10-K

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-K

(Mark One)

T Annual Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 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 the 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, California 92614

(Address of Principal Executive Offices)

949-852-1007

(Registrant’s Telephone Number, Including Area Code)

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

Title of Each Class:

None

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

Title of Each Class:

Units of limited liability company interests

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  T      No  o

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.  T

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

Large accelerated filer	Accelerated filer	Non-accelerated filer	Smaller reporting company
o	o	o	T
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes  o      No  x

The aggregate market value of the units of membership interest held by non-affiliates of the registrant was $41,097,000 as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2008) based upon the estimated liquidation value of the Registrant’s assets, as determined by the managing member.

Documents incorporated by reference. None.

PART I

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.  Accordingly, there can be no assurance that our expectations will be realized.

Factors which may cause actual results to differ materially from current expectations include, but are not limited to:

· Continuation of the credit crisis;

· National and local economic and business conditions;

· General and local real estate conditions;

· The impairment in the value of real property due to general and local real estate conditions;

· Changes in federal, state and local governmental laws and regulations and

· The availability of and costs associated with sources of liquidity.

A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled “Risk Factors” in Item 1A of this report. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise

ITEM 1. BUSINESS

Overview

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

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

On August 7, 2001, we commenced a public offering of units of our membership interest pursuant to a registration statement on Form S-11 filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933.  On August 18, 2005, we completed our public offering of these units.  As of that date, we had issued 100,000 units to unit holders for gross offering proceeds of $50,000,000, before discounts of $39,780.

Description of Business

We are a real estate fund that seeks return on our investments through the acquisition, management and sale of multi-tenant industrial business parks.  We have purchased and operate a diversified portfolio of six existing, leased multi-tenant industrial business parks catering to the small business tenant.

Our properties are located in major metropolitan areas in the United States.  These are geographic areas nationwide that have historically demonstrated strong levels of demand for rental space by tenants requiring small industrial buildings.  We have properties located in the Los Angeles, Chicago and Phoenix areas.

We have acquired only completed properties that generate current income from rental operations.  Our strategy has been to acquire such properties at prices below what our managing member estimates to be the new development cost of a similar property located within the same competitive geographic area.  In stabilized market areas with high tenant demand, a tenant with an expiring lease may not be able to find a competitive space to rent, causing rental rates and property values to rise to the levels necessary to justify the construction of competitive properties.  If this occurs, we could experience financial gain as a result of having purchased properties at prices below their new development cost.

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Multi-Tenant Business Parks

Multi-tenant business parks comprise one of the major segments of the commercial real estate market on a nationwide basis.  These properties contain a large number of diversified tenants and differ from large warehouse and manufacturing buildings that rely on a single tenant. Multi-tenant business parks are ideal for small businesses that require both office and warehouse space.  This combination of office and warehouse space cannot generally be met in other commercial property types.  Multi-tenant business park tenants come from a broad spectrum of industries including light manufacturing, assembly, distribution, import/export, general contractors, telecommunications, computer technology, general office/warehouse, wholesale, service, high-tech and other fields.  Leasing activity is typically diversified, with smaller-sized tenants. These properties diversify revenue by generating rental income from multiple businesses instead of relying on one or two large tenants.

The properties we have acquired cater to the small business tenant and have lease terms ranging from one to five years.  During economic conditions when rental rates are rising rapidly, the short-term leases should allow us to increase rental income at a faster rate than properties with longer-term leases.

One of the most attractive features of multi-tenant business parks is the ability to adapt to changing market conditions and to meet the diversification needs of small business tenants.  A multi-tenant business park is the first home for many small businesses.  In good economic times, new businesses are forming and existing businesses are growing.  Multi-tenant business parks can accommodate this growth with a tenant’s expansion into multiple units.  In difficult economic times such as those currently being experienced, a tenant’s space requirements often contract, and tenants who previously outgrew their space in a multi-tenant business park may move back.  Accordingly multi-tenant industrial park space is in demand in both growing and declining economies.

Investment Strategy

Cornerstone Ventures, Inc. specializes in and has substantial operating experience investing in and operating multi-tenant business parks, offering in-depth real estate expertise through an experienced team of industry professionals with extensive understanding of industrial real estate.

Our investment strategy has been to purchase properties in major industrial markets with considerable tenant demand.  We acquired properties in areas with strong tenant demand and a large base of existing industrial properties, a high population of small business tenants and substantial competitive barriers to entry.

Our strategy has involved purchasing multi-tenant business parks at prices below replacement cost.  Such opportunities may exist where rental rates at properties configured for the small business tenant are below the levels necessary to justify the development of new projects.

We regularly conduct portfolio property reviews and, if appropriate, we make determinations to dispose of properties that we do not believe meet our strategic criteria based on economic, market and other circumstances.

Although the economic downturn that accelerated in the second half of 2008 had increased overall vacancy in multi tenant industrial properties, well located properties are still experiencing some rental rate increases due to demand. Properties serving the needs of the small industrial business tenant are operating at or near capacity in many markets, and rental rates in these markets are expected to rise to the point where development of new space is justified. Compared to single-user industrial properties that typically have longer lease terms, the shorter-term multi-tenant business park leases allow for greater opportunities to increase rents and maximize revenue growth in upward trending markets.  Our investment strategy has been to purchase and reposition properties and capitalize on shorter lease terms, rising rents, increasing cash flow and capital appreciation.

Our portfolio is comprised of multi-tenant properties serving the small business tenant in three major metropolitan  markets.  The highest dollar amount we have invested in any single property is $9.9 million.  As of December 31, 2008, we had purchased a total of seven properties for an aggregate investment of approximately $37.5 million.  On April 16, 2007, we sold one of our properties to an unaffiliated third party for gross proceeds of $3.2 million.  We do not expect to acquire additional properties.

Property Features

Land:  Lot sizes for our properties range from approximately 1.6 to 5.0 acres depending upon the number of buildings and building sizes.  Individual buildings contained in any specific property may be located on a single parcel of land or on multiple parcels of land depending upon the configuration and layout of the entire project.  Sites are zoned for industrial, commercial and/or office uses depending on local governmental regulations.  The location of each property is an important factor in its future value. We have purchased properties in what we considered to be prime properties in prime locations.

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Buildings:  The buildings comprising our properties are generally rectangular in shape and constructed utilizing concrete tilt up construction methods and in some cases brick and mortar methods.  Building sizes range from 30,000 to 86,000 square feet divided into leasable unit sizes ranging from approximately 100 square feet to 20,000 square feet.  Generally our buildings include the following features:

· Functional site plan offering ample tenant parking and good truck and car circulation;

· Multiple truck doors with ground level and dock high loading;

· Ceiling clear heights in each tenant space from 14 feet to 24 feet;

· Attractive front entry and visibility with a location for tenant’s address and sign;

· Quality office improvements including private offices, restrooms and reception area;

· Minimum of 100 amps of electrical service;

· Heating, ventilating and air conditioning systems for the office area; and

· Fire sprinklers where required by local governmental agencies.

Property Selection

The experienced staffs of our managing member were responsible for the selection and evaluation of properties that we acquired.  The acquisition process was performed by our managing member with no acquisition fees payable by us to our managing member.  All property acquisitions were evaluated by our managing member based upon its experience in the area of multi-tenant business parks and our investment objectives and supported by appraisals prepared by a competent independent appraiser.

The Asset Management Function

Asset management includes preparation, implementation, supervision and monitoring of a business plan specifically designed for each property.  Our managing member performs the following asset management services for us:

· Creates and implements an individualized plan for enhancing the profitability and value of each property;

· Supervises the day-to-day operations of property managers assigned to each property;

· Selects and supervises the on-going marketing efforts of leasing agents responsible for marketing the property to prospective tenants;

· Coordinates semi-annual rental surveys of competitive projects in the local geographic area — this function is designed to maintain the property at the highest possible rental rates allowable in the market where the property is located;

· Approves lease terms negotiated by leasing agents with new tenants and tenants renewing their leases — this includes making sure that lease rates being attained are in line with market conditions as well as in line with the then current operating plan for the property;

· Reviews and approves any capital improvements necessary at the property, including tenant improvements necessary to lease space;

· Reviews monthly financial reports prepared by property managers with a focus on improving the cost efficiency of operating the property;

· Prepares annual property operating budgets for review and approval by senior management; and

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· Prepares regular updates regarding operations of the property as compared to budget estimates.

Although most real estate operating companies charge a separate fee for asset management services, our managing member does not charge us a separate fee for such services.  However, our managing member is entitled to receive an incentive share of our net cash flows from operations, as described under Item 13. “Certain Relationships and Related Transactions”.

Property Management Services

Our managing member is responsible for providing or obtaining property management services for our properties and is responsible for overseeing all day-to-day operations for each property, including the following:

· Invoice tenants for monthly rent;

· Collect rents;

· Pay property level operating expenses;

· Solicit bids from vendors for monthly contract services;

· Provide property level financial reports on a monthly basis;

· Review and comment on annual property operating budgets;

· On-going assessment of potential risks or hazards at the property;

· Clean up and prepare vacant units to be leased;

· Supervise tenant improvement construction;

· Supervise tenant and owner compliance with lease terms;

· Supervise tenant compliance with insurance requirements;

· Periodically inspect tenant spaces for lease compliance; and

· Respond to tenant inquiries.

