UNITED STATESTable of Contents

~~SECURITIES~~UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September 30~~March 31, ~~2010~~2011


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

For the transition period from to

~~Commission~~ Commission File Number 000-51868

CORNERSTONE REALTY FUND, LLC

(Exact name of registrant as specified in its charter)

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

~~(Registrant’s~~Not Applicable ~~telephone~~(Former ~~number~~name, ~~including~~former ~~area~~address ~~code~~and former fiscal year, if changed since last report)

~~Not~~ Indicate by check mark whether the issuer (1) filed all reports required to be filed by ~~Applicable~~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.

~~(Former name,~~þ ~~former~~Yes ~~address~~o ~~and former fiscal year, if changed since last report)~~No

Indicate by check mark whether the ~~issuer~~Registrant ~~(1)~~has ~~filed~~submitted ~~all~~electronically ~~reports~~and posted on its corporate Web site, if any, every Interactive Data File required to be ~~filed~~submitted byand posted ~~section~~pursuant 13to orRule 405 ~~15(d)~~ of ~~the~~Regulation S-T ~~Exchange~~(§232.405 ~~Act~~ of ~~1934~~this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to ~~file~~submit ~~such reports),~~ and ~~(2)~~post ~~has been subject to~~ such ~~filing requirements for the past 90 days~~files).

x o Yes o No

Indicate by check mark whether the ~~Registrant~~registrant ~~has~~is ~~submitted~~a ~~electronically~~large ~~and~~accelerated ~~posted~~filer, ~~on its~~an ~~corporate Web site~~accelerated filer, ifor ~~any,~~a ~~every~~non-accelerated ~~Interactive~~filer. ~~Data~~See ~~File~~definition ~~required~~of to“accelerated ~~be submitted~~filer and ~~posted~~large ~~pursuant~~accelerated filer” toin Rule ~~405 of Regulation S~~ 12b-T2 ~~(§232.405~~ of ~~this chapter) during~~ the ~~preceding~~Exchange ~~12 months (or for such shorter period that the registrant was required to submit and post such files)~~Act.

Large accelerated filer o ~~Yes~~ Accelerated filer o NoNon-accelerated filer o Smaller Reporting Company þ (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a ~~large~~shell ~~accelerated~~company ~~filer,~~(as ~~an accelerated~~defined ~~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~~ o ~~Accelerated filer~~ ~~o Non-accelerated filer~~Yes ~~o Smaller Reporting~~þ ~~Company x~~No

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


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010			3
Condensed Statements of Operations for the Three months ended March 31, 2011(unaudited) and March 31, 2010 (unaudited)			4
Condensed Statement of Members’ Capital for the Three months ended March 31, 2011 (unaudited)			5
Condensed Statements of Cash Flows for the Three months ended March 31, 2011 (unaudited) and March 31, 2010 (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. Controls and Procedures			13
PART II. OTHER INFORMATION
Item 6. Exhibits			15
SIGNATURES			16
EX-31.1
EX-31.2
EX-32

o2 ~~Yes x No~~

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Balance Sheets as of September 30, 2010 and December 31, 2009 (unaudited)	3
	Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2010 and September 30, 2009 (unaudited)	4
	Condensed Statement of Members’ Capital for the Nine Months Ended September 30, 2010 (unaudited)	5
	Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2010 and September 30, 2009 (unaudited)	6
	Notes to Condensed Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.	Controls and Procedures	15
PART II.	OTHER INFORMATION
Item 6.	Exhibits	16
SIGNATURES		17

2CORNERSTONE REALTY FUND, LLC (a California Limited Liability Company)

~~CORNERSTONE REALTY~~CONDENSED ~~FUND,~~BALANCE ~~LLC~~SHEETS (UNAUDITED)

(a California Limited Liability Company)


	March 31, 2011		December 31, 2010
ASSETS

Cash and cash equivalents	$	3,892,000	$	4,356,000
Investments in real estate
Land		9,593,000		9,593,00
Buildings and improvements, net		15,474,000		15,649,000
Intangible asset — in-place leases, net		92,000		104,000

		25,159,000		25,346,000
Other assets
Tenant and other receivables, net		261,000		292,000
Prepaid expenses and other assets		67,000		19,000
Deferred financing cost, net		70,000		77,000
Leasing commissions, net		173,000		195,000


Total assets	$	29,622,000	$	30,285,000


LIABILITIES AND MEMBERS’ CAPITAL

Liabilities
Accounts payable, accrued liabilities and prepaid rent	$	304,000	$	157,000
Distributions payable		—		622,000
Real estate taxes payable		200,000		231,000
Tenant security deposits		259,000		254,000
Note payable		3,974,000		3,987,000

Total liabilities		4,737,000		5,251,000

Commitments and contingencies (Note 7)
Members’ capital (100,000 units authorized and issued as of March 31, 2011 and December 31, 2010; 98,670 and 98,670 units outstanding as of March 31, 2011 and December 31, 2010, respectively)		24,885,000		25,034,000


Total liabilities and members’ capital	$	29,622,000	$	30,285,000

~~CONDENSED BALANCE~~The ~~SHEETS~~accompanying notes are an integral part of these interim financial statements.

~~(UNAUDITED)~~3

	September 30, 2010		December 31, 2009
ASSETS
Cash and cash equivalents	$	1,050,000	$	761,000
Investments in real estate
Land		9,870,000		10,088,000
Buildings and improvements, net		15,397,000		16,110,000
Intangible asset - in-place leases, net		—		9,000
Property held for sale, net		1,721,000		1,726,000
		26,988,000		27,933,000
Other assets
Non-real estate assets associated with property held for sale		80,000		74,000
Tenant and other receivables, net		251,000		263,000
Prepaid expenses and other assets		22,000		50,000
Leasing commissions, net		173,000		158,000
Deferred financing costs		16,000		—
Total assets	$	28,580,000	$	29,239,000
LIABILITIES AND MEMBERS’ CAPITAL
Liabilities
Accounts payable, accrued liabilities and prepaid rent	$	122,000	$	161,000
Real estate taxes payable		188,000		76,000
Tenant security deposits		187,000		194,000
Intangible lease liability, net		—		5,000
Liabilities associated with property held for sale		295,000		262,000
Total liabilities		792,000		698,000
Members’ capital (100,000 units authorized and issued as of September 30, 2010 and December 31, 2009; 98,670 and 98,814 units outstanding as of September 30, 2010 and December 31, 2009, respectively)		27,788,000		28,541,000
Total liabilities and members’ capital	$	28,580,000	$	29,239,000

~~The accompanying~~CORNERSTONE ~~notes~~REALTY ~~are~~FUND, anLLC (a ~~integral~~California ~~part~~Limited ofLiability ~~these interim financial~~Company) ~~statements.~~

3CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

CORNERSTONE REALTY FUND, LLC


	Three Months Ended
	March 31,
	2011			2010
Revenues
Rental revenues	$	618,000		$	688,000
Tenant reimbursements and other income		177,000			159,000

		795,000			847,000
Expenses
Property operating and maintenance		228,000			266,000
Property taxes		152,000			150,000
General and administrative		169,000			109,000
Depreciation and amortization		275,000			214,000

		824,000			739,000

Other income		—			51,000
Interest expense		(64,000	)		—


Net (loss) income	$	(93,000	)	$	159,000


Net (loss) income allocable to managing member	$	(9,000	)	$	16,000

Net (loss) income allocation to unit holders	$	(84,000	)	$	143,000

Per unit amounts:
Basic and diluted (loss) income allocable to unit holders	$	(0.85	)	$	1.45

Basic and diluted weighted average units outstanding		98,670			98,790

~~(a California~~The ~~Limited~~accompanying ~~Liability~~notes ~~Company)~~are an integral part of these interim financial statements.

~~CONDENSED~~4 ~~STATEMENTS OF OPERATIONS~~

(Unaudited)Table of Contents

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010		2009			2010			2009
Revenues
Rental revenues	$	579,000	$	669,000		$	1,785,000		$	2,029,000
Tenant reimbursements and other income		128,000		131,000			364,000			386,000
		707,000		800,000			2,149,000			2,415,000
Expenses
Property operating and maintenance		213,000		171,000			642,000			473,000
Property taxes		112,000		115,000			334,000			329,000
General and administrative		59,000		30,000			246,000			197,000
Depreciation and amortization		202,000		209,000			589,000			620,000
Impairment of real estate		—		—			560,000			—
		586,000		525,000			2,371,000			1,619,000
Interest income		—		—			—			1,000
Net income (loss) from continuing operations		121,000		275,000			(222,000	)		797,000
Net income (loss) from discontinued operation		56,000		(1,224,000	)		141,000			(1,210,000	)
Net income (loss)	$	177,000	$	(949,000	)	$	(81,000	)	$	(413,000	)
Net income (loss) allocable to managing member:
From continuing operations	$	12,000	$	27,000		$	(22,000	)	$	80,000
From discontinued operation		6,000		(122,000	)		14,000			(121,000	)
	$	18,000	$	(95,000	)	$	(8,000	)	$	(41,000	)
Net income (loss) allocable to unit holders:
From continuing operations	$	109,000	$	247,000		$	(200,000	)	$	717,000
From discontinued operation		50,000		(1,102,000	)		127,000			(1,089,000	)
	$	159,000	$	(855,000	)	$	(73,000	)	$	(372,000	)
Per unit amounts:
Basic and diluted net income (loss) from continuing operations allocable to unit holders	$	1.10	$	2.49		$	(2.03	)	$	7.22
Basic and diluted net income (loss) from discontinued operation allocable to unit holders	$	0.51	$	(11.11	)	$	1.29		$	(10.97	)
Basic and diluted weighted average number of units outstanding		98,670		99,127			98,725			99,261

CORNERSTONE REALTY FUND, LLC
(a California Limited Liability Company)

~~The accompanying~~CONDENSED ~~notes~~STATEMENT ~~are~~OF anMEMBERS’ ~~integral part of these interim financial~~CAPITAL ~~statements.~~ (Unaudited)


Balance, December 31, 2010	$	25,034,000

Cash distributions to managing member		(56,000	)
Net loss		(93,000	)


Balance, March 31, 2011	$	24,885,000

~~CORNERSTONE REALTY~~The ~~FUND,~~accompanying ~~LLC~~notes are an integral part of these interim financial statements.

