10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009

or

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

For the transition period from                                to

Commission File Number   000-51868

CORNERSTONE REALTY FUND, LLC

(Exact name of registrant as specified in its charter)

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

949-852-1007

(Registrant’s telephone number, including area code)

Not Applicable

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

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

T Yes o No

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o No

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

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

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

o Yes o No

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PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008	3
	Condensed Statements of Operations for the Three Months Ended March 31, 2009 (unaudited) and March 31, 2008 (unaudited)	4
	Condensed Statement of Members’ Capital for the Three Months Ended March 31, 2009 (unaudited)	5
	Condensed Statements of Cash Flows for the Three Months Ended March 31, 2009 (unaudited) and March 31, 2008 (unaudited)	6
	Notes to Condensed Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4(T)	Controls and Procedures	13
PART II.	OTHER INFORMATION
Item 1a.	Risk Factor	14
Item 6.	Exhibits	14
SIGNATURES		15

2

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

CONDENSED BALANCE SHEETS

	March 31, 2009		December 31, 2008 (a)
	(unaudited)
ASSETS
Cash and cash equivalents	$	1,894,000	$	2,289,000
Investments in real estate
Land		11,474,000		11,474,000
Buildings and improvements, net		19,706,000		19,885,000
Intangible lease assets, net		193,000		198,000
Intangible in-place lease assets, net		61,000		84,000
		31,434,000		31,641,000
Tenant and other receivables, net		273,000		274,000
Prepaid expenses and other assets		87,000		36,000
Leasing commissions, less accumulated amortization of $416,000 as of March 31, 2009 and $391,000 as of December 31, 2008		147,000		161,000
Total assets	$	33,835,000	$	34,401,000
LIABILITIES AND MEMBERS’ CAPITAL
Liabilities
Accounts payable, accrued and other liabilities		230,000		316,000
Real estate taxes payable		246,000		219,000
Tenant security deposits		276,000		295,000
Intangible lease liability, net		25,000		32,000
Total liabilities		777,000		862,000
Members’ capital (100,000 units authorized as of  March 31, 2009 and December 31, 2008;  99,245 and 99,350 units issued and outstanding as of  March 31, 2009 and December 31, 2008, respectively)		33,058,000		33,539,000
Total liabilities and members’ capital	$	33,835,000	$	34,401,000

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

(a) Derived from the audited financial statements as of December 31, 2008.

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CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended
	March 31,
	2009		2008
Revenues
Rental revenues	$	773,000	$	849,000
Tenant reimbursements and other income		150,000		181,000
		923,000		1,030,000
Expenses
Property operating and maintenance		202,000		230,000
Property taxes		143,000		145,000
General and administrative		79,000		68,000
Depreciation and amortization		238,000		264,000
		662,000		707,000
Interest income		1,000		23,000
Net income	$	262,000	$	346,000
Net income allocable to managing member	$	26,000	$	35,000
Net income allocable to unit holders	$	236,000	$	311,000
Per unit amounts:
Basic and diluted income allocable to unit holders	$	2.38	$	3.12
Basic and diluted weighted average units outstanding		99,333		99,683

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

4

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

CONDENSED STATEMENT OF MEMBERS’ CAPITAL

(Unaudited)

Balance, December 31, 2008	$	33,539,000
Cash distributions to unit holders		(626,000	)
Cash distributions to managing member		(81,000	)
Units repurchased and retired		(36,000	)
Net income		262,000
Balance, March 31, 2009	$	33,058,000

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

5

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	March 31,
	2009			2008
OPERATING ACTIVITIES
Net income	$	262,000		$	346,000
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		238,000			264,000
Changes in operating assets and liabilities
Other assets		(62,000	)		(81,000	)
Accounts payable, accrued and other liabilities		(84,000	)		(27,000	)
Net cash provided by operating activities		354,000			502,000
INVESTING ACTIVITIES
Investments in real estate		(6,000	)		(38,000	)
Net cash used in investing activities		(6,000	)		(38,000	)
FINANCING ACTIVITIES
Cash distributions to unit holders		(626,000	)		(628,000	)
Cash distributions to managing member		(81,000	)		(44,000	)
Units repurchased and retired		(36,000	)		(32,000	)
Net cash used in financing activities		(743,000	)		(704,000	)
Net decrease in cash		(395,000	)		(240,000	)
Cash and cash equivalents at beginning of period		2,289,000			4,201,000
Cash and cash equivalents at end of period	$	1,894,000		$	3,961,000
Supplemental disclosure of non-cash financing and investing activities:
Cash distribution declared not paid	$	-		$	996,000

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

6

CORNERSTONE REALTY FUND, LLC

(a California Limited Liability Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Business

Cornerstone Realty Fund, LLC, a California limited liability company (the “Fund”), was formed in October of 1998 to invest in multi-tenant business parks catering to small business tenants.  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” or “Managing Member”), 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.