Due to the short-term nature of the tenant leases, as well as the large number of small business tenants at each property, multi-tenant business parks are management intensive.  For this reason, property management fees for multi-tenant industrial properties are generally higher than property management fees for other types of commercial real estate.  Our managing member believes that a very high level of property management service and strict property maintenance standards maximizes the value of each property.  Our managing member may subcontract property management services with either an affiliate or third party property management organization.  Currently, our properties are managed under subcontracts with CB Richard Ellis, Inc., Essex Realty Management, Inc. and Corporate Facility Services Inc,  none of which are affiliated with us or with our managing member.

Government Regulations

We and the properties we expect to own are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Federal  laws such as the National Environmental Policy Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act, the Federal Clean Air Act, the Toxic Substances Control Act, the Emergency Planning and Community Right to Know Act and the Hazard Communication Act govern such matters as wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials and the remediation of contamination associated with disposals. Some of these laws and regulations impose joint and several liabilities on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. Compliance with these laws and any new or more stringent laws or regulations may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. In addition, there are various federal, state and local fire, health, life-safety and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance.

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Our properties may be affected by our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties. The presence of hazardous substances, or the failure to properly remediate these substances, may make it difficult or impossible to sell or rent such property.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous real property owner or operator may be liable for the cost to remove or remediate hazardous or toxic substances on, under or in such property. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in whichproperty may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials into the air. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could be substantial.

We obtained satisfactory Phase I environmental assessments on each property we purchased.  A Phase I assessment is an inspection and review of the property, its existing and prior uses, aerial maps and records of government agencies for the purpose of determining the likelihood of environmental contamination.  A Phase I assessment includes only non-invasive testing.  It is possible that all environmental liabilities were not identified in the Phase I assessments we obtained or that a prior owner, operator or current occupant has created an environmental condition which we do not know about.  There can be no assurance that future law, ordinances or regulations will not impose material environmental liability on us or that the current environmental condition of our properties will not be affected by our tenants, or by the condition of land or operations in the vicinity of our properties such as the presence of underground storage tanks or groundwater contamination.

Competition

We experience competition for tenants from owners and managers of comparable projects which may include our managing member and its affiliates.  As a result, we may be required to provide free rent, reduced charges for tenant improvements, and other inducements, all of which may have an adverse impact on our results of operations.  At the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers.

Employees and Consultants

We have no direct employees.  Employees of Cornerstone Ventures, Inc., an affiliate of our managing member, perform a full range of real estate services including leasing, property management, accounting, asset management and investor relations for us.  Our managing member may also engage consultants to provide these services when our managing member deems this to be in our best interest.  See Item 13 — “Certain Relationships and Related Transactions” for a summary of the types of fees to be paid to our managing member and its affiliates for its services.

ITEM 1A.  RISK FACTORS

In addition to other matters we identify or describe from time to time in filings with the SEC, there are important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned, or results that are reflected from time to time in any forward-looking statement that may be made by us or on our behalf.  The risk factors described below are not the only ones we face, but do represent those risks and uncertainties that we believe are material to us.  Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also harm our business.

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

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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

· we may not be able to sell our properties at an attractive price and the time to effect a sale at any price may be extended; 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.

We may not generate sufficient cash for distributions.  If the cash flow generated by operation of the properties we own is not sufficient to fully fund  distributions, we may fund distributions from cash reserves or from the proceeds of a sale of a property. If the rental revenues from the properties we own do not exceed our operational expenses and our cash reserves are depleted, we will not be able to make cash distributions until such time as we sell a property.

Our managing member, its affiliates, and its officers also have management responsibilities to other entities. Cornerstone Ventures, Inc. may have conflicts of interests in allocating management time between us and other entities.  These other entities will purchase, operate and sell the same type of properties, which we purchase, own and operate.  Our managing member, which is operated by Cornerstone Ventures, Inc., may have conflicts of interest in deciding whether or not to sell a property since the interest of our managing member and the interests of our unit holders may differ as a result of their financial and tax position and the compensation to which our managing member or affiliates may be entitled to receive upon the sale of a property.

Multi-tenant industrial properties accommodating small business tenants have a substantial on-going risk of tenant lease defaults.  If a tenant defaults on a lease, we will generally lose rental income and have to pay legal costs, repair costs and re-leasing commissions.  We may be unable to re-lease the property for as much rent as we previously received.  We may incur additional expenditures in re-leasing the property.  We could experience delays in enforcing our rights and collecting rents due from a defaulting tenant.

Risks we do not control will affect the value of our properties.  The values of the properties we purchase will be affected by:

· changes in the general economic climate;

· oversupply of space or reduced demand for real estate in local area;

· competition from other available space;

· governmental regulations;

· changes in zoning or tax laws;

· interest rate levels;

· availability of financing; and

· potential liability under environmental laws.

These factors may cause our rental income and the value of our properties to decrease and may make it difficult for us to sell properties.

We may experience uninsured losses on our properties.  We intend to maintain commercial general liability insurance and property damage insurance on our properties.  We believe this insurance will be adequate to cover most risks.  We may not obtain earthquake insurance on our properties due to the lack of available and affordable earthquake insurance.  If one of our properties sustains damage as a result of an earthquake, we may incur substantial losses and lose our investment in the property.  If we, as a property owner, incur any liability that is not fully covered by insurance, we would be liable for such amounts.

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We may be subject to environmental liabilities.  Various federal and state environmental laws and regulations to investigate and clean up hazardous or toxic substances, asbestos-containing materials, or petroleum product releases at the property may require an owner or operator of real estate.  The presence of contamination or the failure to remedy contamination will adversely affect the owner’s ability to sell or lease real estate.  The owner or operator of a site may be liable to third parties for damages and injuries resulting from environmental contamination.

We will not seek any rulings from the Internal Revenue Service regarding any tax issues.  We are relying on opinions of our legal counsel.  The opinions are based upon representations and assumptions and conditioned upon the existence of specified facts.  The opinions are not binding on the IRS or the courts.

If we lose our “partnership” status we would be taxed as a corporation.  Our legal counsel has advised us that we will be treated as a “partnership” for federal income tax purposes and that we will not be treated as an association taxable as a corporation, subject to the publicly traded partnership rules.  The application of “publicly traded partnership” rules to us will be based upon future facts.  The IRS may determine that we will be treated as a “publicly traded partnership” if our units of membership interests are publicly traded or frequently transferred.  We have included provisions in our operating agreement designed to avoid this result. If we were to be reclassified as an association taxable as a corporation or classified as a publicly traded partnership, we would be taxed on our net income at rates of up to 35% for federal income tax purposes.  All items of our income, gain, loss, deduction, and credit would be reflected only on our tax returns and would not be passed through to our unit holders.  If we were treated as a corporation, distributions to our unit holders would be ordinary dividend income to the extent of our earnings and profits, and the payment of such dividends would not be deductible by us.

The IRS may challenge our allocations of income, gain, loss, and deduction.  The operating agreement provides for the allocation of income, gain, loss and deduction among the unit holders.  The rules regarding partnership allocations are complex.  It is possible that the IRS could successfully challenge the allocations in the operating agreement and reallocate items of income, gain, loss or deduction in a manner that reduces benefits or increases income allocable our investors.

The IRS may disallow deduction of fees and expenses or reallocate basis.  The IRS may challenge or disallow our deduction of some or all fees and expenses.  The IRS could seek to reallocate our basis in properties among land, improvements and personal property.  This could result in reduced tax losses or increased income without a corresponding increase in net cash flow to our unit holders.

Future events may result in federal income tax treatment of us and our unit holders that is materially and adversely different from the current tax treatment.  Changes in current law, including the internal revenue code, the treasury regulations, administrative interpretations, and court decisions, could affect taxable years arising before and after such events.  There can be no assurance that future legislation and administrative interpretations will not be applied retroactively.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

Our managing member provides us with office space for our operations without charge.

As of the date of this report, we own six properties:  Normandie Business Center in Torrance, California; Arrow Business Center in Irwindale, California; Zenith Business Centre in Glenview, Illinois; Paramount Business Center in Paramount, California, Interstate Commerce Center in Tempe, Arizona; and Shoemaker Industrial Park in Santa Fe Spring, California.   We purchased these properties for all cash, without debt financing.   On April 16, 2007, we sold our 41,422 square foot property located in Northbrook, IL commonly known as “Sky Harbor Business Park”, for $3.2 million to an unaffiliated third party.  This property was purchased for $2.6 million in December 2002.

Although a majority of the leases expire within the next twelve months, most tenants’ average tenure at the property exceeds 5 years and typically tenant renew on a one year basis.  Existing leases at the property generally include annual rental increases ranging between 3% and 7%.

Following are descriptions of our properties:

Normandie Business Center, Torrance, CA

On September 27, 2002, we purchased an existing multi-tenant industrial park known as Normandie Business Center.  Normandie Business Center is located on approximately 2.45 acres and is comprised of two single-story buildings containing a total of 48,711 leasable square feet.  Our total acquisition cost was approximately $3.9 million.  As of December 31, 2008, this property was 100% leased to 29 tenants whose spaces range in size from 1,200 to 3,358 square feet.

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The property is located in Torrance, California, and is in the South Bay submarket of Los Angeles.  The South Bay is one of the largest and most active industrial submarkets in Los Angeles County near the ports of Los Angeles and Long Beach.

The property’s historical occupancy rates are as follows:

Year Ending	Average Annual
December 31	Occupancy (%)
2004		91	%
2005		95	%
2006		94	%
2007		95	%
2008		96	%

The property was built in 1989 and is currently in good physical condition.  We intend to make modest repairs and improvements to this property over the next two years.