(a5 ~~California Limited Liability Company)~~

CONDENSED STATEMENTTable OFof MEMBERS’ CAPITALContents

CORNERSTONE REALTY FUND, LLC (~~Unaudited~~a California Limited Liability Company)

Balance, December 31, 2009	$	28,541,000
Cash distributions to unit holders		(623,000	)
Units repurchased and retired		(49,000	)
Net loss		(81,000	)
Balance, September 30, 2010	$	27,788,000

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

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


	Three Months Ended
	March 31,
	2011			2010
OPERATING ACTIVITIES
Net (loss) income	$	(93,000	)	$	159,000
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Amortization of deferred financing costs		7,000			—
Depreciation and amortization		275,000			214,000
Provision for bad debt		7,000			41,000
Straight-line rent and amortization of acquired above/below market leases, net		18,000			(29,000	)

Changes in operating assets and liabilities:
Tenant and other receivables, net		7,000			(30,000	)
Prepaid expenses and other assets		(60,000	)		(82,000	)
Accounts payable, accrued liabilities and prepaid rent		144,000			(14,000	)
Real estate taxes payable		(31,000	)		22,000

Net cash provided by operating activities		274,000			281,000


INVESTING ACTIVITIES
Investments in real estate		(47,000	)		(22,000	)

Net cash used in investing activities		(47,000	)		(22,000	)


FINANCING ACTIVITIES
Repayment of note payable		(13,000	)		—
Cash distributions to unit holders		(622,000	)		(622,000	)
Cash distributions to managing member		(56,000	)		—
Units repurchased and retired		—			(49,000	)


Net cash used in financing activities		(691,000	)		(671,000	)


Net decrease in cash and cash equivalents		(464,000	)		(412,000	)

Cash and cash equivalents at beginning of period		4,356,000			761,000


Cash and cash equivalents at end of period	$	3,892,000		$	349,000


Supplemental disclosure of non-cash financing and investing activities:
Cash paid for interest	$	57,000		$	—

5The accompanying notes are an integral part of these interim financial statements.

~~CORNERSTONE~~6 ~~REALTY FUND, LLC~~

(a CaliforniaTable Limitedof Liability Company)Contents

~~CONDENSED~~CORNERSTONE REALTY FUND, LLC ~~STATEMENTS~~(a OFCalifornia ~~CASH~~Limited ~~FLOWS~~Liability Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 2011 (Unaudited)

	Nine Months Ended September 30,
	2010			2009
OPERATING ACTIVITIES
Net loss	$	(81,000	)	$	(413,000	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Impairment of real estate		560,000			1,216,000
Depreciation and amortization		604,000			715,000
Provision for bad debt		148,000			41,000
Straight-line rent and amortization of acquired above/below market leases		(34,000	)		(6,000	)
Changes in operating assets and liabilities:
Tenant and other receivables		(104,000	)		(77,000	)
Prepaid expenses and other assets		(84,000	)		(93,000	)
Accounts payable, accrued liabilities and prepaid rent		(41,000	)		(13,000	)
Real estate taxes payable		146,000			168,000
Tenant security deposits		(10,000	)		(18,000	)
Net cash provided by operating activities		1,104,000			1,520,000
INVESTING ACTIVITIES
Investments in real estate		(127,000	)		(157,000	)
Net cash used in investing activities		(127,000	)		(157,000	)
FINANCING ACTIVITIES
Cash distributions to unit holders		(623,000	)		(1,856,000	)
Cash distributions to managing member		—			(192,000	)
Units repurchased and retired		(49,000	)		(136,000	)
Deferred financing costs		(16,000	)		—
Net cash used in financing activities		(688,000	)		(2,184,000	)
Net increase (decrease) in cash		289,000			(821,000	)
Cash and cash equivalents at beginning of period		761,000			2,289,000
Cash and cash equivalents at end of period	$	1,050,000		$	1,468,000
Supplemental disclosure of non-cash financing and investing activities:
Accrued additions to real estate	$	(5,000	)	$	—

1. Organization and Business

~~The accompanying~~Cornerstone ~~notes~~Realty ~~are~~Fund, anLLC, ~~integral~~a ~~part~~California limited liability company (the “Fund”), was formed in October of ~~these~~1998 ~~interim~~to ~~financial~~invest in multi-tenant business parks catering to small business tenants. As ~~statements~~used in this report, “Fund”, “we,” “us” and “our” refer to Cornerstone Realty Fund, LLC except where the context otherwise requires.

6Our managing member is Cornerstone Industrial Properties, LLC (“CIP”), a California limited liability company. Cornerstone Ventures, Inc. is the managing member of CIP. Cornerstone Ventures, Inc. is an experienced real estate operating company specializing in the acquisition, operation and repositioning of multi-tenant industrial business parks catering to small business tenants.

~~CORNERSTONE~~On August 7, 2001, we commenced a public offering of units of our membership interest pursuant to a ~~REALTY~~registration ~~FUND~~statement on Form S-11 filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933. On August 18, ~~LLC~~2005, we completed a 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 of America (a“GAAP”) for interim ~~California~~financial ~~Limited~~information ~~Liability~~and ~~Company~~in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). As permitted by the SEC filing requirements for Form 10-Q, the condensed financial statements do not include all of the information and footnotes required by GAAP 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, 2010.

~~NOTES~~In the opinion of management, all adjustments (consisting of normal recurring accruals) considered TOnecessary ~~CONDENSED~~for ~~FINANCIAL~~a ~~STATEMENTS~~presentation in accordance with GAAP have been included. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

~~SEPTEMBER 30,~~Proposed ~~2010~~Plan of liquidation

In anticipation of the Fund’s scheduled dissolution date of December 31, 2012, our managing member began the process of evaluating strategic alternatives for winding up the Fund in order to maximize overall returns for our investors. Our managing member initiated the examination at this time, rather than waiting until 2012 because of the inherent uncertainty of the future and our managing member’s view of (~~Unaudited~~i) the current market conditions, (ii) the current increasing costs of corporate compliance (including, without limitation, all federal, state and local regulatory requirements applicable to us, including the Sarbanes-Oxley Act of 2002, as amended), (iii) the possible need to reduce or suspend our distributions and (iv) the other factors discussed in more detail in the Definitive Proxy Statement as filed by the Fund with the SEC on April 1, 2011.

1.After ~~Organization~~a thorough analysis, consultation with a real estate broker specializing in multi-tenant industrial real estate in the geographical regions where our properties are located, and ~~Business~~a targeted solicitation of bids for a potential sale of our portfolio, our managing member concluded that a liquidation of the Fund at this time will more likely produce superior returns within a reasonable period of time to our investors than other potential exit strategies reasonably available to us, including waiting until 2012 to complete a liquidation.

~~Cornerstone Realty~~Liquidation ~~Fund,~~is ~~LLC,~~not considered imminent until we have received a ~~California~~majority ~~limited~~in ~~liability~~interest ~~company~~of (votes from our unit holders approving the ~~“Fund”)~~proposed plan of liquidation. If the plan of liquidation is not approved by our unit holders, ~~was~~our managing member will determine other reasonably available ~~formed~~alternatives to pursue in ~~October~~the best interest of ~~1998~~us and our unit holders, including, without limitation, continuing to ~~invest~~manage inour ~~multi-tenant~~assets ~~business~~until ~~parks~~December 31, ~~catering~~2012. Investors have the power to ~~small~~revoke ~~business~~their ~~tenants.~~consent Asat ~~used~~any intime ~~this~~before ~~report,~~the ~~“Fund”~~determination date, ~~“we~~May 29,” ~~“us”~~2011. ~~and~~Accordingly, ~~“our”~~the ~~refer~~approval of the proposed liquidation plan will not be determined prior to ~~Cornerstone~~the ~~Realty~~determination ~~Fund~~date. In addition, ~~LLC~~managing ~~except~~member ~~where~~has the ~~context~~right ~~otherwise~~to withdraw the proposed liquidation plan prior to the ~~requires.~~determination date May 29, 2011.

~~Our managing~~As ~~member is Cornerstone Industrial Properties~~such, ~~LLC~~we ~~(“CIP”),~~will acontinue ~~California limited~~to ~~liability~~use ~~company.~~the ~~Cornerstone~~going-concern ~~Ventures,~~basis ~~Inc.~~of isaccounting until the ~~managing member of~~determination ~~CIP~~date. ~~Cornerstone~~Please ~~Ventures,~~see ~~Inc.~~Note is8, anSubsequent ~~experienced real estate operating company specializing in the acquisition~~Events, ~~operation~~for ~~and~~further ~~repositioning of multi-tenant industrial business parks catering to small business tenants~~details.

~~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 (“SEC”) pursuant to the Securities Act of 1933. On August 18, 2005, we completed a 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 interimTable unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. As permitted by the SEC 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, 2009.Contents

~~Each member’s~~2. ~~liability~~Summary ~~is limited pursuant to the provisions~~ of ~~the~~Significant ~~Beverly-Killea Limited~~Accounting ~~Liability Company Act.~~ Policies

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

—The ~~CIP~~preparation ~~generally~~of ~~has~~our ~~complete~~financial ~~and~~statements ~~exclusive~~requires ~~discretion~~us into ~~the~~make ~~management~~estimates and ~~control~~judgments that affect the reported amounts of ~~our~~assets, ~~operations;~~liabilities, ~~however~~revenues and expenses. We base these estimates on various assumptions that we believe to be reasonable under the circumstances, ~~unit~~and ~~holders~~these ~~holding~~estimates form the ~~majority~~basis for our judgments concerning the carrying values of ~~all~~assets ~~outstanding~~and liabilities that are not readily apparent from other sources. We periodically evaluate these estimates and ~~issued~~judgments based ~~units~~on ~~have~~available ~~certain~~information ~~specified~~and ~~voting~~experience. ~~rights~~Actual ~~which~~results ~~include~~could ~~the~~differ ~~removal~~from our estimates under different assumptions and ~~replacement~~conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted. For more information regarding our critical accounting policies and estimates please refer to “Summary of Significant Accounting Policies” contained in our Annual Report on Form 10-K for the ~~Managing~~year ~~Member~~ended December 31, 2010. There have been no material changes to the critical accounting policies previously disclosed in that report except as discussed below.