Our interim unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission.  As permitted by the Securities and Exchange Commission filing requirements for Form 10-Q, the condensed financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  The condensed financial statements included herein should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a presentation in accordance with accounting principles generally accepted in the United States have been included.  Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

Each member’s liability is limited pursuant to the provisions of the Beverly-Killea Limited Liability Company Act.

As of the report date, the operating agreement, as amended and restated, provides, among other things, for the following:

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

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

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

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

— 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.

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

— Effective February 22, 2007, our Operating Agreement was amended to permit repurchase of units on such terms and conditions as the Managing Member may determine.

On April 16, 2009, we sent a consent statement to unit holders in connection with the solicitation of written consents and approval from unit holders to change the dissolution date in Section 11.1 (a) of the operating agreement to December 31, 2012 from December 31, 2010.

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.  We place our cash with major financial institutions.  At times, cash balances may be in excess of amounts insured by Federal agencies. The carrying amounts approximate fair value.

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 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.

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

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

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

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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 acquired in-place leases is included in intangible assets — in-place lease assets in the condensed balance sheet and amortized to expense over the remaining non-cancelable term of the respective leases.

Estimated amortization associated with the intangible lease assets, in-place lease assets and intangible lease liability for April 1, 2009 through December 31, 2009 and each of the four subsequent years is as follows:

	Lease Intangibles
April 1, 2009 to December 31, 2009	$	46,000
2010		22,000
2011		18,000
2012		18,000
2013		13,000
Thereafter		112,000
Total	$	229,000

As of March 31, 2009, accumulated depreciation and amortization related to investments in real estate and related lease intangibles were as follows:

	Land		Buildings and Improvements			Intangible Lease Assets			In-Place Lease Assets			Intangible Lease Liability
Investments in real estate and related lease intangibles	$	11,474,000	$	22,517,000		$	365,000		$	894,000		$	(155,000	)
Less: accumulated depreciation and amortization		—		(2,811,000	)		(172,000	)		(833,000	)		130,000
Net investments in real estate and related lease intangibles	$	11,474,000	$	19,706,000		$	193,000		$	61,000		$	(25,000	)

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

	Land			Buildings and Improvements			Intangible Lease Assets			In-Place Lease Assets			Intangible Lease Liability
Investments in real estate	$	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		—			(2,626,000	)		(167,000	)		(810,000	)		123,000
Net investments in real estate and related lease intangibles	$	11,474,000		$	19,885,000		$	198,000		$	84,000		$	(32,000	)

Depreciation and amortization related to investments in real estate and related lease intangibles for the three months ended March 31, 2009 and 2008 were $205,000 and $225,000, respectively.

Leasing Commissions

Leasing commissions are stated at cost and amortized on a straight-line basis over the related lease term.  As of March 31, 2009 and December 31, 2008, we had recorded approximately $564,000 and $552,000 in leasing commissions, respectively.  Amortization expense for the three months ended March 31, 2009 and 2008 was approximately $26,000 and $32,000, respectively.

Revenue Recognition

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

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Accounts Receivable

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

Fair Value of Financial Instruments

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

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

Impact of New Accounting Pronouncements

In late 2007, the FASB issued SFAS No. 141R, a revision of SFAS No. 141, “Accounting for Business Combinations.”  This standard expands the use of fair value principles as well as the treatment of pre-acquisition costs.  This standard is effective for fiscal years beginning after December 15, 2008 (and thus acquisitions after December 31, 2008).  We adopted SFAS No. 141R as of January 1, 2009, and it did not have a material impact to our financial position or results of operations.

In February 2008, FASB issued Staff Position No. FAS 157-2 which provides for a one-year deferral of the effective date of SFAS No. 157, “Fair Value Measurements,” for non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis.  We adopted SFAS No. 157 as it relates to non-financial assets and liabilities as of January 1, 2009 and it did not have a material impact to our financial position or results of operations.

In April 2008, FASB issued FASB Staff Position (“FSP”) No. SFAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP SFAS 142-3”). FSP SFAS 142-3 amends paragraph 11(d) of FASB Statement No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”) which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. FSP SFAS 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset. FSP SFAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and must be applied prospectively to intangible assets acquired after the effective date. We adopted SFAS 142-3 as of January 1, 2009, and it did not have a material impact to our financial position or results of operations.

In October 2008, FASB issued Staff Position No. SFAS 157-3, which clarifies the application of FASB SFAS No. 157, “Fair Value Measurements”. Staff Position No. 157-3 provides guidance in determining the fair value of a financial asset when the market for that financial asset is not active.  We adopted Staff Position No. 157-3 as of January 1, 2009, and it did not have a material impact to our financial position or results of operations.

In April 2009, FASB issued SFAS No 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”, relating to determination of fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms what SFAS 157 states is the objective of fair value measurement—to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive.  We have considered this guidance in making its fair value measurements as of March 31, 2009, and it did not have a significant impact on those measurements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”(“SFAS 160”) which establishes accounting and reporting standards that require the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently; when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value; and entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. The objective of the guidance is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements. FAS 160 is effective for fiscal years beginning on or after December 15, 2008.  We adopted SFAS 160 as of January 1, 2009 and it did not have a material impact to our financial position or results of operations.