The following table sets forth lease expiration information for the next five years for those leases in place at December 31, 2008:

Year Ending December 31	No. of Leases Expiring		Approx. Amount of Expiring Leases (Sq. Feet)		Base Rent of Expiring Leases (Annual $)		Percent of Total Leasable Area Expiring (%)			Percent of Total Annual Base Rent Expiring (%)
2009		14		22,718	$	282,000		46.6	%		47.1	%
2010		10		15,855		199,000		32.6	%		33.2	%
2011		4		6,780		83,000		13.9	%		13.8	%
2012		—		—		—		—	%		—	%
2013 and thereafter		1		3,358		35,000		6.9	%		5.9	%
		29		48,711	$	599,000		100.0	%		100.0	%

Arrow Business Park, Irwindale, California

On December 10, 2003, we purchased an existing multi-tenant business park known as the Arrow Business Center, a single-story three building property built in 1987 consisting of approximately 69,592 square feet of leasable space on approximately 5.04 acres of land.  Our total acquisition cost was approximately $6.0 million.  As of December 31, 2008, the property was 81.2% leased to 35 tenants whose spaces range in size from approximately 800 square feet to over 4,800 square feet.

The property’s historical occupancy rates are as follows:

Year Ending	Average Annual
December 31	Occupancy (%)
2004		91	%
2005		95	%
2006		99	%
2007		94	%
2008		89	%

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The following table sets forth lease expiration information for the next five years for leases in place as of December 31, 2008:

Year Ending December 31	No. of Leases Expiring		Approx. Amount of Expiring Leases (Sq. Feet)		Base Rent Of Expiring Leases (Annual $)		Percent of Total Leasable Area Expiring (%)			Percent of Total Annual Base Rent Expiring (%)
2009		23		35,340	$	447,000		50.8	%		66.7	%
2010		7		12,094		143,000		17.4	%		21.4	%
2011		3		4,800		53,000		6.9	%		7.8	%
2012		—		—		—		—	%		—	%
2013 and thereafter		1		2,160		27,000		3.1	%		4.1	%
		34		54,394	$	670,000		78.2	%		100.0	%

Zenith Drive Centre, Glenview, Illinois

On January 25, 2005, we purchased an existing multi-tenant industrial park known as Zenith Drive Centre.  Zenith Drive Centre is a single-story, three building property built in 1978 consisting of approximately 37,900 square feet of leasable space on approximately 2.54 acres of land.  Our total acquisition cost was approximately $5.3 million.  As of December 31, 2008, the property was 83.7% leased to 31 tenants whose spaces range in size from approximately 100 square feet to 6,000 square feet.  Included in the acquisition and purchase price of Zenith Drive Centre were a billboard sign and cellular relay antenna located on the property leased to a large media company and communications company, respectively. In the fourth quarter of  2008, we recorded an impairment charge of approximately $1.8 million related to this building.

The property’s historical occupancy rates are as follows:

Year Ending December 31	Average Annual Occupancy (%)
2004		100	%
2005		69	%
2006		74	%
2007		92	%
2008		88	%

The industrial park’s tenants operate varying business, including light manufacturing and distribution, light assembly, warehousing and service office that encompasses a wide variety of businesses.

The following table sets forth lease expiration information:

Year Ending December 31	No. of Leases Expiring		Approx. Amount of Expiring Leases (Sq. Feet)		Base Rent Of Expiring Leases (Annual $)		Percent of Total Leasable Area Expiring (%)			Percent of Total Annual Base Rent Expiring (%)
2009		20		20,854	$	222,000		54.9	%		63.6	%
2010		3		3,322		37,000		8.8	%		10.6	%
2011		2		3,925		19,000		10.3	%		5.3	%
2012		1		2,100		7,000		5.5	%		2.1	%
2013 and thereafter		2		—		64,000		—	%		18.4	%
		28		30,201	$	349,000		79.5	%		100.0	%

Clear Channel Communications leases a portion of the land parcel for the purpose of maintaining and displaying a billboard sign.  Annual rent is $40,000 paid annually in advance.  This lease expires in 2013.  Successive five-year extensions run until 2038.

Cingular Wireless leases a portion of the land parcel for the purpose of maintaining and operating a cell-site.  This lease expires in 2028.  Monthly rent is currently approximately $1,900 per month.

10

Paramount Business Center, Paramount, California

On April 28, 2005, we purchased an existing multi-tenant industrial park known as Paramount Business Center, a single-story, two building property built in 1985 consisting of approximately 30,157 square feet on approximately 1.66 acres of land.  Our total acquisition cost was approximately $3.2 million. As of December 31, 2008, the property was 68.5% leased to eight tenants whose spaces range in size from 2,025 square feet to 3,758 square feet. The property’s historical occupancy rates are as follows:

Year Ending December 31	Average Annual Occupancy (%)
2004		100	%
2005		93	%
2006		100	%
2007		96	%
2008		86	%

The following table sets forth lease expiration information:

Year Ending December 31	No. of Leases Expiring		Approx. Amount of Expiring Leases (Sq. Feet)		Base Rent Of Expiring Leases (Annual $)		Percent of Total Leasable Area Expiring (%)			Percent of Total Annual Base Rent Expiring (%)(1)
2009		4		10,505	$	110,000		34.8	%		50.8	%
2010		2		4,411		46,000		14.6	%		21.6	%
2011		2		5,803		60,000		19.3	%		27.6	%
2012		—		—		—		—	%		—	%
2013 and thereafter		—		—		—		—	%		—	%
		8		20,719	$	216,000		68.7	%		100.0	%

Interstate Commerce Center, Tempe, Arizona

On September 30, 2005, we purchased a multi-tenant industrial park built in 1987 in Tempe, Arizona, near the Phoenix airport.  This property consists of four buildings totaling 83,385 square feet of leasable space situated on approximately 5.02 acres of land.  Our total acquisition cost was approximately $7.5 million.  As of December 31, 2008, the property was 90.0% leased to three  tenants whose spaces range in size from 14,883 square feet to 40,200 square feet.  The property’s historical occupancy rates are as follows:

Year Ending December 31	Average Annual Occupancy (%)
2004		82	%
2005		82	%
2006		87	%
2007		100	%
2008		95	%

Lease for one of the tenant who occupies three units will expire in 2009, representing 48% of the total property leasable area.

Year Ending December 31	No. of Leases Expiring		Approx. Amount of Expiring Leases (Sq. Feet)		Base Rent Of Expiring Leases (Annual $)		Percent of Total Leasable Area Expiring (%)			Percent of Total Annual Base Rent Expiring (%)
2009		3		40,200		71,000		48.2	%		48.8	%
2010		1		19,930		44,000		23.9	%		30.3	%
2011		—		—		—		—	%		—	%
2012		1		14,883		31,000		17.9	%		20.9	%
2013 and thereafter		—		—		—		—			—
		5		75,013	$	146,000		90.0	%		100.0	%

11

Shoemaker Industrial Park, Santa Fe Spring, California

On June 28, 2006 we acquired Shoemaker Industrial Park. The acquisition price was $9.9 million. This property consists of three buildings totaling 86,000 square feet of leasable space situated on approximately 4.0 acres of land.  As of December 31, 2008, the property was 86.5% leased to 19 tenants whose spaces range in size from 1,960 square feet to 13,617 square feet.  The property’s historical occupancy rates are as follows:

Year Ending Dec 31	Average Annual Occupancy (%)
2004		97	%
2005		99	%
2006		79	%
2007		95	%
2008		91	%

The following table sets forth lease expiration information for the next five years:

Year Ending December 31	No. of Leases Expiring		Approx. Amount of Expiring Leases (Sq. Feet)		Base Rent Of Expiring Leases (Annual $)		Percent of Total Leasable Area Expiring (%)			Percent of Total Annual Base Rent Expiring (%)
2009		10		33,497		343,000		38.9	%		47.5	%
2010		6		12,642		142,000		14.7	%		19.6	%
2011		2		14,680		132,000		17.1	%		18.2	%
2012		1		13,617		105,000		15.8	%		—	%
2013 and thereafter		—		—		—		—	%		—	%
		19		74,436	$	722,000		86.5	%		85.3	%

ITEM 3.  LEGAL PROCEEDINGS

There are no pending material legal proceedings to which we or our assets are subject.  In addition, no such material proceedings are known to be contemplated against us.

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

No matters were submitted to a vote of our members in the fourth quarter of 2008.

12

PART II

ITEM 5. MARKET FOR MEMBERSHIP INTERESTS, RELATED MEMBER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

There is no established public trading market for our units of membership interests and it is not anticipated that a public trading market for the units will develop.  Under our operating agreement, our managing member has the right to refuse to permit the transfer of units in its reasonable discretion.

Holders

On August 18, 2005, we completed our public offering of units.  We had sold a total of 100,000 units of membership interest to 1,448 investors for a total investment of $50,000,000.  The sale of the units of membership interest was made pursuant to a registration statement on Form S-11 filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended.  As of December 31, 2008, 99,350 units remained outstanding held of record by 1,306 holders.

Distributions

Holders of our units are generally entitled to receive 90% of cash from operations, as defined in the operating agreement, each year until investors receive an 8% cumulative, non-compounded annual return, then 50% of cash from operations.  Notwithstanding the foregoing, a 12% cumulative non-compounded annual return applies to specified early investors for the 12-month period subsequent to the date of their capital contributions and is in lieu of the 8% return during that period.  Our managing member is entitled to receive the remaining cash from operations.  Holders of our units receive 100% of net proceeds from property sales until they have received the return of their capital contributions, then 90% of net proceeds from property sales until they have received an overall 8% non-compounded annual return, taking into account all prior distributions, and thereafter 50% of net proceeds from property sales is paid to the holders of our units and 50% is paid to our managing member.