—Interim ~~Net~~Financial 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.Information

—The ~~Net~~accompanying ~~Sales~~interim ~~Proceeds,~~condensed asfinancial ~~defined,~~statements ~~will~~have bebeen ~~distributed~~prepared ~~first,~~by ~~100%~~our tomanagement ~~the~~in accordance ~~unit~~with ~~holders~~GAAP and in anconjunction ~~amount~~with ~~equal~~the torules ~~their~~and ~~Invested~~regulations ~~Capital~~of ~~Contributions;~~the ~~then,~~SEC. ~~90%~~Certain information toand ~~the~~note ~~unit~~disclosures ~~holders~~required ~~and~~for ~~10%~~annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the ~~Managing~~interim ~~Member~~condensed ~~until~~financial statements do not include all of the ~~unit~~information ~~holders~~and ~~have~~notes ~~received~~required anby ~~amount~~GAAP ~~equal~~for tocomplete financial statements. The accompanying financial information reflects all adjustments which are, in the opinion ~~unpaid~~of ~~balance~~our management, of ~~their~~a ~~aggregate~~normal ~~cumulative,~~recurring ~~non-compounded~~nature ~~annual~~and ~~return~~necessary onfor ~~their~~a ~~Invested~~fair ~~Capital~~presentation ~~Contributions;~~of our financial position, results of operations and ~~thereafter~~cash flows for the interim periods. Operating results for the three months ended March 31, ~~50%~~2011 toare not necessarily indicative of the ~~unit~~results that ~~holders~~may ~~and~~be ~~50%~~expected tofor the ~~Managing~~year ~~Member~~ending December 31, 2010. Our accompanying interim condensed financial statements should be read in conjunction with our audited financial statements and the notes thereto included on our 2010 Annual Report on Form 10-K, as filed with the SEC.

— 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.Reclassifications

—Certain ~~Net~~amounts ~~Loss~~in isour ~~allocated~~condensed ~~first,~~financial ~~50%~~statements tofor ~~the~~prior ~~Managing~~periods ~~Member~~have ~~and~~been ~~50%~~reclassified to conform to the ~~unit~~current ~~holders,~~period ~~until~~presentation. ~~Net~~Asset ~~Loss~~held ~~allocated~~for ~~equals~~sale ~~cumulative~~and ~~Net~~associated ~~Income~~liabilities ~~previously~~at December 31, ~~allocated~~2010 inhave ~~such~~been ~~proportions;~~reclassified ~~then~~held ~~remaining~~as ~~Net~~used ~~Loss~~on isthe ~~allocated~~condensed ~~10%~~balance tosheets ~~the~~and ~~Managing~~operating results ~~Member~~have ~~and~~been ~~90%~~reclassified from discontinuing to ~~the~~continued ~~unit~~operations. ~~holders~~See Note 3 Investment in Real Estate for more details.

—3. ~~All~~Investment ~~allocations and distributions to the unit holders are to be pro rata~~ in ~~proportion~~Real ~~to their ownership shares.~~Estate

7During the first quarter of 2010, management committed to a plan to sell Zenith Drive Centre to a third party and classified the property as held for sale. Management intended to sell Zenith Drive Centre on an individual basis upon receipt of a reasonable offer. The property had not been sold as of December 31, 2010 and accordingly was classified as held for sale as of December 31, 2010. In accordance with the liquidation requirement under the operating agreement, early in 2011, management began consideration of alternatives available for liquidation by the scheduled dissolution date of December 31, 2012, and determined that a portfolio sale would be likely to result in higher liquidation proceeds than sales of the individual assets. Accordingly, the listing agreement for Zenith Drive Center was cancelled subsequent to year ended December 31, 2010, and the property was reclassified as held as used at March 31, 2011, along with other properties in the portfolio, until a plan of liquidation is voted upon by unit holders. A corresponding reclassification was made as of and for the period ended March 31, 2010.

—In ~~Effective~~accordance ~~February~~with ~~22,~~Accounting ~~2007~~Standards Codification (“ASC”) 360-35-44, ~~our~~Zenith ~~operating~~Center ~~agreement~~Drive was reclassified ~~amended~~as toheld ~~permit~~as ~~repurchase~~used for at the lower of ~~units~~(1) its oncarrying ~~such~~amount ~~terms~~before it was classified as held for sale, adjusted it for any depreciation expenses that would have been recognized had it been continuously classified as held as used and ~~conditions~~(2) its fair value. Subsequent to December 31, 2010, Zenith Drive Centre’s fair market value exceeded its adjusted carrying amount. Accordingly, Zenith Drive Centre was reclassified at its carrying value, adjusted for depreciation expense that would have been recognized had it been continuously classified as held as used. For the ~~Managing~~three months ~~Member~~ended ~~may~~March 31, ~~determine~~2011 and 2010, we recorded depreciation expense of $71,000 and $11,000, respectively, related to Zenith Drive Centre. As of March 31, 2011 and December 31, 2010, Zenith Centre Drive had an adjusted book balance of approximately $1.7 million.

~~— Effective June 2, 2009, our operating agreement was amended and the dissolution date in Section 11.1 (a) was extended from December 31, 2010 to December 31, 2012.~~8

—Table Effective April 27, 2010, our operating agreement was amended and allows the Managing Member to cause us to incur debt financing not to exceed ten percent of the capital contributions of all unit holders to meet the Fund’s operating expenses or to fund cash distributions declared and paid to members.Contents

2.As ~~Summary~~ of ~~Significant~~March 31, ~~Accounting~~2011, ~~Policies~~accumulated depreciation and amortization related to investments in real estate and related lease intangibles were as follows:

Use of Estimates


			Buildings and			Intangible
	Land		Improvements			Lease Value
Investments in real estate	$	9,593,000	$	18,255,000		$	108,000
Less: accumulated depreciation and amortization		—		(2,781,000	)		(16,000	)

	$	9,593,000	$	15,474,000		$	92,000

~~The preparation~~As of ~~our financial statements requires us to make estimates and judgments that affect the reported amounts of assets~~December 31, ~~liabilities~~2010, ~~revenues~~accumulated ~~and expenses.~~depreciation ~~We base these estimates on various assumptions that we believe to be reasonable under the circumstances,~~ and ~~these~~amortization ~~estimates~~related form the basis for our judgments concerning the carrying values of assets and liabilities that are not readily apparent from other sources. We periodically evaluate these estimates and judgments based on available information and experience. Actual results could differ from our estimates under different assumptions and conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted. For more information regarding our critical accounting policies and estimates please refer to ~~"Summary~~ ofinvestments ~~Significant Accounting Policies" contained~~ in ~~our Annual Report on~~real ~~Form~~estate ~~10-K~~and ~~for~~related ~~the~~lease ~~year~~intangibles ~~ended~~were ~~December 31, 2009. There have been no material changes to the critical accounting policies previously disclosed in that report except~~ as ~~discussed below.~~follows:

Interim Financial Information


			Buildings and			Intangible
	Land		Improvements			Lease Value
Investments in real estate	$	9,593,000	$	18,208,000		$	108,000
Less: accumulated depreciation and amortization		—		(2,559,000	)		(4,000	)

	$	9,593,000	$	15,649,000		$	104,000

~~The accompanying~~Depreciation ~~interim condensed financial statements have been prepared by our management in accordance with GAAP~~ and inamortization ~~conjunction~~related ~~with the rules and regulations of the SEC. Certain information and note disclosures required for annual financial statements have been condensed or excluded pursuant~~ to ~~SEC rules~~investments and regulations. Accordingly, the interim condensed financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying financial information reflects all adjustments which are, in ~~the~~real ~~opinion~~estate ~~of our management, of a normal recurring nature~~ and ~~necessary~~related ~~for~~lease ~~a fair presentation of our financial position, results~~intangibles ~~of operations and cash flows~~ for the ~~interim periods. Operating results for the~~ three ~~and nine~~ months ended ~~September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December~~ March 31, ~~2010.~~2011 ~~Our accompanying interim condensed financial statements should be read in conjunction with our audited financial statements~~ and ~~the notes thereto included on our Annual Report on Form 10-K for the year ended December 31,~~ 2010, aswas ~~filed with the SEC~~$0.2 million.

~~Fair~~Estimated amortization associated with the intangible lease assets, in-place lease assets and ~~Value~~intangible lease liability for April 1, 2011 through December 31, 2011 and each of ~~Financial~~the ~~Instruments~~four subsequent years is as follows:

Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 825-10, Financial Instruments, requires the disclosure of fair value information about financial instruments whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value.


	Lease Intangibles
April 1, 2011 to December 31, 2011	$	8,000
2012		11,000
2013		7,000
2014		4,000
2015 and thereafter		62,000

Total	$	92,000

~~We generally~~4. ~~determine~~Allowance or calculate the fair value of financial instruments using quoted market prices in active markets when such information is available or using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for ~~similar~~Doubtful ~~types of instruments and our estimates for~~Accounts ~~non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads, and estimates of future cash flow.~~

Our ~~condensed~~ ~~balance~~allowance ~~sheets~~for ~~include~~doubtful ~~the following financial instruments: cash and cash equivalents and~~ accounts ~~payable,~~was ~~which~~approximately we$0.3 million ~~consider~~as ~~the carrying values approximate fair value for these financial instruments because~~ of ~~the~~March 31, ~~short period~~2011 ~~of time between origination of the instruments~~ and ~~their expected~~ ~~payment~~December 31, 2010.

