due primarily to the favorable reassessment of property values.

General and administrative expenses decreased to approximately $218,000 in the first nine months of 2008 from approximately $331,000 in the comparable period of 2007.  The decrease was due primarily to non-recurring consulting fees incurred in 2007.  Depreciation and amortization in the first nine months of 2008 are comparable to the same period of 2007.

Interest and other income decreased to approximately $87,000 in the first nine months of 2008 from approximately $102,000 in the comparable period of 2007.  The decrease is due primarily to the lower average cash balance resulting in less short term investments combined with lower interest rates during the first nine months of 2008.

Liquidity and Capital Resources

As of October 31, 2008, we had approximately $2.0 million in cash and cash equivalents.  We intend to use the existing cash balance for capital improvements to the properties, to provide for operating reserves and fund distributions.  Cash in excess of these needs will be available for our unit repurchase program and for distribution to unit holders.

Our management believes the cash on hand and the net cash generated by the properties will be adequate to meet operating costs of the properties and the company, and allow for cash distributions to our unit holders.

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Item 3.  Quantitative and Qualitative Disclosures about Market Risk

We invest our cash and cash equivalents in government backed securities and money market accounts, which, by their nature, are subject to interest rate fluctuations.  As of September 30, 2008, a 1% increase or decrease in interest rates would not have material effect on our interest income.

Item 4(T).   Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our senior management, as appropriate, to allow timely decisions regarding required disclosure.  The Chief Executive Officer and the Chief Financial Officer at Cornerstone Ventures, Inc., the manager of our managing member, have reviewed the effectiveness of our disclosure controls and procedures and have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management is responsible for establishing and maintaining internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).  Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer of our managing member, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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

Based on our evaluation as of the end of the period covered by this report, management has concluded that we maintained effective internal control over financial reporting as of September 30, 2008.

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

The following risk supplements the risks disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2007.

Recent disruptions in the financial markets and deteriorating economic conditions could adversely affect the values of our investments and our ongoing results operations.

Turmoil in the capital markets has constrained equity and debt capital available for investment in commercial real estate, resulting in fewer buyers seeking to acquire commercial properties and consequent reductions in property values.  Furthermore, the current state of the economy and the implications of future potential weakening may negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our current portfolio.  The current downturn may impact our tenants’ business operations directly, reducing their ability to pay base rent, percentage rent or other charges due to us.

The occurrence of these events could have the following negative effects on us:

· the values of our investments in commercial properties could decrease below the amounts we paid for the investments; and

· revenues from our properties could decrease due to lower occupancy rates, reduced rental rates and potential increases in uncollectible receivables;

These factors could impair our ability to make distributions to you and decrease the value of your investment in us.

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Item 6. Exhibits

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized this 7th day of November 2008.

CORNERSTONE REALTY FUND, LLC
By:	CORNERSTONE INDUSTRIAL PROPERTIES, LLC
	its Managing Member
	By:	CORNERSTONE VENTURES, INC.
		its Manager
		By:	/s/ TERRY G. ROUSSEL
			Terry G. Roussel, President
			(Principal Executive Officer)
		By:	/s/ SHARON C. KAISER
			Sharon C. Kaiser,
			Chief Financial Officer
			(Principal Financial Officer and
			Principal Accounting Officer)

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