As of December 31, 2008, we have distributed a total of $12,516,000 to our investors, of which $11,986,000 was paid to unit holders and $530,000 was paid to our managing member.  Of the amount paid to unit holders, $786,000 was paid directly from funds of our managing member.  We contemplate making distributions quarterly but distributions may be made more or less frequently.

On January 15, 2009, we distributed an additional $667,000 to our investors, of which $626,000 was paid to unit holders and $41,000 was paid to our managing member.

Equity Compensation Plan Information

We do not have any equity compensation plans and no units of membership interests are issuable under any individual compensation arrangement.

Unit Repurchases

On February 22, 2007, our unit holders approved an amendment to the Fund’s operating agreement to eliminate the prohibition on repurchases of units by the Fund and add a provision to the operating agreement specifically permitting the managing member to cause the Fund to repurchase units at any time, and from time to time, on such terms and conditions as the managing member may determine in its sole discretion; provided that such repurchases do not jeopardize the status of the Fund as a partnership for federal income tax purposes or cause the Fund to be treated as a publicly-traded partnership.

As of December 31, 2008, we have redeemed 650 units at a repurchase price of $435 per unit less a $37.5 per investor transaction fee.

13

During the year ended December 31, 2008, we repurchased units as follows:

Period	Total Number of Units Repurchased (1)		Average Price Paid per Unit		Approximate Number of Units that may yet be purchased under the Program (2)
First quarter of 2008		75	$	435		1,624
Second quarter of 2008		95	$	435		1,624
Third quarter of 2008		105	$	435		1,624
Fourth quarter of 2008		95	$	435		1,624
		370

___________________________

(1) All units were repurchased pursuant to the Fund’s publicly announced unit repurchase program.

(2) The number of units repurchased in any calendar year, may not exceed 2% of the total number of units outstanding at the end of the preceding calendar year.

ITEM 6.  SELECTED FINANCIAL DATA

The selected financial data set forth below should be read in conjunction with the financial statements and notes thereto and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Operating Data

	Years Ended December 31,
	2008			2007		2006		2005		2004
Revenues	$	4,033,000		$	4,039,000	$	3,298,000	$	2,103,000	$	1,174,000
(Loss) Income from continuing operations		(508,000	)		1,285,000		796,000		592,000		340,000
Income from discontinued operations		-			351,000		78,000		36,000		26,000
Net (loss)/income	$	(508,000	)	$	1,636,000	$	874,000	$	628,000	$	366,000
Unit holders basic and diluted (loss) income per share
(Loss) Income from continuing operations	$	(4.59	)	$	11.57	$	7.17	$	6.33	$	6.97
Income from discontinued operations		—		$	3.16	$	0.70	$	0.38	$	0.53
Cash distributions per weighted average units outstanding	$	36.93		$	25.02	$	25.00	$	21.55	$	21.61

In the fourth quarter of  2008, we recorded an impairment charge of approximately $1.8 million on our Zenith Drive Centre, Glenview property.

Balance Sheet Data

	Years Ended December 31,
	2008		2007		2006		2005		2004
Total assets	$	34,401,000	$	38,830,000	$	40,269,000	$	41,506,000	$	24,396,000
Total liabilities (all current)	$	862,000	$	943,000	$	1,134,000	$	744,000	$	309,000

The comparability of the information set forth above is materially affected by our public offering, sale of membership interests, beginning in August 2001and completed in August of 2005, by the acquisition of a property in each of September and December 2002, December 2003, January, April and September 2005, and June 2006, by the sale of one property in April 2007 and cash distributions.  See Item 2 entitled “Description of Properties”.

ITEM 7.  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 audited financial statements and notes thereto as well as the Section “Properties” contained elsewhere in this report. See also the “Special Note about Forward-looking Statements” preceding Item 1 of this report.

14

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 the estimates.

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.  Rental receivables are periodically evaluated for collectability.

Investments in Real Estate

We evaluate the carrying value for investments in real estate in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”).  We periodically evaluate our investments in real estate for impairment indicators. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each asset and legal and environmental concerns. If indicators exist, we compare the expected future undiscounted cash flows for the long-lived asset against the carrying amount of that asset. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recorded for the difference between the estimated fair value and the carrying amount of the asset. In the fourth quarter of  2008, we recorded an impairment charge of  approximately $1.8 million.

Projections of expected future cash flows require us to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to re-lease the property and the number of years the property is held for investment.  The use of certain assumptions in the future cash flows analysis would result in an incorrect assessment of the property’s future cash flows and fair value and could result in the overstatement of the carrying value of our real estate assets and net income if those assumptions ultimately prove to be incorrect.

In accordance  with  Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS 141”), we allocate 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 asset — in-place leases in the balance sheet and amortized as an increase to amortization expense over the remaining non-cancelable term of the respective leases.

Investment in Real Estate Held-for-Sale

The Company evaluates the held-for-sale classification of its owned real estate each quarter. Assets that are classified as held-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell. Assets are generally classified as held-for-sale once management commits to a plan to sell the Properties and has initiated an active program to market them for sale. The results of operations of these real estate properties are reflected as discontinued operations in all periods reported. At December 31, 2008, no real estate assets were classified as held for sale.

15

Off-balance Sheet Financings and Liabilities

Other than lease commitments and legal contingencies incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities.  We do not have any majority-owned subsidiaries or any interests in, or relationships with, any special-purpose entities.

Impact of New Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards  No.  157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  SFAS 157 is effective for financial statements issued for fiscal periods beginning after November 15, 2007 (our fiscal year beginning January 1, 2008), and interim periods within those fiscal years.  In February 2008, FASB deferred the effective date of SFAS No. 157 for one year for non financial assets and non financial liabilities that are recognized or disclosed at fair value in the financial statements on a non recurring basis.  In addition, FASB issued a staff position that SFAS No. 157 does not apply under SFAS No. 13 “ Accounting for Leases “ and other accounting pronouncements that address fair  value measurements for purposes of  lease classifications  under SFAS No. 13. The adoption of this standard is not expected to have a material effect on our consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards  No.  159, “Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”).  This Statement permits entities to choose to measure many financial instruments and certain other items at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  SFAS 159 is effective for fiscal years beginning after November 15, 2007.  The adoption of this standard did not have a material effect on our consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards  No. 141 (R), “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 noncontrolling interest in the acquiree at the acquisition date, with limited exceptions.  The standard is effective for fiscal years beginning 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 consolidated financial statements.

In December 2007, FASB issued Statement of Financial Accounting Standards  No.  160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”), an amendment to Accounting Research Board No. 51, SFAS 160 objective is to improve the relevance, comparability and transparency of financial information that a reporting entity provides in its consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008 and should be applied prospectively.  The adoption of this standard is not expected to have a material effect on our consolidated financial statements.

In May 2008, the FASB issued Statement of Financial Accounting Standards  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 do not anticipate that the adoption of SFAS 162 will have a significant effect on our consolidated financial statements.

16

Results of Operations

Overview

We were formed in October of 1998 to invest in multi-tenant business parks catering to small business tenants.  Our properties are located in major metropolitan areas in the United States and are owned on an all cash basis without debt financing.  Our revenues consist primarily of rental income from our properties and additional rent in the form of expense reimbursements derived from our income producing properties. Our properties are located in Los Angeles, California, Chicago, Illinois and Phoenix, Arizona.

The global economic and financial crisis

The current extraordinary and unprecedented bank liquidity and credit market crisis has exacerbated an already weakened economic climate resulting in a deep U.S. and worldwide recession. Continued concern about energy costs, inflation, cost and availability of credit, and increasing unemployment have resulted in an unprecedented lack of confidence by consumers and businesses. It is expected that this poor economic climate will continue, during 2009, and possibly longer.

This economic and financial crisis has affected, and will continue to affect us  in a number of ways:

Commercial Properties: Because of reduced consumer spending resulting in lower profitability, many commercial tenants, are requesting rent reductions, or lower renewal option rents. We expect to see an increase in pressure on some of our smaller tenants, and if the recession is prolonged, some larger tenants as well. We expect a longer lease up period and, generally, at lower rents that reflect current economic conditions. We expect revenues at our properties to be flat or slightly lower during 2009 than during 2008.

Capital Expenditures: We may want to limit capital expenditures during 2009 compared to prior years by focusing on those capital expenditures that preserve value.

Operating Cash Flow and Cash Distributions: Our cash position remains strong. Despite the current economic crisis, we expect that cash provided by operating activities and cash reserves will be adequate to cover necessary capital improvements and cash distribution.

Continuing Operations

During 2008 and 2007, we owned and operated six properties for the entire year.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Rental revenues increased  to $3,312,000 in 2008 from $3,264,000 in 2007 largely due to rental increases from new and existing tenants offset by higher vacancy  rates in 2008. Tenant expense reimbursements and other income decreased to $721,000 in 2008 from $775,000 in 2007 largely due to free rent provided to new tenants and higher vacancies offset by tenant reimbursements escalations from new and existing tenants.

Property operating and maintenance expenses increased to $942,000 in 2008 from $840,000 in 2007.  The increase is largely due to higher bad debt, collection and landscaping  expenses offset by lower property insurance costs.