~~Recently Issued~~5. ~~Accounting~~Concentration ~~Pronouncements~~of Credit Risks

~~In February~~Financial ~~2010,~~instruments ~~FASB~~that ~~issued~~potentially ~~Accounting~~subject ~~Standard~~the ~~Update~~Fund ~~(“ASU”)~~to ~~2010-09,~~a ~~Subsequent~~concentration ~~Events:~~of ~~Amendments~~credit torisk ~~Certain~~are ~~recognition~~primarily ~~and~~cash ~~Disclosure~~investments; ~~Requirements~~cash ~~(amendments~~is togenerally ~~ASC~~invested ~~Topic~~in ~~855, Subsequent~~investment-grade ~~Events)~~short-term instruments. On ~~ASU~~July 21, 2010, President Obama signed into law the sweeping financial regulatory reform act entitled the “Dodd-09Frank ~~clarifies~~Wall ~~that~~Street ~~subsequent~~Reform ~~events~~and ~~should~~Consumer beProtection Act” that implements ~~evaluated~~far-reaching ~~through~~changes to the ~~date~~regulation of the financial ~~statements~~services ~~are~~industry, ~~issued.~~including Inprovisions that ~~addition~~made permanent the $250,000 limit for federal deposit insurance and increased the cash limit ~~this~~of ~~update~~Securities noInvestor ~~longer~~Protection ~~requires~~Corporation a(“SIPC”) ~~filer~~protection from $100,000 to ~~disclose~~$250,000, ~~the~~and provided ~~date~~unlimited ~~through~~federal ~~which~~deposit insurance until January 1, 2013, for non-interest bearing demand ~~subsequent~~transaction ~~events~~accounts ~~have~~at ~~been~~all ~~evaluated~~insured depository institutions. ~~This~~As ~~guidance~~of isMarch 31, ~~effective~~2011, ~~for~~none ~~financial~~of our ~~statements~~depository ~~issued~~accounts ~~subsequent~~are toin ~~February~~excess ~~24,~~of ~~2010.~~the Wefederal ~~adopted~~deposit ~~this~~insurance ~~guidance~~nor ~~on February~~SIPC 24insured limits, ~~2010~~as such, we do not have credit risks related to these depository accounts.

8As of March 31, 2011, we owned four properties in the state of California, one property in the state of Arizona and one property in the state of Illinois. Accordingly, there is a geographic concentration of risk subject to fluctuations in the California economy.

In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures - Improving Disclosures about Fair Value Measurements (amendments to ASC Topic 820, Fair Value Measurements and Disclosures)6. ~~ASU~~Note ~~2010-06 amends the~~Payable disclosure requirements related to recurring and nonrecurring measurements. The guidance requires new disclosures on the transfer of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance is effective for interim and annual periods beginning after December 15, 2009. We adopted this guidance on January 1, 2010.

InOn ~~June 2009~~December 2, ~~the~~2010, ~~FASB~~we ~~issued~~entered ~~Statement~~into ofa ~~Financial Accounting Standard (“SFAS”) No~~$4. ~~167,~~0 million ~~Amendments~~loan toagreement ~~FASB Interpretation~~with ~~No.~~Farmers ~~46(R),~~& ~~which~~Merchants ~~was~~Bank ~~primarily codified into ASC Topic 810~~of ~~Consolidation~~Long Beach. The ~~new guidance~~loan ~~impacts~~matures ~~the~~on ~~consolidation~~November 19, ~~guidance~~2013 ~~applicable~~with tono aoption ~~variable~~to ~~interest entity~~extend ~~(“VIE”)~~ and ~~among~~bears ~~other~~interest ~~things~~at ~~require~~ a fixed ~~qualitative~~rate ~~rather~~of ~~than~~5.75% ~~a quantitative~~per ~~analysis~~annum. toThe ~~determine~~terms of the ~~primary~~loan ~~beneficiary~~require ofmonthly apayments ~~VIE, continuous assessments~~ of ~~whether~~principal aand interest. ~~company~~We ismay repay the ~~primary~~loan, ~~beneficiary~~in ofwhole aor ~~VIE~~in ~~and enhanced~~part, ~~disclosures~~on ~~about~~or abefore ~~company’s~~November 19, ~~involvement~~2013 ~~with~~without ~~a VIE~~any penalty. WeAs ~~adopted~~of ~~this guidance~~March 31, on2011 ~~January~~and 1December 31, 2010, ~~and~~we ithad ~~did~~an ~~not~~outstanding ~~have~~balance ~~a material impact on our~~of ~~condensed~~approximately ~~financial statements~~$4.0 million,

~~We have~~9 considered all other pronouncements that have been issued but are not yet effective which were not listed above. The Fund believes that these other pronouncements will not have any future impact on the Fund’s financial statements.

Investments inTable Realof Estate Assets Held for SaleContents

~~The~~under ~~Fund evaluates~~this ~~the~~loan ~~held for sale classification of its owned real estate each quarter~~agreement. ~~Assets~~The ~~that~~loan ~~are~~agreement ~~classified~~contains asvarious ~~held~~covenants ~~for~~including ~~sale are recorded at the lower~~financial ofcovenants ~~their~~with ~~carrying~~respect ~~amount or fair value less cost~~ to ~~sell.~~debt ~~Assets~~service ~~are~~coverage ~~classified as~~ratios ~~held for sale once management commits to a plan to sell the properties~~ and ~~has~~ ~~initiated~~loan ~~an active program~~ to ~~market~~value ~~them for sale~~ratio. ~~The~~As ~~results~~ of ~~operations~~ ~~of these real estate properties are reflected as discontinued~~March 31, ~~operations in all periods reported. During the first quarter of 2010~~2011, ~~management committed~~we awere ~~plan~~in tocompliance ~~sell~~with ~~Zenith~~all ~~Drive Centre to a third party and classified the property as held for sale. This property has not been sold as~~ of ~~September~~these ~~30, 2010 and accordingly, is classified as held for sale~~covenants. ~~See Note 7 for additional~~ ~~information.~~

3We anticipate repaying our existing debt obligation with cash on hand and the proceeds from the sale of real estate assets. ~~Investment~~As of March 31, 2011 and December 31 2010, we had incurred net financing costs of $81,000. The financing costs have been capitalized and are being amortized over the life of the loan. For the three months ended March 31, 2011 and 2010, $7,000 and, $0, respectively of deferred financing costs were amortized and included in ~~Real~~interest ~~Estate~~expense in the condensed statement of operations.

~~In accordance~~The ~~with~~principal ~~ASC~~payments ~~Topic~~due ~~360,~~on ~~Accounting for~~ the ~~Impairment~~note ~~or Disposal~~payable offor ~~Long-lived Assets~~April 1, ~~the~~2011 ~~Fund~~to ~~assesses~~December 31, ~~whether~~2011 ~~there~~and ~~has~~each ~~been impairment in the value~~ of ~~its investments in real estate whenever events or~~ ~~changes in circumstances indicate~~ the ~~carrying~~subsequent ~~amount~~years ofare anas ~~asset may not be recoverable. Its portfolio is evaluated for impairment on a property-by-property basis. Indicators of potential impairment include the following~~follows:

• Change in strategy resulting in a decreased holding period;


	Principal
Year	Amount
April 1, 2011 to December 31, 2011	$	38,000
2012	$	54,000
2013	$	3,882,000
2014	$	—
2015	$	—

~~• Decreased~~7. ~~occupancy~~Commitments ~~levels;~~and Contingencies

•The Fund monitors its properties for the presence of hazardous or toxic substances. While there can ~~Deterioration~~be no assurance that a material environmental liability does not exist, the Fund is not currently aware of any environmental liability with respect to the ~~rental~~properties ~~market~~that aswould ~~evidenced~~have bya ~~rent~~material effect ~~decreases~~on ~~over~~its ~~numerous~~financial condition, results of operations and cash flows. Further, the Fund is not ~~quarters;~~aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that the Fund believes would require additional disclosure or the recording of a loss contingency.

•The Fund’s commitments and contingencies include the usual obligations of real estate owners and ~~Properties~~operators ~~adjacent~~in the normal course of business. In the opinion of management, these matters are not expected to orhave ~~located~~a inmaterial impact on its financial position, cash flows and results of operations. The Fund is not presently subject to any material litigation nor, to its knowledge, any material litigation threatened against the ~~same~~Fund ~~submarket~~which asif ~~those~~determined ~~with~~unfavorably ~~recent~~to the Fund would have a ~~impairment~~material ~~issues;~~adverse effect on its cash flows, financial condition or results of operations.