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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 adopted SFAS 162 as of January 1, 2009 and it did not have a material impact to our financial position or results of operations.

3. Subsequent Event

In April 2009, we repurchased and retired 84 units for approximately $29,000.

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

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our financial statements and notes thereto contained elsewhere in this report.  Certain statements in this section and elsewhere contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements may relate to risks and other factors that may cause our future results of operations to be materially different than those expressed or implied herein.  Some of these risks and other factors include, but are not limited to: (i) no assurance that our properties will continue to experience the current level of occupancy; (ii) tenants may not be able to meet their financial obligations; (iii) rental revenues from the properties may not be sufficient to meet our cash requirements for operations, capital requirements and distributions; and (iv) adverse changes to the general economy may disrupt operations.  All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on form 10-K for the year ended December 31, 2008.

Critical Accounting Policies

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

There have been no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC.

Results of Operations

As of March 31, 2009 and 2008, we owned six multi-tenant industrial business park properties in three major metropolitan areas.  The results of operations for the three months ended March 31, 2009 and 2008 are discussed below.

Revenue for the first quarter of 2009 decreased to $923,000 from $1,030,000 for the comparable period of 2008.  The decrease was due primarily to lower occupancy.

Property operating and maintenance expenses for the first quarter of 2009 decreased to $202,000 from $230,000 for the comparable period of 2008 due primarily to lower refurbishment costs and management fees.  Property taxes for the first quarter of 2009 were comparable to the same period in 2008. General and administrative costs for the first quarter of 2009 increased to $79,000 from $68,000 due primary to higher professional fees offset by lower SOX compliance costs.  Depreciation and amortization for the first quarter of 2009 decreased to $238,000 from $264,000 for the comparable period of 2008 due primarily to the impairment charge recorded during fourth quarter of 2008 which resulted in a lower depreciable base.

Interest income for the first quarter of 2009 decreased to $1,000 from $23,000 for the comparable period of 2008 due to lower cash available for investment as well as lower investment rates.

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Liquidity and Capital Resources

As of April 30, 2009, we had approximately $1.3 million in cash and cash equivalents. We intend to use the existing cash balance for capital improvements to the properties, to provide for operating reserves and fund distributions. Cash in excess of these needs will be available for our unit repurchase program and for distribution to unit holders.

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

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We invest our cash and cash equivalents in government backed securities and money market accounts, which, by their nature, are subject to interest rate fluctuations. As of March 31, 2009, a 1% increase or decrease in interest rates would have no material effect on our interest income.

Item 4(T).  Controls and Procedures

Disclosure Controls and Procedures

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

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

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

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.

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PART II - OTHER INFORMATION

Item 1A. Risk Factor

Adverse developments in the economic conditions in the geographic areas in which our real estate investments are located have had, and may continue to have, an adverse effect on the value of our investments and our results of operations. 

We determine the carrying value of our investments in real estate based on judgments regarding the existence of impairment indicators such as operational performance, market conditions, expected holding period of each asset and legal and environmental concerns.  For our impairment evaluations, we  have assumed that we will hold our investments until December 31, 2012, which is  the proposed extended dissolution date for the fund that is currently under consideration by our unit holders.  In the event that our unit holders do not approve the proposed extension of our dissolution date, this assumption would be incorrect.  Modifications to our assumptions or the occurrence of unexpected adverse events that impact our estimates of the expected cash flows to be generated from our investments may require us to record material asset impairment charges to the carrying values of our investments.   As a result of material impairment indicators, we were recently required, and may again be required, to recognize asset impairment charges.  This could result in the recognition of further impairment losses that could be significant and that could have a material adverse effect on our results of operations.

Item 6.	Exhibits
	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

14

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized this 12th day of May 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)

 15

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Terry G. Roussel, certify that:

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

2.           Based on my knowledge, this 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 report; and

3.           Based on my knowledge, the financial statements, and other financial information included in this 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 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 Rule 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 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 principals;

(c)              evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report  our conclusions about the effectiveness of the disclosure controls and procedures, as of the period covered by this 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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: May 12, 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

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Sharon C. Kaiser, certify that:

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

2.           Based on my knowledge, this 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 report; and

3.           Based on my knowledge, the financial statements, and other financial information included in this 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 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 Rule 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 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 principals;

(c)              evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the period covered by this 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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: May 12, 2009	Sharon C. Kaiser Chief Financial Officer (Principal Financial 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 knowledge, the Quarterly Report of Cornerstone Realty Fund, LLC on Form 10-Q for the three-month period ended March 31, 2009 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-Q fairly presents in all material respects the financial condition and results of operations of Cornerstone Realty Fund, LLC.

	/s/ TERRY G. ROUSSEL
Date: May 12, 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: May 12, 2009	Sharon C. Kaiser Chief Financial Officer (Principal Financial Officer) of Cornerstone Ventures, Inc., Managing Member of Cornerstone Industrial Properties, LLC, the Managing Member of Cornerstone Realty Fund, LLC