Property taxes decreased to $564,000 in 2008 from $581,000 in 2007 primarily due to lower assessed property tax value for one of the properties.

General and administrative expenses decreased to $267,000 in 2008 from $421,000 in 2007 due primarily to lower Sarbanes Oxley compliance and other professional fees.

Depreciation and amortization in 2008 was consistent with the 2007 amount.

Impairment of real estate charges increased to approximately $1,808,000 in 2008 from $0 in 2007 due to  adjustments to reflect a decline in the market values of one real estate property, resulting from the fourth quarter 2008 economic decline.

Interest and other income decreased to $89,000 in 2008 from $141,000 in 2007.  This decrease is primarily attributable to lower short-term investment rates combined with a lower average cash balance in 2008.

17

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Rental revenues and tenant reimbursements and other income increased by $741,000 to $4,039,000 in 2007 from $3,298,000 in 2006 largely due to a full year of operation for all properties in 2007.

Property operating and maintenance expenses decreased to $840,000 in 2007 from $878,000 in 2006.  The decrease is largely due to tenant space renovation work performed during the second half of 2006 on spaces occupied by new tenants in 2007.

Property taxes increased to $581,000 in 2007 from $561,000 in 2006 primarily due to higher assessed property tax values.

General and administrative expenses decreased to $421,000 in 2007 from $461,000 in 2006.  The decrease is due to a reduction in marketing and accounting expenses, partially offset by higher audit and compliance fees.

Depreciation and amortization expense increased to $1,053,000 in 2007 from $906,000 in 2006 primarily from the full year impact of property acquired in mid-2006.

Interest and other income decreased to $141,000 in 2007 from $304,000 in 2006.  This decrease is attributable to a lower average cash balance in 2007 due to the June 2006 acquisition and cash distributions.

Discontinued Operations

During 2006, we determined that the potential sale of Sky Harbor Business Park to a third party was probable and classified it as held for sale in accordance with SFAS No. 144. This property was sold in April 2007.  A property disposition fee of $32,000 or 1% of the sales price was paid to CIP, in accordance with the terms of the Company’s  operating agreement. Income from discontinued operations was $0, $45,000 and $78,000 for the years ended December 31, 2008, 2007 and 2006 respectively.  Gain on sale of real estate was $306,000 for the year ended December 31, 2007.

Liquidity and Capital Resources

As of February 28, 2009, we had approximately $1.9 million in cash and cash equivalents.  We intend to use these funds to make capital improvements to the properties, to provide operating reserves and fund distributions.

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.

Contractual Obligations

Not applicable.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest our cash and cash equivalents in FDIC insured savings accounts and securities backed by the United States government, which, by their nature, are not subject to interest rate fluctuations.  At times, cash balances may be in excess of amounts insured by Federal agencies.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements, related notes and supplemental Schedule III are contained on pages F-1 to F-13 of this report.  The index to such items is included in Item 15(a).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A(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.

18

Management’s Annual Report on Internal Control Over Financial Reporting

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 December 31, 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.  This annual report does not include an attestation report of the company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

ITEM 9B.  OTHER INFORMATION

Not applicable.

19

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Cornerstone Industrial Properties, LLC is a California limited liability company, which was initially organized for the purpose of being our managing member. Our managing member is owned by Cornerstone Ventures, Inc. and various investors none of whom have any voting rights or control with respect to the operations of our managing member.

Our managing member also acts as the manager of another investment fund and is a preferred shareholder of Pacific Cornerstone Capital, Inc., our Managing Broker/Dealer. The manager of our managing member is Cornerstone Ventures, Inc.  Cornerstone Ventures, Inc. oversees the activities of our managing member and provides many of the services necessary for our managing member to fulfill its responsibilities to us.  The Cornerstone Ventures, Inc. team of professionals brings together a unique blend of talent and experience.  As of March 11, 2009, Cornerstone Ventures, Inc. was the owner of 26.4% of the equity profits interest in our managing member and has sole voting control with respect to our operations.

Board of Directors of Manager of Managing Member

Terry G. Roussel, age 55, is one of the founding shareholders of the Cornerstone-related entities that commenced operations in 1989.  Mr. Roussel is President, Chief Executive Officer, a Director and the majority shareholder of Cornerstone Ventures, Inc., the manager of our managing member of the Fund.  Mr. Roussel is also the President, Chief Executive Officer and a Director of Cornerstone Core Properties REIT and Cornerstone Growth & Income REIT, Inc. and their advisors, Cornerstone Realty Advisors, LLC and Cornerstone Leveraged Realty Advisors, LLC, respectively and the majority shareholder, a director and an officer of Pacific Cornerstone Capital, Inc.  Under Mr. Roussel’s direction, Cornerstone Ventures and its affiliates formed nine separate real estate investment funds and joint ventures. In 1993, Cornerstone and its affiliates became managing joint venture partner with Koll Capital Markets Group, Inc., a wholly owned subsidiary of Koll Management Services, Inc. (now owned by CB Richard Ellis).

As managing partner of the above-described funds and joint ventures, Cornerstone Ventures, Inc. and its affiliates were responsible for the acquisition, operation, leasing, and disposition of all jointly owned properties between Koll and Cornerstone.  In connection with acquiring properties for the account of these joint ventures, Mr. Roussel personally supervised the acquisition of each property, initiated and directed the business plan for each property, and arranged debt and equity financing the acquisition of each property.

In addition to his real estate experience, Mr. Roussel gained valuable financial services industry experience earlier in his career.  In 1985, Mr. Roussel started the Special Investments Group, a new division within Bank of America’s Capital Markets Group, which provided real estate investment opportunities to the bank’s wealthiest private banking clients.  Between 1980 and 1985, Mr. Roussel was employed by Bateman Eichler, Hill Richards, Inc., a regional securities firm headquartered in Los Angeles, California.  In this capacity, Mr. Roussel was promoted to First Vice President and Manager of the partnership finance department where he was responsible for the due diligence and marketing of all publicly registered and real estate funds offered by the firm.

Mr. Roussel graduated with honors from California State University at Fullerton in 1976 with a B.A. in Business Administration with a concentration in Accounting.  Subsequent to graduation, Mr. Roussel joined the accounting firm of Arthur Andersen & Co. as an auditor and later transferred to the tax department of Arthur Young & Co., a predecessor firm to Ernst & Young.  Mr. Roussel became a Certified Public Accountant in 1979 (now inactive).

Alfred J. Pizzurro, age 53, is a Director and Senior Vice President and shareholder of Cornerstone Ventures, Inc. as well as a shareholder, director and officer of Pacific Cornerstone Capital, Inc., the dealer manager for the Cornerstone Realty Fund, LLC offering that closed in August of 2005.  Mr. Pizzurro joined Cornerstone Ventures, Inc. in April 1998 and has been the individual primarily responsible for Cornerstone’s marketing and new business development activities since that time.

Between 1993 and 1998, Mr. Pizzurro was responsible for business development both domestically and internationally for The Joseph Company, a research and development company.  From 1986 to 1992, he was the Director of Marketing for a regional real estate company. Mr. Pizzurro served as a pilot in the United States Marine Corps between 1979 and 1986 where he attained the rank of Captain.

Mr. Pizzurro received his Bachelor of Science Degree in Communications from Clarion University in 1978.

20

Financial Oversight Committee

We do not have a board of directors or an audit committee.  Accordingly, as the managing member of our manager, Cornerstone Ventures, Inc. has established a Financial Oversight Committee consisting of Terry G. Roussel, as the Principal Executive Officer and Sharon C. Kaiser, as the Principal Financial Officer of Cornerstone Ventures, Inc.  The Financial Oversight Committee will serve the equivalent function of an audit committee for, among others, the following purposes: appointment, compensation, review and oversight of the work of our independent registered public accounting firm, and establishing and enforcing our Code of Business Conduct and Ethics.  Financial Oversight Committee is not independent of us or the managing member.

Management of the Managing Member

Mr. Roussel is the Chief Executive Officer and Mr. Pizzurro is a Senior Vice President of Cornerstone Ventures, Inc.   The remaining executive officer of Cornerstone Ventures, Inc. is Sharon C. Kaiser. The experience of Mssrs. Roussel and Pizzurro are described above under “Board of Directors of Manager of Managing member”  Ms. Kaiser’s experience is described below.

Sharon C. Kaiser, age 64, has served as the Chief Financial Officer of Cornerstone Ventures, Inc. since October 2005.  Ms. Kaiser joined Cornerstone in July 2005 as Chief Financial Officer of Cornerstone Core Properties REIT, Inc. and its advisor, Cornerstone Realty Advisors, LLC.  Ms. Kaiser is responsible for finance and accounting.

Prior to joining Cornerstone, Ms. Kaiser was Director of Financial Operations for Westfield America, Inc., Westfield is one of the largest REITs in the world.

From 1999 to 2002, Ms. Kaiser served as Chief Financial Officer of The StayWell Company, a subsidiary of Vivendi Universal, and from 1995 to 1999, she served as Chief Financial Officer and Senior Vice President of HemaCare Corporation, a publicly traded biomedical company.  Her responsibilities included financial accounting and reporting, information technology, investor relations and human resources, as well as strategic planning and acquisition due diligence and integration.

Before joining HemaCare Corporation, Ms. Kaiser served as the Chief Financial Officer of a publicly traded (AMEX) REIT sponsored by the Koll Company.  Earlier she spent eight years with Arthur Andersen and Co.