~~• Significant~~8. ~~decrease~~Subsequent ~~in market price; and/or~~Event

•Proposed ~~Tenant~~Liquidation ~~financial problems.~~

InOn ~~the second~~April 1, ~~quarter of 2010~~2011, we ~~reviewed~~filed ~~the~~a ~~impairment~~definitive ~~indicators~~proxy asstatement ~~described~~with ~~in FASB~~the ~~ASC~~SEC ~~360-10-35-21.~~to Wesolicit ~~noted~~unit aholder approval ~~longer~~of ~~lease~~a upplan ~~period~~of ~~than~~liquidation. ~~anticipated~~If ~~for one~~we ofreceive ~~our~~votes ~~properties,~~from ~~which~~a ~~resulted~~majority in ~~comparing~~interest ~~the~~of ~~expected~~our ~~future~~unit ~~undiscounted~~holders ~~cash~~approving ~~flows for~~ the ~~property~~plan ~~against~~of ~~its~~liquidation ~~carrying~~by ~~amount. As~~ the ~~estimated~~ ~~undiscounted~~determination ~~cash~~date ~~flows were less than its carrying amount we recorded an impairment loss~~ of ~~$560~~May 29,~~000~~ ~~based~~2011, on the ~~property’s~~plan ~~estimated~~will be ~~fair~~approved ~~value. During~~and the ~~evaluation~~managing ~~process,~~member wewill ~~used~~be ~~Level~~authorized ~~3 fair value estimates. The assessment as~~ to ~~whether~~liquidate our ~~investments~~portfolio in ~~real~~accordance with ~~estate~~the ~~are~~plan’s ~~impaired is highly subjective~~terms. ~~The~~If ~~calculations,~~the ~~which~~plan ~~are primarily based on discounted cash flow analysis, involve projections~~ of ~~expected~~liquidation ~~future~~is ~~cash~~not ~~flows~~approved ~~and~~by ~~require~~our usunit ~~to estimate (1) future market rental income amounts subsequent to the expiration of current lease agreements~~holders, ~~(2)~~our ~~property operating expenses, (3) risk-adjusted~~managing ~~rate~~member ofwill ~~return~~determine ~~and~~other ~~capitalization~~reasonably ~~rates,~~available ~~(4)~~alternatives ~~the number of months it takes~~ to ~~re-lease~~ ~~the~~pursue ~~property~~in ~~and (5)~~ the ~~number~~best interest of ~~years the property is held for~~us ~~investment.~~and Aour ~~change~~unit inholders, ~~any~~including, ~~one~~without orlimitation, ~~more~~continuing ofto ~~these~~manage ~~factors~~our ~~could~~assets ~~materially~~until ~~impact~~December ~~whether~~31, ~~a property is impaired as of any given valuation date~~2012.

~~FASB~~Investors ~~ASC 820-10,~~have ~~Fair~~the ~~Value Measurements~~power ~~and~~to ~~Disclosures,~~revoke ~~defines~~their ~~fair~~consent ~~value,~~at ~~establishes~~any atime ~~framework for~~before ~~measuring~~the ~~fair~~determination ~~value in GAAP and provides for expanded disclosure about fair~~date. ~~value~~Accordingly, ~~measurements.~~even ~~ASC~~if ~~820-10~~we ~~applies~~were ~~prospectively~~ to ~~all~~receive ~~other~~a ~~accounting pronouncements~~majority ~~that~~in ~~require~~interest orof ~~permit~~votes ~~fair~~approving ~~value~~the ~~measurements.~~plan ~~The adoption of~~before ~~ASC~~the ~~820-10~~determination ~~did~~date, ~~not have a material impact on~~ the ~~Fund’s~~plan ~~financial~~will ~~statements since it does~~ not ~~record~~be ~~its~~approved ~~financial~~until ~~assets~~the ~~and~~determination ~~liabilities in its financial statements at fair value~~date. ~~The~~In ~~Fund adopted ASC 820-10 with respect to its non-financial assets and non-financial liabilities on January 1~~addition, ~~2009. The~~ ~~adoption~~the ofmanaging ~~ASC~~member ~~820-10~~has ~~with~~the ~~respect~~right to ~~its~~withdraw ~~non-financial~~the ~~assets~~proposed ~~and~~plan ~~liabilities did~~prior ~~not~~to ~~have~~the adetermination ~~material impact on its financial statements~~date.

910

Fair valueTable represents the estimate of the proceeds to be received, or paid in the case of a liability, in a current transaction between willing parties. ASC 820 establishes a fair value hierarchy to categorize the inputs used in valuation techniques to measure fair value. Inputs are either observable or unobservable in the marketplace. Observable inputs are based on market data from independent sources and unobservable inputs reflect the reporting entity’s assumptions about market participant assumptions used to value an asset or liability. Level 1 includes quoted prices in active markets for identical instruments. Level 2 includes quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in inactive markets; and model-derived valuations using observable market information for significant inputs. Level 3 includes valuation techniques where one or more significant inputs are unobservable. Financial instruments are classified according to the lowest level input that is significant to their valuation. A financial instrument that has a significant unobservable input along with significant observable inputs may still be classified Level 3.Contents

~~Certain assets and liabilities were measured at fair value on a nonrecurring basis~~Item 2. This category included the impairment of real estate. For the nine months ended September 30, 2010, we recorded an impairment charge of $560,000 to reduce certain investments in real estate assets to estimated fair value. The fair values of investments in real estate included inputs based on managementManagement’s ~~estimate~~ ofDiscussion ~~net operating income, expected occupancy changes, expected rental rates, capitalization rates~~ and ~~discount~~Analysis ~~rates based on available market information using a discounted cash flow analysis. Because one or more~~ of ~~significant~~ ~~inputs~~Financial ~~are~~Condition ~~unobservable,~~and ~~the~~Results ~~fair values~~ of ~~investments in real~~Operations ~~estate are classified as Level 3.~~

The following ~~table~~“Management’s ~~summarizes~~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. This section contains forward-looking statements, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the ~~property~~assumptions upon which those statements are based. 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 ~~was~~are ~~measured~~subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements were true at the ~~fair~~time ~~value~~made onmay ultimately prove to be incorrect or false. We undertake no obligation to update or revise publicly any forward—looking statements, whether as a result of new information, future ~~nonrecurring~~events ~~basis:~~or otherwise.

		Total Fair Value Measurement				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total Losses Three Months Ended September 30, 2010				Total Losses Nine Months Ended September 30, 2010
Investments in real estate		$	2,268,000			$	—			$	—			$	2,268,000			$	—			$	(560,000	)

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions generally and the real estate market specifically; legislative/regulatory changes; availability of capital, interest rates; competition; supply and demand for operating properties in our current market areas; generally accepted accounting principles;; the availability of buyers to acquire properties we make available for sale; the availability of financing; the absence of material litigation; and the prospect that our unit holders may approve a plan of liquidation. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. 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, 2010 and in light of the risks identified in the definitive proxy statement related to our proposed plan of liquidation dated April 1, 2011, as filed with the SEC.

~~As of~~Overview ~~September 30, 2010, accumulated depreciation and amortization related to investments in real estate 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	$	9,870,000	$	17,915,000		$	—	$	770,000		$	(154,000	)
Less: accumulated depreciation and amortization from continuing operations		—		(2,518,000	)		—		(770,000	)		154,000
Net investments in real estate and related lease intangibles from continuing operations		9,870,000		15,397,000			—		—			—
Net investments in real estate and related lease intangibles held for sale		355,000		1,262,000			104,000		—			—
	$	10,225,000	$	16,659,000		$	104,000	$	—		$	—

Our revenues, which are comprised largely of rental income, include rents reported on a straight-line basis over the initial term of the lease. Our financial performance depends, in part, on our ability to (i) increase rental income and other earned income from leases by increasing rental rates and occupancy levels; (ii) maximize tenant recoveries given the underlying lease structures; and (iii) control operating and other expenses. Our operations are impacted by property specific, market specific, general economic and other conditions.

10Proposed Plan of liquidation

AsIn anticipation of ~~December~~ the Fund’s scheduled dissolution date of December 31, ~~2009~~2012, ~~accumulated~~our ~~depreciation~~managing member began the process of evaluating strategic alternatives for winding up the Fund in order to maximize overall returns for our investors. Our managing member initiated the examination at this time, rather than waiting until 2012 because of the inherent uncertainty of the future and ~~amortization~~our ~~related~~managing member’s view of (i) the current market conditions, (ii) the current increasing costs of corporate compliance (including, without limitation, all federal, state and local regulatory requirements applicable to us, including the Sarbanes-Oxley Act of 2002, as amended), (iii) the possible need to ~~investments~~reduce inor ~~real~~suspend ~~estate~~our distributions and ~~related~~(iv) the ~~lease~~other ~~intangibles~~factors ~~were~~discussed in more detail in the Definitive Proxy Statement as filed with the SEC on April 1, 2011. ~~follows:~~

	Land		Buildings and Improvements			Intangible Lease Value		In-Place Lease Value			Acquired Below- Market Leases
Investments in real estate	$	10,088,000	$	18,411,000		$	—	$	770,000		$	(154,000	)
Less: accumulated depreciation and amortization from continuing operations		—		(2,301,000	)		—		(761,000	)		149,000
Net investments in real estate and related lease intangibles from continuing operations		10,088,000		16,110,000			—		9,000			(5,000	)
Net investments in real estate and related lease intangibles held for sale		355,000		1,265,000			106,000		—			—
	$	10,443,000	$	17,375,000		$	106,000	$	9,000		$	(5,000	)

After a thorough analysis, consultation with a real estate broker specializing in multi-tenant industrial real estate in the geographical regions where our properties are located, and a targeted solicitation of bids for a potential sale of our portfolio, our managing member has concluded that a liquidation of the Fund at this time will more likely produce superior returns within a reasonable period of time to our investors than other potential exit strategies reasonably available to us, including waiting until 2012 to complete a liquidation. On April 1, 2011, we filed a definitive proxy statement with the SEC to solicit unit holders’ approvals on our liquidation plan.

~~Depreciation and~~If ~~amortization~~the ~~related~~plan toof ~~investments~~liquidation inis ~~real~~not ~~estate~~approved ~~and~~by ~~related~~our ~~lease intangibles~~unit ~~for the three months ended September 30~~holders, ~~2010~~our ~~and~~managing ~~2009~~member ~~were~~will ~~$167,000~~determine ~~and~~other ~~$206,000,~~reasonably ~~respectively.~~available ~~Depreciation~~alternatives ~~and amortization related~~ to ~~investments~~ pursue in ~~real~~the ~~estate,~~best ~~real~~interest ~~estate~~of ~~investment~~our ~~held~~Fund ~~for sale~~ and ~~related~~our ~~lease~~unit ~~intangibles~~holders, ~~for~~including, ~~the~~without ~~nine~~limitation, ~~months~~continuing ~~ended~~to ~~September~~manage ~~30,~~our ~~2010~~assets ~~and~~until ~~2009 were $511~~December 31,~~000 and~~ ~~$614,000, respectively~~2012.

