UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
October
27, 2010
Date of
Report (Date of earliest event reported)
CORNERSTONE
REALTY FUND, LLC
(Exact
name of registrant as specified in its charter)
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California
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000-51868
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33-0827161
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(State
of Incorporation)
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(Commission
File Number)
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(I.R.S.
Employer
Identification
Number)
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1920
Main Street., Suite 400
Irvine,
California 92614
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(Address
of principal executive offices)
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(949)
852-1007
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligations of the registrant under any of the following
provisions.
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14d-2(b)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c)
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Item
8.01 Other Events.
On
October 27, 2010, the management of Cornerstone Realty Fund (the “Fund”) learned
that CMG Partners (“CMG”) has launched a mini-tender offer for units of the Fund
at an offer price of $115 per unit. CMG has included in the terms of
its offer that all distributions paid or declared by the Fund on or after
October 1, 2010, if any, would belong to CMG. Fund investors that
choose to tender their units to CMG have only 10 days from the date of tender to
withdraw their units from the mini-tender offer.
CMG is
offering to purchase an aggregate of 4.9% of the total units (including in such
amount any current ownership of the Fund by CMG) at the offer price set forth
above, without limitations on the timing for purchases (other than the
expiration date of the CMG tender offer which is 5:00 P.M. PST on December 31,
2010). Investors selling units to CMG as part of the CMG tender offer
will be required to pay a $75 fee to the transfer agent per transaction (not per
unit).
By
limiting its offer to purchase to less than 5% of the Fund’s units, CMG avoids
the filing, disclosure and procedural requirements adopted by the Securities and
Exchange Commission (“SEC”) for the protection of investors who are the target
of a tender offer. The SEC has cautioned
investors about offers of this nature. Additional information
about mini-tender offers is available on the SEC’s website at
www.sec.gov/investor/pubs/minitend.htm.
The
Fund’s limited share repurchase program has been suspended and therefore there
is no current mechanism for investors to sell their units to the
Fund. The Fund has obtained a financial commitment to incur a limited
amount of debt on the Fund’s properties and if this commitment is funded it is
expected that the Fund will be able to resume its limited share repurchase
program. If the limited share repurchase program is resumed we expect
the redemption price to be considerably in excess of the CMG offer price based
on the most recent internal valuation of $284 per share. This
valuation is solely an estimate but is based in part on third party appraisals
of the property of the Fund. The share repurchase price will be at a
discount to the internal valuation.
As in
previous years the redemption program will have limitations on the number of
shares which can be redeemed in any given year, limitations on the timing for
purchases and periodic adjustments to the price to be paid for units upon at
least 30 days notice to investors. These limitations are expected to
be substantial. In past years the share repurchase program has been
limited to less than 1% of the outstanding units. There are pending requests for
share repurchase which the Fund has received (including from CMG) which will
further limit the number of shares which can be redeemed in the event the share
repurchase program is reinstated. There is no other established
market for units in the Fund.
The Fund
has also suspended its cash distribution to investors. If the debt
commitment described above is funded it is expected that the Fund will be able
to fund its future cash distributions.
The Fund
is legally required to dissolve and liquidate its properties on or prior to
December 31, 2012. If the current economic decline and the slowdown
in the overall commercial real estate sector continue beyond 2010, the
liquidation value of the Fund’s investments could be further adversely impacted,
further decreasing the value of an investment in our units and further impairing
our ability to make distributions. On the other hand a substantial
improvement in the commercial real estate sector and in particular in the
markets where the Funds assets are located could result in a higher liquidation
value.
The Fund believes that the CMG
mini-tender offer significantly undervalues the units of the
Fund. As a result, the Fund generally recommends
that Fund investors reject CMG’s current tender offer.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
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CORNERSTONE
REALTY FUND, LLC
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By:
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CORNERSTONE
INDUSTRIAL PROPERTIES, LLC
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Its
Managing Member
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By:
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CORNERSTONE
VENTURES, INC.
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Its
Manager
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By:
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/s/
Sharon C. Kaiser
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Sharon
C. Kaiser, Chief Financial Officer
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Dated:
November 10, 2010
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