Ms. Kaiser holds a Bachelor of Science in Business Administration from the University of Southern California and has been a Certified Public Accountant since 1981.

Compensation

We reimburse our managing member for its direct expenses in administering our business and pay our managing member compensation for its services as provided in the operating agreement.  Our managing member is also entitled to receive a percentage of net cash flow from operations and net sales proceeds, both as defined in our operating agreement.  See Item 13 for a discussion of the fees we pay to our managing member and its affiliates.

Services Performed by Others

Our managing member and its affiliates outsource certain functions and intend to continue hiring independent persons and companies to provide services to us as called for by the operating agreement or which, in the opinion of our managing member, would be in our best interests.  We will pay the cost of all such services unless those services are to be provided by our managing member.

Section 16(a) Beneficial Ownership Reporting

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our managers and persons who beneficially own more than 10% of a registered class of our equity securities to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission (the “SEC”).  Managers and greater than 10% beneficial owners are also required by rules promulgated by the SEC to furnish the Fund with copies of all Section 16(a) forms they file.

During the period from January 1, 2008 through December 31, 2008, there were no Section 16(a) filings required.

21

Code of Business Conduct and Ethics

Cornerstone Ventures, Inc. has adopted a Code of Business Conduct and Ethics that applies to all of its officers and directors, including Principal Executive Officer and Principal Financial Officer.  The Code of Business Conduct and Ethics can be found on http://www.crefunds.com.

ITEM 11.   COMPENSATION OF OUR MANAGING MEMBER AND AFFILIATES

We do not have executive officers or directors.  We did not pay compensation to the executive officers of our managing member’s managing member for services rendered to us.  See Item 13 for a discussion of the fees paid to and services provided by our managing member and its affiliates

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MEMBER MATTERS

There are no units of membership interest owned by our managing member as of December 31, 2008.  There are five units of membership interest owned by Terry G. Roussel as of December 31, 2008 which represents less than 1% of the units outstanding.

No arrangements exist which would, upon implementation, result in a change in control of the Company.

We do not have any equity compensation plans and did not have any such plan as of December 31, 2008.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Compensation and Fees to be paid to our Managing Member and its Affiliates

Following is a summary of the compensation and fees paid by us to our managing member and its affiliates in connection with the operation of the company and the liquidation of our properties for the year ended December 31, 2008.

Type of Compensation and Recipient	Method of Compensation	Amount
	OPERATIONAL STAGE
Property management fees payable to our managing member and/or its affiliates some or all of which may be paid to unaffiliated third parties	Property management fees equal to 6% of the gross rental income generated by each property will be paid monthly	$	—
Property refurbishment supervision fee payable to our managing member and/or its affiliates some or all of which may be paid to unaffiliated third parties	Property refurbishment supervision fee equal to 10% of the cost of tenant improvements or capital improvements made to our properties	$	—
Leasing commissions payable to our managing member and/or its affiliates some or all of which may be paid to unaffiliated third parties	Leasing commissions paid upon execution of each lease equal to 6% of rent scheduled to be paid during the first and second year of the lease, 5% during the third and fourth years and 4% during the fifth and later years	$	—
Incentive share of net cash flow from operations payable to our managing member	10% of net cash flow from operations each year until unit holders have received distributions equal to an 8% per annum, simple return for the year or the early investors 12% incentive return, then 50% of net cash flow from operations	$	186,000
Reimbursement of actual cost of goods, materials and other services supplied to us by our managing member	Reimbursement of actual expenses and costs	$	—

22

LIQUIDATION STAGE

Property disposition fees payable to our managing member and/or its affiliates some or all of which may be paid to unaffiliated third parties. Our managing member will not be given an exclusive right to sell our properties	Property disposition fees in an amount equal to 6% of the contract sales price of the property	$	—
Incentive share of net sales proceeds payable to our managing member	After the unit holders have received an amount equal to their aggregate capital contributions, 10% of proceeds from property sales until the unit holders have received an amount equal to an aggregate 8% per annum, cumulative, non-compounded return taking into account all prior distributions and thereafter 50% of proceeds from property sales	$	—

Director Independence

We are a limited liability company, not a corporation, and are therefore managed by our managing member, Cornerstone Industrial Properties LLC, rather than by a board of directors.  Our managing member is managed by Cornerstone Ventures, Inc., which has a board of directors comprised of two directors, Terry G. Roussel and Alfred J. Pizzurro.  Since our securities are not listed on a national securities exchange or an inter-dealer quotation system, we are not subject to the director independence standards that are applicable to listed entities.  Neither Mr. Roussel nor Mr. Pizzurro would be considered independent as defined in the rules applicable to listed entities.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

BDO Seidman, LLP audited our financial statements for the years ended December 31, 2008, 2007 and 2006.

Audit and Non-Audit Fees

Aggregate fees for professional services rendered to us by BDO Seidman, LLP for the years ending December 31, 2008 and 2007 were as follows:

Services Provided	2008		2007
Audit Fees	$	134,000	$	137,000
All Other Fees		1,000		1,000
Total	$	135,000	$	138,000

Audit Fees.    The aggregate fees billed for the years ended December 31, 2008 and 2007 were for the audits of our financial statements and reviews of our interim financial statements included in our annual and quarterly reports.

All Other Fees.    The aggregate fees billed for the years ended December 31, 2008 and 2007 were for expense related to the audits of our financial statements and reviews of our interim financial statements included in our annual and quarterly reports.

Pre-Approval Policies and Procedures

The Financial Oversight Committee has implemented pre-approval policies and procedures related to the provision of audit and non-audit services.  Under these procedures, the Financial Oversight Committee pre-approves both the type of services to be provided by its auditor and the estimated fees related to these services.

During the approval process, the Financial Oversight Committee considers the impact of the types of services and the related fees on the independence of the auditor. The services and fees must be deemed compatible with the maintenance of the auditor’s independence, including compliance with SEC rules and regulations.  Throughout the year, the Financial Oversight Committee will review any revisions to the estimates of audit and non-audit fees initially approved.

23

PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) (1) Financial Statements

The following financial statements are included in a separate section of this Annual Report on Form 10-K commencing on the page numbers specified below:

Report of Independent Registered Public Accounting Firm, BDO Seidman, LLP

Balance Sheets as of December 31, 2008 and 2007

Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006

Statements of Members’ Capital for the Years Ended December 31, 2008, 2007 and 2006

Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006

Notes to Financial Statements

(a) (2) Financial Statement Schedule

Schedule III - Real Estate and Accumulated Depreciation

(a) (3) Exhibits

3.1 Articles of Organization (incorporated by reference to Registration Statement on Form S-11, File No. 333-76609, filed April 20, 1999).

3.2 Operating Agreement (incorporated by reference to Registration Statement on Form S-11, File No. 333-107750, filed August 8, 2003).

3.3 Amendment to Articles of Organization filed August 18, 1999 (incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form S-11, File No. 333-76609, filed February 4, 2000).

3.4 Amendment to Articles of Organization of the Fund filed January 26, 2000 (incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form S-11, File No. 333-76609, filed February 4, 2000).

3.5 Amendment No. 1 to Operating Agreement (incorporated by reference to Exhibit 3.5 to the Registrant’s Form 10-K filed on March 22, 2007)

14.1 Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Registrant’s Form 10-K filed on March 29, 2006)

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.

24

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized this 11th day of March 2009.

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)

Pursuant to the requirements of the Securities Exchange Act of 1934, the following person on behalf of the registrant has signed this report below in the capacity as and on the date indicated.

Signature	Title	Date
/s/ TERRY G. ROUSSEL	Director of Cornerstone Ventures, Inc.	March 11, 2009
Terry G. Roussel
/s/ ALFRED J. PIZZURRO	Director of Cornerstone Ventures, Inc.	March 11, 2009
Alfred J. Pizzurro

25

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CORNERSTONE REALTY FUND, LLC

Report of Independent Registered Public Accounting Firm, BDO Seidman, LLP	F-2
Balance Sheets as of December 31, 2008 and 2007	F-3
Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006	F-4
Statements of Members’ Capital for the Years Ended December 31, 2008, 2007 and 2006	F-5
Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006	F-6
Notes to Financial Statements	F-7
Schedule III - Real Estate and Accumulated Depreciation	F-13

F-1

Report of Independent Registered Public Accounting Firm

To the Members

Cornerstone Realty Fund, LLC

Irvine, California

We have audited the accompanying balance sheets of Cornerstone Realty Fund, LLC, (the “Fund”) a California limited liability company, as of December 31, 2008 and 2007, and the related statements of operations, members’ capital and cash flows for each of the three years in the period ended December 31, 2008.  In connection with our audits of the financial statements, we also have audited the financial statement schedule listed in the accompanying index.   These financial statements and schedule are the responsibility of the Fund’s management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, 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 Cornerstone Realty Fund, LLC as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ BDO Seidman, LLP

Costa Mesa, California

March 11, 2009

F-2

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

BALANCE SHEETS

ASSETS

	December 31,
	2008		2007
Assets
Cash and cash equivalents	$	2,289,000	$	4,201,000
Investments in real estate
Land		11,474,000		11,779,000
Buildings and improvements value, net		19,885,000		21,689,000
Intangible lease value, net		198,000		424,000
Intangible asset — in-place leases, net		84,000		195,000
		31,641,000		34,087,000
Other assets
Escrow deposit and other costs		—		8,000
Tenant and other receivables, less allowance of $105,000 in 2008 and $72,000 in 2007		274,000		289,000
Prepaid assets		36,000		57,000
Leasing commissions, net		161,000		188,000
Total assets	$	34,401,000	$	38,830,000