We currently estimate that our net proceeds from liquidation will range between approximately $22.0 million and $24.4 million, and unit holders would receive between approximately $224 and $248 per unit in liquidating distributions, which we anticipate paying within six months after unit holders’ approval of the plan of liquidation. ~~Allowance~~However, ~~for~~our ~~Doubtful~~expectations ~~Accounts~~about the amount of liquidating distributions that we will make and when we will make them are based on many estimates and assumptions, one or more of which may prove to be incorrect. As a result, the actual amount of liquidating distributions we pay may be more or less than we estimate.

~~Our~~11 ~~allowance for doubtful accounts was $319,000 and $190,000 as of September 30, 2010 and December 31, 2009, respectively.~~

5.Table Concentration of Credit RisksContents

~~Financial instruments~~Market ~~that~~Outlook ~~potentially~~— ~~subject~~Real ~~the~~Estate Company to a concentration of credit risk are primarily cash investments; cash is generally invested in investment-grade short-term instruments. On July 21, 2010, President Obama signed into law the sweeping financial regulatory reform act entitled the “Dodd-Frank Wall Street Reform and ~~Consumer~~Real ~~Protection~~Estate ~~Act”~~Finance ~~that implements~~Markets far-reaching changes to the regulation of the financial services industry, including provisions that made permanent the $250,000 limit for federal deposit insurance and increase the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000, and provide unlimited federal deposit insurance until January 1, 2013, for non-interest bearing demand transaction accounts at all insured depository institutions. As of September 30, 2010 we had cash accounts in excess of FDIC insured limits. We believe this risk is not significant.

As a result of ~~September~~ ~~30,~~the ~~2010,~~slow werecovery ~~owned~~from ~~four~~declining ~~properties~~economic inconditions ~~the~~experienced ~~state~~over ofthe ~~California~~last three years, ~~one~~the U.S. commercial real estate industry has been experiencing deteriorating fundamentals across all major property intypes ~~the~~and ~~state~~most ofgeographic ~~Arizona~~markets. These market conditions have and ~~one~~will likely ~~property~~continue into ~~the~~have ~~state~~a ofsignificant ~~Illinois~~impact on our real estate investments. In addition, these ~~Accordingly~~market conditions have impacted our tenants’ businesses, ~~there~~which ismakes ait ~~geographic~~more ~~concentration~~difficult offor ~~risk~~them ~~subject~~to meet current lease obligations and places pressure on them to ~~fluctuations~~negotiate favorable lease terms upon renewal in order for their businesses to remain viable. Increases in rental concessions given to retain tenants and maintain our occupancy level, which is vital to the ~~states’~~continued ~~economy~~success of our portfolio, has resulted in lower current cash flow.

6During 2010, significant and widespread concerns about credit risk and access to capital began to subside, and concerns about a double-dip recession diminished as a number of economic indicators improved. ~~Commitments~~However, despite some positive economic indicators, both the national and ~~Contingencies~~most global economies continued to experience volatility throughout 2010.

~~We monitor~~The ~~our~~aforementioned ~~properties~~conditions, ~~for~~combined ~~the~~with ~~presence~~stagnant ofbusiness ~~hazardous~~activity orand ~~toxic~~low ~~substances. While~~consumer ~~there~~confidence, ~~can~~have beresulted noin ~~assurance~~a ~~that~~challenging aoperating ~~material~~environment. ~~environmental~~Projected ~~liability~~future ~~does~~declines ~~not~~in ~~exist~~rental rates, weslower ~~are~~or ~~not~~potentially ~~currently~~negative ~~aware~~net absorption of ~~any~~leased ~~environmental~~space ~~liability~~and ~~with~~expectations ~~respect to~~of ~~the~~future ~~properties~~rental ~~that would have a material effect on our financial condition~~concessions, ~~results~~ ofincluding ~~operations~~free ~~and~~rent ~~cash~~to ~~flows.~~retain ~~Further,~~tenants wewho are ~~not~~up ~~aware~~for ofrenewal ~~any environmental liability~~ or ~~any unasserted claim or assessment with respect~~ to ansign ~~environmental~~new ~~liability~~tenants, ~~that~~are weexpected ~~believe~~to ~~would~~result ~~require~~in additional ~~disclosure~~decreases ~~or the~~in ~~recording~~cash ~~of a loss contingency~~flows.

~~Our commitments~~Until ~~and~~economic ~~contingencies~~trends ~~include~~have ~~the~~strengthened ~~usual~~sufficiently ~~obligations~~to ofresolved ~~real~~uncertainty ~~estate owners~~ and ~~operators~~spur ~~in the normal course of business. In the opinion of management~~growth, ~~these matters are not expected to have a material impact on our~~we ~~condensed~~may ~~financial~~experience ~~position,~~increased ~~cash~~vacancies ~~flows~~ and ~~results~~may ofbe ~~operations.~~required ~~We are not presently subject~~ to ~~any~~reduce ~~material~~rental ~~litigation~~rates ~~nor, to our knowledge, any material litigation threatened against us which if determined unfavorably to us would have a material adverse effect~~ on ~~our~~occupied ~~cash flows, financial condition or results of operations~~space.

11Critical Accounting Policies

7Our condensed financial statements have been prepared in accordance with generally accepted in the United States of America (“GAAP”). ~~Discontinued~~The ~~Operations~~preparation of these condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed financial statements and the reported amount of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

~~In accordance~~There ~~with FASB ASC 360-10, Property, Plant & Equipment, we report results of operations from real estate assets that meet the definition of a component of an entity that~~ have been ~~sold,~~no ormaterial ~~meet~~changes ~~the criteria~~ to beour ~~classified~~critical asaccounting ~~held~~policies ~~for sale,~~ as ~~discontinued~~previously ~~operations.~~disclosed ~~As of~~in ~~March~~our 1,Annual ~~2010,~~Report weon ~~determined~~Form ~~that~~10-K ~~the potential sale of Zenith Drive Centre to a third party was probable, and accordingly, classified the property as held~~ for ~~sale.~~ ~~Depreciation and amortization of Zenith Drive was not recorded for~~ the ~~period~~ ofyear ~~March~~ended 1December 31, 2010 ~~to September 30~~, ~~2010~~as infiled ~~accordance~~ with ~~ASC 360-10. No properties were sold during~~ the ~~three~~SEC ~~and nine months ended September 30, 2010~~other ~~and~~than ~~2009.~~as Wedescribed ~~included~~under ~~all~~Note ~~results~~2 ofto the ~~discontinued~~accompanying ~~operations~~condensed ~~in a separate component of income on the Statements of Operations under the heading Net income (loss) from discontinued operations. This treatment resulted in certain reclassifications of 2009~~ financial ~~statement amounts~~statements.

~~The following~~Results ~~is a summary~~ of ~~the components of income from discontinued operations~~Operations ~~for the three and nine months ended September 30, 2010 and 2009:~~

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010		2009			2010		2009
Rental revenues, tenant reimbursements and other income	$	131,000	$	118,000		$	429,000	$	355,000
Operating expenses and real estate taxes		75,000		94,000			273,000		254,000
Depreciation and amortization		—		32,000			15,000		95,000
Impairment of real estate		—		1,216,000			—		1,216,000
Net income (loss) from discontinued operation	$	56,000	$	(1,224,000	)	$	141,000	$	(1,210,000	)
Net income (loss) from discontinued operation allocable to managing member	$	6,000	$	(122,000	)	$	14,000	$	(121,000	)
Net income (loss) from discontinued operation allocable to unit holders	$	50,000	$	(1,102,000	)	$	127,000	$	(1,089,0000	)

Results of operations for the three months ended March 31, 2011 and 2010 comprise six multi-tenant industrial business park properties in three major metropolitan areas. In the quarter ended March 31, 2011, we evaluated Zenith Drive Centre’s classification and concluded that it could no longer be classified as held-for-sale. Accordingly, we have reclassified Zenith Drive Centre as held as used in the three months ended March 31, 2011 and 2010 and recorded depreciation expense as though it been continuously classified as held as used.

AThe ~~summary~~ results of operations for the ~~property~~three ~~held~~months ~~for~~ended ~~sale~~March 31, ~~balance~~2011 ~~sheet~~and ~~information~~2010 isare asdiscussed ~~follows:~~below.

	September 30, 2010		December 31, 2009
Investments in real estate
Land	$	355,000	$	355,000
Buildings and improvements, net		1,262,000		1,265,000
Intangible lease assets, net		104,000		106,000
Property held for sale, net		1,721,000		1,726,000
Other assets
Tenant and other receivables, net		47,000		50,000
Prepaid expenses and other assets		5,000		2,000
Leasing commissions, net		28,000		22,000
Non-real estate assets associated with property held for sale		80,000		74,000
Total assets	$	1,801,000	$	1,800,000
Liabilities
Accounts payable, accrued liabilities and prepaid rent	$	45,000	$	42,000
Real estate taxes payable		190,000		157,000
Tenant security deposits		60,000		63,000
Liabilities associated with property held for sale	$	295,000	$	262,000

Three months ended March 31, 2011 and 2010

12Rental revenues decreased to $0.6 million for the three months ended March 31, 2011 from $0.7 million for the comparable period of 2010, due to lower occupancy resulting from longer lease up periods of vacant units and higher concessions to attract and retain tenants as a result of the competitive market conditions, partially offset by existing tenant leases with rent escalations. Tenant reimbursements and other income were comparable for the three months ended March 31, 2011 and 2010.

~~Item 2~~Property operating and maintenance expenses decreased to $0.2 million ~~Management’s~~for the three month period ~~Discussion~~ended ~~and~~March 31, ~~Analysis~~2011 from $0.3 million for the comparable period of ~~Financial~~2010. ~~Condition~~The decrease is primarily due to a lower allowance for bad debt charge, lower repairs and ~~Results~~maintenance ofand lower ~~Operations~~refurbishment charges.

~~The following~~Property ~~“Management’s~~taxes ~~Discussion~~for 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. This section contains forward-looking statements, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the ~~assumptions~~three ~~upon~~months ~~which~~ended ~~those statements are based. These forward-looking statements generally are identified by the words “believes~~March 31,~~” “project,”~~ ~~“expects,”~~2011 ~~“anticipates,”~~were ~~“estimates,”~~comparable “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~~corresponding ~~statements.~~period Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to update or revise publicly any forward–looking statements, whether as a result of ~~new information, future events or otherwise~~2010. ~~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, 2009 as filed with the Securities and Exchange Commission (“SEC”).~~

~~Overview~~General and administrative expenses increased to approximately $0.2 million for the three months ended March 31, 2011 from approximately $0.1 million for the comparable period of 2010. The increase is primarily due to higher insurance costs and legal and other professional expenses and costs related to the proposed liquidation.

~~Our~~12 revenues, which are comprised largely of rental income, include rents reported on a straight-line basis over the initial term of the lease. Our growth depends, in part, on our ability to (i) increase rental income and other earned income from leases by increasing rental rates and occupancy levels; (ii) maximize tenant recoveries given the underlying lease structures; and (iii) control operating and other expenses. Our operations are impacted by property specific, market specific, general economic and other conditions.

Market OutlookTable –of Real Estate and Real Estate Finance MarketsContents

InDepreciation ~~recent years,~~and ~~both~~amortization ~~the~~expenses ~~national~~increased ~~and~~to ~~most~~approximately ~~global~~$0.3 million ~~economies~~for ~~have~~the ~~experienced~~three months ~~substantially~~ended ~~increased~~March 31, ~~unemployment~~2011 ~~and~~from aapproximately ~~downturn~~$0.2 million infor ~~economic~~the ~~activity~~comparable period of 2010. The ~~Despite~~increase ~~certain~~is ~~recent~~due ~~positive~~to ~~economic~~an ~~indicators~~adjustment ~~and~~related ~~improved~~to ~~stock~~the ~~market performance,~~reclassification of the ~~aforementioned~~Zenith ~~conditions,~~property ~~combined~~as ~~with~~held ~~low~~as ~~consumer confidence~~used, ~~have~~partially ~~resulted~~offset inby anlower ~~unprecedented~~expense ~~global~~resulting ~~recession~~from ~~and~~2010 ~~continue~~real toestate impairments reducing ~~contribute~~depreciable tobasis aand ~~challenging~~full ~~economic~~amortization ~~environment~~of ~~that~~intangible ~~may~~assets ~~delay~~at ~~the implementation~~two of our ~~business strategy or force us to modify it~~properties.

AsOther ~~a result~~income offor the ~~decline~~three inmonths ~~general~~ended ~~economic conditions~~March 31, ~~the~~2011 ~~U.S.~~decreased ~~commercial~~to ~~real estate~~$0 ~~industry~~compared ~~has also experienced deteriorating fundamentals across all major~~to ~~property~~approximately ~~types and most geographic markets. Tenant defaults have risen~~$51,000 ~~while demand~~ for ~~commercial~~the ~~real~~comparable ~~estate~~period ~~space is contracting, resulting~~ in a2010. ~~highly competitive~~The ~~leasing~~2010 ~~environment,~~amount ~~downward~~included ~~pressure~~a onrefund ~~both~~of ~~occupancy and rental~~prior ~~rates,~~year ~~and~~property antaxes ~~increase~~while inthere ~~leasing~~was ~~incentives.~~no ~~Mortgage~~such ~~delinquencies~~income ~~and defaults~~in ~~have~~the ~~trended~~2011 ~~upward, with many industry analysts predicting significant credit defaults, foreclosures and principal losses~~period.

~~From~~Liquidity ~~a financing perspective, the severe dislocations~~ and ~~liquidity~~Capital ~~disruptions in the~~Resources credit markets have impacted both the cost and availability of commercial real estate debt. The commercial mortgage-backed securities market, formerly a significant source of liquidity and debt capital, was inactive during 2009 and early 2010 that had left a void in the market for long-term, affordable, fixed-rate debt. Though, recently there has been a gradual improvement in capital market conditions, including new issuance of commercial mortgage-backed securities debt. During that time the void in the commercial mortgage-backed securities debt market was partially filled by portfolio lenders such as insurance companies, but at very different terms than were available in the past five years. These remaining lenders have generally increased credit spreads, lowered the amount of available proceeds, required recourse security and credit enhancements, and otherwise tightened underwriting standards considerably, while simultaneously generally limiting lending to existing relationships with borrowers that invest in high quality assets in top tier markets. In addition, lenders have limited the amount of financing available to existing relationships in an effort to manage and mitigate the risk of overconcentration in certain borrowers.

~~The factors~~As ~~discussed~~of ~~above~~March 31, ~~have~~2011, ~~translated~~we ~~into~~had ~~declining~~approximately ~~real~~$3.9 million ~~estate~~in ~~values~~cash and acash equivalents. We intend to ~~corresponding~~use ~~rise~~the inexisting ~~required~~cash ~~investment~~balance ~~returns~~for ~~and~~payment ~~capitalization~~of ~~rates.~~operating expenses, capital improvements, tenant ~~Overall~~allowance, ~~transaction~~leasing ~~activity~~commissions ~~has~~and ~~slowly~~debt ~~increased~~repayment, ~~during~~including ~~the~~principal ~~last~~and ~~three~~interest. ~~quarters~~Cash in excess asof ~~the~~these ~~gap~~needs, ~~between~~if ~~“ask”~~any, ~~and~~will ~~“bid”~~be ~~has~~available ~~contracted;~~for ~~however,~~distribution ~~the~~to ~~volume~~unit isholders ~~well below~~and ~~that~~or ofto ~~two~~repurchase units ~~years~~from ~~ago~~unit holders.

~~The market~~Effective ~~conditions~~April 27, ~~that~~2010, ~~have~~our ~~and~~operating ~~will~~agreement ~~likely~~was ~~continue~~amended to ~~have~~allow athe ~~significant impact~~managing onmember ~~our~~to ~~real~~cause us ~~estate~~to ~~investments~~incur ~~have~~debt ~~also~~financing, ~~negatively~~not ~~impacted~~to ~~our~~exceed ~~tenants’ businesses.~~ten Aspercent aof ~~result,~~the ~~our~~capital ~~tenants~~contributions ~~are~~of ~~finding~~all itunit holders, ~~more difficult~~ to meet ~~current~~ ~~lease~~our ~~obligations,~~operating ~~forcing~~expenses ~~them~~or to ~~negotiate~~fund ~~reduced~~cash ~~rental~~distributions ~~rates~~declared ~~upon renewal~~and inpaid ~~order~~to ~~for~~members. To ~~their~~the ~~businesses~~extent tothat ~~remain~~net ~~viable.~~cash ~~Lower~~generated ~~lease~~by ~~rates~~the ~~and increased~~properties ~~rent~~is ~~concessions~~not ~~have~~sufficient ~~resulted~~to inmeet ~~lower~~operating ~~current~~costs and pay cash ~~flow~~distributions ~~as compared~~ to ~~the~~our ~~first~~unit ~~nine~~holders, ~~months~~we ofwill ~~2009.~~endeavor ~~Additional~~to ~~declines~~obtain inadditional ~~rental~~financing ~~rates, slower~~ or ~~potentially~~sell ~~negative~~selected ~~net~~properties ~~absorption~~so ofthat ~~leased~~we ~~space~~can ~~and~~continue ~~additional~~to ~~rental concessions,~~operate ~~including~~the ~~free~~remaining ~~rent,~~properties ~~would~~and ~~result~~pay ~~in additional future decreases in~~ cash ~~flows~~ distributions.

13In the event that our unit holders approve our proposed plan of liquidation, we expect to sell all of our assets during the six-month period following such approval. The plan of liquidation would authorize our managing member to create a reserve fund for the payment of unknown or contingent liabilities. In the event that we cannot dispose of our assets and pay or provide for our liabilities within six months after approval by our unit holders of the plan of liquidation, or if the managing member otherwise determines that it is advantageous to do so before the end of such six-month period, we may transfer our remaining assets and liabilities to a liquidating trust. If we transfer our assets to a liquidating trust, our unit holders will receive identical shares of beneficial interest in the liquidating trust. The liquidating trust would be managed by one or more trustees designated by the managing member and would continue the process of selling our assets and paying or providing for payment of our liabilities. Our managing member receives compensation from the Fund pursuant to our operating agreement. Upon approval of the liquidation plan, the maximum amount of fees that would be due to our managing member for disposing of our property interests would be $1.2 million. This maximum is based on the estimated maximum sales prices of our properties and the terms of the operating agreement. Actual fees paid may be lower. Any proceeds from the sale of our assets remaining after payment of our liabilities would be distributed to our unit holders and the other holders of shares of beneficial interest in the liquidating trust.

~~Critical Accounting~~Item 3. ~~Policies~~Quantitative and Qualitative Disclosures About Market Risk

~~Our financial~~Market ~~statements~~risk ~~have~~includes ~~been~~risks ~~prepared~~that arise from changes in ~~accordance~~interest ~~with~~rates, ~~accounting~~foreign ~~principles~~currency exchange ~~generally~~rates, ~~accepted~~commodity inprices, ~~the~~equity ~~United~~prices ~~States~~and ofother ~~America~~market ~~(“GAAP”).~~changes ~~The~~that ~~preparation~~affect ofmarket sensitive ~~these~~instruments. ~~financial~~We ~~statements~~invest ~~requires~~our ~~management~~cash toand ~~make~~cash ~~estimates~~equivalents in government backed securities and ~~assumptions~~FDIC ~~that~~insured ~~affect~~savings ~~the~~account ~~reported~~which, ~~amounts~~by ofits ~~assets~~nature, ~~and~~are ~~liabilities~~subject asto ofinterest ~~the~~rate ~~date~~fluctuations. ofAs ~~the~~of ~~financial~~March 31, ~~statements~~2011, ~~and~~a ~~the~~1% ~~reported~~increase ~~amount~~or ofdecrease ~~revenue~~in ~~and~~interest ~~expenses~~rates ~~during~~would ~~the reporting~~not ~~period.~~have ~~Actual~~a ~~results~~material ~~could~~effect ~~differ~~on ~~materially from those~~our ~~estimates~~interest income.