LIABILITIES AND MEMBERS’ CAPITAL

Liabilities
Accounts payable and accrued liabilities	$	316,000	$	338,000
Real estate taxes payable		219,000		228,000
Tenant security deposits		295,000		316,000
Intangible lease liability, net		32,000		61,000
Total liabilities		862,000		943,000
Members’ capital (100,000 units authorized and issued at 2008 and 2007; 99,350 and 99,720 units outstanding at 2008 and 2007)		33,539,000		37,887,000
Total liabilities and members’ capital	$	34,401,000	$	38,830,000

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

F-3

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2008			2007		2006
Revenues:
Rental revenues	$	3,312,000		$	3,264,000	$	2,749,000
Tenant reimbursements and other income		721,000			775,000		549,000
		4,033,000			4,039,000		3,298,000
Expenses:
Property operating and maintenance		942,000			840,000		878,000
Property taxes		564,000			581,000		561,000
General and administrative expenses		267,000			421,000		461,000
Depreciation and amortization		1,049,000			1,053,000		906,000
Impairment of real estate		1,808,000			—		—
		4,630,000			2,895,000		2,806,000
Interest and other income		89,000			141,000		304,000
(Loss) income from continuing operations		(508,000	)		1,285,000		796,000
Discontinued operation:
Gain on sale of real estate		—			306,000		—
Income from discontinued operations		—			45,000		78,000
		—			351,000		78,000
Net (loss) income	$	(508,000	)	$	1,636,000	$	874,000
Net (loss) income allocable to managing member	$	(51,000	)	$	164,000	$	87,000
Net (loss) income allocable to unit holders:
From continuing operations	$	(457,000	)	$	1,156,000	$	717,000
From discontinued operations		—			316,000		70,000
	$	(457,000	)	$	1,472,000	$	787,000
Per share amounts:
Basic and diluted (loss) income from continuing operations allocable to unit holders	$	(4.59	)	$	11.57	$	7.17
Basic and diluted income from discontinued operations allocable to unit holders	$	—		$	3.16	$	0.70
Basic and diluted weighted average units outstanding		99,618			99,930		100,000

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

F-4

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

STATEMENTS OF MEMBERS’ CAPITAL

Balance, December 31, 2005	$	40,761,000
Cash distributions to unit holders	(2,500,000		)
Net income	874,000
Balance, December 31, 2006	$	39,135,000
Cash distributions to unit holders	(2,500,000		)
Cash distributions to managing member	(262,000		)
Units repurchased and retired	(122,000		)
Net income	1,636,000
Balance, December 31, 2007	$	37,887,000
Cash distributions to unit holders	(3,493,000		)
Cash distributions to managing member	(186,000		)
Units repurchased and retired	(161,000		)
Net loss	(508,000		)
Balance, December 31, 2008	$	33,539,000

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

F-5

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2008			2007			2006
OPERATING ACTIVITIES
Net (loss) income	$	(508,000	)	$	1,636,000		$	874,000
Adjustments to reconcile net income to net cash provided by operating activities:
Net gain on sale of real estate		—			(306,000	)		—
Depreciation and amortization		774,000			732,000			741,000
Provision for bad debts		68,000			27,000			2,000
Impairment of real estate		1,808,000			—			—
Amortization of intangible lease assets, net		247,000			273,000			195,000
Changes in operating assets and liabilities:
Other assets, net		(121,000	)		(146,000	)		(322,000	)
Accounts payable and accrued liabilities		(22,000	)		(190,000	)		135,000
Real estate taxes payable		(9,000	)		34,000			59,000
Tenant security deposits		(21,000	)		14,000			86,000
Net cash provided by operating activities		2,216,000			2,074,000			1,770,000
INVESTING ACTIVITIES
Net proceeds received from sale of real estate		—			2,925,000			—
Investments in real estate		(288,000	)		(163,000	)		(10,510,00	)
Net cash (used in) provided by investing activities		(288,000	)		2,762,000			(10,510,00	)
FINANCING ACTIVITIES
Cash distributions to unit holders		(3,493,000	)		(2,500,000	)		(2,500,000	)
Cash distributions to managing member		(186,000	)		(262,000	)		—
Unites repurchased and retired		(161,000	)		(122,000	)		—
Net cash used in financing activities		(3,840,000	)		(2,884,000	)		(2,500,000	)
Net increase (decrease) in cash		(1,912,000	)		1,952,000			(11,240,000	)
Cash and cash equivalents - beginning of year		4,201,000			2,249,000			13,489,000
Cash and cash equivalents - end of year	$	2,289,000		$	4,201,000		$	2,249,000

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

F-6

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

NOTES TO FINANCIAL STATEMENTS

1. Organization and Business

Cornerstone Realty Fund, LLC, a California limited liability company (the “Fund”), was formed on October 28, 1998.  The members of the Fund are Cornerstone Industrial Properties, LLC, a California limited liability company, as the Managing Member (“Managing Member”), Terry G. Roussel, an individual, and other various unit holders as described below.  The purpose of the Fund is to acquire, operate and sell multi-tenant industrial properties.

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 or extended pursuant to the operating agreement.

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

The Managing Member generally has complete and exclusive discretion in the management and control of the Fund; 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 a specified cumulative, non-compounded annual return on their Invested Capital Contributions, as defined.  A 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.  Otherwise, unit holders are entitled to receive 90% of the cash flow from operations until they receive an 8% non-compounded annual return.

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.

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 share of the allocations and distributions.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the 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 periods.  Actual results could differ materially from the estimates in the near term.

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.  The Company places its cash with major financial institutions.  At times, cash balances may be in excess of amounts insured by Federal agencies.

F-7

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 and depreciated over their estimated useful lives.   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 shorter of related lease term or expected useful life.

We evaluate the carrying value for investments in real estate in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”).  We periodically evaluates our investments in real estate for impairment indicators. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each asset and legal and environmental concerns. If indicators exist, we compare the expected future undiscounted cash flows for the long-lived asset against the carrying amount of that asset. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recorded for the difference between the estimated fair value and the carrying amount of the asset. In the fourth quarter of  2008, we recorded an impairment charge of approximately $1.8 million.

In accordance with  Statement of Financial Accounting Standard (“SFAS”) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets, the Fund records at acquisition an intangible asset or liability for the value attributable to in-place leases.

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 as an increase to amortization expense over the remaining non-cancelable term of the respective leases.

Anticipated amortization of lease intangibles for each of the five following years ended December 31, 2008 is as follows:

	Lease Intangibles
2009	$	67,000
2010	22,000
2011	18,000
2012	18,000
2013	13,000
Thereafter	112,000
	$	250,000

F-8

As of December 31, 2008, accumulated depreciation and amortization related to investments in real estate, investments in real estate assets held-for-sale, and related lease intangibles were as follows:

	Land			Buildings and Improvements			Intangible Lease Value			In-Place Lease Value			Acquired Below-Market Leases
Investments in real estate	$	11,779,000		$	23,829,000		$	550,000		$	894,000		$	(155,000	)
Less: impairment charge		(305,000	)		(1,318,000	)		(185,000	)		—			—
Investment in real estate values		11,474,000			22,511,000			365,000			894,000			(155,000	)
Less: accumulated depreciation and amortization from continuing operations		—			(2,626,000	)		(167,000	)		(810,000	)		123,000
Net Investments in Real Estate, Real estate assets held-for sale, and related lease intangibles	$	11,474,000		$	19,885,000		$	198,000		$	84,000		$	(32,000	)

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

	Land		Buildings and Improvements			Intangible Lease Value			In-Place Lease Value			Acquired Below-Market Leases
Investments in real estate	$	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 expense associated with investments in real estate and related lease intangibles were $0.9 million, $1.0 million and $0.9 million in 2008, 2007 and, 2006 respectively.

We review each real estate asset owned  to determine whether the carrying amount of the asset can be recovered. Based on current market conditions and management’s assessment of the market value of its properties, we recorded an impairment charge of $1.8 million in the fourth quarter of 2008.  There were no impairment charges taken in the years ended December 31, 2007 or 2006.

Investments in Real Estate Assets Held-for- Sale

The Fund evaluates the held-for-sale classification of its owned real estate each quarter. Assets that are classified as held-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell. Assets are generally classified as held-for-sale once management commits to a plan to sell the Properties and has initiated an active program to market them for sale. The results of operations of these real estate properties are reflected as discontinued operations in all periods reported. As of October 1, 2006, we determined that the potential sale of Sky Harbor Business Park to a third party was probable and classified it as held for sale in accordance with SFAS No. 144. See Note 7 for additional information.

Leasing Commissions

Leasing commissions are stated at cost and amortized on a straight-line basis over the related lease term.  As of December 31, 2008, the Fund had  recorded approximately $552,000 in leasing commissions.  The unamortized portion of this asset was approximately $161,000 at December 31, 2008.

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 is contractual rent increases.  Rental receivables are periodically evaluated for collectability.

F-9

We record property operating expense reimbursements due from tenants for common area maintenance, real estate taxes and other recoverable costs in the period the related expenses are incurred.

Accounts Receivable

We periodically evaluate 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

The Fund believes that the recorded values of all financial instruments approximate their current fair values.