~~There have~~In ~~been~~addition noto ~~material~~ changes toin interest rates, the value of our ~~critical~~real ~~accounting~~estate ~~policies~~is assubject ~~previously~~to fluctuations ~~disclosed~~based on changes in ~~our~~the ~~Annual~~real ~~Report~~estate oncapital ~~Form~~markets, ~~10-K~~market ~~for~~rental ~~the~~rates ~~year~~for ~~ended~~office ~~December~~space, 31local, ~~2009,~~regional asand ~~filed~~national ~~with~~economic conditions and changes in the ~~SEC~~credit ~~other~~worthiness ~~than~~of astenants. ~~described~~All ~~under~~of these ~~Note~~factors 2may also affect our ability to ~~the accompanying~~refinance ~~condensed~~our ~~financial~~debt ~~statements~~if necessary.

~~Results of~~Item 4. ~~Operations~~Controls and Procedures

~~Results of~~Disclosure ~~continuing~~Controls ~~operations for the three months~~ and ~~nine months ended September~~Procedures 30, 2010 and 2009 comprise five multi-tenant industrial business park properties in two major metropolitan areas. On March 1, 2010, we determined that the potential sale of Zenith Drive Centre to a third party was probable and classified the property as held for sale. We have included all operating results of the Zenith Drive Centre in a separate component of income on the Statements of Operations under the heading net income (loss) from discontinued operations for the three and nine months ended September 30, 2010 and 2009.

~~The~~We maintain disclosure controls and procedures that are designed to ensure that information ~~results~~required ofto ~~continuing~~be ~~operations~~disclosed ~~for~~in our Exchange Act reports is recorded, processed, summarized and reported within the ~~three~~time ~~months~~periods specified in the SEC’s rules and ~~nine~~forms, ~~months~~and ~~ended~~that such information ~~September~~is 30accumulated and communicated to our senior management, ~~2010~~as appropriate, to allow timely decisions regarding required disclosure. The Chief Executive Officer and ~~2009~~the ~~are~~Chief ~~discussed~~Financial ~~below~~Officer at Cornerstone Ventures, Inc., the manager of our Managing Member, have evaluated 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

~~Three~~13 ~~months ended September 30, 2010 and 2009~~

Rental revenues,Table tenant reimbursements and other income from continuing operations decreased to approximately $707,000 for the three months ended September 30, 2010 from approximately $800,000 for the comparable period of 2009, primarily due to higher vacancy, lower market lease rates and higher concessions to attract and retain tenants as a result of the current economic environment. These factors were partially offset by rental escalations for existing tenants.Contents

~~Property operating~~controls and ~~maintenance~~procedures, ~~expenses~~management ~~from~~recognizes ~~continuing~~that ~~operations~~any ~~increased~~controls ~~to approximately~~and ~~$213~~procedures,~~000~~ ~~for~~no ~~the~~matter ~~three~~how ~~month~~well designed ~~period~~and ~~ended September 30~~operated, ~~2010~~can ~~from approximately~~provide ~~$171,000~~only ~~for~~reasonable ~~the~~assurance ~~comparable~~of ~~period~~achieving ofthe ~~2009.~~desired ~~The~~control objectives, ~~increase~~and management is ~~primarily~~ ~~due~~required to ~~increases~~apply its judgment in ~~uncollectible~~evaluating ~~accounts~~the ~~and~~cost-benefit relationship ~~repairs~~of possible controls and ~~maintenance expenses~~procedures.

~~Property taxes~~There ~~from~~have ~~continuing~~been ~~operations~~no ~~for~~changes ~~the~~in ~~three~~our ~~months~~internal ~~ended~~control ~~September~~over ~~30,~~financial ~~2010~~reporting during our most recent ~~were~~fiscal ~~comparable~~quarter that have materially affected, or are reasonably likely to ~~the~~materially ~~corresponding~~affect, ~~period~~our internal ofcontrol ~~2009.~~over financial reporting.

~~General~~14 and administrative expenses from continuing operations increased to approximately $59,000 for the three months ended from approximately $30,000 for the comparable period of 2009. The increase is primarily due to timing of audit and tax services partially offset by decreases in professional services expenses.

Depreciation andTable amortization expense for the three months ended September 30, 2010 was comparable to the corresponding period of 2009.Contents

~~Nine months~~PART ~~ended~~II ~~September~~— ~~30,~~OTHER ~~2010 and 2009~~INFORMATION

Rental revenues, tenant reimbursements and other income from continuing operations decreased to approximately $2,149,000 for the nine months ended September 30, 2010 from approximately $2,415,000 for the comparable period of 2009, primarily due to higher vacancy, lower market lease rates and higher concessions to attract and retain tenants as a result of the current economic environmentItem 6. ~~These~~ Exhibits ~~factors were partially offset by rental escalations for existing~~ ~~tenants.~~

Property operating and maintenance expenses from continuing operations increased to approximately $642,000 for the nine month period ended September 30, 2010 from approximately $473,000 for the comparable period of 2009. The increase is primarily due to increases in uncollectible accounts, refurbishment of vacant space, and repairs and maintenance expenses.


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.

~~Property~~15 ~~taxes from continuing operations for the nine months ended September 30, 2010 were comparable to the same period of 2009.~~

General andTable administrative expenses increased to approximately $246,000 for the nine months ended September 30, 2010 from approximately $197,000 for the comparable period of 2009. The increase is primarily due to timing of audit and tax fee services obligations offset by a decrease in other professional service fees. Contents

14SIGNATURES

~~Impairment of~~ Pursuant ~~real~~to ~~estate~~the ~~charges~~requirements ~~increased~~of toSection 13 ~~approximately~~or ~~$560,000~~15(d) ~~for~~of the ~~nine~~Securities ~~months ended~~Exchange ~~September~~Act 30of 1934, the ~~2010~~registrant ~~from~~has $0duly incaused ~~the~~this ~~comparable~~quarterly ~~period~~report into ~~2009~~be assigned aon ~~result~~its ~~of a~~behalf ~~decline~~by in the ~~fair~~undersigned, thereunto ~~market~~duly ~~value~~authorized ofthis ~~one~~6th ~~real~~day ~~estate~~of ~~property~~May 2011.

~~Depreciation and~~CORNERSTONE ~~amortization~~REALTY ~~expenses from continuing operations decreased to approximately $589~~FUND,~~000~~ ~~for~~LLC ~~the~~By: ~~nine~~CORNERSTONE ~~months~~INDUSTRIAL ~~ended September 30~~PROPERTIES, ~~2010~~LLC ~~from~~its ~~approximately $620,000~~Managing for the comparable period of 2009. The decrease is due to a real estate impairment loss recognized in December 31, 2009 and June 30, 2010, reducing the depreciable basis, and the full amortization of intangible assets at two or our properties.Member

~~Discontinued Operations~~By: CORNERSTONE VENTURES, INC. its Manager

~~During the~~By: ~~first~~/s/ ~~quarter~~TERRY ofG. ~~2010,~~ROUSSEL weTerry ~~determined that the potential sale of Zenith Drive Center to a third party was probable and classified the property as held for sale in accordance with ASC 360-10, Property, Plant and Equipment~~G. ~~For~~ ~~the three months ended September 30~~Roussel, ~~2010,~~President ~~net~~(Principal ~~income~~Executive ~~from discontinued~~Officer) ~~operations~~By: ~~increased~~/s/ toSHARON ~~approximately $56,000 from a net loss of $1,224,000 for the comparable period of 2009~~C. ~~The~~KAISER ~~increase~~Sharon ~~is primarily due to an impairment charge of $1~~C.2 ~~million recognized during the third quarter of 2009~~Kaiser, ~~reducing depreciable~~Chief ~~basis,~~Financial ~~and~~Officer ~~the~~(Principal ~~full~~Financial ~~amortization~~Officer of intangible assets of the property. For the nine months ended September 30, 2010, net income increased to $141,000 from a net loss of $1,210,000 for the comparable period of 2009. The increase is primarily due to an impairment charge of $1.2 million recognized during the third quarter of 2009, reducing depreciable basis, and ~~the~~Principal ~~full~~Accounting ~~amortization of intangible assets of the property.~~Officer)

~~Liquidity~~16 ~~and Capital Resources~~

As of September 30, 2010, we had approximately $1,050,000 in cash and cash equivalents. We intend to use the existing cash balance for capital improvements to the properties and to provide for operating reserves. Cash in excess of these needs, if any, will be available for distribution to unit holders and to repurchase units from unit holders.

Effective April 27, 2010, our operating agreement was amended to allow the managing member to cause us to incur debt financing, not to exceed ten percent of the capital contributions of all unit holders, to meet our operating expenses or to fund cash distributions declared and paid to members. To the extent that net cash generated by the properties is not sufficient to meet operating costs and pay cash distributions to our unit holders, we will endeavor to obtain financing or sell selected properties so that we can continue to operate the remaining properties and pay cash distributions. As of September 30, 2010, we had not incurred any debt financings.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We invest our cash and cash equivalents in government-backed securities and money market accounts, which, by their nature, are subject to interest rate fluctuations. As of September 30, 2010, a 1% increase or decrease in interest rates would not have a material effect on our interest income.

Item 4. 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 evaluated 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.

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

PART II - OTHER INFORMATION

Item 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.

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 November 2010.

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

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