Income Tax Matters

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

Concentration of Credit Risk

The Fund maintains some of its cash in money market accounts which, at times, exceeds federally insured limits. See Footnote 3. 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 in generally accepted accounting principles and expands disclosures about fair value measurements.  SFAS 157 is effective for financial statements issued for fiscal periods beginning after November 15, 2007 (our fiscal year beginning January 1, 2008), and interim periods within those fiscal years.  In February 2008, FASB deferred the effective date of SFAS No. 157 for one year for non financial assets and non financial liabilities that are recognized or disclosed at fair value in the financial statements  on a non recurring  basis.  In, addition, FASB issued a staff position that SFAS No. 157 does not apply under SFAS No. 13 “ Accounting for Leases “ and other accounting pronouncements that address fair  value measurements for purposes of  lease classifications  under SFAS No. 13. The adoption of this standard is not expected to have a material effect on our consolidated financial statements.

In February 2007, the FASB issued SFAS No.  159, “Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). This Statement permits entities to choose to measure many financial instruments and certain other items at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of this standard did not have a material effect on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (R), “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 noncontrolling interest in the acquiree at the acquisition date, with limited exceptions.  The standard is effective for fiscal years beginning 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 consolidated financial statements.

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 objective is to improve the relevance, comparability and transparency of financial information that a reporting entity provides in its consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008 and should be applied prospectively. The adoption of this standard is not expected to have a material effect on our consolidated 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 do not anticipate that the adoption of SFAS 162 will have a significant effect on our consolidated financial statements.

F-10

Reclassification

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

3. Investments in Real Estate

Future Minimum Lease

The future minimum lease payments to be received under existing operating leases for the six properties owned as of December 31, 2008 are as follows:

Years ending December 31,
2009	$	2,396,000
2010	969,000
2011	600,000
2012	169,000
2013	60,000
2014 and thereafter	427,000
	$	4,621,000

Industrial space in the properties is generally leased to tenants under lease terms that provide for the tenants to pay increases in operating expenses in excess of specified amounts.  The above future minimum lease payments do not include specified payments for tenant reimbursements of operating expenses.

4. Related Party Transactions

During the years ended December 31, 2008 and 2007, the total incentive share of net cash flow from operations paid to  our Managing Member was $186,000 and $262,000, respectively.  There were no incentive share of net cash flow paid year ended December 31, 2006.

5. Quarterly Financial Data (unaudited)

Set forth below is certain unaudited quarterly financial information. We believe that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly, and in accordance with generally accepted accounting principles, the selected quarterly information when read in conjunction with the consolidated financial statements.

	Three Months Ended
2008	March 31,		June 30,		September 30,		December 31,
Revenues	$	1,030,000	$	1,024,000	$	1,006,000	$	973,000
Net income (loss) allocable to unit holders:
From continuing operations	$	311,000	$	229,000	$	322,000	$	(1,319,000	)
Per share amounts:
Basic and diluted income (loss) from continuing operations allocable to unit holders	$	3.12	$	2.30	$	3.24	$	(13.27	)
Basic and diluted weighted average units outstanding		99,683		99,598		99,498		99,429

	Three Months Ended
2007	March 31,		June 30,		September 30,		December 31,
Revenues	$	962,000	$	1,006,000	$	1,022,000	$	1,049,000
Net Income (loss) allocable to unit holders:
From continuing operations	$	265,000	$	244,000	$	289,000	$	358,000
From discontinued operations	$	27,000	$	301,000	$	-	$	(12,000	)
Per share amounts:
Basic and diluted income from continuing operations allocable to unit holders	$	2.65	$	2.44	$	2.89	$	3.59
Basic and diluted income (loss) from discontinued operations allocable to unit holders	$	0.27	$	3.01	$	—	$	(0.12	)
Basic and diluted weighted average units outstanding		100,000		100,000		100,000		99,720

F-11

6. Discontinued Operations

In accordance with SFAS No. 144, we report results of operations from real estate assets that meet the definition of a component of an entity that have been sold, or meet the criteria to be classified as held for sale, as discontinued operations. As of October 1, 2006, we determined that the potential sale of Sky Harbor Business Park to a third party was probable and classified it as held for sale in accordance with SFAS No. 144.  Depreciation and amortization of Sky Harbor Business Park was not recorded for the period of October 1, 2006 to December 31, 2008 in accordance with SFAS No. 144.  This property was sold on April 16, 2007.  We included all results of these discontinued operations in a separate component of income on the statements of operations under the heading Income from Discontinued Operations.

The following is a summary of the components of income from discontinued operations for the years ended December 31, 2008, 2007 and 2006:

	2008		2007		2006
Total revenues	$	—	$	120,000	$	376,000
Operating expenses and real estate taxes		—		75,000		223,000
Real estate related depreciation and amortization		—		—		75,000
Income from discontinued operations		—		45,000		78,000
Gain on sale of real estate	$	—	$	306,000	$	—
Income from discontinued operations allocable to managing member	$	—	$	5,000	$	8,000
Income from discontinued operations allocable to unit holders	$	—	$	40,000	$	70,000

F-12

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

Schedule III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2008

	Initial Cost to Fund				Costs Capitalized Subsequent to Acquisition							Gross Amount Invested										Life on which Depreciation in Latest Income
Description	Land		Building and Improvements		Improvements		Carry Costs		Impairment			Land		Building and Improvements		Total		Accumulated Depreciation		Date of Construction	Date Acquired	Statement is Computed
Investments in Real Estate
Normandie Business Center Torrance, CA	$	1,783,000	$	2,206,000	$	135,000		—	$	—		$	1,783,000	$	2,341,000	$	4,124,000	$	466,000	1989	09/27/02	39 years
Arrow Business Center Irwindale, CA		2,338,000		3,660,000		174,000		—		—			2,338,000		3,834,000		6,172,000		634,000	1987	12/10/03	39 years
Zenith Business Center Chicago, IL		908,000		3,792,000		147,000		—		(1,623,000	)		603,000		2,621,000		3,224,000		420,000	1978	01/25/05	39 years
Paramount Business Center Paramount, CA		1,100,000		1,926,000		88,000		—		—			1,100,000		2,014,000		3,114,000		196,000	1985	04/28/05	39 years
Interstate Commerce Center Tempe, AZ		1,750,000		5,495,000		171,000		—		—			1,750,000		5,666,000		7,416,000		510,000	1987	09/30/05	39 years
Shoemaker Ave, Santa Fe Springs, CA		3,900,000		5,994,000		41,000		—		—			3,900,000		6,035,000		9,935,000		400,000	1974	06/28/06	39 years
Totals	$	11,779,000	$	23,073,000	$	756,000		—	$	(1,623,000	)	$	11,474,000	$	22,511,000	$	33,985,000	$	2,626,000

	Cost			Accumulated Depreciation
Balance at December 31, 2005	$	27,333,000		$	718,000
2006 Additions		10,690,000			650,000
Balance at December 31, 2006	$	38,023,000		$	1,368,000
2007 Sale of real estate		(2,866,000	)		(248,000	)
2007 Additions		163,000			732,000
Balance at December 31, 2007	$	35,320,000		$	1,852,000
2008 Impairment of real estate		(1,623,000	)		—
2008 Additions		288,000			774,000
Balance at December 31, 2008	$	33,985,000		$	2,626,000

F-13

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Terry G. Roussel, certify that:

1.I have reviewed this annual report on Form 10-K of Cornerstone Realty Fund, LLC;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)  for the registrant and we have:

(a)            designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b)            designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)            evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this reported our conclusions about the effectiveness of the disclosure controls and procedures, as of the period covered by this annual report based on such evaluation; and

(d)            disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)            all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ TERRY G. ROUSSEL
Date: March 11, 2009	Terry G. Roussel
	Chief Executive Officer (Principal Executive Officer) of
	Cornerstone Ventures, Inc., the Managing Member of
	Cornerstone Industrial Properties, LLC, the Managing
	Member of Cornerstone Realty Fund, LLC

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Sharon C. Kaiser, certify that:

1. I have reviewed this annual report on Form 10-K of Cornerstone Realty Fund, LLC;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)  for the registrant and we have:

(a)            designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b)            designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)            evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this reported our conclusions about the effectiveness of the disclosure controls and procedures, as of the period covered by this annual report based on such evaluation; and

(d)            disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)            all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ SHARON C. KAISER
Date: March 11, 2009	Sharon C. Kaiser
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of
	Cornerstone Ventures, Inc., the Managing Member of
	Cornerstone Industrial Properties, LLC, the Managing
	Member of Cornerstone Realty Fund, LLC

EX-32

Exhibit 32

CERTIFICATIONS PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Terry G. Roussel and Sharon C. Kaiser, do each hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his or her knowledge, the Annual Report of Cornerstone Realty Fund, LLC on Form 10-K for the twelve month period ended December 31, 2008 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Cornerstone Realty Fund, LLC.

	/s/ TERRY G. ROUSSEL
Date: March 11, 2009	Terry G. Roussel
	Chief Executive Officer (Principal Executive Officer) of
	Cornerstone Ventures, Inc., Managing Member of
	Cornerstone Industrial Properties, LLC, the Managing Member of
	Cornerstone Realty Fund, LLC

	/s/ SHARON C. KAISER
Date: March 11, 2009	Sharon C. Kaiser
	Chief Financial Officer (Principal Financial Officer and Principal
	Accounting Officer) of
	Cornerstone Ventures, Inc., Managing Member of
	Cornerstone Industrial Properties, LLC, the Managing Member of
	Cornerstone Realty Fund, LLC